China’s benchmark CSI300 index entered bear market territory on Thursday, falling 20% from its June high as a prolonged stock slide deepens.
The index of 300 major stocks listed in Shanghai and Shenzhen has declined for 10 consecutive weeks and is down 2.6% this week, highlighting continued pressure on Chinese stocks, LSEG data showed. The index fell more than 1% on Thursday.
Jordan Kvetanovski, chairman and CIO of Pera Funds, said China’s stock market continues to face structural challenges, especially as the world’s second-largest economy faces the effects of years of overcapacity and overinvestment.
“I think China is really struggling to rein in the problems they’ve had in the past with things like overbuilding production capacity,” Tsvetanovsky told CNBC, noting the challenges facing companies even in globally competitive industries such as batteries, which he still sees as an opportunity unique to China.
Chinese companies are suffering from declining profit growth amid intense competition that is hurting margins and even inviting government intervention. The country’s industrial profit growth in September was the lowest this year.
The world’s second-largest economy also posted its weakest growth rate in more than three years in the second quarter, weighed down by years of weakness in the real estate sector and a prolonged slump in consumer demand.
Sean Lane, managing director at China Market Research Group, said he expects geopolitical uncertainty, concerns about an artificial intelligence bubble and weakening consumer confidence to weigh on investor sentiment, adding to further selling pressure.
Mr Lane said China’s large presence of retail investors could exacerbate market volatility, as retail investors tend to exit the market sooner during periods of high uncertainty.
Unlike major markets such as the New York Stock Exchange, where retail investors account for around 20-25% of trading volume, retail investors in China drive 90% of daily trading, according to data provided by HSBC.
“For Chinese people, it’s about asset preservation,” said Lane, noting that investors are turning to safer assets such as term deposits due to the downturn in the real estate market and poor working conditions.
While Lane expected market pressure to increase, he said the sell-off was overdone, pointing to strong exports and signs of a recovery in property prices in China’s largest cities.
“This is not an economic crisis, but a crisis of confidence,” he said, predicting that Chinese stocks will rebound sharply in 2027.
Daniel Gerard, senior multi-asset strategist at State Street Markets, also struck a more optimistic note, saying China’s improved artificial intelligence capabilities could eventually draw global investors back into stock markets even before corporate earnings recover.
