China’s benchmark CSI 300 index entered bearish territory on Thursday, falling 20% from its June peak as stock sell-offs intensify.
The index, which tracks 300 of the largest stocks listed in Shanghai and Shenzhen, has fallen for 10 straight weeks and is down 2.6% so far this week, highlighting sustained pressure on Chinese stocks, according to LSEG data. The index was down more than 1% on Thursday.
Jordan Cvetanovski, president and CIO of Pella Funds, said China’s stock market continues to face structural challenges, particularly as the world’s second-largest economy grapples with the consequences of years of excess capacity and overinvestment.
“I think China is really struggling to get a handle on the problems that they’ve had in the past because of overbuilding capacity and other things,” Cvetanovski told CNBC, highlighting the challenges companies face even in globally competitive sectors such as batteries — a sector where he still sees select opportunities in China.
Chinese companies are suffering from declining profit growth amid intense competition that has eroded their margins and even prompted government intervention. In September, the country recorded its weakest growth in industrial profits this year.
The world’s second-largest economy also recorded its slowest growth in more than three years in the second quarter, under pressure from a multi-year slowdown in the real estate sector and prolonged weakness in consumer demand.
Shaun Rein, managing director of China Market Research Group, expects further selling pressure as geopolitical uncertainty, concerns about an artificial intelligence bubble and deteriorating consumer confidence weigh on investor sentiment.
China’s large retail investor base could also exacerbate market volatility, Rein said, as individual investors are inclined to exit the market more quickly during times of uncertainty.
Unlike major markets such as the New York Stock Exchange, where retail investors account for around 20-25% of trading volumes, Chinese retail investors generate 90% of daily trading, according to data provided by HSBC.
“For the Chinese, it’s about preserving wealth,” Rein said, noting that investors are increasingly favoring safer assets such as term deposits amid a weakening property market and gloomy working conditions.
Although Rein expects increased pressure on markets, he said sales have been excessive, highlighting the resilience of exports and signs of a recovery in property prices in China’s biggest cities.
“This is currently a crisis of confidence, not an economic crisis,” he said, predicting a strong rebound in Chinese stocks in 2027.
Daniel Gerard, senior multi-asset strategist at State Street Markets, also struck a more optimistic tone, saying China’s growing artificial intelligence capabilities could eventually attract global investors to its stock market, even before corporate profits recover.
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