China stocks continued their sell-off on Wednesday following a 6 percent plunge in the previous session, and one prominent investor warned that the sinking feeling may last a little while longer.
The benchmark Shanghai Composite opened down 2.7 percent at 3,646.75 points on Wednesday before sliding further to register a 5 percent loss by mid-morning. The index closed down 6.1 percent at 3,749.12 points on Tuesday, its biggest daily decline since July 27.
Lim Say Boon, chief investment officer at DBS Bank's wealth management arm, said the negative factors piling up against the Chinese market were "many and daunting".
"Last week, I warned investors to "brace….brace…brace" – another round of weakness in the Chinese equities market was coming," he said. "And I repeat my warning: Don't expect an easy return to good times again for Chinese equities."
He said investors should accept the likelihood of a return to the Shanghai Composite's low point of around 3,300, last struck on July 8, and possibly below.
Benjamin Pedley, head of investment strategy for Asia at HSBC Private Bank in Hong Kong, agreed that China's markets were headed for rocky times, telling Reuters that investors were "in for a period of greater market volatility than ever before."
Tuesday's market plunge was attributed by market participants to traders paring expectations of more stimulus for the economy - on the back of better housing market data – and support for the stock market – after the China Securities Finance Corporation said it would not intervene further in the market unless there was unusual volatility and systemic risk.
Lim outlined his own five reasons for why there may be more pain in store.
1.Less government intervention ahead: While it was in the interest of the government to prevent a collapse in the market, it's not in its interest to fuel a rapid rebound in the market.
2.Bearish technicals: The Shanghai Composite's 50-day moving average recently cut below its 100-day moving average, signalling a loss of momentum.
3.Local investors growing wary: Local investors appear to have been shocked by the stock market falls, unusual interventions and currency devaluation. "Chinese money is more likely to be banging on the proverbial doors to get out than to get into the market," Lim said.
4.Foreign investors reassessing their stance: International fund managers who had previously been positive on Chinese equities are re-evaluating their stance towards investing in the market.The suspension of market forces - including the mass trading halts that were permitted by regulators at the peak of the selloff in July- for example, have raised concerns among overseas investors.
5.Emerging markets are tanking: Investors are scaling back exposure to emerging market assets as a whole, reflected in the performance of the MSCI Emerging Market Index, which has lost over 20 percent in the past four months. "If you were cutting weight in emerging markets, you would hardly be considering buying China," he said.