China's benchmark CSI 300 index on Thursday entered bear-market territory, falling 20% from its June peak, as a prolonged sell-off in its equities deepens.
The index, which tracks 300 of the largest stocks listed in Shanghai and Shenzhen, has declined for 10 consecutive weeks and is down 2.6% so far this week, underscoring sustained pressure on Chinese equities, data from LSEG showed. The index was more than 1% lower Thursday.
Jordan Cvetanovski, chairman and CIO at Pella Funds, said China's equity market continues to face structural challenges, particularly as the world's second-largest economy grapples with the fallout from years of excess capacity and overinvestment.
"I think China is really struggling with reining in the problems that they've had in the past from the overbuild of capacity and other things," Cvetanovski told CNBC, pointing to challenges facing companies even in globally competitive industries such as batteries — a sector where he still sees select opportunities in China.
Chinese firms have been suffering from declining profit growth amid intense competition that has eroded margins and even invited the government to step in. In September, the country posted it's weakest growth in industrial profits this year.
The world's second-largest economy also posted its slowest growth in over three years in the second quarter, pressured by a multiyear slowdown in the property sector and extended weakness in consumer demand.
Shaun Rein, managing director at China Market Research Group, expects further selling pressure as geopolitical uncertainty, concerns over an artificial intelligence bubble and deteriorating consumer confidence weigh on investor sentiment.
China's large base of retail investors could also exacerbate market volatility, Rein said, as individual investors are prone to exiting the market faster during periods of uncertainty.
Unlike major markets such as the New York Stock Exchange, where retail investors account for about 20%-25% of trade volumes, China's retail investors drive 90% of daily trading, according to data provided by HSBC.
"For Chinese, it's about wealth preservation," Rein said, noting that investors are increasingly favoring safer assets such as time deposits amid a weakening property market and sluggish labor conditions.
While Rein expects increased pressure on markets, he said the sell-off has been excessive, pointing to resilient exports and signs of a recovery in property prices in China's largest cities.
"It's a crisis of confidence right now not a crisis in the economy," he said, predicting a strong rebound in Chinese equities in 2027.
Daniel Gerard, senior multi-asset strategist at State Street Markets, also struck a more optimistic tone, saying that China's growing capabilities in artificial intelligence could eventually draw global investors back into its equity market, even before corporate earnings recover.
