China Stocks Enter Bear Market as CSI 300 Extends Losing Streak

China's benchmark CSI 300 index has entered bear-market territory, falling 20% from its June peak as persistent economic challenges and declining corporate profit growth weigh on investor confidence. The index, which tracks 300 of the largest stocks listed in Shanghai and Shenzhen, extended its losing streak to 10 consecutive weeks on Thursday, according to data from LSEG.

The CSI 300 dropped 2.6% so far this week and traded more than 1% lower on Thursday. The prolonged decline reflects mounting pressure on Chinese equities as companies contend with intense competition, shrinking profit margins and weak domestic demand.

Chinese industrial profit growth has deteriorated amid fierce competition, prompting government intervention. In September, the country recorded its weakest industrial profit growth of the year. China's economy also experienced its slowest growth in more than three years during the second quarter, according to the source report, as a prolonged property-sector downturn and sluggish consumer demand continued to weigh on activity.

Jordan Cvetanovski, chairman and chief investment officer at Pella Funds, said structural problems stemming from excess capacity and overinvestment remain major obstacles for Chinese companies, including those operating in globally competitive industries.

"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.

He pointed to challenges across the corporate sector, including battery manufacturing, although he continues to see selective investment opportunities in China's battery industry.

Shaun Rein, managing director at China Market Research Group, expects additional selling pressure as geopolitical uncertainty, concerns about a potential artificial intelligence bubble and weakening consumer confidence affect investor sentiment. He also warned that China's large retail-investor base could intensify market swings because individual investors may withdraw more quickly during uncertain periods.

According to data provided by HSBC, retail investors account for 90% of daily trading in China. By comparison, retail investors represent approximately 20% to 25% of trading volume on major markets such as the New York Stock Exchange.

Rein said many Chinese investors are prioritizing the protection of their wealth, with some shifting toward safer holdings such as time deposits amid weakness in the property market and sluggish labor conditions.

"For Chinese, it's about wealth preservation," Rein said.

Despite anticipating further market pressure, Rein believes the scale of the sell-off has exceeded what economic conditions alone would justify. He cited resilient exports and signs of a recovery in property prices in China's largest cities as reasons for a more positive outlook.

"It's a crisis of confidence right now not a crisis in the economy," Rein said.

Rein predicted that Chinese equities could stage a strong recovery in 2027, despite the current uncertainty surrounding investor sentiment and economic conditions.

Daniel Gerard, senior multi-asset strategist at State Street Markets, also identified a potential source of longer-term support for Chinese stocks. He said China's expanding artificial intelligence capabilities could eventually attract international investors back to the market, even before corporate earnings begin to recover.