A stock investor follows information in a stock trading hall in Hangzhou, capital city of east China's Zhejiang Province, May 5, 2015. Chinese shares tumbled on Tuesday, with the benchmark Shanghai Composite Index down by 4.06 percent to finish at 4,298.71 points, and the Shenzhen Component Index fell 4.22 percent to close at 14,233.1 points. (Xinhua/Long Wei)
Chinese shares tumbled in Tuesday's sell-off as investors took a more cautious stance following repeated warnings from authorities.
The benchmark Shanghai Composite Index sank 4.06 percent to finish at 4,298.71 points. The Shenzhen Component Index lost 4.22 percent to close at 14,233.1 points.
Over 2,000 shares on the two bourses ended in negative territory, with electric power, cement, coal and shipbuilding industries leading the declines.
Warnings from the China Securities Regulatory Commission on market risks, which have been issued six times since February including four in April alone, seemed to have finally sunk in.
The People's Daily, the flagship newspaper of the Communist Party of China, joined the chorus and published an article on Monday to advise caution amid the frenzy.
Investors' appetite for risk also scaled back on market rumors that the government will raise the stamp tax in the third quarter to generate more revenue.
A flurry of 24 new IPOs this week added to the drop in share prices.
Several indicators suggesting continued downward pressure on the Chinese economy also prompted the sell-off.
The HSBC/Markit purchasing managers' index (PMI) for China's manufacturing sector in April stood at 48.9, which was lower than the market forecast of 49.4 and showed that Chinese manufacturing contracted at the fastest rate in a year.
China's GDP growth will ease further to 6.8 percent in Q2 from the 7 percent registered in Q1, the State Information Center predicted in a report published on Monday.
Chen Wei, an analyst with CITIC Securities, said Tuesday's plunge is likely to set off mid-term corrections in the market. He also advised caution, saying blind pursuit of quick profits not only breeds more risk for investors but hurts the economy in general.
"Market corrections can help investors see risks and bring the overheated market sentiment back to an even keel," he said. "Investment choices based on a rational analysis of a company's future growth potential should be the order of the day."
The ChiNext Index, which tracks China's Nasdaq-style board of growth enterprises, lost 2.17 percent to end at 2,783.44 points.
