Risk aversion leads to stock prices tumble

China stocks plummeted on Tuesday, reversing earlier rallies amid soaring risk aversion, with total turnover also shrinking sharply.

The benchmark Shanghai Composite Index tumbled below the 3,600-point level, down 1.51 percent to close at 3,569.43 points, while the smaller Shenzhen Component Index plunged 2.28 percent to 15,352.42 points.

The ChiNext Composite Index, meanwhile, took a nosedive to end 2.89 percent lower at 3,258.36 points, after seeing an intraday slump of over 3 percent.

The STAR 50 Index fell 1.34 percent to 1,478.45 points.

Trading volume on the two major bourses was 1.01 trillion yuan (US$156.63 billion), shrinking sharply from the 1.21 trillion yuan in the previous session. The Shanghai market posted a turnover of 436.3 billion yuan, down 91 billion yuan from Monday.

Capital flowed out of the Chinese mainland, with a net outflow of 3.54 billion yuan via the Stock Connect schemes linking Shanghai and Shenzhen with Hong Kong.

The People’s Bank of China on Tuesday conducted reverse repo operations of 2 billion yuan through rate-bidding, and posted a net withdrawal of 78 billion yuan as 80 billion yuan in reverse repos expired on the day.

The central bank has posted a net withdrawal exceeding 300 billion yuan in the first two sessions of this week, which led to soaring market interest rates and slumps on the bond market.

Guotai Junan Securities believed that the sharp drop in this session was a short-term technical adjustment, and that the positive trend of the fundamentals had not changed. 

Analysts at Industrial Securities also appeared to be optimistic about the market, saying it can be a good time to invest more in A shares before the launch of China's Two Sessions, as the fundamentals and the overall economy has shown strong resilience and the demand side at home and abroad is also improving.

Soochow Securities, however, suggested that investors should not blindly buy shares when they go up, and instead stay calm and invest in hot sectors and high-quality shares at their relatively lower prices.

Among industries, the aerospace and military defense sector tumbled the most in general, according to Wind Information. 

Engineering machinery firms, brokerages and pharmaceutical companies were also among the big decliners.

Pork shares, however, gained strongly in the session as they posted a strong business performance in 2020.