A Chinese investor wayches a display showing prices of shares at a stock brokerage house in Huaibei city, East China's Anhui province, July 7, 2015.[Photo/IC]

More companies request suspension

Over one-third of the companies listed on the Shanghai and Shenzhen exchanges have suspended trading of their shares to provide a temporary safe haven from market turmoil.

Another 217 companies applied for trading suspension on Tuesday, which if granted would bring the number of suspensions to 986 of the roughly 2,800 companies listed on the Shanghai and Shenzhen exchanges, according to media estimates.

By the end of Monday, the record suspensions had frozen the trading of shares worth about $1.4 trillion, or 21 percent of China's market capitalization, according to Bloomberg. Despite the trading halts, the Chinese stock market continued to tumble on Tuesday, with the benchmark Shanghai Composite Index declining by 1.29 percent to close at 3,727.12 points.

Analysts said that the trading halts could transfer selling pressure to remaining shares and depress stock prices of companies with reasonable valuations.

While stock prices of some State-owned insurers, banks and oil companies managed to gain on Tuesday, selling continued to intensify in overvalued small stocks as investors rushed to unwind their positions or switch their funds into safer blue chips.

More than 1,600 stocks in Shanghai and Shenzhen sank by the 10 percent daily trading limit. Shares on the startup ChiNext board, home to the country's technology and high-growth companies, were either suspended from trading or suffered heavy losses. The index dropped by 5.69 percent on Tuesday and has lost nearly half of its value since the peak in mid-June.

The fatigue and anxiety of retail investors has prompted them to dump whatever stocks they hold just to stay out of the turbulent market.

Futures contracts of the CSI 500 index, which tracks 500 small-and mid-cap stocks, dropped by its 10 percent daily trading limit on Tuesday after the China Financial Futures Exchange capped maximum daily trading volume at 1,200 contracts per account to curb speculation.

The government has rolled out a string of measures to stem the market decline, including halting new share sales and injecting liquidity into the State-owned margin finance company.

The equities meltdown, which has erased $3.2 trillion in market value, has also raised fears of rising bad loans in the banking sector, since many listed companies have used their shares as collateral to borrow money.

"The most dangerous deleveraging phase seems to have passed, but aftershocks could still unsettle the market," said Zhou Yu, an analyst at Pacific Securities.

"If not effectively managed, it could lead to worsening balance sheets of securities brokerages and banks, creating a 'butterfly effect' in the entire financial system," he said.

Li Xinran, an individual investor in Beijing, said: "It is pointless now to follow the overall stock index. The rise of big-cap blue chips will help make it look less ugly, but the slump of smaller stocks is far from over."