China's stock market hit its lowest level in six months on Thursday, joining a sell-off in global equities after a three-day holiday, with growing pessimism about the outlook for the Chinese economy adding to the market's woes.
Morgan Stanley became the latest major bank to downgrade China's economic growth forecast on Thursday amid growing signs of weakness in the world's second biggest economy.
The U.S. bank lowered its Chinese gross domestic product (GDP) forecast for 2013 to 7.6 percent from 8.2 percent, and also revised its 2014 growth forecast to 7.6 percent from 7.9 percent previously.
China's benchmark Shanghai Composite, which reopened on Thursday for the first time this week after the Dragon Boat holiday, fell about 3 percent to its weakest level since mid-December as the market reacted to weak economic data released over the weekend.
"Right now you see the economic growth is coming down, export numbers are quite bad, the money supply is really down quite a fair bit, and fixed asset investment is also not creeping up a lot," David Poh, regional head of asset allocation at Societe Generale Private Banking said on CNBC's "Cash Flow," talking about the performance of the Chinese stock market.
The Shanghai benchmark clocked the second worst performance among major Asian indexes on Thursday after Japan's Nikkei, which closed down more than 6 percent.
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China's stock market was the best performing Asian market last month, regaining some of its swagger even as other major indices succumbed to jitters about an unwinding of U.S. monetary stimulus.
(Read More: Surprise! China Stocks Are May's Best Performers)
However, worries about China's economy have dented the outlook for stocks.
Exports, a key driver of the Chinese economy, grew just 1 percent in May from a year earlier, the slowest rate in almost a year. Imports also fell 0.3 percent against expectations of a 6 percent rise - highlighting sluggish domestic demand.
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Morgan Stanley is the third major bank to revise China's economic growth for 2013 since Chinese markets were last open on Friday -- Barclays and Royal Bank of Scotland lowered their forecasts at the weekend.
Helen Qiao, managing director, Morgan Stanley Research said the forecast change was largely prompted by the current weakness in China's growth momentum.
"More pain will be good news for reform. Even if growth slows down I think that will be largely very much welcome, because people's perception is that this may promote more reforms," Qiao said. "If growth surprises to the downside, we could actually go down faster, because of the lack of a policy buffer."
Recent comments from China's policymakers suggest they are happy to tolerate a lower growth rate as the economy shifts from one that is driven by exports and investment to consumption-led. China's annual economic growth of 7.8 percent in 2012 was the weakest in 13 years and its 2013 growth target is 7.5 percent.
— By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu