Chinese stocks are selling off after a week of steady trade during China's Party Congress

Key Points
  • Chinese stocks took a tumble early on Monday
  • The Shenzhen Composite and ChiNext index were down 2 percent earlier in the day
  • The fall was blamed on a rout in the Chinese bond market by some
  • Another market watcher said investors could be attempting to lock in profits after an index crossed a headline level
An investor in action at an exchange hall on October 9, 2017 in Jinhua, Zhejiang Province of China.
VCG | Getty Images

After a week of relatively stable trade during China's 19th Communist Party Congress, Chinese stocks took a tumble in early Monday trade.

The closed down 0.77 percent after sliding 1.3 percent earlier in the session and the Shenzhen Composite finished down 1.731 percent after tumbling about 2 percent earlier in the day.

The ChiNext index, Shenzhen's Nasdaq-style start-up board, fell 2.637 percent by the end of the session.

Experts gave different explanations for the fall in stock markets, with one pointing to the retreat in government bonds as a key factor.

"The bond market is crashing today," said Hao Hong, head of research at Bocom International, adding that there were concerns about liquidity in the market.

Yields on China's 10-year government bond had risen last week due to expectations that the country's central bank would continue its deleveraging campaign. The 10-year's yield stood at 3.89 percent at 11:34 a.m. HK/SIN — around the highest level in three years.

"China's bond market entered a bear market despite China's strong issuance of dollar sovereign bonds last week, as well as [the] People's Bank of China's gesture to ease liquidity concern," Tommy Xie, an economist at OCBC Bank, said in a morning note.

The Chinese government had issued its first dollar-denominated bonds in more than a decade last week. Orders exceeding 11 times the deal-size had been placed, local news agency Xinhua reported.

Another market watcher said the downtrend in Chinese stocks could have come as a psychological pullback after the Shanghai Composite breached the 3,400 level last week.

Kenny Wen, a strategist at Sun Hung Kai Financial, said it was likely that retail investors were looking to lock in profits during the session. The slump in shares across sectors suggested a broad-based correction of sorts, Wen added.