As shares fell back this year, many investors clung to the belief that the Chinese government would intervene and prop up the market before the Olympics, to buoy people's spirits and maintain stability ahead of the Games.
When that didn't happen, and investors were confronted with mixed signals on the economy, pessimism took hold.
"The market is a little out of control now," said Zhang Qi, an analyst at Haitong Securities. "Investor confidence seems to be collapsing."
But industry experts say Chinese stocks may be primed for a rebound soon.
The sharp correction in recent months has made share values more attractive. At their peak in October 2007, when the Shanghai index was above 6,000, average shares were trading at prices nearly 53 times their annual earnings -- three times higher than those of U.S. stocks, said Jing Ulrich, chairman of Chinese equities at JP Morgan Securities in Hong Kong.
The price-earnings ratio for Chinese stocks has since fallen to about 18.
What's more, the central government has suggested that it will focus more in the coming days on spurring economic growth. That could include loosening bank-lending restrictions and expanding infrastructure spending.
"Potential market-boosting measures could be in store," Ulrich said, noting that the government could further reduce the stamp tax, a small fee that investors pay every time they buy or sell shares.
The Beijing government, preoccupied with the Olympics, hasn't stepped in to reverse the slide. On Friday, China's securities regulator said the slump was partly the result of the market's unsound structure and mechanisms, but he didn't elaborate or offer specific prescriptions, which apparently further agitated investors.
Individual investors playing the market tossed up their arms when asked why their stocks were sinking.
"There's no logic to follow. No other market falls as badly and accidentally as ours," said Xu Jianzhong, 50, who works in a Shanghai welfare agency.
"It should be good now, with the Olympics, inflation [going down], but that has nothing to do with the market in China. . . . I am so deeply trapped, there is nothing I can do. My account used to have $32,000, and now it's only something like $8,800."
At a trading hall in central Shanghai called Guoyuan Securities, investors were fuming. The place is reminiscent of an old American horse-racing parlor, with mostly elderly people gazing at an electronic tote board, cigarette smoke thickening the air.
By day's end, the board, listing stock ticker symbols and prices, was entirely green, the color that denotes losses here. Investors have joked that the Beijing Games -- which some officials have touted as more ecologically friendly than past events -- are truly a "green" Olympics.
Yelled one elderly woman: "This market has no credibility. All the leaders should resign."
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don.lee@latimes.com
