“The sell-off was and is an impact of regulatory tightening,” Lauren Gloudeman, a research analyst with Rhodium Group’s China markets research team, told CNBC.

Related: Impact of Chinese A-Shares Lost in Trade Spats

Glouderman argued that the new policies limit the scale to which banks can keep riskier items off balance sheets, which has caused some local non-financial institutions called “trust companies” to exit their stock holdings.

“We don’t know how much [of]the deleveraging process has yet to take place,” Sean Darby, chief global equity strategist at Jefferies, told CNBC. “In a way the stock market is a leading indicator on the economy because of liquidity concerns.”

For more information on the Chinese markets, visit our China category.

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