Chinese stocks extended their decline, with the Shanghai benchmark index recording its worst performance in five years. The blue-chip CSI300 Index closed down 1.2 per cent, hitting a fresh low since January 2019, despite policy support from authorities aimed at bolstering investor confidence in a struggling economy.

The Shanghai Composite Index ended 1.5 per cent lower, marking a 6.2 per cent loss for the week, the most significant weekly decline since October 2018. The market's bottoming trend accelerated, even with support from the national team, as signs of forced liquidation of derivatives and margin trading intensified the decline, causing panic among investors.

State-backed investors appeared to intervene during the final hour of trading, as several blue-chip exchange-traded funds (ETFs), favoured tools by the state fund Central Huijin, experienced heavy buying. However, some experts express scepticism about the ability of state-backed funds to restore investor confidence, both domestically and internationally, emphasizing the need to address underlying economic issues.

Shares in healthcare, information technology, semiconductors, and new energy slumped more than 3 per cent each, contributing to the overall market decline. Investor sentiment has stagnated, with lukewarm macro data and a quieter policy cycle expected ahead of holidays.

Hong Kong's Hang Seng Index slipped 0.2 per cent, and the Hang Seng China Enterprises Index was down 0.1 per cent at the close. WuXi AppTec, a drug research and development group, saw its shares plummet by 21 per cent due to geopolitical concerns arising from its mention in a US bill aimed at restricting access to Americans' genetic data.

Despite the general market decline, Tencent Holdings remained a bright spot, with shares finishing up 2.9 per cent after China approved licenses for 32 imported online games for 2024, including two titles to be published by Tencent.

Xiaolin Chen, Head of International at KraneShares, emphasized the need for the government to implement more defined policies outlining key growth areas and capital allocation priorities for 2024 to stabilize the market and enhance investor confidence.

(With Reuters inputs)