The three-day rally in Chinese stocks ended on Tuesday

The volatility in Chinese stocks has returned, particularly for large-cap stocks.

The benchmark Shanghai Composite index finished the session down 1.12%, snapping a 13% three-day winning streak, while the SSE 50 index, comprising the 50-largest firms by market capitalisation in Shanghai, was thumped, losing 3.68%.

As the chart below shows, while large cap stocks didn’t suffer declines as large as small-cap stocks during the recent market rout, their rebound has been less-spectacular as well.

Mirroring the decline in those indices, the CSI 300 index, that which encompasses the 300-largest listed firms in Shanghai and Shenzhen, slid 2.37%.

While large-cap stocks came under pressure it was a different story for small-cap stocks – they rallied.

The Shenzhen Composite, CSI 500 and ChiNex indices finished the session higher by 1.38%, 2.12% and 1.60% respectively. Given heavy government involvement in Chinese stocks in recent weeks, it’s clear that their efforts at present are directed towards supporting shares of smaller firms.

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