China stocks recouped early losses to end marginally higher on Tuesday as a late-afternoon surge in small-caps offset weakness in resource comapnies. The CSI300 index of the largest listed companies in Shanghai and Shenzhen ended little changed at 3,753.89 points, while the Shanghai Composite Index gained 0.2 percent to 3,616.11.
The market has become increasingly volatile after bouncing more than 20 percent from an August low hit during the summer market rout, with investors worrying that the rebound is not sustainable. Commodity-related stocks including Baoshan Iron and Steel Corp, Aluminum Corp of China and Yunan Copper Co fell after metal prices hit multi-year lows as a strong dollar added to oversupply fears.
Bearish sentiment toward the sector has spread to other parts of the market, leaving it vulnerable to a correction after bouncing more than 20 percent from an August low hit during the summer market rout. "The dynamics in the market were rather similar to yesterday with investors concerned about the resumption of IPOs as well as the extremely low commodity prices that we are seeing," said Gerry Alfonso, director of Shenwan Hongyuan Securities Co. Most sectors dropped, but Shenzhen's start-up board Banking stocks declined on renewed worries about lenders' asset quality. Some Chinese banks, hit by a surge of troubled borrowing in a weakening economy, are increasingly failing to recognise loans gone sour on their books to avoid having to stump up capital.