Bird flu fears see stocks hit lowest level in 2013

"The official PMI figure shows weaker-than-expected growth, and a recent move to tighten rules covering wealth management products by the banking watchdog is adding uncertainty to liquidity. The market will appear cautious in the short term," Xun said in the report.

Most analysts said they believe that in the short term, foreign funds will flow out of China's equity market.

A report by Shenyin & Wanguo Securities on Monday said: "Funds are more likely to flow into Japan on a monetary easing theme, and to the US bond market. As long as the effect caused by the China Banking Regulatory Commission in cleaning off-balance sheet assets remains, and bird flu remains uncontrolled, foreign capital will continue to flow out of China's stock market."