"The authority has been promoting reforms in large SOEs and adopted policies aiming to boost blue chip prices, but in China's equity market, speculation in small caps is still popular," Xin said.

Zong Ke, partner of a private equity company based in Shanghai, said: "It is no surprise that the SOEs gave another disappointing performance. It is caused by systemic problems that have yet to be tackled."

Earning ability is the first concern, Zong said.

"Big SOEs, especially those in cyclical industries, are hit by the slowing down of economic growth, overcapacity and inefficient growth patterns," he added.

Coal mining, other mining, drink production, non-ferrous metals and insurance are the five sectors seeing the biggest decreases in market capitalization, while the banking sector saw the largest volume decrease in capital value.

The authorities' reiterated determination to curb air pollution has raised the prospect of a long-term decline in China's need for thermal coal. China plans to reduce coal's share in the energy mixture to 65 percent or less by 2017 from 73 percent this year.

China's A-share indexes bottomed in November 2008, plunging 70 percent from their peak in October 2007. They have been bearish in subsequent years.

Some investors see a "buy" signal here, because the stock market appreciation seems so limited compared with economic growth. However, it is common for price and valuation to match in this market. Low-priced shares may stay flat or fall, all causing investors to lose money, Zong said.

Because China's leaders repeatedly stress a slower growth rate is acceptable in the face of the urgency to wean the economy off dependence on investment and exports, investors are quite cautious about the prospects for the stock market here in 2014.

"We expect the economy to be forced to deleverage in the first half of 2014 because of the rapid development of interest rate marketization and prevention of debt risks. As a result, interest rates will likely rise, leading to tight liquidity for the A-share market. In addition, IPOs may pump liquidity out of the primary market," said Chen Li, chief China equity strategist with UBS Securities Co Ltd.

He recommends that investors avoid sectors that are sensitive to fund fluctuations, as well as traditional cyclical sectors with high liability ratios.