Chinese traders are offloading their holdings of the best-performing stocks this year on concern the recent turmoil in bonds will spill over to equities and after some of the country's economic data for October missed estimates.

The Shenzhen Small and Medium Enterprises Index tumbled 2.5 percent on Wednesday, heading for its biggest decline in four months. The gauge of 100 growth stocks picked from the Shenzhen exchange's SME board had been leading the major benchmarks tracking mainland equities this year, rising 26 percent up until Monday.

"The risk appetite is dropping," said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. "Tight liquidity and ugly-looking economic data will certainly prompt some to take profits from the outsize gains this year."

Concern that the government's deleveraging campaign to remove excessive liquidity from the financial system will remain in place has taken its toll on the debt market, sending the yield on the nation's 10-year treasuries above 4 per cent for the first time in three years on Tuesday. They rebounded slightly on Wednesday, with the yield falling by 1.6 basis points to 3.961 percent.

The ferocity and duration of the decline in the debt market may still exceed the market's expectations, as liquidity remains tight because increased regulatory surveillance and more tolerance of slower growth from top leaders, Li Huiyong and Qiu Difan, analysts at Shenwan Hongyuan, said in a note.

The yield on the 10-year notes may rise to as high as between 4.05 percent and 4.35 percent, they said.

Also worrying investors were figures on Tuesday showing retail sales in October and industrial production came in below forecasts, raising concerns over the overall health of the economy and the vulnerability of smaller companies who are more exposed to both a slowdown and tighter liquidity.

Among the biggest decliners on the Shenzhen SME index, Guangzhou Tinci Materials Technology, a supplier of lithium batteries for new-energy vehicles, slumped 8.6 per cent to 45.69 yuan and electronic map maker NavInfo plunged 6.3 per cent to 29.07 yuan.

Elsewhere, the CSI 300 Index fell 0.9 percent, and the SSE 50 Index of the top 50 companies on the Shanghai bourse slipped 0.5 percent.

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