As global stocks rally to new records, one part of China\u2019s equity market is heading in the opposite direction. The ChiNext index of small-cap shares plummeted 5.1 percent on Monday, its biggest loss in seven months, and extending its retreat this year to 16 percent. That\u2019s worse than any of the 96 global benchmarks tracked by Bloomberg, and compares with a 10 percent advance by the MSCI World Small Cap Index. Concern about rising funding costs, corporate governance issues, liquidity pressures and tougher regulatory oversight are hammering companies on the Shenzhen gauge, with at least 15 members falling by the 10 percent daily limit on Monday. The rout, triggered by a high-level conference over the weekend attended by President Xi Jinping, threatens to undermine already shaky investor sentiment in the broader $7 trillion equity market. "Risk control seems to be the top priority on the regulators\u2019 agenda, instead of growth," said Sun Jianbo, president of China Vision Capital. "People are cutting risks in their portfolio." President Xi said the central bank will play a stronger role in defending against risks, and called for more work on safeguarding the financial system and modernising its regulatory framework. Strategists also interpreted discussion at the conference on the need to increase direct financing as a signal that officials may accelerate the approval of initial share sales, diverting investor cash from existing stocks. The selloff spread to the benchmark Shanghai Composite Index, which fell the most since December, trimming its gain this year to about 2 percent. The weekend comments were the latest blow to the small-cap index that just over two years ago was one of the hottest investments in the world. The gauge has underperformed in 2017 as a regulatory campaign to curb leverage drives up funding costs for smaller, privately-run firms. Profit warnings by companies including Enjoyor Co. to Hithink RoyalFlush Information Network Co., and reports regulators are probing the finances of index heavyweight Leshi Internet Information & Technology Corp., have added to investor bearishness. Large Caps "On the one hand, earnings have been worse than expected. And on the other, because of policy tightening, shareholders cut holdings quickly," said Dai Ming, a Shanghai-based fund manager at Hengsheng Asset Management Co. The ChiNext dropped 0.6 percent at 11:06 a.m. local time in its seventh decline in eight days. The broader market is likely to hold up better than small caps because the macroeconomic environment is steady, Dai said, while China Vision Capital\u2019s Sun said any state moves to shore up equities would likely focus on larger companies. Big caps have been the winners in China this year, with the SSE 50 Index of some of the nation\u2019s biggest companies jumping 15 percent as investors bet on the security of state-owned enterprises. Offshore traded Chinese stocks have also been immune to gloom: the MSCI China Index has surged 30 percent this year, led by technology giants such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. That\u2019s of little consolation to shareholders of companies on the ChiNext gauge, the home of mainland-listed technology firms, as the gauge trades at levels not seen since January 2015. ChiNext "shares are likely to continue to underperform" as investors plump for larger firms with more stable earnings, said Toshihiko Takamoto, a Singapore-based portfolio manager at Asset Management One, which manages about $800 million in Asia. "Why go for them when you can buy companies like Tencent?"