(Bloomberg) -- China’s small-cap stocks extended their recent slump even after the nation tightening trading restrictions on domestic institutional investors as well as some offshore units in a bid to stem a deepening equity rout.

The CSI 1000 Index dropped as much as 2.3% in early trading, adding to its 19% loss over the last seven sessions. The benchmark CSI 300 Index was up 1% as of 9:46 a.m. in Shanghai.

China’s smallest stocks have sharply underperformed their larger peers in the new year, flashing a warning about the potential downside for the world’s second-largest equity market if Beijing fails to follow through on a highly anticipated rescue campaign. Market watchers say that investors are throwing in the towel on small-cap shares out of belief that policy support will be focused on rescuing blue-chip stocks.

Some quantitative hedge funds were banned from placing sell orders completely starting Monday, while others were barred from cutting stock positions in their leveraged market-neutral funds, Bloomberg News reported citing people familiar with the matter. These bets, known as a Direct Market Access strategy, are believed to have amplified the recent selloff in small-cap stocks, the people added.

Authorities are trying to stabilize markets after the CSI 300 sank to a five-year low in chaotic trading on Friday. The so-called National Team has bought roughly 70 billion yuan ($9.7 billion) of onshore Chinese shares in the past month, according to estimates by Goldman Sachs Group Inc., which didn’t give details on how they arrived at the estimate.

READ: China’s Small-Cap Crash Shows What Happens Without Market Rescue

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