Chinese stocks headed for their worst-ever start to a year as manufacturing contracted for a fifth straight month and investors anticipated the end of a ban on share sales by major stakeholders.

The Shanghai Composite Index fell 3.9 percent at the midday break, the biggest first-day decline since trading began in 1990, with technology, consumer and health-care producers leading losses.

The Hang Seng China Enterprises Index extended the largest annual drop among Asian benchmark gauges.

The offshore yuan depreciated 0.7 percent to its lowest level in five years.

China’s first economic reports of 2016 showed a series of interest-rate cuts and stepped up fiscal stimulus have failed to boost flagging growth by the nation’s manufacturers.

Goldman Sachs Group Inc. estimates the sales ban -- imposed at the height of last year’s equity rout -- kept $185 billion of shares off the market.

Technology companies are the most vulnerable to a sell-off once the restriction is removed after they led a rebound since the benchmark index’s August low, according to Baptized Capital.

Traders are "bearish" after the manufacturing index readings, said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong.

“Investors are also concerned that a removal of major shareholders’ selling ban would weigh on indexes.”

The Hang Seng Index fell 2.3 percent after last year’s 7.2 percent decline, as Belle International Holdings Ltd. and China Shenhua Energy Co. led losses.

The Hang Seng China Enterprises slid 2.8 percent, extending 2015’s 19 percent plunge.

The CSI 300 Index dropped 4 percent.

Today’s declines may test a stock-market circuit breaker that was put in place effective Monday.

Under the new mechanism, a move of 5 percent in the CSI 300 will trigger a 15-minute halt for stocks, options and index futures, while a move of 7 percent will close the market for the rest of the day.

The purchasing managers index edged up to 49.7 last month from a 3-year low of 49.6 in November, the National Bureau of Statistics said Friday.

The non-manufacturing PMI, meanwhile, rose to 54.4, the highest since August 2014.

The private Caixin China Manufacturing PMI index decreased to 48.2, down from a five-month high of 48.6 in November.

Numbers below 50 indicate deterioration.

‘The weaker PMI and the weaker yuan are the likely triggers,” said Michael Every, head of financial markets research at Rabobank Group in Hong Kong.

“Fundamentals will see the market struggle, especially as I think the yuan in Shanghai and Hong Kong have a lot further to fall.”

Sales Ban

The China Securities Regulatory Commission announced July 8 that investors with holdings exceeding 5 percent as well as corporate executives and directors would be prohibited from selling stakes for six months.

The rule, which followed the suspension of initial public offerings and curbs on short-selling, was intended to stabilize capital markets amid an “unreasonable plunge” in share prices, according to the securities regulator.

A gauge of technology stocks on the CSI 300 tumbled 5.3 percent, while an index of consumer discretionary shares slumped 4.9 percent.

The ChiNext Index of small-cap shares sank 5.6 percent.

“ChiNext companies might be impacted the most” from the lifting of the ban, said Yin Ming, vice president of Shanghai-based investment firm Baptized Capital.

“These companies haven’t been listed for long and it’s uncertain whether their high valuations are sustainable.”

The ChiNext index, dominated by technology and consumer companies, trades at 72 times reported earnings after jumping 84 percent last year. The Shanghai Composite is valued at 18 times.

Shanghai Premium

While mainland authorities are lifting support measures for the stock market after the Shanghai Composite ended the year higher, Chinese stocks in Hong Kong are trading at some of the cheapest levels among global equities as foreign investors head for the exits.

Dual-listed stocks are 40 percent more expensive on the mainland than in Hong Kong, according to the Hang Seng China AH Premium Index.

"It is certainly an inauspicious start, but it is not indicative of performance down the road," said Bernard Aw, a strategist at IG Asia Pte in Singapore.

"Markets are expecting more rate cuts to materialize, that could support the equities. Moreover, China still needs to adjust to the gradual withdrawal of rescue measures, where the scale of the volatility resulting from the acclimatization is far from certain."

China also scrapped the upfront payment rule for IPOs from Jan. 1 as regulators seek to create a more level playing field for the country’s army of individual investors before the start of more substantial reforms.

The statement last week by the CSRC confirmed plans first announced in November, when the regulator allowed new share sales to resume.

Also from this week, stock-index futures trading starts at 9:25 a.m., 10 minutes later than previously, while the afternoon session will end at 3 p.m., which is 15 minutes earlier.