More than a month after Chinese regulators began rolling out measures to stem a rout in mainland equities, markets remain underwater. But that's not necessarily a bad thing, experts say.
Since regulators first started supporting the market on June 27—in the form of a surprise interest rate cute by the People's Bank of China—Shenzhen and Shanghai shares have tumbled 18 and 15 percent respectively.
"In a way, the failure of these circuit breakers, the ongoing market correction, is a good sign. I'd be worried if these support acts caused the market to rebound further into bubble territory," Chong Yoon Chou, investment director at Aberdeen Asset Management Asia, told CNBC on Tuesday.
"I'd be concerned that the higher the market goes, the harder it crashes."
Those fears are shared by Beijing too, according to market players. The government's efforts to staunch the equity market correction that started in mid-June have been aimed to inject stability, indicating a tolerance for losses.
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"The government does not wish to create another speculative bubble; its objective is not for the Shanghai index to move back to 5,000 points, but rather to stabilize the market at 3,500 or 4,000 points so that the normalization process can unfold," noted David Gaud, senior fund manager and global investment specialist at Edmond de Rothschild Asset Management, in a Tuesday report.
Because that recovery process will take time, he warns that rebounds like Tuesday's 3.7 percent rally are excessive.
"The measures implemented over the past few weeks are not able to generate a massive and sudden rise - which is not what is needed," Gaud added.
Indeed, the faltering nature of the recovery is an indication the market is maturing, Chong said: "This is a sign that the country is growing, they are trying out different things. During the Asian Financial Crisis, we also did little circuit breakers, we stopped short selling - it didn't work, we moved on, and so will China.""The key thing is that China's bubble has pricked, and stocks are coming back down to correct valuations, it gives us time to look at the market in a saner manner."
Rothchild's Gaud also sounded an optimistic tone.
"The government measures are the right solution to maintain a pace of market rerating and appreciation that is both attractive and more robust than many other stock markets. Over the mid/long term, deeper reforms are still under way, which will ultimately lead to a capital market that is both better balanced and less dependent on State intervention."
Why intervention didn't produce a magic rise
Beijing's heavy-handed attempts to restore confidence—which include an extension of margin loans, suspended share offerings, encouraging pension funds and brokers to buy stocks and, most recently, a crackdown on short selling—have failed to hold markets consistently higher because investors were uncertain how long such intervention would last, and what it meant for economic reforms crucial to long-term growth.
"They are desperate to keep this market up, they using every rule in the book to do so. But unfortunately, the more they do, the more uncertainty is imposed on markets, so this is their real problem," Mark Mobius, executive chairman at Templeton Emerging Markets Group, told CNBC on Tuesday.
For example, Tuesday's move to prevent day traders from making quick profits creates a problem for open-ended fund managers because if they aren't able to sell, clients can't be redeemed, he explained.
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"People will see this [intervention] as an opportunity to take advantage of these rules and regulations, and the market will move in the opposite direction than the government intends."
While the short-term effects of Beijing's regulatory moves are clear, the long-term outlook remains hazy.
The aggressive efforts have undermined the Chinese markets' credibility for longer-term institutional investors, including derailing the inclusion of A-shares in the MSCI index, and caused a setback to corporate equity financing activities, Citi economists warned in a Wednesday note.
So, what should investors do while the normalization process plays out?
"If you're smart, you would just wait until all the noise calms down," said Aberdeen's Chong.
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