NEW YORK (MarketWatch) -- The Shanghai Composite's latest retreat on Wednesday pushed Chinese equities to rock bottom in the global rankings, replacing Vietnam as the worst-performing stock market.

The Shanghai Composite index closed down 2.7% at 2,705 on Wednesday. It has now fallen 48.6% year to date, the biggest decliner among stock markets globally. See Asia Markets.

In Vietnam, the benchmark VN index gained 1.4% on Wednesday, putting its year-to-date retreat at 47.5%.

"We're at a rocky period," said Robert Lutts, president and chief investment officer at Cabot Money Management, referring to Chinese equities.

"The valuation and the technical condition of the market are trying to set a bottom," he said.

After the Shanghai's market's strong performance in recent years, "the corrective phase is not unexpected," Lutts said.

From best to worst

What a difference a few months makes. The Shanghai Composite index has tumbled this year after being the best performer among major global stock indexes in 2007, when it recorded an astronomical gain of 97% for the year.

The Shanghai index has now fallen nearly 55% from its peak over 6,000, reached in October 2007.

By comparison, the Dow Jones Industrial Average DJIA, -0.47% and the S&P 500 index SPX, -0.48% have both lost about 21% from their October highs.

Chinese shares "had risen at such a rate that it was not really based on economic fundamentals or the value of the equities," said Rachel Ziemba, an analyst at RGE Monitor.

"Chinese investors, many of whom rushed into the equity markets last year, are increasingly wary of putting their assets in equities," Ziemba said.

She emphasized that the government's role in the equity market is key. A majority of shares are still held by government institutions.

"We still see a market that, because of government involvement, is a speculative market," Ziemba said. "It's very difficult to get information on these equities, so it's hard for value-based investors. Growth remains robust, but [the economy] is growing at a slower pace. Inflation remains elevated."

Lutts of Cabot Money Management is optimistic about the long-term outlook for Chinese companies.

"You could establish a rally this fall that would be meaningful," Lutts said. "The companies I'm reviewing are continuing to come out with very good performance."

He invests in Chinese equities listed in Hong Kong and the United States. Hong Kong's benchmark Hang Seng index (1804580) is down 23.7% for the year to date -- much better in terms of performance as opposed to the Shanghai Composite index.

Chinese authorities restrict foreign participation in the mainland's equity markets, with only those foreign institutional investors selected by Beijing allowed to participate. As a result, many foreign investors buy shares of Chinese companies listed in Hong Kong and on other foreign exchanges as so-called H shares.