(Bloomberg) — The bar for China’s financial markets to do better this year was so low, virtually everyone on Wall Street was saying the country’s stocks and bonds could only go up.

That bet isn’t going so well. Mainland equities just entered their first bear market since Donald Trump’s trade war. The worst week for shares in Hong Kong in five months saw short sellers enjoying a feast like no other. For the first time, credit-market contagion has reached some of the most powerful property developers. Assets that were previously resilient like China’s currency and government bonds are no longer immune, with the yuan turning the most volatile since August. 

While it’s still only January, mounting losses are testing the ability of policy makers in Beijing to support markets after the chief securities regulator vowed to “firmly” prevent volatility. It’s also confounding those on Wall Street who predicted easier policy out of Beijing would be the catalyst needed to revive Chinese beaten-down assets. Officials have cut interest rates, and they are promising to continue to support the economy.

Signs of Beijing’s unease over the equity market slump are showing up visible measures of support — from front-page articles in state media appealing for calm to some of China’s largest mutual funds publicly committing to buying their own equity-focused products. The country’s central bank has stepped up its liquidity injections in recent days to see lenders through the seasonal Lunar New Year cash crunch. More targeted intervention is possible as the Communist Party prioritizes stability before the Winter Olympics and in the final months of President Xi Jinping’s second term.

“Consensus is expecting that there will be support for the Chinese economy and markets — and for us that makes sense,” Paul Gambles, co-founder and managing partner of MBMG Group, told Bloomberg TV on Friday. “But making sense of Chinese markets? That’s a bit of a tough task. It’s a hard call for anyone.” 

Staying in China for more than a week can prove dangerous. In 2020 the country’s markets were shut as the Covid-19 pandemic spread from Wuhan — and the reopen was so brutal that more than 1,000 stocks had to be halted. The situation was the same in 2019. In 2019, a number of tweets sent by President Donald Trump warned that there would be an increase in tensions between America and China. Next week will see the complete shutdown of all mainland markets.

There are many reasons to be cautious. China’s efforts to maintain its zero-Covid policy are coming under increasing strain. Lockdowns at the city level could reduce consumer spending in this holiday season. It is not the end of slowdowns in property markets, which account for around 25% of total domestic production. A rapid withdrawal of stimulus by some countries could also hurt China’s exports — a key driver of growth in the past two years.

Investors also remain vulnerable to the Communist Party’s opaque and unpredictable policy making. China issued a broad communique about corruption, promising to reduce the impact of these companies. This shattered any hope that Beijing might be ending its clampdown on technology. The optimism that Beijing is reducing its property crackdown was replaced by skepticism. There’s still nervousness over the future of tutoring companies. Uncertainty over the future of tutoring companies has been raised by a new national campaign against money laundering.

Traders reduce risk. On Friday, the Index of mainland stock fell by 1.2%, which was the lowest in 16 months. It is also at its lowest point since May 2020. Eight days in a row has seen a drop in stock-market leverage.

According to credit traders, China’s high yield dollar bonds were down as much as 5 Cents per dollar Friday. Overseas selling of onshore shares continued after Thursday’s $2.3 billion outflows, one of the largest since trading links were expanded in 2016. The yuan suffered, as it fell to its lowest level since July. Short selling comprised about a fifth of Hong Kong’s total stock turnover on Thursday, the biggest proportion on record. 

It’s likely that the commitment of at least twelve mutual funds to channel cash into stock markets was coordinated. A series of front-page articles in state media have touted the attractiveness of Chinese stocks, with the Securities Times calling the act of the funds “setting a good example.” Newspapers had already appealed for calm earlier in the week.

Wall Street expects a rally in China by 2022. Societe Generale has been overweight on Chinese equities, as have UBS, Goldman Sachs and UBS. JPMorgan)’s Marko Kolanovic in December recommended going all in on China this year, predicting the MSCI China Index would surge almost 40%. Morgan Stanley’s Jonathan Garner is the notable holdout, saying there may be more pain in store for Chinese shares.

On the credit front, firms including Allianz (DE:) Global Investors, Axa Investment Managers and Oaktree Capital Group have said in recent months that they’re looking to increase their holdings of Chinese real estate debt. Jason Brown (ex-head of Goldman Sachs’ special situations group), raised $245million last month for Arkkan Capital, to fund investments in Chinese distressed properties loans and bonds.

There’s still plenty of time for bulls to be right. More stimulus is expected from China’s central bank after it pledged to open its monetary policy tool box. A sign that Beijing has relaxed funding restrictions for property developers will go a long ways in lifting sentiment. A weakening yuan wouldn’t be bad news if exports come under pressure.

“China is very different from a policy perspective than anywhere else,” MBMG Group’s Gambles said. “They’ll act very quickly and act very aggressively.”