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Global stocks decline; Shanghai slides 5%

Global stocks decline; Shanghai slides 5%

A continued fall in the price of oil and a rout in Chinese stocks weighed on investor sentiment on Tuesday, with global equities seeing heavy losses during the session.

The German DAX (^GDAXI), French CAC 40 (Euronext Paris: .FCHI) and U.K.'s FTSE 100 (FTSE International: .FTSE) all slipped over 1 percent at the open, with the pan-European Euro Stoxx 600 index (^STOXX) down 1.24 percent in early trading. Meanwhile, Greek stocks slid 6 percent, with continued political jitters in the country adding to the declines.

U.S. stock futures were also pointing lower, indicating triple-digit losses for the Dow Jones at around 8:00 a.m. GMT, before trimming losses as the European session gathered pace.

Read More Yuan headed for biggest single-day loss since 2008

China was the main focus for investors as the country's Shanghai Composite (Shanghai Stock Exchange: .SSEC) benchmark tumbled in the final hour of trade. It finished the session down 5.3 percent after rallying to a three-and-half-year high of 3,091 points earlier in the day. It marked its biggest one-day fall in percentage terms since August 2009.

"It's not a stock market, it's a casino," Peter Elston, a global investment strategist at Seneca Investment Managers, told CNBC about the Chinese benchmark.

"It's always been the case - it's an incredibly volatile market...it is all going to end in tears and it looks like that is starting to happen now."

The Shenzhen Composite also logged declines of over 4 percent, Hong Kong shares slid over 2 percent and the yuan (Exchange:CNY=) traded wildly against the greenback (Exchange:.DXY). The Chinese currency was, at one stage, on course to post its biggest single-day loss since 2008. By 9.30 a.m. London time it was trading at 6.1853 against the dollar.

Analysts attributed the selloff to profit-taking, liquidity fears regarding new corporate bond market restrictions and expectations that China's 2015 gross domestic product would be lowered to 7 percent.

Read More China's 2015 outlook in three words

Influential advisors to the Beijing government are set to recommend revising down growth targets for the country, according to a Reuters report on Tuesday, citing unnamed sources. This comes after a number of dismal economic data points from the country over the last two weeks.

Gartman: Buy weakness

Before Tuesday's losses, the Shanghai Composite Index had been on a tear, rising 43 percent before Tuesday's losses. It came as the People's Bank of China looked increasingly likely to backstop the economy and cut rates on November 21.

Dennis Gartman, founder and editor of the closely-watched The Gartman Letter, disagreed with Seneca Investment Managers's Elston, however, arguing that Tuesday's move was likely to be a mere blip in a trend higher for the Chinese market.

"I will allow other people wiser and brighter than I to be involved with the Chinese stock market right now, but clearly the trend is still upward," Gartman told CNBC Tuesday. "Weakness is to be bought and strength is not to be sold."

Kerry Craig, market strategist at J.P. Morgan Asset Management, said that investors should not be surprised by the sharp fall, given that the market has rallied 20 percent in the last few weeks. He told CNBC Tuesday that it should be put down to "profit taking" by traders, who are "taking a bit off the top" as the rally has extended too far.

Read More Oil's market impact: Barrel half empty, half full

The worst performers on the Shanghai Composite included engineering company the Qingdao Tianhua Institute (Shanghai Stock Exchange: 579-SZ), which fell 10 percent. Machinery manufacturer CITIC Heavy Industries (Hong Kong Stock Exchange: 267-HK) and goods trading firm Langfang Development (Shanghai Stock Exchange: 149-SZ) also saw similar losses.

Back in Europe, the basic resources sector - which has heavy exposure to China, the world's second-largest economy - saw a drop of over 2 percent.

Energy stocks were also under pressure as oil prices hit new five-year low. Brent crude (: @LCO13Z-GB) is now below $66 a barrel and has lost around 40 percent since July. Heavily-weighted stocks like BP (London Stock Exchange: BP.-GB) and Total (Euronext Paris: FP-FR) were trading lower by around 2 percent on Tuesday morning.

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