Stocks plunge, analysts eye liquidity

Stock markets on the Chinese mainland capped off a bearish week with added losses Friday as a host of international and domestic concerns kept investors on edge.

The Shanghai Composite Index finished at 2,073.09 Friday, down 10.93 points, or 0.52 percent; while the Shenzhen Component Index closed at 8,136.05 after dropping 11.44 points, or 0.14 percent.

The Shanghai Composite and the Shenzhen Component were down 4.11 percent and 4.05 percent respectively week-on-week, although last-minute gains in financial stocks reeled in some of Friday's early losses.

Most of the steepest dives came later in the week after US Federal Reserve Chairman Ben Bernanke intimated that the country might throttle back on its bond-buying program later this year, a decision which analysts said could produce serious negative consequences for the rest of the global market. The Shanghai Composite sank to a six-month low Thursday after Bernanke's remarks hit Asian bourses.

Surging money rates were also a source of alarm Thursday as overnight and seven-day rates skyrocketed while the People's Bank of China pulled cash repos from its regular open market operations, Reuters reported. The parched interbank landscape could put pressure on equities over the days ahead unless the central bank does something to rehydrate the market, analysts cautioned over the weekend.

Financial stocks managed to overcome the downcast mood Friday, with gains in the banking and insurance sectors helping the Shanghai Composite and the Shenzhen Component crawl back from their opening tumbles. These segments were bolstered by reports that Central Huijin Investment, one of China's State-owned investors, intended to increase its stakes in the country's Big Four banks as well as New China Life Insurance Co. New China Life leapt 8.77 percent on the day to close at 24.81 yuan Friday.

Yuan-denominated stock benchmarks are likely to remain depressed next week, although some small- and medium-cap companies with growth potential may find room to advance in the days ahead, Gui Haoming, chief analyst at Shenyin & Wanguo Securities, said in a report by the China Business News Saturday.

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