Markets at odds after PBOC reacts to liquidity fears

Stock markets in Shanghai and Shenzhen diverged Wednesday after the People's Bank of China (PBOC) announced late Tuesday that it has offered liquidity support to "qualified" financial institutions. The central bank stated as well that the tighter liquidity conditions which have been amplifying interest rate volatility will gradually ease.

The Shanghai Composite Index shaved off 8.01 points, or 0.41 percent, to close at 1,951.50 Wednesday; while the Shenzhen Component Index added 0.95 percent, or 71.30 points, to finish at 7,566.40.

The indices were at odds for most of the day as the Shanghai Composite struggled unsuccessfully to crack the break-even point. Gains in science and technology-related sectors helped the benchmark pull out of its nosedive moving into the afternoon, but later drops in financial and coal stocks proved too powerful to overcome.

Combined turnover at the two exchanges settled at 182.1 billion yuan ($29.61 billion), down from Tuesday's 214.3 billion yuan as sell-off pressure subsided and bargain hunters combed the battered equity market for deals.

The Shenzhen Stock Exchange's ChiNext board, China's NASDAQ-style board for growth enterprises, jumped 5.51 percent to close at 1,038.98 Wednesday.

The motivation behind the PBC's apparent about-face regarding liquidity was a topic of much discussion among analysts Wednesday. Some experts saw the central bank's latest moves as a play to calm investors and stabilize the economy.

Despite the latest developments in the interbank market, funding worries continued to torment banking shares. China Minsheng Banking Corp was down 5 percent in morning trading, but pared this loss to 1.65 percent in the afternoon, bringing its shares to 8.30 yuan by the time markets closed. China Merchants Bank Co shed 2.29 percent to 10.67 yuan.

Coal makers crumbled as well. Pingdingshan Tianan Coal Mining Co lost 2.76 percent to 5.28 yuan. Taiyuan Coal Gasification Co surrendered 2.80 percent to 7.28 yuan on the day.

On the plus side, the media sector scored some of the day's biggest wins. Chengdu B-ray Media Co climbed by a 10-percent daily limit to close at 15.80 yuan.