Markets cap week with losses as financial stocks retreat

After four days of above-par finishes, stock markets in Shanghai and Shenzhen entered corrections Friday as trading ebbed.

The Shanghai Composite Index ended the week at 2,236.22 after dropping 19.39 points, or 0.86 percent, on the day; while the Shenzhen Component Index shed 27.34 points, or 0.31 percent, to finish at 8,687.54. Combined turnover retreated to 248.5 billion yuan ($40.60 billion), down from Thursday's 281.5 billion yuan.

Despite these losses, the Shanghai Composite and the Shenzhen Component were up 4.50 percent and 4.92 percent respectively week-on-week.

Mainland stock markets started last week with a bang thanks to a raft of positive economic indicators for August. Official trade numbers showed imports and exports rebounding, while inflation growth eased from the previous month. Sentiment got a further dose of adrenalin after Chinese Premier Li Keqiang reportedly said at the opening ceremony of the Summer Davos in Asia forum Wednesday that reforms will bring vitality to the economy.

Shanghai's free trade zone continued to loom large in the background with investors, who saw the zone as a sign of the government's commitment to furthering reforms. As a catalyst for Shanghai local stocks though, the zone had lost most of its earlier potency. Only Shanghai Waigaoqiao Free Trade Zone Development Co hit the 10-percent daily limit Friday, ending at 38.54 yuan.

Banking, securities and insurance stocks were among the week's biggest winners overall. By Friday though, overbought concerns and profit-taking pared down earlier gains. New China Life Insurance Co dipped 1.23 percent Friday to 24.97 yuan. Bank of China Ltd ditched 1.39 percent to 2.83 yuan.

Less capitalized stocks which had benefited from macro uncertainties earlier in the summer were also cut adrift last week as investors piled back into equities exposed to China's brightening economic outlook.

"It's become clear that money is exiting small caps as investors become more confident in larger companies," Guo Yiming, a senior analyst at Shaanxi Jufeng Investment Information Co, told the Global Times.

Stock markets on the Chinese mainland registered a net capital outflow of 28.73 billion yuan last week, with the electronic information, computer and medicine sectors experiencing the largest drains. Only the securities, banking, insurance and textile sectors recorded inflows.

Heavy trading volumes could lift markets into the near term, Gui Haoming, chief analyst at Shenyin & Wanguo Securities, said in a report by the China Business News Saturday.