Markets end mixed, with most sectors down

Chinese markets were mixed on Tuesday, with many sectors losing ground in volatile trading after gaining on Monday.

The benchmark Shanghai Composite Index was fractionally higher as investors became more cautious in the afternoon session. At close, it edged up 0.11 percent to 3,371.69 points.

The smaller Shenzhen Component Index dipped 0.75 percent to finish at 13,860.46, while the ChiNext Index slipped 1.26 percent to end its trading day at 2,832.84.

Trading volume on the two bourses came to 1.37 trillion yuan (US$196 billion), compared with 1.33 trillion yuan in the previous session.

Most sectors were lower, with leisure services along with electronics and trade firms dragging down the broader market. The national defense sector was one of the worst performers, after being Monday's top gainer.

Heavyweight banking shares performed strongly.

Zheng Hong, chief investment adviser at LC Securities, told Caixin that the banking sector as a whole is at the bottom of historical valuations. She expects that banks’ fully set-aside provisions against bad loans in the first half of the year will boost their performance in the coming months.

Liquidity in August will remain relatively stable compared with July and there will not be much change in the cost of funds, UBS Securities China Rates Market analyst Mary Xia said.

In her view, the People's Bank of China's liquidity operations last month were cautious in terms of quantity and price and the central bank still needs to keep liquidity stable in the second half to create a good environment for credit growth.

“Costs of funds are unlikely to rise further as they are currently close to policy rates,” Xia added. “On the other hand, they are unlikely to return to the low level of the first half and might fluctuate around policy rates.”