SHANGHAI: China stocks fell to near two-week lows on Monday while Hong Kong shares pared gains as initial optimism from market-friendly policies was offset by downgrades from Wall Street banks.

Both markets rose more than 1% in morning trading after Chinese regulators urged listed companies to bolster share prices through “market value management”. Confidence was also bolstered by October data showing signs of stabilisation in China’s economy.

But sentiment soured as Goldman Sachs and Morgan Stanley downgraded China outlook citing economic and geopolitical uncertainty.

“We expect even stronger headwinds on corporate earnings and market valuation in the coming months,” Morgan Stanley analysts said in a note dated Nov. 17.

China’s blue-chip CSI300 Index ended the session down 0.5% while the Shanghai Composite Index fell 0.2%. Both the indexes reversed early gains and fell for the third day in a row.

Hong Kong’s Hang Seng Index rose as much as 1.8% but ended up just 0.8%.

Goldman Sachs trimmed its recommendation on Hong Kong shares to “underweight” from “market weight”, saying Hong Kong stocks were cheap but were likely to miss out on the benefits of China’s economic support.

Morgan Stanley downgraded China to slight “underweight” from “equal weight” in its emerging markets coverage, warning that the country’s reflationary battle and US policies “will likely cast a significant shadow over China’s market trajectory in the next 12 months”.

Shares had gained after China’s stock market regulator published guidelines urging the main index constituents to take concrete steps to lift prices, if their shares trade below book value. Possible measures include mergers and acquisitions, employee stock incentive schemes, cash dividend payouts and share buybacks.