China stocks posted their best weekly gain since March, buoyed by growing hopes that MSCI will add Chinese shares to its index later this month and revive foreign interest in the struggling mainland market. China's bluechip CSI300 index rose 0.7 percent to 3189.33, bringing its weekly gain to 4.1 percent. The SSEC gained 0.5 percent to 2938.68 points, rising 4.2 percent for the week, breaking a 6-week losing streak.
But further gains were capped on Friday by worries about the slowing economy and downward pressure on the yuan currency. Investors are awaiting a raft of China May data next week for clues on whether the economy is stabilising. March data was encouraging, but April indicators and May business activity surveys have painted a weaker picture.
Growing expectations of a looming US rate hike and the resulting boost to the US dollar have also revived fears of more depreciation pressure on China's currency. Analysts polled by Reuters expect the yuan to weaken around 2.5 percent over the coming year against the greenback. Consumer, healthcare and technology sectors rose sharply, but energy and material shares fell. Investors in Hong Kong have also been cautious, as they remain fixated on the possibility of a US rate hike as early as this month or next, while anxiously awaiting Britain's referendum on June 23 on whether to remain in the European Union.
"'To hike or not to hike' has been the mantra of global financial markets even before the first rate hike last December. It's fair to say that the mantra will carry on well beyond the second rate hike, be it in June, July or September," wrote Bernard Aw, strategist at IG Group.
Investors are awaiting a raft of China May data next week for clues on whether the economy is stabilising. March data was encouraging, but April indicators and May business activity surveys have painted a weaker picture. While fears of a hard economic landing have ebbed, many analysts see no quick rebound, either, while systemic risks such as growing debt levels and bad loans appear to be on the rise. Such bearish views on the yuan has led to investors piling up bets against the Chinese currency with a variety of creative strategies, raising the risk of a fresh bout of yuan volatility that churned global markets just a few months ago. That could in turn spark fears of a resurgence in capital outflows, creating a vicious cycle for Chinese assets. But the stock market was relatively calm on Friday, with mixed performance seen in various sectors. Consumer and healthcare sectors rose sharply, but energy and material shares fell.