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SHANGHAI: China stocks eked out gains on Monday and posted their best monthly gain in six as soft domestic factory activity in May eased worries over policy tightening, while a stronger yuan boosted foreign inflows.

The blue-chip CSI300 index rose 0.2% to 5,331.57, while the Shanghai Composite Index firmed 0.4% to 3,615.48.

Shenzhen’s start-up board ChiNext added 2.4%, while Shanghai’s tech-focused STAR50 index closed up 4.1%. Leading the gains, the CSI new energy index added 4.8%.

For the month, the CSI300 gained 4.1%, its best since December 2020, while SSEC firmed 4.9%, its best since November 2020.

For the month, ChiNext advanced 7%, while STAR50 gained 9.1%, its best since June 2020.

China’s factory activity slowed slightly in May as raw materials costs grew at their fastest pace in over a decade, weighing on the output of small and export-oriented firms. Analysts and traders said a recent series of soft data decreased worries over policy tightening, while a stronger yuan helped attract more foreign inflows.

Investors in the past week purchased a record 46.8 billion yuan ($7.35 billion) worth of A-shares via the Stock Connect linking the mainland and Hong Kong.

Their net purchasing reached nearly 60 billion yuan in May, according to Refinitiv data.

“There is relatively ample liquidity in the market, while China’s economy remains in the recovery stage and has yet to entered into a stagflation stage,” said Fu Yanping, a wealth management strategist at China Galaxy Securities.

Fu said he did not see a continued rally in the market, adding that investors should pocket gains after indexes hit higher levels as the market would remain range-bound going forward.

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