SHANGHAI: China stocks rose and Hong Kong shares were flat at the end of a bearish quarter on Friday, as subdued China factory activity data deepened economic worries and strengthened the case for fresh stimulus.

China’s blue chip CSI300 Index ended 0.5% higher, while the Shanghai Composite Index climbed 0.6%. For the quarter, however, the indexes dropped 5.1% and 2.2%, respectively.

Hong Kong’s Hang Seng Index ended the session little changed, but slumped 7.3% in the second quarter.

China’s factory activity declined for a third straight month in June and weakness in other sectors deepened, official surveys showed, adding pressure for authorities to do more to shore up growth as demand falters at home and abroad.

“We expect near-term market volatility to remain high as investors closely monitor the potential for further stimulus measures,” Morgan Stanley said in a note.

Lower trading volume this week point to weak sentiment, and “we believe easing step-up, and policy stance clarification, remain key to sentiment revival”, the bank said.

China’s economy rebounded sharply in the first quarter, but post-COVID recovery is waning as factories and retailers suffer from weak demand at home and abroad.

“Policy stimulus represents the biggest swing factor for the market” in the second half, UBS said in a note.

China’s chipmaking and artificial intelligence (AI) related stocks, which had corrected over the past week, ended higher, brushing aside news that the US and the Netherlands plan to further restrict sales of chipmaking equipment to China.

Shares of Chinese food delivery giant Meituan fell nearly 2% on its plan to acquire AI firm Light Year.