The CSI300 index fell 2.8% to 5,081.12, while the Shanghai Composite Index lost 2% to 3,518.76 points. Both the indices had their biggest one-day percentage drop since early March.
“The market is searching for clearer signs before turning more bullish, given macro growth hiccup and earnings recovery uncertainties ahead of upcoming results season,” Morgan Stanley said in a note.
The Wall Street bank said it lowered its forecast for China’s second-quarter economic growth due to broad-based macro weakness seen in April-June.
Data released on Wednesday showed growth in China’s June factory activity dipped to a four-month, while China’s non-manufacturing Purchasing Managers’ Index (PMI) also fell during the month.
Morgan Stanley, in its note, also said consumption activities were disrupted by COVID-19 resurgences, as seen among air passengers, catering spending, and auto sales, capping the overall consumption growth still below pre-COVID-19 trends, according to Morgan Stanley.
But, the Chinese government will unlikely unveil fresh stimulus to bolster growth, and investors even fear credit tightening by Beijing.
In a forecast on Friday, U.S. money manager Vanguard said further easing by Chinese policy makers is unlikely.
State Street Global Markets said investor sentiment dropped sharply in Asia in June, citing “increased tightening fears out of China combined with greater uncertainly around the impact of the Delta variant.”
Consumer, healthcare and brokerage shares were among the biggest declines on Friday.
China’s property shares dropped amid signs of slowing sales growth and tighter credit conditions.
“Onshore and offshore capital markets will remain volatile amid tight credit conditions for developers and weak investor sentiment,” said Celine Yang, a Moody’s vice president and senior analyst. (Reporting by Shanghai Newsroom; editing by Uttaresh.V)