Correction is coming, analysts say as Shanghai Composite hits four-week low amid concerns Beijing will scrap stimulus measures

All leading Chinese benchmarks ended Friday lower, with the Shanghai Composite Index dropping to a four-week low after losing 1.2 per cent. In Hong Kong, the Hang Seng Index rose 0.19 per cent, or 55.21 points, to close at 29,605.01.

The Shanghai Composite, which also recorded its worst weekly drop for the year, was down 37.43 points at 3,086.4. Over the whole week it shed 5.6 per cent. On Friday, financials and industrial stocks pushed the index lower – China Merchant Bank was down 3.02 per cent at 34.36 yuan and PetroChina was down 1.2 per cent at 7.42 yuan.

Analysts said the poor performance this week comes amid investor concern about Beijing dropping its stimulus measures. It is feared that first-quarter economic data such as GDP, which reported robust growth of 6.4 per cent, might cause the government and China’s central bank to shift away from further easing measures.

And regardless of whether such fears are overdone, analysts said the Shanghai Composite Index was up for a correction in May and could lose another 3 per cent to 5 per cent.

Based on Friday’s closing price, a 5 per cent worst-case scenario would mean the index could lose another 154 points to 2,932.

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“However, I believe that there is still buying interest outside the banking, property and resources sectors, which are tied to the macroeconomy and are seen as affected by a potential dropping of stimulus measures,” said Alex Wong, a director at Ample Finance.