China stocks fall as foreigners turn net sellers under Connect

China shares ended lower on Friday, trimming gains for the week, as consumer staples, healthcare, and real estate firms dropped while foreign investors turned net sellers under a key cross-border investment channel.

The blue-chip CSI300 index fell 1.2% to 5,089.23, while the Shanghai Composite Index lost 0.6% to 3,550.40 points. For the week, CSI300 is down 0.1% while SSEC is up 0.3%.

Foreign investors snapped a four-day streak of net buying of A-shares, as they became net sellers through the Stock Connect scheme linking Hong Kong and mainland China, Refinitiv data showed .

In a note on Friday, Morgan Stanley suggested investors monitor actual earnings results from Chinese companies within the next few weeks to reconcile positive corporate alerts and declining consensus expectations.

"We suggest more patience... for better calibration of market expectations among other near-term market overhangs including regulatory uncertainties, policy direction debate, and geopolitical tension," Morgan Stanley wrote.

Shares in China's developers retreat as worries over tough regulations linger. Local governments should strictly control financing for property developers, including bank loans, and improve land pricing mechanisms, state television quoted Vice Premier Han Zheng as saying on Thursday. The consumer staples sector was down 2.3%, the real estate index dropped 1.33% and the healthcare sub-index fell 3.09%.

The smaller Shenzhen index ended down 1.43% and the start-up board ChiNext Composite index was weaker by 2.104%. Around the region, MSCI's Asia ex-Japan stock index was weaker by 0.81%, while Japan's Nikkei index closed up 0.58%. At 07:18, the yuan was quoted at 6.476 per US dollar, 0.09% weaker than the previous close of 6.4701.

So far this year, the Shanghai stock index is up 2.2% and the CSI300 has fallen 2.3%.