China Stocks Retreat on Caution Over Trade Deal, Company Earnings

China's Shanghai Composite Index couldn't quite hold its brief surge past the level of 4,000 points, amid tempered response to a meeting between Chinese President Xi Jinping and US President Donald Trump. Investors were also digesting mixed corporate earnings reports.

The benchmark Shanghai index lost 0.81 percent to 3,954 on Friday after touching a decade high of over 4,000 points earlier this week. For the week, the index gained 0.11 percent, delivering an October increase of 0.53 percent.

The pullback from 4,000 "indicated a recoiled bull market," said Chen Gang, an analyst with Soochow Securities. "Investors remained cautious and aren't quite ready to brace continued rallies."

The government's official survey of manufacturing activity released this week was its lowest point in six months, and earnings reported by Chinese companies this week have been mixed. Profits at the nation's biggest four banks were squeezed by margins, airlines returned to profit after a long slump and energy producers like PetroChina were hurt by lower oil prices.

Other major Chinese indices also declined this week. The Shenzhen Component Index shed 1.14 percent on Friday and concluded the week down 0.53 percent. The ChiNext slumped 1.23 percent for the past five trading days, while Hong Kong's Hang Seng Index retreated 0.97 percent.

Semiconductor-related companies were hardest hit on Friday after the Xi-Trump meeting showed no progress on removing US bans on certain chip exports to China. Shares of GenTech and Montage Technology dived more than 10 percent. Computing hardware companies and securities firms also lost ground.

In contrast, pharmaceuticals remained resilient on Friday with shares of innovative drugmakers like Guojian Pharmaceutical and Staidson rising by nearly 10 percent.

AI-related stocks were also active following a report by independent consultancy QuestMobile saying that China now has 700 million users of AI-application smartphones. Chinese investors have kept an optimistic view toward AI despite global concerns about a worrying investment bubble.

"Next week will be a testing time," Chen said. "Investors are anxious to see whether the markets can recoup their strength and whether the Shanghai index can close above 4,000 points, which is psychologically important."

He added, "The meeting between Xi and Trump should pave the way for more stable market performance because it has generated certainty to some extent."

The China International Import Expo, a high-profile annual event to promote trade and reaffirm China's dedication toward opening its markets further, begins next Wednesday in Shanghai.

Across Asia, Japan's Nikkei rallied 2.1 percent on Friday while South Korea's Kospi gained 0.5 percent.

In New York, the Nasdaq and S&P 500 indexes rose on Friday on a strong profit performance by Amazon, capping an upbeat week. The tech-heavy Nasdaq gained 2.2 percent for the week and 4.7 percent in October. The broader S&P 500 was up 0.7 percent for the week and 2.3 percent for the month. In Europe, the Stoxx600 slipped 0.5 percent on Friday as investors poured over corporate earnings results.