SHANGHAI Chinese stocks were little changed on the last trading day of 2016 on Friday but the blue-chip index looked set to the end the year with a loss of 12 percent despite surprising signs of resilience in the world's second-largest economy.
Chinese shares spent most of the year clawing back from a brutal January, sparked in part by fears of a hard landing for the economy.
They eventually rebounded 17 percent from their February trough, giving some investors hope that the market has found its feet after last year's crash.
Both the CSI300 index and the Shanghai Composite Index rose 0.1 percent by the lunch break on Friday, to 3,301.42 points and 3,098.31 points, respectively.
But they looked set to end the year as the world's worst performing major indexes. In contrast, both the S&P 500 index and the Dow Jones Industrial Average, the U.S. benchmarks, were up over 10 percent.
Still, in the eyes of many investors, Chinese stocks have turned the corner.
"2016 is a year of recovery, for both the market and China's economy, said Shen Weizheng, Shanghai-based fund manager at Ivy Capital.
China's economy has performed better than many analysts expected this year, thanks to generous government stimulus in the form of record bank lending and increased infrastructure investment.
A housing boom has generated additional momentum and fueled sharp price rises for materials from cement to steel, boosting earnings for the manufacturing and mining sectors.
But in the final months of the year, investor sentiment turned more cautious as Beijing stepped up efforts to control a mountain of debt, reining in riskier investments and targeting asset price bubbles.
A red hot housing rally and investment are also showing signs of fatigue after a year-long rally, though most markets watchers expect only a mild correction in housing prices, not a full-blown collapse.
"The concern is that China's stimulus-led recovery is not sustainable," Ivy Capital's Shen said, also flagging other risks such a recent selloff in China's bond market and potential protectionist trade policies from U.S. president-elect Donald Trump.
In 2016, nearly all sectors retreated. But consumer staples shares advanced 8.4 percent after index heavyweight Kweichow Moutai Co Ltd and Wulianggye Yibin Co Ltd gained around 53 percent and 26 percent, respectively.
Energy and raw materials stocks steadied, helped by Beijing's moves to cut excessive capacity in coal and steel industries, which along with the construction boom helped to spur higher resources prices.
Hong Kong stocks were set to rise for a third day on Friday despite Wall Street weakness, but the benchmark index was on track to end the year roughly unchanged.
Both the Hang Seng index and the Hong Kong China Enterprises Index gained 1.0 percent, to 22,003.64 and 9,409.98, respectively.
All sectors in Hong Kong gained ground, with services sector the best performer, up around 1.6 percent at the midday.
(Reporting by Jackie Cai and John Ruwitch; Editing by Kim Coghill)