* CSI300: flat; SSEC: +0.1 pct; HSI: flat
* China’s manufacturing activity surveys within expectations
* Futures exchange says hedging caused Tuesday’s flash crash
SHANGHAI, June 1 (Reuters) - China stocks were flat on Wednesday morning following the previous day’s sharp rally, as growing optimism about MSCI adding mainland stocks to its emerging markets index was offset by worries over China’s economy and a looming U.S. rate hike.
The blue-chip CSI300 index was unchanged at 3,169.00 points by the lunch break, while the Shanghai Composite Index gained 0.1 percent, to 2,918.78 points.
Hong Kong shares were also subdued, with the benchmark Hang Seng index unchanged and the Hong Kong China Enterprises Index up just 0.4 percent.
There was little market reaction to the official and private surveys on China’s manufacturing activity, which were roughly in line with expectations, underlining doubts that the world’s second-largest economy is picking up.
Li Wei, economist at Commonwealth Bank of Australia, said China’s economy should be largely stable in the near term due to a supportive policy stance.
“However, gravity should reassert in Q4,” he added.
Some investors took profit from Tuesday’s more than 3 percent surge in China’s shares, which was underpinned by expectations that U.S. market index provider MSCI could add mainland stocks to its emerging market benchmark for the first time.
Such a prospect has lured investors into the Chinese market recently.
CSOP FTSE China A50 ETF - the biggest overseas-listed ETF that allows direct foreign investment in mainland China stocks - said it had attracted net inflows worth 4.4 billion yuan ($667.37 million) over the past week, boosting the fund size by a fifth.
However, David Dai, Shanghai-based investor director at Nanhai Fund Management Co, said any market rally was unlikely to be sustainable at this stage.
“The economy is still weak, and the Fed will likely raise rates soon. I don’t think the market will go up much further. The best strategy now is to take profit.”
Financial firms dropped following Tuesday’s jump, offsetting gains in the material and energy sectors.
China’s index futures market was calm on Tuesday, after the China Financial Futures Exchange said that sell orders from a hedging client triggered a broader technical sell-off that caused Tuesday’s one-minute flash crash.
Reporting by Samuel Shen and Nathaniel Taplin; Editing by Jacqueline Wong