Mainland stocks fell on Friday, but ended the week near their highest level in three-and-a-half years as investor sentiment remained upbeat on growing confidence in the country's artificial intelligence potential.

In Hong Kong, the benchmark Hang Seng Index ended down 356 points, or 1.35 percent, at 26,128, deepening its losses for the week to 1.6 percent but keeping it hovering near its strongest level since July 2021.

On the mainland, the benchmark Shanghai Composite Index ended down 0.65 percent at 3,828 while the Shenzhen Component Index closed 1.76 percent lower at 13,209.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, lost 2.6 percent to close at 3,151.

China's blue-chip CSI300 Index closed down one percent, paring its gains for the week to one percent, hitting its highest point since February 2022.

Confidence in China's artificial intelligence capabilities continued to strengthen this week, driving gains in domestic markets.

Shares of tech giant Alibaba soared to a four-year high as the company increasingly prioritises AI as a central focus alongside its traditional e-commerce business.

Onshore artificial intelligence shares climbed as much as seven percent this week, after surging nearly 70 percent in the year to date.

While shares listed in Hong Kong have historically outperformed during US rate-cut cycles, UBS analysts maintained a preference for A-shares, citing potentially stronger support from domestic retail inflows over foreign institutional participation.

Sector-wise, they favour AI-related themes, brokers and high-dividend stocks.

Tech majors listed in Hong Kong were down 1.6 percent this week after investors booked profits on Friday.

Real estate shares rose as much as three percent, after state media reported several emerging first-tier cities were studying new policy measures for the real estate market.

The Hong Kong-listed innovative drug index fell as much as three percent, after US President Donald Trump threatened 100 percent tariffs on imports of branded pharmaceuticals from October 1. (Reuters/Xinhua)