Hong Kong shares suffer steepest decline since 1997

Hong Kong stocks suffered their biggest drop since 1997 on Monday after Beijing hit back at US tariffs with its own trade levies, deepening market turmoil amid fears of a widening trade war. China’s sovereign wealth fund stepped in to stabilise local shares.

The Hang Seng index slumped 13.2 per cent, marking its sharpest one-day decline since 1997. Tech, solar, banking and online retail stocks plunged, as investors rapidly dumped anything tied to global growth and trade.

China’s CSI300 blue-chip index fell 7 per cent after Central Huijin, the so-called “national team” of state-backed investors, announced in the afternoon session it had increased holdings of Chinese stocks to support market stability. Trading volumes in ETFs linked to the CSI300 index surged.

The yuan slipped to its weakest level since January, while Chinese bonds rallied sharply.

Facing US tariffs of over 50 per cent, China retaliated on Friday with additional levies on American imports.

The intensifying standoff between the world’s two biggest economies now threatens to disrupt global trade flows, dent Chinese corporate earnings, and further slow global demand – at a time when China is already facing sluggish growth.

“I think the impact of this shock is going to be quite significant,” said Tao Wang, chief China economist at UBS, during a call with investors. “It was challenging to achieve the government’s growth target to start with. And now it’s even more challenging.”

Trading volumes were elevated, especially as Chinese markets were closed on Friday, when selling pressure spiked in the US and other global financial centres.

The Hang Seng Tech Index plummeted 17 per cent – its worst single-day performance since records began. The index is now down 27 per cent over the past month and close to its level at the start of the year before the DeepSeek-driven rally.

“The Asia move this morning is partly a catch-up from Friday for markets… so I wouldn’t say there’s been a disproportionate move today – it’s a blanket risk-off,” said Ben Bennett, head of investment strategy for Asia at LGIM in Hong Kong.

Mainland indexes tracking solar firms and household appliance makers each lost around 10 per cent. Selling also hit oil and gas stocks hard, as recession fears battered oil prices, with pressure seen across sectors from EVs to cloud computing.

The Hang Seng volatility index surged to its highest level since March 2022.

Hong Kong-listed shares of HSBC tumbled 15 per cent, while Standard Chartered fell 16 per cent.

With no signs of a backdown from the White House, investor focus has shifted to Beijing for measures that could support Chinese exporters and boost the domestic economy.

“Beijing will have little option now but to accelerate domestic consumption, so more measures to stimulate demand are expected,” said Steven Luk, CEO of FountainCap Research & Investment.

“We are not degrossing but looking to take advantage of the selloff by buying names with more exposure to domestic demand.”

Shares in online giants Alibaba and Tencent dropped 18 per cent and 12.5 per cent, respectively.