Hong Kong stocks experienced their biggest drop since 1997 on Monday after Beijing fired back at U.S. tariffs with its own trade levies, deepening market turmoil amid fears of a widening trade war, while China's sovereign wealth fund intervened to stabilise local shares.
Hong Kong's Hang Seng index (.HSI) slumped 13.2%, the biggest one-day decline since 1997, with shares of tech, solar, banking and online retailers plunging as investors swiftly pulled out of anything linked to global growth and trade.
China's CSI300 (.CSI300) blue-chip index ended lower by 7% as Central Huijin, or the so-called "national team" of state-backed investors, said in the afternoon session that it has increased holdings of Chinese stocks to defend market stability. Trading volume for some ETFs linked to the CSI300 index soared.
The yuan slipped to its lowest since January and bonds rallied sharply.
China, which is now facing U.S. tariffs of over 50%, responded in kind on Friday by slapping extra levies on U.S. imports.
The intensifying spat between the world's two biggest economies threatens to upend trade flows, and besides hitting Chinese earnings, it is also expected to drive a slowdown in global demand at a time of stuttering growth in China.
"I think the impact of this shock is going to be quite significant," said UBS chief China economist Tao Wang on a call with investors on Monday. "It was challenging to achieve the government's growth to start with. And now it's even more challenging."
Trading volumes were heavy, particularly as Chinese markets had been shut on Friday when selling was heaviest in the U.S. and other financial centres.
The Hang Seng Tech Index (.HSTECH) plummeted by 17%, marking its worst single-day performance since records began. The index was down 27% in a month, and close to where it began the year before the DeepSeek-inspired 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 of solar companies (.CSI931151) and household appliance makers (.CSI930697) notched losses around 10%. Selling was almost as strong in oil and gas shares, as the prospect of a global recession hammered oil prices, and sectors from electric vehicles to cloud computing.
The Hang Seng volatility index (.VHSI) shot to its highest since March 2022.
Hong Kong-listed shares of HSBC tumbled 15% and Standard Chartered stock was down 16%.
In the absence of any hint of a backdown from the White House, the focus for investors will be on Beijing to come up with measures to support Chinese exporters and shore up 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 in buying names with more exposure to domestic demand."
Shares in online giants Alibaba (9988.HK) and Tencent (0700.HK) were down 18.0% and 12.5%, respectively.
