Hong Kong Stocks Rebound After Sharp Drop as Trump’s Tariff War Weighs on Markets

By Wang Xiaoqing and Denise Jia

Amid U.S. President Donald Trump’s renewed tariff war and the Federal Reserve tempering expectations of a rate cut, Hong Kong stocks opened lower in the Year of the Snake, with the Hang Seng Index dropping more than 2% before recovering the 20,000 mark by midday.

Despite the turbulence, market consensus suggests that the impact of tariffs is largely priced in, with some tech stocks defying the trend.

Among major indices, the Hang Seng Index saw its steepest drop of 2.3% in the morning, hitting a low of 19,764 before closing at 20,075. The Hang Seng China Enterprises Index fell as much as 2.5% before recovering to a 0.8% loss, while the Hang Seng Tech Index dropped 3.2% before narrowing its decline to 0.7%.

With Chinese mainland’s A-share market closed for Chinese New Year holiday and no southbound inflows via Stock Connect, Hong Kong’s half-day trading volume had reached approximately HK$78.6 billion ($10.1 billion) by midday.

The Trump administration announced a 10% tariff on Chinese imports and a 25% tariff on goods from Canada and Mexico, effective from Feb. 4. The move rattled Asian markets, with Japan’s Nikkei 225 and South Korea’s KOSPI both opening 2.7% lower.

The broad increase in tariffs stoked fears of rising U.S. inflation. On Jan. 29, the Federal Reserve kept interest rates unchanged but removed the phrase “progress toward the inflation target” from its policy statement, signaling a slower pace of rate cuts. Given Hong Kong’s currency peg to the U.S. dollar, the high-interest-rate environment further pressured local stocks.

A UBS report on Monday estimated that the 10% tariff on Chinese goods would shave 0.3 to 0.4 percentage points off China’s GDP growth by weakening exports, investment and consumption. Slower U.S. growth could further weigh on China’s economy, while export disruptions might push inflation down by 0.2 percentage points. A Morgan Stanley report projected a similar 0.3 percentage-point hit to China’s GDP.

Despite these concerns, analysts believe that the impact of U.S. tariffs is already priced into Hong Kong stocks.

Grace Tam, chief investment adviser at BNP Paribas Wealth Management in Hong Kong, noted that the market had largely factored in the tariff risks, possibly even overreacting. She suggested that positive catalysts could drive the Hang Seng Index back above 21,000.

Among the 83 Hang Seng constituent stocks, 80 declined in the morning, with only 13 rebounding by midday. JD Health International Inc. plunged nearly 10%, while its parent JD.com Inc. dropped 6.2%. Li Auto Inc. fell as much as 8.3% after reporting a 4% year-on-year decline in deliveries. Hotpot restaurant chain Haidilao International Holding Ltd. and sportswear maker Li Ning Co. Ltd. lost 7.2% and 7.6%, respectively. Chipmaker Semiconductor Manufacturing International Corp. defied the trend, surging 8.4% to become the session’s best-performing blue-chip.

Chinese artificial intelligence (AI) startup DeepSeek’s disruption of the U.S. tech sector continued to reverberate, fueling expectations of a revaluation of Chinese tech stocks. During the Lunar New Year break, the HS50 Index Futures hit 20,600 points, about 400 points above the spot market. But the premium narrowed to around 100 points before trading resumed on Feb. 3.

Alibaba Group Holding Ltd. surged up to 7% Monday morning after unveiling its upgraded Qwen 2.5-Max AI model, which it claimed outperformed competitors such as ChatGPT, Meta’s Llama and DeepSeek. By midday, Alibaba’s gains moderated to 6.3%. Chinese search engine Baidu Inc. slumped by as much as 8.5% in the morning and closed the session down 5.7%. Kingsoft Cloud Holdings Ltd., a Chinese AI stock, surged 34.5%.

At the Hong Kong Stock Exchange’s Lunar New Year opening ceremony, Financial Secretary Paul Chan expressed confidence in the market despite widespread concerns. He emphasized that Hong Kong remains the top choice for Chinese firms listing overseas and a gateway for global businesses entering China and Asia. He vowed to seize historic opportunities and strengthen Hong Kong’s role as a premier international financial hub.

Contact reporter Denise Jia (huijuanjia@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

Image: swissa – stock.adobe.com