- Hong Kong’s Hang Seng Index fell 13.2%, the largest drop since 1997.
- China’s CSI300 Index dropped 7%, prompting state fund intervention.
- US-China trade war escalations fueled fears of a global recession.
- Tech, solar, and banking stocks were among the hardest hit.
- China’s sovereign wealth fund increased holdings to stabilize markets.
Hong Kong Stocks Plummet Amid Escalating Trade War
On April 7, 2025, Hong Kong’s Hang Seng Index suffered its steepest single-day decline since 1997, plunging 13.2% as fears of a deepening US-China trade war rattled global markets. The selloff was triggered by Beijing’s retaliatory tariffs on US imports, intensifying concerns about a global recession.
Biggest Decline in Decades
The Hang Seng Index’s dramatic fall wiped out significant market value, with tech, solar, banking, and online retail sectors bearing the brunt of the losses. The Hang Seng Tech Index, which tracks technology stocks, plummeted by 17%, its worst performance since its inception. Shares of major companies like HSBC and Standard Chartered fell 15% and 16%, respectively.
China’s CSI300 Index, which tracks blue-chip stocks, also dropped by 7%. The decline prompted an intervention by China’s sovereign wealth fund, Central Huijin, which increased its holdings in local stocks to stabilize the market. Despite these efforts, trading volumes for exchange-traded funds (ETFs) linked to the CSI300 surged as investors sought to exit volatile positions.
US-China Trade War Escalation
The market turmoil was fueled by escalating tensions between the world’s two largest economies. After the US imposed tariffs on over 50% of Chinese imports, Beijing responded with its own levies, further straining trade relations. Economists warned that the trade war could significantly impact global economic growth, with UBS Chief China Economist Tao Wang highlighting the challenges to achieving China’s growth targets.
“The impact of this shock is going to be quite significant,” Wang stated during a call with investors. “It was challenging to achieve the government’s growth to start with. And now it’s even more challenging.”
Global Market Reaction
The ripple effects of the selloff were felt across the Asia-Pacific region. Japan’s Nikkei 225 fell by 7.8%, South Korea’s Kospi Index dropped 5.6%, and Australia’s S&P/ASX 200 shed 4.2%. Singapore’s Straits Times Index also plunged by 8%. The widespread declines underscored the global impact of the escalating trade tensions.
Hong Kong Financial Secretary Paul Chan Mo-po warned of continued market volatility but refrained from intervening. “Hong Kong stocks were traded in a smooth and orderly manner, and there is nothing unusual found in the system,” Chan said. He urged investors to exercise caution and focus on risk management.
State Intervention and Future Outlook
China’s intervention through Central Huijin aimed to stabilize the domestic market, but analysts believe Beijing will need to implement additional measures to support its economy. Steven Luk, CEO of FountainCap Research & Investment, suggested that Beijing might accelerate domestic consumption initiatives to offset the impact of the trade war.
“Beijing will have little option now but to accelerate domestic consumption, so more measures to stimulate demand are expected,” Luk said. He added that the selloff could present buying opportunities for stocks with strong domestic demand exposure.
Market Volatility and Investor Sentiment
Amid the market chaos, the Hang Seng Volatility Index surged to its highest level since March 2022, reflecting heightened investor anxiety. The yuan also weakened to its lowest level since January, while Chinese bonds rallied as investors sought safer assets.
Ben Bennett, head of investment strategy for Asia at LGIM, noted that the market’s reaction was partly a catch-up from Friday’s selloff in the US and other financial centers. “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,” Bennett explained.
The steep declines in Hong Kong and Chinese markets underscore the far-reaching implications of the US-China trade war. As Beijing grapples with the economic fallout, investors will closely watch for policy measures aimed at stabilizing markets and supporting growth. In the meantime, global markets remain on edge, with fears of a prolonged trade conflict continuing to weigh on sentiment.
Sources: Reuters, South China Morning Post