On February 1, 2025, the Hang Seng Index started on the back foot as investors braced for the potential fallout from new tariffs imposed by U.S. President Donald Trump. With the index opening at around 20,048 points, it soon fell below the significant 20,000 mark, reflecting growing concerns over renewed trade tensions. By 9:51 AM, the Hang Seng Index was down more than 400 points, or 2.04%, closing at 19,844.3.
The downtrend was not isolated; broader Asian markets felt the impact as well. For example, Japan’s Nikkei Index plummeted nearly 1,000 points at one point, wrapping up the morning session down 2.47%. Similarly, South Korea’s KOSPI index took almost 3% of losses, illustrating widespread investor anxiety over future economic conditions influenced by U.S. trade policy.
According to market analysts, the new tariffs on key trading partners—10% on Chinese goods, along with 25% tariffs on Canada and Mexico—were seen as part of Trump’s broader economic strategy to counter perceived trade imbalances. The announcement was met with harsh reactions across the stock markets, with the Hang Seng Tech Index recording declines of 2.68%. Companies like Baidu saw significant drops of over 7.7%, trading as low as HK$81, whereas Alibaba's stock rallied initially but eventually settled at HK$90, marking only modest gains.
Naturally, these developments have raised alarms among investors assessing the economic repercussions of the tariffs. Alicia Garcia Herrero, Chief Economist at Natixis Asia Pacific, commented, "Trump imposes 10% tariffs on Chinese goods and China files a lawsuit at the WTO… not to say it is going to help. Welcome to a trade war on steroids," highlighting the gravity of the situation.
The underlying causes of concern stem from the fear of inflation and rising borrowing costs as tariffs potentially drive up import prices. This development is important since it could affect corporate earnings and valuations, causing ripple effects across various sectors and slowing market momentum.
China's economic indicators are already reflecting strain, with the Caixin Manufacturing PMI dropping from 50.5 to 50.1, indicating slower growth amid increasing global uncertainties,” noted Dr. Wang Zhe, Senior Economist at Caixin Insight Group. “Rising uncertainty in international policies could worsen China’s export environment, posing significant challenges for the economy,” he added, underscoring how these tariffs might hinder growth and complicate Beijing’s economic policy responses to support domestic consumption.
While the immediate response to the tariffs was steep declines, not all sectors were equally affected. The Hang Seng Mainland Properties Index suffered significant losses as investors feared the diminishing potential for recovery. Several major real estate stocks plummeted, with Sands China and Galaxy Entertainment declining by 6.1% and 6.5%, respectively. Interestingly, Semiconductor Manufacturing International (SMIC), known forits investments in technology infrastructure, managed to advance by 7.6%, indicating pockets of resilience amid the turmoil.
The market reaction following the tariffs signals caution among investors as they grapple with potential policy changes. With China set to resume trading on February 5, traders are watching closely for any sign of retaliatory tariffs from Beijing. The expectation is there could be effects on financial markets and trade-sensitive areas such as mining, which plays a significant role for economies like Australia where exports to China represent substantial economic activities.
Amidst these developments, the Federal Reserve’s stance on interest rates will be key as inflation pressures mount. The central bank has indicated it will closely monitor developments globally, and with inflation indicators showing resilience, rate cuts could be on hold longer than previously expected. The market's overall mood reflects apprehension about whether the Fed will be forced to alter monetary policy to address the economic ramifications of the tariffs.
Overall, the turbulence concerning Trump’s tariffs has set the stage for potentially prolonged economic challenges for both the U.S. and China. With experts predicting continued volatility, investors are advised to stay vigilant and look for strategic means to navigate this uncertain trading environment. The impact of Trump’s trade policies may well dictate not just the fortunes of the Hang Seng Index but also affect global trade flows and economic growth forecasts going forward.