What’s Next for Hong Kong Stocks Under Trump’s Tariff War

Hong Kong’s stock market has experienced significant volatility amid the U.S.-China tariff war initiated by President Donald Trump. Like other major global equity markets, Hong Kong stocks were heavily impacted by Trump’s announcement of “reciprocal tariffs” against China, which created fears of a global trade disruption, slower Chinese economic growth, and a potential U.S. recession. However, recent signs that Trump may roll back the harshest tariffs have sparked renewed investor confidence and market recovery. [para. 1][para. 2]

The city’s flagship Hang Seng Index (HSI) at one stage last month had fallen 20% from its March peak, while the Hang Seng Tech Index, representing major technology firms, plunged 28%. The steepest single-day drop occurred on April 7, with the HSI down 13.2% and the Tech Index falling 17%. However, since April 7, the HSI has rebounded by 14.3% and the Tech Index has jumped 19%, reflecting improved sentiment as U.S. policy softened. [para. 2][para. 3]

Analysts from Guoyuan Securities view the main tariff-related shocks as largely priced into the market, expecting further gains as sentiment recovers. They note that one critical concern earlier was the risk of tariffs fueling higher U.S. inflation, thus sustaining high interest rates, which impact Hong Kong directly due to its currency peg to the U.S. dollar. As the U.S. Federal Reserve raises rates, Hong Kong must follow to maintain the peg, driving up local borrowing costs, dampening trading activity, and triggering capital outflows. These factors resulted in lower market liquidity during the height of the tariff tensions. [para. 4][para. 5][para. 6]

Trump’s signal to reduce tariff hostility—including reconsidering tariffs as high as 145% on Chinese goods—has stabilized markets. This policy recalibration is likely motivated by domestic U.S. political pressures and the need to support capital markets at home. A weaker U.S. stock market appears to have provided room for eased U.S.-China tensions, boosting risk appetite among Hong Kong investors. Discussions of deals—including with China—have reinforced this more optimistic environment, even as formal Sino-U.S. talks have yet to begin. Trump reiterated to the media his intent to lower tariffs on China, recognizing the commercial reality that the current high rates hinder business. [para. 7][para. 8][para. 9][para. 10]

Looking ahead, analysts at China International Capital Corp. (CICC) highlight a shift in investor focus from the topline threat of tariffs to the impact on corporate profits and the role of government policies in cushioning these effects. The composition of Hong Kong’s market—with a significant share in “new economy” sectors less dependent on exports—may buffer earnings from tariff shocks. Even so, asset allocation is increasingly critical, with investors favoring high-dividend companies and resilient sectors like essential consumption, domestic banks, insurance, and leading property management firms. Long-term investors are encouraged to prioritize defensive sectors such as energy, communications, and utilities. [para. 11][para. 12][para. 13][para. 14]

Sinolink Securities identifies three sectors poised for outperformance: technology (especially China-focused internet companies and innovative consumer electronics), consumption (with new consumption themes underrepresented on the mainland), and innovative pharmaceuticals (which rely on licensing rather than exports). These areas are considered more insulated from tariff effects and offer promising investment opportunities as Hong Kong’s market stabilizes and reorients in the wake of trade tensions. [para. 15][para. 16][para. 17]