Chinese equities traded in Hong Kong suffered a sharp decline on Monday, led by technology and electric vehicle stocks, amid worsening US-China trade relations. The Hang Seng China Enterprises Index (HSCEI) dropped as much as 2.9%, marking its biggest drop in over six weeks, and significantly underperformed the broader MSCI Asia Pacific Index, which slipped by 0.8%.

The selloff comes as tensions between the world’s two largest economies escalated, unsettling investor confidence. The onshore Chinese stock markets remained closed on Monday due to a national holiday, intensifying the focus on offshore indices like the HSCEI and the Hang Seng Index.

Trade Negotiations Collapse and Accusations Fly

Last month, negotiations between the US and China—which had raised hopes of a trade resolution—collapsed, with both sides blaming each other. US President Donald Trump stated on Friday that China “violated a big part of the agreement” previously established in Geneva, signalling a deterioration in diplomatic engagement.

While Trump added that a direct conversation with Chinese President Xi Jinping might help resolve some issues, investors remained cautious about how and when such talks might materialize.

Broader Curbs on Chinese Tech Fuel Market Anxiety

Investor sentiment worsened further following reports that the Trump administration was considering broader restrictions targeting China’s technology sector. The new regulations aim to include subsidiaries of already-blacklisted Chinese companies, which would extend the scope of current sanctions.

Moreover, limitations on Chinese students’ visas studying in the US were also under discussion, adding to the geopolitical friction and market uncertainty.

In response, the Chinese government demanded that the US immediately halt “discriminatory” actions, and reiterated the need to uphold the Geneva consensus reached between the two countries earlier.

Tech and EV Stocks Bear the Brunt

Among the worst-hit sectors were technology and electric vehicle (EV) companies, many of which have significant exposure to overseas supply chains and rely on foreign investments and component sourcing.

As per Billy Leung, investment strategist at Global X ETFs, the decline reflects “growing pressure and concern, such as renewed chip curbs.” He also noted that trade uncertainty, property market weakness, and liquidity stress expected in June 2025 could further discourage foreign investor inflows.

Real Estate Woes Persist in China

Apart from external trade pressure, domestic economic challenges are also impacting sentiment. Recent data showed that China’s residential property sales continued to decline in May, reinforcing fears that the real estate slump is still dragging down the broader economy.

The housing market, already grappling with high levels of developer debt, faces sluggish demand despite government stimulus measures. This adds to existing concerns over deflation and weak consumer sentiment.

Offshore Chinese Stocks Remain Top Performers Year-to-Date

Despite the latest pullback, Chinese stocks listed offshore have shown resilience in 2025. Both the HSCEI and the Hang Seng Index are up more than 12% year-to-date, outpacing the 6.7% gain seen in the MSCI Asia Pacific Index.

This performance has been buoyed by expectations of additional domestic stimulus from the Chinese government and AI-driven market enthusiasm, particularly following innovations by companies like DeepSeek, a homegrown artificial intelligence startup.

IPO Wave in Hong Kong Provides Market Cushion

Another positive factor supporting the market is the wave of IPOs by Chinese firms in Hong Kong. Analysts believe that a robust pipeline of listings could inject fresh liquidity and investor interest into the broader stock market, countering some of the near-term volatility caused by global trade uncertainties.

These new public offerings are seen as part of China’s broader push to shift capital market activity to more favorable jurisdictions, especially as scrutiny from Western regulators intensifies.

Market Outlook: Short-Term Volatility, Long-Term Hope

While short-term volatility is expected to persist, many market participants remain cautiously optimistic about medium- to long-term prospects for Chinese equities. Continued government intervention, potential easing of trade tensions, and innovation in high-growth sectors like AI are all seen as key pillars of support.

However, for now, investors remain wary as trade policy remains unpredictable, and macro headwinds such as property stress and liquidity concerns cloud the immediate horizon.

Conclusion

The latest slide in Chinese stocks traded in Hong Kong underscores how sensitive markets remain to geopolitical developments, especially in the current volatile trade and tech policy environment. Although fundamentals like innovation and IPO activity provide underlying strength, investor caution is likely to dominate the near-term narrative until clearer signals emerge from both Washington and Beijing.

The Upcoming IPOs in this week and coming weeks are Ganga Bath Fittings, Victory Electric Vehicles International, Wagons Learning.

The Current active IPO are 3B Films

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