Post by : Meena Ariff

Photo: Reuters

Hong Kong's stock market saw the biggest drop in two months after the Federal Reserve warned that tariffs could cause more inflation. The ongoing conflict in the Middle East also disrupted global oil supply, adding more pressure to the markets.

The Hang Seng Index fell by 2% to 23,231.48 during the midday break. This was the biggest loss since April 7, when the index dropped 13% after U.S. President Donald Trump announced reciprocal tariffs. The Hang Seng Tech Index dropped 2.4%, and the CSI 300 Index and the Shanghai Composite Index on the mainland both retreated by at least 0.8%.

Nearly all the stocks on the Hang Seng Index saw losses. This included rate-sensitive stocks like Sun Hung Kai Properties (SHKP), which dropped after the Federal Reserve decided to keep interest rates unchanged for the fourth time this year.

Inflation is weighing heavily on global stock markets, with the United States still in a deadlock with most of its trading partners over tariffs. If these trade talks break down, American consumers will face higher prices for imported goods, causing more inflation and forcing the Fed to raise interest rates. Higher rates could also lead to money moving out of Asia to assets that offer higher returns.

Tai Hui, a strategist at JPMorgan Asset Management in Hong Kong, said, “Trade policy, fiscal policy, and the unintended consequences of policies from the Trump administration are causing more market uncertainty this year.” He added that it is important to diversify investments internationally and use other strategies to handle the market’s ups and downs.

Federal Reserve Chair Jerome Powell said during a meeting in Washington that the tariff increases are likely to raise prices and slow down economic activity. While the Fed still plans to lower interest rates two more times this year, it has reduced its economic growth forecast and raised its inflation predictions.

“There will be a rise in prices due to tariffs, and it will affect the economy. We know it’s coming, but we don’t know how big the impact will be,” Powell said.

There is also growing speculation that the U.S. may get more involved in the conflict between Iran and Israel, which could worsen the situation in the Middle East, a region that supplies much of the world’s oil. This would likely cause oil prices to rise, adding to inflation and making it harder for the Fed to control prices.

Big companies like Alibaba Group and Tencent Holdings saw their stock prices drop. Alibaba fell by 1.9% to HK$110.10, and Tencent lost 2.2%, going down to HK$497. Property developers in Hong Kong also saw losses due to concerns that interest rates would remain high for a longer time. SHKP dropped 1.7% to HK$83.80, and Hang Lung Properties lost 2.3%, falling to HK$6.67.

One company, Foshan Haitian Flavouring and Food, saw its stock price rise by 0.1% to HK$36.35 after a successful stock offering, the second-largest in Hong Kong this year, raising HK$10.1 billion (US$1.3 billion).

Most other Asian markets also saw declines. Japan’s Nikkei 225 slipped 0.7%, South Korea’s Kospi retreated 0.2%, but Australia’s S&P/ASX 200 rose slightly by 0.1%.