Hong Kong’s Hang Seng Index Rallies Amid Signs of Trade Tension De-escalation
3min read The Hong Kong stock market, after a tumultuous start to 2025 marked by U.S.-China trade hostilities, has shown signs of recovery as investors bet on easing tensions between the world’s two largest economies. The Hang Seng Index surged 2.1% on April 10 following conciliatory signals from Washington and Brussels, though volatility persists as tariffs remain elevated and geopolitical risks linger. This article explores the market’s dual narrative of resilience and fragility, driven by policy shifts, sector-specific pressures, and the precarious balance of global trade relations.
The Escalation and Initial Impact
The first quarter of 2025 saw U.S. tariffs on Chinese goods skyrocket from 10% to a peak of 104% by April 9, with Beijing retaliating with its own 34% tariffs and restrictions on rare earth exports. These measures cast a shadow over Hong Kong’s markets, pushing the Hang Seng Index into bear territory after a mid-April high of 19,900. Export-reliant sectors bore the brunt: WuXi Biologics (HKG:2269) plummeted 34.1%, Xiaomi (HKG:1810) fell 20.9%, and Lenovo (HKG:992) dropped 28.4%. Meanwhile, domestic-focused firms like Power Assets (HKG:004) and CSPC Pharmaceutical (HKG:1092) held up better, declining just 0.2% and 1.0%, respectively.
China’s economy, however, showed unexpected strength, with Q1 GDP growth hitting 5.4%, fueled by retail sales and industrial production. Yet the trade war’s toll looms large: U.S. tariffs threaten nearly 3% of China’s GDP ($525 billion in exports), and Hong Kong’s $38 billion in U.S. exports face steep headwinds. Analysts warn of a 1–2 percentage point drag on annual growth unless tariffs ease.
The Rally and De-escalation Signals
The Hang Seng’s rebound began April 10 after the European Union announced a temporary pause on retaliatory tariffs on U.S. goods, followed by U.S. President Donald Trump’s decision to suspend “reciprocal” tariffs for 90 days. These moves, though partial, triggered a regional rally: Japan’s Nikkei 225 (up 2.33%) and Taiwan’s Taiex (9.3%) surged, while the Hang Seng Tech Index climbed 2.34%, led by Alibaba (HKG:9988) and Kingdee International (HKG:268).
Crucially, Trump’s clarification that final tariffs on Chinese goods would “not be anywhere near 145%” calmed investor nerves, even as the 145% rate remained in place. The People’s Bank of China (PBoC) further stabilized sentiment by holding its key lending rates steady, allowing the yuan (USD/CNH) to rebound to 7.42855—a 0.13% appreciation—after earlier devaluation pressures.
Lingering Risks and Policy Responses
Despite the rally, risks remain acute. China’s retaliatory 84% tariffs on U.S. imports and ongoing U.S. restrictions on tech exports underscore unresolved tensions. The PBoC’s yuan weakening strategy, while boosting exports, risks inflationary pressures. Meanwhile, state-backed funds have poured into ETFs and tech stocks to prop up markets, but these measures offer only temporary relief without a durable trade deal.
The Hang Seng’s technical indicators reflect this fragility. After hitting an intraday low of 17,000—a level analysts had flagged as critical—the index rebounded to 19,300 by April 23 but remains below its 200-day moving average. The RSI (14) dipped to 26 on April 9, signaling an oversold condition, but sustained recovery requires more than short-term pauses in tariffs.
Conclusion: A Fragile Rally, Not a Definitive Turn
The Hong Kong market’s April rebound reflects cautious optimism, not certainty. While the 9.14% surge in early April and subsequent 2.1% rally on April 10 underscore investor hope for negotiated solutions, the 145% tariffs and retaliatory measures remain in place. China’s 5.4% GDP growth and domestic policy support (e.g., yuan stabilization, consumption stimulus talks) provide a floor, but export-dependent sectors like tech and manufacturing remain vulnerable to further escalation.
The divergence between Asia’s outperformance (Hang Seng vs. the S&P 500’s 12% YTD drop) highlights China’s reliance on policy-driven resilience, not fundamentals. Investors should remain wary: if trade talks falter, the Hang Seng could retest its 17,000 lows, while a de-escalation breakthrough could spark a sustained rebound. For now, the market’s fate hinges on whether temporary tariff pauses evolve into lasting agreements—or if the trade war’s economic costs force both sides back to the negotiating table.
In this precarious landscape, the Hang Seng’s performance serves as a real-time barometer of global trade tensions. As long as the U.S. and China remain locked in a tariff tit-for-tat, Hong Kong’s markets will remain hostages to their negotiations.
