Hang Seng Index Dips as Tech Stocks Tumble, Trade Tensions Persist

US Futures Rally as Trump Delays Tariffs; Trade War Fears Persist

US futures markets signaled a strong investor reaction to US trade developments. On May 25, President Trump flip-flopped on the threat of a 50% tariff on EU goods, agreeing to delay 50% levies from June 1 to July 9, boosting risk sentiment.

On Tuesday, May 27, the Dow Jones mini surged 352 points, while the Nasdaq 100 and S&P 500 futures gained 198 points and 53 points, respectively. There was no trading on the Dow, Nasdaq Composite Index, and S&P 500 on May 26 because of the US Memorial Day holiday.

However, optimism about a US-EU de-escalation failed to offset concerns over the US-China trade war.

China Retains A1, Negative Outlook Credit Rating

On May 26, Moody’s affirmed China’s A1 sovereign credit rating with a negative outlook. However, the rating agency highlighted potential risks to China’s economy, stating:

“The uncertain trade policy environment poses downside risks to the level and quality of growth in China. Progress in fostering higher-productivity sectors is positive, but growth remains sensitive to exports given weaknesses in domestic consumption.”

Moody’s added that prolonged and significant trade shocks could prompt a downgrade, weighing on risk sentiment. Beijing expects lengthy trade talks and raised escalation risks if US political and economic pressures subside.

Brian Tycangco, editor at Stansberry Research, remarked:

“As I’ve said previously, we just had a pause- not a deal. China isn’t under any illusion that this is an easy road to travel. Get ready for more volatility.”

China Industrial Profits Rise Despite Trade Concerns

Despite solid April data, investor optimism remained subdued amid persistent trade concerns. Year-to-date, profits increased 1.4% year-on-year, up from 0.8% in March. April’s industrial profits rose 3% year-on-year vs. 2.6% in March, signaling healthy demand.

CN Wire reported:

“From January to April, the profit of China’s mining sector fell by 26.8% y/y to 0.287 trillion yuan. The manufacturing sector rose by 8.6% y/y to 1.55 tln yuan. The electricity, heating, gas, and water supply sector rose 4.4% to 274.6 billion yuan.”

Still, the May and June trends could be pivotal for Hong Kong and Mainland China stocks. Trade tensions and falling industrial profits could impact investor sentiment, underscoring the importance of a trade deal.

Hang Seng Index Retreats as Trade Tensions Linger

The Hang Seng Index fell 0.20% to 23,236 in morning trade. Mainland China’s equity markets also posted losses on May 27. The CSI 300 fell 0.54%, while the Shanghai Composite dropped 0.26%.

Investors reacted to news of Meituan CEO Wang Xing stating he would ‘spare no effort to win competition’, weighing on tech stocks. Wang’s inability to provide guidance for Q2 and beyond also raised demand-side concerns.

JD.com (09618) slid 3.01% on the threat of intensifying competition impacting price margins. Alibaba (9988) and Baidu (9888) posted losses of 0.34% and 0.18%, respectively.

Auto stocks came under heavy selling pressure. BYD Company Ltd. (01211) slid 3.96%, while Li Auto (02015) and Geely Automobile Holdings Ltd. (00175) dropped 2.37% and 3.48%, respectively.

China’s Commerce Ministry reportedly called industry associations, including automakers like BYD, to a Tuesday meeting, spooked investors. Policy measures to fuel demand for China-built cars may trigger a EV share price rally.

Stimulus remains critical to support consumption. Near-term data will show whether policies are reviving growth. Private sector PMIs, due Saturday, May 31, will offer mid-Q2 insight into China’s economic trajectory.

Outlook for Asian Stocks

Uncertainties about the US-China trade war remain a headwind for Hong Kong and Mainland China markets. Progressive trade talks and further stimulus measures targeting domestic consumption could boost risk sentiment. In this scenario, the Hang Seng Index could target 24,000 and the March 19 high of 24,874.

However, renewed trade tensions and the absence of fresh stimulus may drag the Index toward 22,500, the next key support level.

Could stimulus be the turning point for Chinese equities? To stay ahead of market-moving headlines—follow our live coverage for real-time updates on US-China trade talks, global stimulus policies, and central bank signals.