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Hang Seng index plunges into bear market on trade and China fears

Stocks in Shanghai and Hong Kong have been hit by trade war worries - AP
Stocks in Shanghai and Hong Kong have been hit by trade war worries - AP

Hong Kong’s Hang Seng index has slipped into a bear market as stocks in Asia continue to be battered by fears of slowing Chinese growth and the impact of Donald Trump’s trade war.

The Hang Seng’s 0.7pc drop overnight tipped the index into the feared territory as investors braced for a further escalation in the trade spat between Beijing and the White House. A bear market is when stocks tumble more than 20pc from an index’s 52-week high.

Hong Kong’s closely watched blue-chip index has been hit by growing fears in emerging markets over borrowing costs in the US, the rise of protectionist trade policies and early signs of stuttering growth in China.

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The Trump administration is expected to announce a third wave of tariffs on $200bn of Chinese goods imminently. The US president said last week that the government was putting the final touches to its plans and warned that he could also slap import taxes on a further $276bn of products. Beijing has vowed to retaliate on any new measures.

The Hang Seng's slide is the latest indication that emerging markets are under pressure. Shanghai’s blue-chip index fell into a bear market in June while the FTSE Emerging Index - which tracks stocks in developing economies -  followed last week.

Emerging markets, which borrowed heavily while the US dollar was cheap, are now vulnerable as the currency rises in value, putting pressure on the ability to pay down dollar debts. Fears of contagion from economic crises in Argentina and Turkey briefly spread to developed markets before receding again.

Hong Kong’s stock exchange is the seventh-largest in the world in terms of market capitalisation and the third-biggest in Asia after Tokyo and Shanghai. The index’s constituents include internet giant Tencent and banking heavyweight HSBC.