HONG KONG — The Hang Seng Index fell 3 percent, marking its largest single-day decline since March 23, as investor skepticism over China's stimulus package collided with rising U.S. Treasury yields.
Financial stocks led the selloff. HSBC Holdings fell 5.5 percent. China Construction Bank and Bank of China each dropped 2.5 percent. Major technology stocks including Alibaba Group Holding and Tencent Holdings also weighed on the index.
A gauge of Chinese shares listed in Hong Kong declined 2.5 percent. Mainland China markets remained closed for the Golden Week holiday, removing a source of potential buying support.
China's stimulus package, unveiled earlier this week, failed to move markets. Investors viewed the measures as sufficient only to maintain current growth, not to ignite broader economic recovery. This assessment followed months of deteriorating economic data from the world's second-largest economy.
"The defensive tone in the morning session clearly signaled investors were underwhelmed by Beijing's announced growth support," said Homin Lee, senior macro strategist at Lombard Odier Singapore.
Thin liquidity and the absence of southbound capital flows during the holiday amplified price swings, Lee noted. U.S. 10-year Treasury yields reached their highest level since 2002 the prior day, transmitting pressure through Hong Kong's currency peg to the dollar.
Higher U.S. yields tighten Hong Kong's local financial conditions through the Hong Kong dollar's fixed exchange rate to the U.S. dollar. For banks, rising rates can expand net interest margins, but this benefit is offset by reduced loan demand, higher corporate funding costs, and elevated credit risks.
