China, Hong Kong stocks tumble as escalating Iran war rattles markets

SHANGHAI: Stocks in China and Hong Kong are on track for their worst day in nearly a year as the escalating war in the Middle East fans stagflation fears and roils global financial markets.

Investors dumped stocks in sectors ranging from tech to travel to agriculture, fearing they would be hit by soaring oil prices and weaker demand.

But sectors including coal, oil and electric vehicles attracted inflows on bets they would benefit from a growing pursuit of energy security triggered by the oil shock.

China’s benchmark Shanghai Composite Index slumped 2.5% at the lunch break, heading for its biggest one-day drop since April 2025.

The blue-chip CSI300 Index lost 2.4% to reach a four-month low.

Hong Kong’s Hang Seng Index tumbled 3.5%. On Sunday, Iran said it would strike the energy and water systems of its Gulf neighbours if US President Donald Trump followed through with a threat to hit Iran

’s electricity grid, which would mark a major escalation in the war. “The future path of oil prices and their effects on global growth and financial conditions depend on how long the Strait of Hormuz remains closed, which is highly uncertain,” Goldman Sachs said in a note.

“For China, the impact hinges on both the demand and supply situation outside of China.”

The US-Israeli war on Iran could spark “bad inflation” in China, with an input-cost shock threatening to squeeze already thin corporate profit margins, piling pressure on jobs and wages, economists say.

In addition, if global demand weakens significantly, “Chinese exports and growth would come under considerable pressure,” Goldman said. Agriculture, tourism, and consumption stocks were among the biggest losers as they are seen to be most impacted by rising energy costs. The only bright spot is the energy sector.

Coal miners, oil refiners and EV makers rose on bets that they would benefit from a greater emphasis on energy security.

“If Iran loses the war or throws in the towel - a worst-case scenario for China, who could lose access to a key supply of oil, Beijing will surely ramp up investment on new energy,” said Yuan Yuwei, a hedge fund manager at Trinity Synergy Investments.