HONG KONG: Hong Kong stocks slumped, while China shares fell slightly on Wednesday after US Federal Reserve Chair Jerome Powell said the US central bank will likely need to raise interest rates more than expected.

China’s blue-chip CSI 300 Index edged down 0.36%, while the Shanghai Composite Index slid 0.06%.

The Hang Seng Index dropped 2.35%, marking its worst day in a month, while the Hang Seng China Enterprises Index tumbled 2.68%.

Broader Asian stock markets also sank as Powell’s hawkish comments on Tuesday raised the possibility of the Fed returning to large rate hikes to tackle sticky inflation.

“With central banks determined to defend their credibility, rates are likely to rise higher and stay at restrictive levels for longer than markets currently expect, particularly in the US and the UK,” said Matthew Quaife, head of Multi-Asset Investment Management, Asia at Fidelity International.

“We believe that this cumulative tightening will lead to slower growth and, ultimately, to cyclical recessions in the US, Europe and the UK later this year or next year.” Intensifying China-US tensions also weighed on market sentiment.

China said on Wednesday it was “seriously concerned” by Taiwan President Tsai Ing-wen’s “transit” plans and had asked Washington for clarification, amid reports she will meet US House Speaker Kevin McCarthy in the United States.

Meanwhile, the White House backed legislation, introduced on Tuesday by a dozen senators, to give the administration new powers to ban Chinese-owned video app TikTok and other foreign-based technologies if they pose national security threats.

Hong Kong-listed tech giants dived 3.2%, with Alibaba and Tencent down 3.2% and 2%, respectively.