Hong Kong stocks sank on Friday morning amid renewed concerns over worsening geopolitical tensions in the Middle East and the US Federal Reserve’s caution on an interest rate cut.

The Hang Seng Index fell 1.23 percent to 16,184.02 as of the end of morning trading. The Tech Index shed 2.6 percent, with delivery giant Meituan plunging 3.63 percent and the e-commerce bellwether Alibaba Group dropping 1.91 percent.  

Geopolitical risks are back on the radar following Iran’s missile and drone attack on Israel. Volatility and nervousness are likely with eyes on any further headlines coming out of the Middle East, said Redmond Wong, chief China strategist at Saxo Markets.

The market is also on edge with the pace of the Federal Reserve’s rate. “Fedspeak is getting aligned on the potential for no rate cuts this year, and Fed member John Williams also highlighted a tail risk of a rate hike. This has made markets nervous, and a selloff ensued both in equities and bonds,” said Charu Chanana, head of FX strategy at Saxo Markets.

OCBC Bank this week cut its Fed rate cut expectation 2024 by 25 basis points to 75 basis points, which will bring the target range of the Fed funds rate to 4.50-4.75 percent by year-end.

“Our assessment is the broader disinflation trend remains, so does the Fed’s easing agenda; but interim bumps in inflation mean the Fed is not going to cut rates just yet, and a delay in the timing of the first rate cut will reduce the room for rate cuts to be delivered between now and year-end,” an OCBC bank research report said.

Hang Seng, the city’s benchmark stock index, which includes many large Chinese mainland companies, has now lost 3.6 percent in the year to date.