Market concerns about the Middle East situation intensified amid reports that the United States was preparing detailed operational plans for potential ground missions in Iran, and had issued a 48-hour ultimatum to Tehran demanding the immediate reopening of the Strait of Hormuz.

Although after the markets closed, US President Donald Trump announced a five-day pause in military action amid ongoing talks with Iran’s leaders.

The Hang Seng Index finished Monday’s trading with a 3.54 percent drop, losing 894.85 points to close at 24,382, with a turnover of HK$368.7 billion ($47.07 billion).

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The Hang Seng China Enterprises Index retreated 3.11 percent to close at 8,307 points, while the city’s technology stock gauge — the Hang Seng Tech Index — edged down 3.28 percent to close at 4,712 points.

Net southbound inflows into Hong Kong equities totaled HK$29.7 billion, with 88 blue-chip companies slumping during the trading day.

Gold prices plunged below $4,200 per ounce, causing the share price of Laopu Gold — a leading gold craftsmanship brand — to dive 8.6 percent. China Hongqiao Group, a major aluminum producer, slumped 8.1 percent.

Insurance companies’ shares also took a hit: AIA Group plunged 7.8 percent; China Life Insurance Co dipped 7.6 percent; and Ping An Insurance (Group) Co of China shed 6.9 percent.

The conflict escalation in the Middle East also heightened concerns about global inflation through disruptions to the energy supply. This is likely to delay interest rate cuts both in the US and globally, depending on the duration of supply disruption and the impact on inflation.

Market opinions vary regarding the pace of US interest rate cuts.

Blerina Uruci, chief US economist at T Rowe Price, a global investment management firm, said the baseline view for a dovish Federal Reserve in the second half of the year has not changed, despite significant market shifts in pricing. “I still think that two to three cuts are possible this year and three to four cuts over the next 12 months, assuming that the energy price shock does not leave an imprint on core inflation,” she said.

Karsten Junius, chief economist and head of economic and strategy research at Bank J Safra Sarasin, disagreed: “Central bankers are right to worry that repeated supply shocks, combined with still-above-target inflation in some economies, could unhinge households’ inflation expectations. Hence, their overall tone was relatively hawkish, prompting investors to price in further rate rises.”

Despite concerns over the inflation trend and the pace of interest rate cuts, global fund managers remained relatively optimistic about the long-term investment potential of the Hong Kong equity market.

Value Partners Group said Hong Kong equities face less downside risk during the war compared to other markets, as they have already lagged behind other Asian markets year-to-date. Mainland investors are eager to snap up Hong Kong shares, especially when valuations are relatively appealing.

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“We remain constructive on global equities, with a continued preference for the US and selective opportunities in (the mainland’s) A-shares or Hong Kong stocks where policy alignment and innovation trends present pockets of strength,” said Derek Loh, head of equities at Raffles Family Office.

William Fong, head of Hong Kong China Equities at Barings, said that the Hong Kong and A-share markets are approaching a pivotal moment driven by secular trends, policy support and evolving global dynamics.

Fong added that these two markets are offering rich stock-picking opportunities as manufacturing upgrades, automation, energy transition and new economy sectors provide more investment prospects.

Contact the writers at oswald@chinadailyhk.com