Chinese stocks took a significant dive and sovereign yields headed towards an all-time low as investors prepared for the consequences of an escalating trade dispute between the top two global economies.

A key index of Chinese shares traded in Hong Kong witnessed a significant 13.8% drop, entering a bear market. The Hang Seng Index in Hong Kong experienced its worst day since 1997, erasing all gains made throughout the year. Furthermore, the CSI 300 onshore index lost 7.1% of its value.

Amid China's response to US President Donald Trump's extensive tariffs, investors are grappling with the realization that the feared trade conflict has evolved. Beijing is making efforts to mitigate the fallout by contemplating accelerating stimulus measures and bolstering investments in exchange-traded funds to stabilize the market. However, investors are currently fixated on the looming economic risks.

The drastic sell-off stirred up a frenzy in Hong Kong, where stock turnover hit a record high of HK$621 billion ($80 billion) on that day. Market turmoil affected various sectors and markets, with every member of the Hang Seng China Enterprises Index experiencing declines. Chinese tech stocks in Hong Kong plunged over 17%, and Chinese bond issuers faced significant losses in Asia, leading to widening spreads on certain investment-grade notes.

With concerns about the impact of escalating tariffs on China's economy, government bonds saw a surge in demand as investors sought refuge in safe-haven assets. The 10-year yield dropped to near its lowest level on record, driven by widespread buying across various maturities.