The Hang Seng Index rose 1% in early trading, led by Tencent Holdings Ltd and China Life Insurance Co. While stocks advanced, spurred by overnight gains in the U.S., the latest development adds further risks to the bull case for the city’s share market.

“U.S. sanctions have been an overhang for Hong Kong assets,” said Steven Leung, executive director at UOB Kay Hian. “Worries include how it will affect the city’s trade in the future and also there have been fears that banks in the city could be banned from buying the greenback. Investors will give a discount when considering buying assets here given all these worries.”

The Hang Seng Index is already a global laggard: the gauge is down 11% over the past 12 months through Tuesday, compared with a 2% gain by MSCI’s index of world stocks. Against U.S. and mainland Chinese benchmarks, Hong Kong’s underperformance is even more stark. The S&P 500 Index and CSI 300 Index have rallied at least 6% in the past year.

By almost any measure, that discount is large. The Hang Seng Index trades at 10.9 times projected 12-months earnings, compared with 14.5 times for the CSI 300 Index and 22.1 times for the S&P 500.

President Donald Trump approved the legislation on Tuesday after spending weeks blaming Beijing for the coronavirus pandemic and criticizing its handling of Hong Kong and treatment of minority groups in western China. Under the United States-Hong Kong Policy Act of 1992, the U.S. treats Hong Kong differently than the Chinese mainland in trade, commerce and other areas.

Trump said that the executive order he signed earlier in the day meant Hong Kong would now be treated the same as mainland China. The White House said the order would revoke special treatment for Hong Kong passport holders and ends Hong Kong’s benefits of U.S. exports.

“In the longer term, this adds another needless layer of uncertainty to already frosty Sino-U.S. relationships, especially with regards to trade,” said Justin Tang, head of Asian research at United First Partners. “Against the backdrop of COVID-19 related disruptions, an escalation of trade wars will plunge supply chains into further disarray.”

To be sure, the Hang Seng Index had a flurry of gains around the imposition of the national security law at the start of this month, supported by mainland inflows. Those gains have faded in the past week, placing the gauge among the bottom 10 performers among 93 global benchmarks tracked by Bloomberg.

Adding to the bear case is a spike in local coronavirus cases, which this week prompted the government to impose some of the most drastic measures yet to contain the outbreak.

“Stocks are underperforming because the local economy is struggling,” UOB’s Leung said. “The virus situation worsened recently and many economic activities have been affected.”