The MSCI Hong Kong Index dropped 1.4% at 3.30 pm, briefly paring losses as Chief Executive Carrie Lam said the new law does not mean the city is in an official state of emergency.

Property developers were the biggest losers, with Sun Hung Kai Properties Ltd poised for the largest drop in two months.

The Hang Seng Index slid 0.9% below the key 26,000 point level.

Hong Kong’s markets are closed Monday for a holiday.

Speculation circulated widely before the briefing, which was attended by Lam and her 16 ministers.

The concern was that any decision to invoke emergency laws could backfire, potentially angering protesters and spurring more violence.

It could also jeopardise the city’s standing as a global financial hub.

“Enacting this law might damage Hong Kong’s reputation as city with freedom and a relatively stable market,” said Jackson Wong, a director at Amber Hill Capital Ltd.

“This may cool down the protests but it could also escalate actions taken by the hardcore demonstrators.”

Hong Kong stocks just suffered the worst quarter in four years as investors priced in escalating local tensions and a worsening economy.

Corporate earnings – which are already under pressure from a protracted US-China trade war and the weaker yuan – are expected to contract the most since the global financial crisis this year.

The city’s economy is showing the strain of months of protests, with data this week showing retail sales plunged a record amount in August.

A recession could take the Hang Seng measure down another 25% by the end of 2020, according to Oreana Financial Services Ltd’s Isaac Poole.

MTR Corp slumped as much as 2.8%. The operator of Hong Kong’s subway appealed to protesters to stop damaging facilities on the network.

Some 800 access gates, 900 ticketing machines and 700 surveillance cameras have been broken during the four-month long protests, according to the firm.