Mobile phone maker Xiaomi’s disappointing initial public offering has cast a cloud over potential new listings by Chinese companies in Hong Kong. The intensifying trade conflict between Beijing and Washington is only further deflating sentiment.

Xiaomi shares closed lower Monday in Hong Kong on its first day of trading after the world’s fourth-largest mobile phone maker priced an IPO that gave it a valuation of about $54 billion — half of what it had originally expected.

And though the Beijing-based company’s shares subsequently rebounded, its experience was closely watched by other companies considering or planning possible Hong Kong IPOs, including food delivery platform Meituan Dianping and financial services company China Renaissance, which have both filed to list on the city’s exchange.

“The sentiment in the market is not extremely good,” Jackson Wong, associate director at Huarong International Financial Holdings, told CNBC of the current outlook for Hong Kong listings.

In a blow to the local exchange, Chinese internet giant Tencent Holdings said in a statement on Sunday that it plans to list its online music entertainment business, Tencent Music Entertainment Group, on an unspecified U.S. exchange.

Tencent’s turn toward the U.S. reflects some of the problems the East Asian finance hub has recently faced, which, according to Wong, include disappointing valuations and waning investor enthusiasm.

Recent Hong Kong IPOs, including companies such as online healthcare provider Ping An Good Doctor and gaming hardware company Razer, were up to a thousand times oversubscribed, whereas Xiaomi’s was much less, indicating fervor has waned, he said.

Investors “are not giving a huge premium to these so-called new economy technology stocks at this point,” Wong said.

“New economy” largely refers to companies riding the wave of the expanding mobile internet, such as online shopping platforms and other web-based services including ride-hailing, food delivery and financial services.

Even financial services firm China Renaissance is tied to the sector, saying on its website that it serves “new economy entrepreneurs and investors globally.”

Sentiment surrounding Chinese companies with global ambitions has taken a hit after the U.S. fired a trade salvo against Beijing on July 6, imposing 25 percent tariffs on $34 billion in Chinese goods, and China quickly responded with retaliatory tariffs.

The administration of U.S. President Donald Trump upped the ante on Tuesday, announcing a list of Chinese products with an annual trade value of $200 billion that may be subject to new 10 percent tariffs.

The levies are subject to a two-month review process so will not take effect immediately, possibly providing time for the two sides to negotiate.

Still, the trade war has spooked investors and business leaders. Xiaomi CEO Lei Jun referenced worries over the impact of such tensions on the investment climate in an otherwise upbeat speech he gave at the company’s festive IPO launch on Monday.

“At this critical moment in Sino-U.S. trade relations, the global capital markets are in constant flux,” Lei told investors and journalists gathered at the Stock Exchange of Hong Kong.

Wong said that the trade dispute is helping to suppress sentiment toward IPOs on the perception that Chinese companies “might not be able to grow as fast as they originally thought.”

Charles Li, CEO of the Hong Kong exchange, said investors and companies ultimately decide what is in their best interests.

“The market is open to everybody,” he told reporters Monday at the exchange shortly after Xiaomi began trading. “Every investor is free to come here to invest.”

“Every issuer is free to come here to raise capital. If you don’t like the price you can stay away.”

Hong Kong’s exchange said in an email to CNBC that the city’s open and globalized economy leaves it well positioned to attract Chinese IPOs.

“Most mainland new economy companies have substantial international exposure and involvement in terms of business aspirations and investments by international private equity/venture capital, on top of mainland investors,” it said. “As a result, a Hong Kong listing is their most natural first choice.”

Meanwhile, listing in the U.S. remains attractive for its trading volume compared with Hong Kong, according to Ryan Roberts, senior research analyst at MCM Partners in Hong Kong.

But an advantage the Hong Kong market enjoys that can’t be overlooked is physical proximity to China — as well as cultural affinity.

“You’re a little bit closer geographically, conceptually to a lot of these Chinese companies,” he said. “Investors looking at some of those names coming to Hong Kong are definitely going to weigh that as well and I think that actually helps.”