The Hang Seng Index ended the day 1.7% lower. The sell-off was led by real estate companies such as Wharf Real Estate Investment with a minus of 5.4% and New World Development with a minus of 4.2%.
"We will see a hit in the markets because the impact of the bill is so significant," said Richard Harris, CEO of Port Shelter Investment Management.
The bill, which would allow China to extradite people from Hong Kong, should be discussed by the Legislature on Wednesday at a Legislative Council meeting.
However, this meeting was postponed after protesters on the streets around the legislature, which shares prime waterfront properties with many major banks and financial services companies, took to the streets.
Hong Kong has long been home to foreign companies seeking easy access to China and other growth markets in Asia.
The former British colony was returned to China in 1997 when Beijing agreed to guarantee its semi-autonomous legal system for the next 50 years. Harris said the growing uncertainty about his legal status is prompting companies to rethink their presence in the city. Of course, they will look elsewhere, "he said.
Analysts also say Hong Kong's market may be due to a correction, with the Hang Seng Index rising 5.7% this year.
said Francis Lun, chief economist of GE Oriental Financial Group, predicts According to Lun, the market's reaction to the protests will be paralyzed by Democratic demonstrations in 2014 "The economy will continue to growl, and as far as the political scene is concerned, China has control over everything. What can you do? Everyone will protest, but it will remain the same, "Lun added.