Paul Chan, Hong Kong‘s financial secretary.
Hong Kong shares plunged on Wednesday after the city announced a 30 percent increase in stamp duty on stocks from 0.1 percent to 0.13 percent, a move that threatens the HKEx’s biggest source of revenue.
On Wednesday (Feb. 24), Hong Kong Financial Secretary Paul Chan announced that the stamp duty would be raised from 0.1% to 0.13% of each transaction amount, a 30% increase.
As a result of the news, HKEx shares fell heavily during the day, with the stock price once falling 12.3% before narrowing to 8.8%. Hong Kong’s benchmark Hang Seng index (Hang Seng index) once fell 3.5%, the largest intraday decline since May last year. Last May, the stock market was hit by reports that Beijing was planning to implement a tough national security law in Hong Kong.
The Financial Times reported that the Hong Kong government’s move to raise stamp duty on stock transactions threatened the HKEx’s biggest source of revenue.
Analysts say the tax hike will raise transaction costs and thus curb turnover, which will pose a challenge to HKEx and incoming chief executive Nicolas Aguzin.
JPMorgan Chase (JPMorgan) private banking international markets former chief executive Ou Guan Sheng will take office in May this year. This follows the early departure of Charles Li, who held the post for 10 years.
HKEx said it was “disappointed with the government’s decision to raise stamp duty on stock transactions,” but added that “we understand that the tax is an important source of government revenue.
According to the Hong Kong Economic Times estimates, assuming a share of Tencent 700 Hong Kong dollars, buy a handful of 100 shares of Tencent to 70,000 Hong Kong dollars, buyers and sellers need to pay 0.1% stamp duty, that is, 70 Hong Kong dollars, after the tax increase, both sides need to pay 91 Hong Kong dollars, an extra 21 Hong Kong dollars.
Christopher Cheung Wah-Fung, chief executive officer of Hengfeng Securities (Christfund Securities) and a lawmaker representing Hong Kong brokerage firms, said the increase in stamp duty on stock transactions could hurt smaller brokerage firms and retail investors who speculate in stocks every day.
Chen Shujin, an equity analyst at investment bank Jefferies, believes investors are worried not only about turnover, but also about Hong Kong’s long-term fiscal position.
According to an analysis by Shui Pi, a well-known Chinese financial commentator, data shows that the annual stamp duty revenue of Hong Kong stock market in 2020 was more than HK$60 billion, and after the stamp duty increase, there may be an extra HK$20 billion of revenue this year. But the increase in stamp duty triggered a plunge in the Hong Kong stock market, its loss of market value or much more than 20 billion Hong Kong dollars, which is bigger or smaller is not difficult to understand.
Affected by the news of the Hong Kong government raising the stamp duty on stocks, the southbound funds (mainland Chinese funds) flowed out massively in the afternoon, with a net outflow of more than HK$12.9 billion throughout the day, and an actual net sale of nearly HK$20 billion, both hitting a record high, the first net outflow since Dec. 18, 2020.
As Hong Kong stocks fell, Chinese investors sold a record $2.6 billion in net Hong Kong stocks through the Hong Kong Stock Exchange, according to The Wall Street Journal.
Hong Kong stocks have been trading hot recently due to the influx of money from mainland China, with a record single-day turnover on Monday, when main board stocks reached $39 billion.
According to data provider Wonder (Wind), southbound funds through the Stock Connect mechanism reached $40.1 billion in January, the highest monthly level since the mechanism was implemented in 2014.
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