HONG KONG • Hong Kong unveiled its first stamp duty increase on stock trades since 1993, sparking a broad sell-off in the US$7.6 trillion (S$10 trillion) market and sending shares of the city's exchange to their biggest plunge in more than five years.
The planned trading tax increase to 0.13 per cent from 0.1 per cent was part of a raft of new measures announced in Hong Kong's budget that included increased spending to help residents weather the pandemic. Even as the city's economy has plunged over the past year, stock prices and turnover have surged amid a global market boom.
Hong Kong's benchmark Hang Seng Index closed 3 per cent lower yesterday, led by an 8.8 per cent tumble in Hong Kong Exchanges & Clearing (HKEX). That was even after the bourse operator reported record annual earnings yesterday.
Mainland-based funds sold a record US$2.6 billion worth of Hong Kong stocks through exchange links with Shenzhen and Shanghai. That comes after 38 days of net purchases from north of the border.
Mr Calvin Tai, HKEX's interim chief executive, said in an earnings call that the bourse operator was not consulted by the government on its decision to raise the stamp duty.
Mr Kingston Lin, managing director of the asset management department at Canfield Securities in Hong Kong, said ahead of the announcement by the city: "The impact will be significant... The market is doing very well and, of course, it will bring more revenue to the government. But higher transaction costs will be a concern for the exchange."
The government announced spending measures of more than HK$120 billion (S$20.4 billion) to alleviate economic hardship for city residents struggling after a two-year economic recession.
The trading tax hike is due to be in place on Aug 1 and the government expects it to generate an extra HK$12 billion a year, local media including Apple Daily and NowTV reported, citing unidentified people. In the 2019/2020 fiscal year, the duty contributed HK$33.2 billion in revenue.
The move risks damping a trading boom that has gripped the city and propelled earnings at the exchange. The bourse yesterday reported that profit rose 23 per cent to a record HK$11.5 billion last year, helped by a 60 per cent jump in stock trading. Its shares have surged by about 150 per cent from a low last year, making it the world's biggest by market value.
"While we are disappointed about the government's decision to raise stamp duty for stock transactions, we recognise that such a levy is an important source of government revenue," an exchange spokesman said. "HKEX looks forward to continue working closely with all its stakeholders to drive the continued success, resiliency, vibrancy and attractiveness of Hong Kong's capital markets."
Analysts at Citigroup estimated that the increased stamp duty will raise trading costs by 6 per cent to 15 per cent, pressing down trading volumes and crimping the exchange's earnings per share by 3 per cent to 7 per cent.
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