THE Hongkong Stock Exchange had its second best month on record in March with $87 billion worth of shares changing hands, despite - or, perhaps, because of - politically-inspired volatility. Turnover for the month was only exceeded by the record $91.86 billion worth of shares exchanged last May. The boom-time trading for the month was significant for more than just the near record level achieved. Apart from the good income levels the turnover means for brokers, the close of trading for the 12 months to March also coincides with the end of the Government's 1992-93 fiscal year. Total market turnover for that fiscal year was a record $743.4 billion, up almost 87 per cent on the turnover of $398.4 billion for 1991-92. It is a matter of record now that the market produced an all-time high turnover of $700 billion in the 1992 calendar year, more than double the $334 billion turnover of 1991. But it is the fiscal year that is important from the Government perspective because it is the turnover in the fiscal year that indicates its stamp duty take from the market. Over recent years, the Government has adopted the policy of a step-by-step reduction in the stamp duty applicable to share transactions on the local market. In the latest Budget, the applicable stamp duty was cut again to 0.3 per cent (effectively for the 1993-94 fiscal year) from the 0.4 per cent level applying for 1992-93. It had been cut to 0.5 per cent from the long-standing rate of 0.6 per cent the previous year. The Government's argument for making the cuts has been to keep the local market competitive, particularly at a regional level. It probably need not have bothered. Over the same period, there has been a sharp rise in turnover - unrelated to the stamp duty cuts - from around only $300 billion in 1990 to the current annual rate of $700 billion plus. This has meant that, instead of seeing a reduction in income from the share transaction stamp duty - as a result of the cut in rates - the government has seen its revenue rise. In the fiscal 12 months just ended, for example, Government revenue from the market would have been somewhere in the region of $2.9 billion at the 0.4 per cent rate - up from the $1.9 billion that would have been earned in the previous year at the higher0.5 per cent rate on a lower overall market turnover. The stamp duty on share transactions is just one of the Budget items that has caused the Government so much difficulty in judging its annual revenue and measuring the Budget surplus. No one, not even the Financial Secretary's office could have forecast that market turnover would more than double in just the last 12 months. But, even given the present political difficulties, it seems likely that market turnovers will continue at relatively high levels into the foreseeable future. This is due, partly to intense local trading interest in the market; partly to the increased international activity with special attention given the ''China Play'' factor; and partly to the sheer volatility of the market. Another reason to expect continued high turnover is the expansion of the number of shares on issue as a result of new floats, especially the new mainland floats due some time this year. With the exchange breaking records in price and turnover during 1992, local brokers are, inevitably, having their best time ever in terms of overall income. Preliminary estimates suggest that Hongkong brokers would have raked in somewhere between $1.75 billion and $3.5 billion from market trading alone in the last year. Despite the record year for local brokers, there is unlikely to be much published about the revenue aspects of their business. It remains a fact of the industry that, when brokers are doing badly, there are the long and loud screams, plus staff reductions in brokers offices, especially in research. Hence the Government's response of cutting the stamp duty on transactions during the low turnover years - from 1988 through 1991 - to allegedly make the local market more competitive and attractive, compared with other regional and world markets. The other important fact to keep in mind about brokers is that they do not much care whether a market is going up or down, so long as the turnovers are high. After all, it is turnover that makes their money, even if it is a rising market that really attracts investors or speculators to play the game in earnest. But brokers rode an income wave in 1992, probably unrivalled in the history of the local market - and they are still doing so. Monthly turnover last year averaged some $58.4 billion, compared with $27.8 billion in 1991, $24.8 billion in 1990 and $25 billion in 1989. This year, monthly turnover has averaged slightly in excess of $60 billion a month. Ian Perkin is chief economist at the Hongkong General Chamber of Commerce
