Hong Kong policy address: stamp duty cut to enhance stocks appeal as city looks to end weather-induced market shutdowns
- A stamp duty on stock transactions will fall to 0.1 per cent from 0.13 per cent, most likely from next month after an amendment to the law
- Bourse operator HKEX and brokers hope lower transaction cost will help increase activity and reverse two years of sliding turnover
The city’s government will reduce the stamp duty – payable by buyer and seller – to 0.1 per cent from 0.13 per cent, Chief Executive John Lee Ka-chiu said in his annual policy address on Wednesday. The reduction is likely to take effect from next month when the relevant law is amended, he added.
While the decision could cost the city an estimated HK$14.1 billion (US$1.8 billion) per year in revenue, according to government estimates, it will return Hong Kong to its status as one of the world’s cheapest markets for buying and selling equities. The move is widely being viewed as just the tonic needed to revive a market struggling with shrinking turnover over the past two years.
The government last tweaked the stamp duty in August 2021 by raising the two-way levy to 0.26 per cent from 0.2 per cent to replenish its coffers, after the Covid-19 pandemic sent the city’s economy into its worst recession on record.
“These measures will help reduce trading costs, encourage more participation in Hong Kong’s capital markets and, in turn, build greater liquidity and market depth,” Nicolas Aguzin, CEO of bourse operator Hong Kong Exchanges and Clearing (HKEX), said in a statement.
HKEX will continue to improve the stock exchange’s listing regime and market infrastructure, and to expand its product ecosystem, with the aim of making Hong Kong’s markets more efficient and accessible for global investors, Aguzin added.
The average daily turnover fell 12 per cent in the first nine months of this year to HK$109.7 billion from the same period a year earlier, partly due to typhoon-related shutdowns, HKEX said in its latest report to shareholders on October 20. In 2022, the average slumped 25 per cent to HK$124.9 billion a day.
Based on this year’s turnover, the city’s government could lose about HK$66 million per day from a lower stamp duty revenue.
The current duty of 0.26 per cent per stock transaction ranks as the second-highest among major global markets, trailing the 0.5 per cent charged in the UK, according to data compiled by the Post.
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After Lee’s proposed reduction, the cost in Hong Kong will drop to levels on par with markets in Singapore and South Korea. China halved its stamp duty to 0.05 per cent in August, while the US and Japan do not impose any stamp duties on stock transactions.
“The stamp duty cut and reduction of spread will cut down transaction costs, which will definitely encourage more investors to trade in the Hong Kong stock market,” said Tom Chan Pak-lam, permanent honourable president of the Institute of Securities Dealers.
The reduction “is directionally helpful”, said Robert Lee Wai-wang, the lawmaker for the financial services sector and CEO of local brokerage Grand Capital Holdings.
“The economy and financial markets need more proactive measures, after experiencing sustained high interest rates, a complex geopolitical environment and a slow recovery from the pandemic,” he added. “The financial industry will need to continue diversifying in the future.”
Industry participants commended the measures announced by Lee, including a call on HKEX to study ways to keep the stock market open during bad weather. This year, the exchange has had to halt trading for typhoons Talim, Saola and Koinu, and other black rainstorm warnings.
HKEX and the city’s financial-market regulator, the Securities and Futures Commission (SFC), will also reform the smaller board GEM, following a public consultation process. Trimming the stock price spread, as well as enhancing the new listing regime could attract more global companies, Lee said in his policy address.
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These measures were recommended by a task force formed by the city’s government last month and chaired by former SFC chairman, Carlson Tong Ka-shing, to boost turnover and liquidity in the city’s financial markets.
“A reduction of the stamp duty will improve investor sentiment and strengthen the competitiveness of the stock market,” Tong told the Post.
“The proposed reduction will cost the treasury a loss of revenue of about HK$14 billion, which may not be compensated by an increase in liquidity in the short term. However, it will make Hong Kong more competitive and enhance market liquidity when the external environment settles down.”
Hong Kong is the only major financial market that closes during typhoons and severe rainstorms, which results in loss of trading revenue for HKEX, the government and, potentially, investors, Tong said.
“The task force, therefore, supports the current plan spearheaded by HKEX to keep the market open, but it involves some major technical issues and a number of stakeholders, including HKEX, stock brokers and banks.
“The market will need to be consulted and I hope that we can resolve the technical issues speedily.”
