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HONG KONG (Feb. 24): Hong Kong said on Wednesday that it would increase the tax on stock trading in the global financial center, causing the city’s stock trader’s shares to plummet, even as it posted record gains due to high trading volumes.
The stamp duty on stock trading will increase to 0.13% of the transaction value from the current 0.1% on Aug. 1, Hong Kong’s Financial Secretary Paul Chan announced in his annual budget address, as the government sought to increase revenues, which have been affected by the Covid-19 pandemic.
Both buyers and sellers of Hong Kong-listed securities pay the fee, although certain products, such as exchange-traded funds and derivatives, are exempt.
The announcement sent Hong Kong Exchanges and Clearing (HKEX) shares down 11%, the biggest drop in a day since October 2008. Its shares closed 8.8% lower at HK $ 509.
Citi analysts estimated that the increase in stamp duty would result in an impact on the exchange’s earnings per share of between 3% and 7%.
“While we are disappointed by the government’s decision to increase the stamp tax for stock transactions, we recognize that such a tax is an important source of government revenue,” said a HKEX spokesperson.
The Hong Kong government will collect HK $ 51 billion (US $ 6.58 billion) from the current stamp tax rate on stock trading in the 12 months to the end of March 2021, and US $ 59 billion from Hong Kong in fiscal 2021-22, after the increase. .
Earlier Wednesday, HKEX posted a 23% rise in 2020 net profit, driven by higher trading volumes due to coronavirus-driven market twists, while schemes linking it to mainland China also boosted the operations.
Net profit of HK $ 11.51 billion (US $ 1.48 billion) for the year ended December 31 was the third consecutive year of record earnings.
Business income is the largest contributor to HKEX’s income.
Other major global trading centers, such as the United States and Japan, do not impose stamp duty on stock trading.
High trade
Average daily turnover of stock products traded on the Hong Kong exchange increased 60% in 2020, according to HKEX’s earnings release, initially driven by coronavirus-induced volatility.
Trading was also boosted by a number of new listings, mostly from Chinese companies listed in the US, such as technology company JD.com, seeking secondary listings in Hong Kong.
Hong Kong was the second most popular listing globally in 2020, with deals worth $ 31.2 billion, compared to Nasdaq’s $ 51.3 billion, according to Refinitiv data.
GEO Securities CEO Francis Lun said the increased stamp duty would not hurt the common investor in Hong Kong, as it would only mean an additional HK $ 30 for every HK $ 1 million in transactions.
“It could have an impact on the flash or day traders who operate on very thin margins, but the existence of a stamp duty in the first place, even at 0.1%, means we have very few of those traders here.”
Hong Kong’s trading volumes have risen further in 2021, with the local benchmark index hitting a 32-month high last week.
Average daily turnover in January was HK $ 245.7 billion, more than double the previous year’s figure, driven by record continental cash flows to Hong Kong-listed companies such as e-commerce firm Tencent Holdings and the manufacturer. of Xiaomi Corp smartphones through Stock Connect. scheme, linking Hong Kong with the Shanghai and Shenzhen stock exchanges.
Kingston Securities CEO Dickie Wong said such trading could be affected by the increase in stamp duty.
“If there are stocks that are listed in both Hong Kong and mainland China and are trading at similar valuations, why trade Hong Kong stocks when you can buy them in mainland China and not pay stamp duty?”
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