Hong Kong unexpectedly increased its stock trading tax by 30%, putting a damper on the city’s stock exchange business just because it announced annual sales and profits.
Hong Kong Exchanges and Clearing Ltd., which at its own market valuation has grown into the world’s largest currency controller, and the fourth largest value of companies listed on its stock exchange, has seen a huge increase in trading and new listings.
The rise of the group also reflects the increase in China’s financial markets and is becoming one of the largest and most important in the world after that in New York.
On Wednesday, however, the Hong Kong government spoiled a victory round for Hong Kong Exchanges. The government appoints half of the management, including the chairman, and holds a stake in the business.
Paul Chan, the city’s financial secretary, suggested lifting the so-called stamp duty on shares to 0.13% from 0.1%, as part of Hong Kong’s annual budget. Hong Kong is reeling from the effects of the pandemic and earlier social unrest, with its economy shrinking by a record 6.1% last year.
The looming tax increase has boosted Hong Kong Exchanges’ shares, even though the 2020 net profit reported $ 1.48 billion, an increase of 23% and the largest harvest ever.
The company’s share, which recently reached a record high, fell to 12% before increasing some losses to 10.4% lower in the afternoon trading. The city’s benchmark Hang Seng Index, which recently hit its highest level since June 2018, fell 3.6%.
The tax increase is likely to hurt smaller brokers and individual investors who bet on stocks on a daily basis, says Christopher Cheung Wah-fung, CEO of Christfund Securities and a lawmaker representing brokers in Hong Kong.
Still, he said it was unlikely to affect Hong Kong’s overall competitiveness, as the city does not impose capital gains tax. “This is a way for the government to generate more immediate revenue amid rising trade volumes, as it should provide more dividends amid the economic downturn,” Cheung said.
Hong Kong Exchanges said it was disappointed with the decision, but acknowledged that the levy would be a major source of government revenue. “HKEX looks forward to working closely with all its stakeholders to promote the continued success, resilience, vitality and attractiveness of Hong Kong’s capital markets,” a spokesman said.
Mr. Chan, the financial secretary, said in his budget speech that the government has considered the impact on the market and the city’s international competitiveness and will continue to develop the security market.
Hong Kong stock trading recently rose to a new high on Monday, with the equivalent of $ 39 billion worth of shares in the main board.
Chinese investors in the mainland have helped boost their activities and make money in Chinese stocks that are cheaper, or only available, in the foreign market. In January, data provider Wind bought data provider Wind, the highest monthly total since the program began in 2014, at $ 40.1 billion.
Write to Joanne Chiu at [email protected]