HONG KONG: Hong Kong said on Wednesday it would increase the tax on stock trading in the global financial hub, sending shares in the city's stock exchange operator tumbling, even as it posted record profits due to high trading volumes.
The stamp duty on stock trading will rise to 0.13% of the value of the transaction from the current 0.1% on Aug. 1, Hong Kong Financial Secretary Paul Chan announced in his annual budget speech, as the government sought to boost revenues, which have been hit by the COVID-19 pandemic.
Both buyers and sellers of securities listed in Hong Kong pay the duty though certain products, such as exchange-traded funds and derivatives, are exempt.
The announcement sent shares in Hong Kong Exchanges and Clearing (HKEX) down 11%, the biggest one-day fall since October 2008. Its shares closed down 8.8% at HK$509.
Citi analysts estimated the increased stamp duty would result in a hit to the exchange's earnings per share of between 3% and 7%.
"Whilst 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," a spokesman for HKEX said.
The Hong Kong government will raise HK$51 billion ($6.58 billion) from the current rate of stamp duty on stock trading in the 12 months to the end of March 2021, and HK$59 billion in the financial year 2021-22, after the increase.
Earlier on Wednesday, HKEX posted a 23% jump in 2020 net profit, buoyed by higher trading volumes due to coronavirus-driven market gyrations, while schemes linking it with mainland China also boosted trading.
The net profit of HK$11.51 billion ($1.48 billion) for the year ended Dec. 31 was a third straight year of record profits.
Trading revenue is the largest contributor to HKEX's income.
Other major global trading centres such as the United States and Japan do not impose stamp duties on stock trading.
Average daily turnover of equity products traded on the Hong Kong exchange rose 60% in 2020, according to HKEX's results filing, initially driven by coronavirus-induced volatility.
Trading was also boosted by a string of new listings, most notably by U.S.-listed Chinese companies, such as tech firm JD.com, seeking secondary listings in Hong Kong.
Hong Kong was the second most popular listing venue globally in 2020, with deals worth $31.2 billion, compared with Nasdaq's $51.3 billion, according to Refinitiv data.
GEO Securities chief executive Francis Lun said the rise in the stamp duty would not hurt the common investor in Hong Kong as it would only mean an extra HK$30 for every HK$1 million worth of trades.
"It could have an impact on the flash or the 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 trading volumes have increased further in 2021, and the local benchmark hit a 32-month high last week.
Average daily turnover in January was HK$245.7 billion, more than double the figure a year earlier, propelled by record flows of mainland cash into Hong Kong-listed companies such as e-commerce firm Tencent Holdings and smartphone maker Xiaomi Corp through the Stock Connect trading scheme, which links Hong Kong with the Shanghai and Shenzhen exchanges.
Kingston Securities executive director Dickie Wong said such trading could be affected by the increased stamp duty.
"If there are stocks that are listed in both Hong Kong and mainland China and they are trading at similar valuations, why trade the Hong Kong stock when you can buy it in the mainland and not pay the stamp duty." ($1 = 7.7549 Hong Kong dollars) - Reuters