Hong Kong came over unexpectedly to increase its stock trading taxes by 30%, putting a damper on the city’s stock market operator just as it revealed record annual sales and profits.
A surge in trade and new listings has brought Hong Kong Exchanges and Clearing Ltd. stimulated, which has become the world’s largest exchange operator based on its own market valuation, and the fourth largest listed companies.
The group’s rise also reflects the rise of China’s financial markets to become one of the largest and most important in the world after the one in New York.
However, on Wednesday, the Hong Kong government ruined what should have been a victory lap for Hong Kong Exchanges. The government appoints half of the company’s board, including the chairman, and has an interest in the company.
Paul Chan, the city’s financial secretary, suggested lifting the so-called stamp duty on stocks from 0.1% to 0.13% as part of Hong Kong’s annual budget. Hong Kong is dizzy from the effects of the pandemic and past social unrest, with an economy shrinking by a record 6.1% last year.
The impending tax hike put Hong Kong Exchanges shares under pressure, even as it reported the equivalent of $ 1.48 billion in net profit for 2020, up 23% and its largest ever gain.
The company’s stock, which recently hit record highs, fell as much as 12%, before offsetting some losses to 10.4% lower during 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 harm smaller brokers and individual investors who bet on stocks daily, said Christopher Cheung Wah-fung, CEO of Christfund Securities and a lawmaker representing Hong Kong brokers.
Still, he said it was unlikely to affect Hong Kong’s overall competitive position as the city does not impose a capital gains tax. “It is a way for the government to generate more direct revenue from rising trading volumes as it has to offer more handouts during the economic downturn,” said Mr Cheung.
Hong Kong Exchanges said it was disappointed with the decision, but acknowledged that the levy would be an important source of government revenue. “HKEX looks forward to working closely with all of its stakeholders to drive the continued success, resilience, vibrancy and attractiveness of Hong Kong’s capital markets,” said a spokesman.
Mr Chan, the financial secretary, said in his budget speech that the government had considered the impact on the market and the city’s international competitiveness and would continue to develop the securities market.
Stock trading in Hong Kong has exploded recently, setting a new record on Monday, with the equivalent of $ 39 billion worth of motherboard shares switching hands.
Mainland Chinese investors have helped bolster activity by depositing money in Chinese stocks that are cheaper or only available in the offshore market. In January, such purchases through a trading link known as Stock Connect reached $ 40.1 billion, according to data provider Wind, the highest monthly total since the program began in 2014.
Write to Joanne Chiu at [email protected]