Hong Kong acted unexpectedly to raise taxes on stock trading by 30%, hurting the city’s stock exchange operator as it reported record annual sales and profits.
A wave of trading and new listings has spurred Hong Kong Exchanges and Clearing Ltd., which has grown to become the world’s largest stock exchange operator based on its own market valuation, and the fourth largest by value of companies listed on its stock exchange. .
The group’s rise also reflects the rise of China’s financial markets to become some of the largest and most important in the world after New York.
On Wednesday, however, the Hong Kong government screwed up what should have been a victory lap for the Hong Kong Exchanges. The government appoints half of the company’s board, including its chairman, and holds a stake in the business.
Paul Chan, the city’s financial secretary, proposed raising the so-called stamp duty on shares from 0.1% to 0.13%, as part of Hong Kong’s annual budget. Hong Kong is recovering from the effects of the pandemic and the previous social unrest, with its economy shrinking by 6.1% last year.
The impending tax hike hit Hong Kong Exchanges shares, even reporting the equivalent of $ 1.48 billion in net profit in 2020, an increase of 23% and its highest profit ever.
The company’s stock, which recently hit record highs, fell by up to 12% before reducing some losses to stay 10.4% lower in mid-afternoon trading. The city’s benchmark Hang Seng Index, which recently reached its highest level since June 2018, fell 3.6%.
The tax increase is likely to hurt smaller brokers and individual investors who place daily stock bets, said Christopher Cheung Wah-fung, executive director of Christfund Securities and a lawmaker who represents brokers in Hong Kong.
Still, he said it is unlikely to affect Hong Kong’s overall competitiveness as the city does not impose capital gains taxes. “It is a way for the government to generate more immediate revenue amid increasing trade volumes, as it needs to offer more alms amid the economic crisis,” said Cheung.
The Hong Kong Stock Exchange said it was disappointed with the decision, but acknowledged that the tax would be an important source of government revenue. “HKEX looks forward to continuing to work closely with all its stakeholders to drive the continued success, resilience, vibrancy and attractiveness of Hong Kong’s capital markets,” said a spokesman.
Chan, the finance 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 bond market.
Hong Kong stock trading soared recently, breaking a new record on Monday, with the equivalent of $ 39 billion in board shares changing hands.
Mainland Chinese investors helped boost activity by pouring money into Chinese stocks that are cheaper, or only available, in the offshore market. In January, that purchase 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]