Shares in Hong Kong’s bourse operator tumbled after the city’s government said it would raise the stamp duty charged on equity trades in the Asian financial hub, threatening the group’s biggest revenue stream.
The move by finance secretary Paul Chan on Wednesday to increase stamp duty from 0.1 to 0.13 per cent of the value of each trade came as Hong Kong Exchanges and Clearing reported record profits for the 2020 financial year.
Shares in HKEX fell by as much as 12.3 per cent before later trimming losses to 8.8 per cent. The Hang Seng index of stocks that trade in the city fell as much as 3.5 per cent — its biggest intraday drop since May, when the market was hit by reports that Beijing was planning to impose a draconian national security law on Hong Kong.
Chinese investors using market link-ups with bourses in Shanghai and Shenzhen also dumped Hong Kong-listed shares at a record pace, selling a net HK$20bn ($2.6bn) on Wednesday.
Wednesday’s announcement marked the first time Hong Kong had increased duties on equity trading in almost 30 years, and came as the city grappled with an economic slump induced by Covid-19 and political tumult.
HKEX said it was “disappointed about the government’s decision”, but added that “we recognise that such a levy is an important source of government revenue”.
Agnes Wong, a tax partner at KPMG, said the stamp duty was a “key” contributor to government income. “[Raising the duty] will have the least impact on the general public and help the government increase revenues,” she said.
Analysts said higher duties — which make it costlier to trade and so can depress turnover — would pose a challenge to HKEX and incoming chief executive Nicolas Aguzin.
Aguzin, former chief executive of JPMorgan’s international private bank, is set to take the helm in May. His appointment followed the earlier-than-expected departure of Charles Li after a decade in the role.
“I think investors are not just concerned about turnover — they’re concerned about Hong Kong’s long-term financial status,” said Chen Shujin, an equity analyst at investment bank Jefferies.
She said that ample liquidity from central banks’ ultra-loose monetary policies, which have led to a boom in global equity markets, could cushion the blow for the Hong Kong bourse. High-frequency traders, those most affected by duty rise, account for only 10 to 20 per cent of trading activity, Chen added.
While turnover was unlikely to fall more than 5 per cent of 2020 levels as a result, she said, “some investors are also worried the government may further lift the duty”.
HKEX’s annual results on Wednesday underscored the importance of turnover to its business. The company reported core business revenue of HK$16.9bn (US$2.2bn) in 2020, up 24 per cent from the previous year thanks to higher trading and clearing fees. Average daily turnover for equity products traded on the stock exchange was almost HK$111bn during the year.
The bourse’s record profits of HK$11.5bn in 2020 came despite the last-minute suspension in November of what was to be a record $37bn initial public offering by Ant Group, the Chinese payments platform controlled by billionaire Jack Ma.
Shares in HKEX touched a record high last week, having risen more than 70 per cent last year thanks in part to a slew of big-ticket homecoming listings by Chinese tech groups that already trade in New York.
Turnover in Hong Kong had remained high in 2021 before Wednesday’s announcement, having risen to four times that of the London Stock Exchange.