The city’s finance minister cautioned on Sunday that cutting the tax on securities trading could not definitely revive Hong Kong’s weak stock market and added that piecemeal action might backfire.
For the first time since a 13-person task force was formed last week, Financial Secretary Paul Chan Mo-po commented on the frequent discussion of stamp duty on securities. He said the group would carefully review the causes of a lacklustre stock market and develop the proper solutions to address structural issues.
In support of his claim that lower stamp duty would ultimately be ineffective at resolving market problems and boosting turnover, he offered statistics. Based on the number of shares exchanged throughout the day, turnover is a metric for stock liquidity.
On his weekly blog, Chan noted an 8 percent decline in the benchmark Hang Seng Index in August and added, “The performance of Hong Kong’s stock market is obviously not ideal,” noting that the daily average turnover was around HK$100 billion (US$12.7 billion).There are requests for lowering the stamp duty in the market, but statistics suggest that doing so won’t solve fundamental problems or increase turnover in the long run.
Any piecemeal stimulus measures “will not only fail to boost the market, but will further erode investors’ confidence,” he cautioned.
To further the city’s standing as a major global financial centre, the government last Tuesday stated the task group, headed by securities regulatory veteran Carlson Tong Ka-shing, would examine stock market liquidity, including the listing system, market structure, and trading mechanism.
Chan stated that the task force would assess the benefits and problems of the stock market and come up with short-, medium-, and long-term strategies using the knowledge and efforts of financial giants and regulatory experts.
He announced that the task force’s first meeting would take place this week.
Some local stockbrokers, as well as legislator for the financial sector Robert Lee Wai-wang and Executive Council convenor Regina Ip Lau Suk-yee, a legislator as well, advocated a similar strategy for Hong Kong amid mainland China’s abrupt decision to boost trading on its stock exchanges last week by halving the rate of stamp duties to 0.05 per cent.
Chan on Sunday pointed out that the average daily turnover of securities trading in 2021 increased by 2% annually between August and December, the first months of the increase.
He claimed that from 0.22 percent in 2020 to 0.27 percent in 2022, the turnover rate of equities increased, with the higher rate reflecting more active trading.
Chan continued by stating that geopolitics and market sentiment had an impact on stock trading operations.
The task force, according to Chan, “will examine both internal and external factors, such as the listing regime, market structure, and trading mechanism, and study how to broaden sources of funding and funding streams, attract more high-caliber businesses to float on the stock market, innovate investment products, and increase the turnover rate of stocks.”
He continued by saying that fundamentals like business success and prospects also affected investors’ enthusiasm for a company.
Ip said that while lowering stamp duty wouldn’t be enough to turn the market around, it would encourage investment and demonstrate that the government was listening.
“I believe the financial secretary is worried about revenue loss, but low market turnover will also lower stamp duty revenue,” he said. Instead of distributing additional consumption vouchers, the government needs to implement alternative macroeconomic policies, according to the speaker.
“Stamp duty reduction is important because the central government has cut the amount of stamp duty it charges on stock transactions, making it more expensive to buy H shares than A shares.”
H shares are those of Hong Kong-listed businesses with mainland incorporation. A shares are securities for such businesses that are listed on the mainland’s stock exchanges and are priced in yuan.
Member of the recently formed task team, lawmaker Lee, reaffirmed his desire for a tax decrease while admitting it wouldn’t address all the market’s problems.
“Reducing the stamp duty rate is a mainstream industry expectation as a short-term measure to bring a positive message to the market, but it can’t address all the challenges brought by high interest rates and geopolitics,” the industry claims.
Lee asserted that in the end, the government put its own financial well-being first.
His remarks are in line with those of a government source who told the Post that officials would not lower stamp duty since doing so could harm the public purse.
As required by the Basic Law, the city’s mini-constitution, economist Terence Chong Tai-leung, executive director of the Chinese University of Hong Kong’s Institute of Global Economics and Finance, emphasised that the government must establish a budgetary balance and stay away from deficits.
Chan attributed the ambiguous portrayal of the state of the financial centre to what he called prejudice in Western media’s coverage of Hong Kong, as well as the inability of investors to visit the city during the Covid-19 outbreak.
When appropriate, Chan’s travel schedule will be disclosed, according to the Financial Secretary’s Office. According to the report, Washington should fulfil its obligation as the host of the November Asia-Pacific Economic Cooperation Summit by inviting John Lee, the leader of Hong Kong, to the gathering.
When it comes to inviting Lee, who is subject to US sanctions, the nation has been evasive.
Locally, the Global Financial Leaders’ Investment Summit will take place in November after the Hong Kong FinTech Week debuts in October. The Priority Asia Summit will take place in December at a non-profit organisation called the Future Investment Initiative Institute.