Yesterday, the Hong Kong market suddenly blew up, and the Hong Kong SAR government announced that it would raise the stamp duty rate on stock transactions.
At the press conference of the 2021-2022 Budget held on the same day, the Financial Secretary of the Hong Kong Special Administrative region Government, Mr Paul Chan, said that after fully considering the impact on the securities market and international competitiveness, he decided to introduce a bill to adjust the rate of stock stamp duty. it will be increased from 0.1% to 0.13% according to the transaction amount. The Hong Kong SAR Government will continue to implement various measures to develop the securities market so as to develop Hong Kong's financial industry to a higher level.
Hong Kong stocks fell immediately after the news, while the Hong Kong stock exchange fell more than 12% at one point, the biggest drop since 2015. It is understood that the HKEx also released its annual report for 2020 yesterday, with annual income and other income reaching HK $19.19 billion, up 18 per cent over last year, while profit attributable to shareholders rose 23 per cent year-on-year to HK $11.505 billion, all of which reached an all-time high.
HKEx quickly responded that it was disappointed with the Hong Kong SAR Government's decision to increase the stamp duty rate on stock transactions, but understood that the tax was an important source of government revenue and that HKEx would work closely with all stakeholders to continue to promote the competitiveness and attractiveness of Hong Kong's capital market.
Dai Zhijian, chief executive of the HKEx acting Group, said that the government had not consulted the HKEx beforehand, and the market needed time to digest the policy, hoping that the market would not overreact or react too quickly. The attractiveness of the Hong Kong market, in addition to transaction costs, is also considered by many other favorable factors, such as the quality of listed companies, which can increase the vitality of Hong Kong's capital market.
As of yesterday's close, the Hang Seng Index fell 2.99% to close at 29718.24 points. The daily turnover on the motherboard reached a record high of 353.005 billion Hong Kong dollars.
It is understood that stamp duty revenue from stock transactions in Hong Kong has risen one after another in recent years. At the beginning of this month, the Secretary for Financial Services and the Treasury of the Hong Kong SAR Government, Mr Hui Zhengyu, said that the average daily turnover of Hong Kong's securities market in 2020 would reach 129 billion Hong Kong dollars. Stamp duty revenue from stock transactions will continue to be an important source of revenue for the government in the 2020-2021 financial year. According to forecasts, the stamp duty revenue from stock transactions of the Hong Kong Special Administrative region Government for the financial year 2020-2021 is HK $35 billion.
The attractiveness of Hong Kong stocks to overseas funds may be affected
As for the increase in stamp duty rate, many market participants believe that the attractiveness of Hong Kong stocks may be affected to a certain extent.
Gao Cong, an analyst at Huatai Futures Research Institute, said that the stamp duty rate on stock transactions in Hong Kong has been falling over the past 28 years, from 0.15% in 1993 to 0.1% in 2001, and has remained unchanged since the 1990s. The United States, Japan and the European Union have abolished stamp duty on stock transactions.
"raising the stamp duty rate on stock transactions will significantly increase the transaction costs of Hong Kong stocks, or reduce the attractiveness of Hong Kong stocks to foreign funds to a certain extent; in addition, the current stamp duty rate on stock transactions in the domestic market is 0.1%. After the future adjustment, the stamp duty rate of the Hong Kong stock market is 0.13%. Relatively speaking, the transaction cost of the domestic market is lower, which will also reduce the attractiveness of the Hong Kong stock market." He said.
Zhao Xiaoxia, a macro researcher at Green Dahua Futures, also believes that the increase in tax rates will increase the cost of stock trading, which will cause some funds to flow out of the market. "especially in the case of the abolition of stamp duty on stock transactions in the United States, Japan and other countries, the increase in stamp duty in Hong Kong will have a psychological impact on the hot money in the market."
From the perspective of market capital flows, there was a total net outflow of HK $19.96 billion yesterday, including HK $11.842 billion in Shanghai and HK $8.118 billion in Shenzhen.
In response, Gao Cong further said that prior to this, under factors such as the comparative advantage of the macro environment and the valuation of the Hong Kong stock market, mainland funds flowed into the Hong Kong stock market significantly, driving Hong Kong stocks to rise rapidly recently. in the future, under the expectation of an increase in the stamp duty rate on stock transactions, the net inflow of southward capital is expected to slow.
Zhan Yongzu, chairman of Zhejiang Daoyong Asset Management Co., Ltd., suggested in the Futures Daily that a rational increase in stamp duty on stock transactions in Hong Kong would have an impact on the market. The reasons are as follows:
First, the increase in stamp duty has undoubtedly increased the transaction costs for both buyers and sellers of stocks, and the psychological level of investors will also be hit, which will definitely be bad for the market, so it is not surprising that the market plummeted yesterday, and it does not rule out that it will take a period of time for the weak market to be digested. However, according to the Budget, the adjustment of stamp duty is based on Hong Kong's revenue considerations, and the plan does not mention the current market trend, so it should not be understood as the government's intention to crack down on the market by raising stock stamp duty.
Second, the increase in stamp duty is 30%, and the overall increase in tax is limited. According to data from the Hong Kong Financial Services and the Treasury Bureau, the actual revenue from stamp duty on stock transactions in the past five years is between 30 billion and 40 billion yuan, and the 30% increase in the corresponding tax is only about 10 billion yuan, which is less than the funds raised by a medium IPO, so the blood-drawing effect of stamp duty itself has little impact on the capital side of the market.
Third, the rate of stamp duty is not fixed in Hong Kong's capital market, and it has been as high as 0.15%. Stamp duty as a source of financial revenue, the starting point of its adjustment is mainly out of the consideration of the balance of government revenue and expenditure, rather than as a tool to express its attitude towards the trend of the stock market.
Fourth, the adjusted tax rate is still moderate. After the increase, buyers and sellers collected a combined levy of 0.26 per cent, higher than 0.1 per cent of A shares and 0.2 per cent of the Singapore market, but still nearly half the gap of 0.5 per cent in the UK. Although US stocks do not have stamp duty, they need to pay capital gains tax, and investors also need to bear the tax cost, but the form of expression and incentive direction are different.
Fifth, the impact of the increase in stock stamp duty on different traders is different. At present, the Hong Kong derivatives market does not have to pay stamp duty, which accounts for 40 per cent of the market's trading volume and 60 per cent of the market volume, which is not affected by the change in stamp duty. Due to the low trading frequency of long-term investors in stocks, the increased transaction costs are almost negligible. The biggest impact should be the investors of programmed trading and quantitative trading, who trade frequently and have to pay higher transaction costs, but the overall trading volume of these investors is less than 20%.
In fact, the operation of the stock market is affected by many factors. First of all, the fundamentals of economic operation and the profit status and growth prospects of listed companies are the fundamental factors that determine the development of the stock market, followed by the degree of capital abundance in the macro market and the level of risk-free interest rates determine the valuation level of the market. finally, the cost of the transaction link is considered. For medium-and long-term investors, the influence weight of the first two factors is far greater than the latter.
At present, Sino-US relations are expected to ease after the Biden administration takes office, the new US administration has launched a new round of economic stimulus measures, and the Federal Reserve has not yet shifted its monetary policy. The global vaccination rate is advancing at an unprecedented rate. At the beginning of China's 14th five-year Plan, the expectation of cyclical economic recovery is very strong. Domestic infrastructure construction and policies to expand domestic demand have been launched, and monetary policy has continued to maintain continuity. At the national level, we will vigorously promote the reform and opening up of the capital market and train medium-and long-term investors at various levels. The above macro factors provide a strong guarantee for the development of the stock market. Under the expectation of RMB appreciation and full economic recovery, it is worth looking forward to the Hong Kong stock market and A-share market as the value depression of the global market.
Of course, the operation of the stock market has its own rules, ups and downs are very normal. Any event that has an impact on the stock market will have a "black swan" effect due to substantive and psychological factors. However, under the logic of the above reasons, the author believes that the impact of the increase in stock stamp duty in Hong Kong on the market will be limited and short-term.
A-share short-term or Synchronize decline
In addition to Hong Kong stocks, A shares also fell all the way down yesterday. As of yesterday's close, the Shanghai Composite Index was at 3564.08 points, down 1.99%; the Shenzhen Composite Index was at 14870.66 points, down 2.44%; the small and medium-sized Board Index was at 10013.87 points, down 2.87%; and the gem Index was at 3007.46 points, down 3.37%.
Have A shares also been affected? A researcher of the futures company of the brokerage department told the Futures Daily that from the performance of individual stocks listed jointly by banks in the A-share and H-share markets, the increase in stamp duty also brought disturbance to the A-share market.
"take Citic Bank as an example, from the trend of the A shares, we can see that it was not broken by the group shares in early trading yesterday, indicating that there were other factors for the pullback, and the time of the subsequent pullback was roughly the same as the time when the stamp duty news came out." He said.
The researcher further said that there may be two aspects of the market impact transmission path: first, the market is worried that regulators will use stamp duty to crack down on the capital market Bubble; second, the Hong Kong market has always been strong against external funds, with foreign investors accounting for a high proportion of market investor institutions, and small-market markets have long outperformed the market index. Once the stamp duty is raised, the listed companies with low turnover rate will suffer most directly.
"in theory, as a result of the increase in stamp duty, the return of overseas quantitative funds is expected to decline significantly, so these funds will withdraw from the Hong Kong market, with the overall volume of funds participating in the Hong Kong market declining with the same long-term capital positions. market funds will give priority to highly traded stocks for speculative trading." He said that historically, the turnover rate of H shares in sectors such as finance, materials, energy and utilities has been lower than that of A shares for a long time, so the above sectors have been under pressure for a long time. Under this background, a number of low-turnover Hong Kong stocks collapsed yesterday, and under the influence of the An Accord H premium, market sentiment was transmitted to A-share cyclical stocks.
Will Hong Kong stock funds flow into A shares?
At present, due to factors such as the relatively high valuation of A-shares, the view of "capital inflows into the A-share market" is still open to discussion. however, market participants are more optimistic about the medium-and long-term market of the A-share market.
"the potential condition for the return of funds to A-shares is that the high valuation of domestic core assets is digested by profits, but at present, for core assets, one is facing the test of 10-year US debt interest rates, and the other is that the performance of some holding stocks such as Golden Dragon Oil is lower than market expectations. under such circumstances, it is difficult for core assets to organize a decent counterattack, and the conditions for southward funds to return A-shares are not established for the time being." The aforementioned researcher believes that the main idea of capital inflows southward in January is that the valuation of domestic core assets is relatively high, so they look for valuation depressions in Hong Kong stocks, which can also be confirmed by the frequency of Hong Kong stocks offering heavy stocks in China.
In addition, he also said that if the liquidity discount of H-share undertraded stocks exists for a long time, it will dampen the performance of A-share cycle stocks.
Gao Cong also believes that the "tight credit" superimposed A stock market valuation is relatively high, Hong Kong stocks are still attractive to A shares, and whether funds flowing out of Hong Kong stocks in the short term will flow into A shares is still open to question. The main stock index of A-share leads the world in 2020. At present, the valuation of A-share is relatively high.
"from the experience of adjusting stamp duty on A shares in the past, the adjustment of stamp duty on stock transactions mainly affects the short-term trend of the stock market." Zhao Xiaoxia said that the medium-and long-term trend of the stock market is still determined by the quality and macro liquidity of listed companies. From a fundamental point of view, A shares are still enjoying the dividends of economic recovery, and this decline is likely to be a "golden pit."
In terms of the impact of the futures index market, Gao Cong said that among the current three major A-share futures indexes, IC and IF are more flexible. As the two sessions are approaching, it is suggested that we should seize the long-term bargain opportunities of the three major stock index futures after the festival. Taking into account the recent weak performance of heavyweights, IC may have greater opportunities in the near future. "in the medium to long term, we still need to guard against the adverse impact of tight credit on the equity market this year. Looking back in history, the performance of the domestic stock market is relatively weak under tight credit conditions, considering that the historical quantiles of the price-to-earnings ratio of financial, cyclical and manufacturing industries are relatively low, and the margin of safety is relatively high, so the allocation can be increased. At the same time, the recent market're-inflation 'transactions continue to heat up, focusing on non-ferrous and chemical industries that benefit from price increases. "
