Increased business taxes in Hong Kong fueled the market correction


Hong Kong’s tax increase on stock trading was a “convenient catalyst” that helped drive a healthy correction for the city’s markets, says Goldman Sachs’ Tim Moe.

The government announced in its budget Wednesday that the stamp tax on stock transfers will be raised to 0.13% from 0.1%.

The move triggered a strong sell-off in broader markets on Wednesday, but share prices partially recovered on Thursday.

The Hang Seng Index rose about 1.5% in trading Thursday afternoon, after falling about 3% the day before.

Hong Kong Exchanges and Clearing, meanwhile, posted further losses as it fell about 1.4%, declining further after the previous day’s drop of more than 8%. The HKEX operates the city’s stock exchange and on Wednesday posted a more than 20% year-on-year increase in its 2020 earnings attributable to shareholders.

“I think it’s important to note that the overall increase, I mean yeah it sounds like 30% like a big number, but it’s actually 3 cents for every hundred dollars of trade. That won’t be the only or sufficient rationale for people to make an investment decision, “said Moe, co-director of macro research for Asia and chief strategist for Asia-Pacific equities at US investment bank.

Our view is that the increased stamp duty was a kind of convenient catalyst for a market that had done very, very well.

Timothy moe

Chief Asia Pacific Equity Strategist, Goldman Sachs

“Our opinion is that the increase in stamp duty was kind of a convenient catalyst for a market that had done very, very well. It is probably a bit on its skis in terms of positioning, in valuation and we’ve had what we could. call it a healthy correction, “he told CNBC’s” Squawk Box Asia “on Thursday.

Despite heavy losses on Wednesday, the Hang Seng Index is still more than 9% higher for the year, as of Wednesday’s close.

In January, Moe told CNBC that mainland Chinese investors have contributed significantly to Hong Kong’s “very strong start” in 2021.

Looking ahead, the Goldman Sachs strategist said Hong Kong markets will likely continue their upward path once this selling period subsides.

“What we would consider is a kind of healthy cleanup of over-extended positioning, some of the favorite large-property stocks were sold,” Moe said. “We believe that once we get past this kind of clear positioning, the market … can continue to make more gains to the upside later this year.”

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