Economy

Hong Kong’s trade tax increase spurred a market correction

Hong Kong's trade tax increase spurred a market correction

Tim Mo of Goldman Sachs says the Hong Kong tax hike on stock trading was a “favorable catalyst” that helped spur a healthy correction in city markets.

The government announced in its budget on Wednesday that stamp duty on share transfers would be raised to 0.13% from 0.1%.

The move sparked a sharp sell-off in the wider markets on Wednesday, but stock prices partially rebounded on Thursday.

The Hang Seng Index It rose 1.2% on Thursday after dropping nearly 3% the day before.

while, Exchanges and Clearing in Hong Kong It saw further losses and is down 1.77% on Thursday, after the previous day’s drop of more than 8%. HKEX operates the City Stock Exchange and Posted on Wednesday A 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 looks like 30% is a big number, but it’s actually 3 cents per hundred dollars of trading – that wouldn’t be the only or sufficient primary reason for people to make an investment decision,” Mo said. , Co-Chair of Macro Research in Asia and Senior Equity Strategist for the Asia Pacific Region at the U.S. Investment Bank.

Our view is that the increase in stamp duty was somewhat a suitable catalyst for a market that was performing very well.

Timothy Mo

Chief Equity Strategist for the Asia Pacific region, Goldman Sachs

“Our view is that the increase in stamp duty was kind of a suitable catalyst for a market that was performing very well. It was probably a bit higher than its sled in terms of positioning and valuation and we got what we might call it,” he said in statements to “Squawk Box Asia” On CNBC on Thursday healthy correction. “

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

In January, Mo told CNBC Mainland Chinese investors have contributed significantly to the “very strong start” for Hong Kong stocks in 2021.

Looking ahead, Goldman Sachs strategist said that Hong Kong markets will likely continue their bullish journey once this selling period abates.

“What we’re seeing is a kind of sanitary cleaning to get out of some overly stretched sites, some heavily owned favorite stocks have been sold,” Mo said. “We believe that once we get past this kind of consolidation, the market can … continue to make some bullish gains later this year.”

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