Mainland, Hong Kong stock market moves reflect challenging times
- As Beijing halves stamp duty on share deals to lift investor confidence, Hong Kong is seeking greater liquidity to strengthen its position
China’s economic outlook is clouded by a patchy recovery from the pandemic slowdown, exemplified by a weak property market and record unemployment among young people.
This had fuelled hopes of a mortgage rate cut that failed to materialise earlier this month when the central bank only trimmed a corporate lending reference rate.
Now the authorities have made it plain their paramount goal is to bolster capital markets and lift investor confidence generally, by halving stamp duty on mainland stock transactions.
It is a big call, given that China already has the world’s third-cheapest transaction cost, only higher than New York and Tokyo – both zero.
The halving of duty effective yesterday to 0.05 per cent makes transactions even cheaper. Benchmark stock indexes in Shanghai and Shenzhen jumped after the announcement and were still up at the close. But the euphoria may be short-lived, analysts warn.
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People buy stocks for reasons related to economic growth, and not marginal cost relief. They are bought in the hope that they will appreciate, and the company in question will pay dividends thanks to corporate growth.
China’s stock markets are slumping because slower economic growth and deflationary pressure have dampened stock prices and corporate earnings – and therefore the prospects for both capital gain and dividend income.
So cutting the already minimal cost of buying or selling stocks will not do much to improve either. In the longer term, when the market is back on its feet, it may make it more attractive.
Meanwhile, Hong Kong, which has the world’s second-most expensive trading cost after only London, will establish a task force led by Financial Secretary Paul Chan Mo-po to enhance stock market liquidity.
The government raised stock stamp duty by 30 per cent in August 2021 in an attempt to find a revenue source during a recession. This raised an estimated HK$12 billion (US$1.5 billion)
more annually.
Announcing the move ahead of his October policy address, Chief Executive John Lee Ka-chiu said the task force would pitch proposals to strengthen the city’s competitiveness as a finance hub.
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Hong Kong’s market capitalisation shrank 20 per cent from US$6.52 trillion in 2020 to US$5.52 trillion at the end of 2022. Now that market liquidity is a priority, stamp duty is an obvious target. But Lee said the task force would explore long- and short-term possibilities.
As on the mainland, the fundamental reason companies seek to raise capital, and investors park money in stocks, is the prospect of earning returns from their investments.
Hopefully, Chan can put together a task force that harnesses the city’s traditional strengths as a financial hub and openness to innovation.
