Exchange Rate

European and US equities appeared largely inattentive to a selloff in Asia Wednesday.

In Hong Kong, stocks dove 3% after the government raised the stamp-duty on stock trades for the first time in almost 18 years. The hike, from 0.1% to 0.13% came as officials unveiled next steps to help locals cope with the fallout from the pandemic.

The timing left something to be desired for Hong Kong Exchanges & Clearing. The bourse reported a third annual record profit Wednesday, but thanks to news of the higher levy on equity transactions, shares plunged the most in years. The exchange wasn’t consulted on the move, but Paul Chan, the city’s finance secretary, said the impact on the market and international competitiveness was considered.

“We are disappointed about the government’s decision to raise [the] stamp duty for stock transactions [but] we recognize that such a levy is an important source of government revenue,” a spokesperson for the exchange remarked.

The shares could afford to give a little back. They were up more than 150% from the lows and HKEX’s profits jumped 23% in 2021 as stock trading surged by more than half on what’s now the world’s most valuable exchange. It made $1.48 billion last year.

Local news outlets said the new tax rate will take effect from August 1. It’ll increase government revenue by some HK12 billion annually.

By market cap, HKEX is four times the size of the Nasdaq. The IPO boom, catalyzed in part by Donald Trump’s push to alienate Chinese companies, has helped.

While the impact of the higher tax will be material, analysts are generally bullish. “For 2021, the amount of funds raised from IPOs is expected to reach a new high,” a strategist at Everbright Sun quoted by SCMP said. “Coupled with the brisk market turnover, the average daily turnover is expected to maintain a level of more than HK200 billion, which will bring long-term support to the Hong Kong stock exchange.”

Notably, mainland investors sold more than $2.5 billion in city shares Wednesday through the links. As Bloomberg noted, that came after nearly two straight months of net purchases.

The selloff in Hong Kong rippled across regional markets and assuming any US politicians are paying attention (which they probably aren’t), I suppose you could cite this as a reason not to push for a transactions tax stateside. Asked about such a levy earlier this week, Janet Yellen told a New York Times event that it’s an idea worth exploring but she’d need to “examine” it “closely.”