According to Tim Moe of Goldman Sachs, the Hong Kong tax hike was a “convenient catalyst” for stock trading that has helped a healthy correction in the city’s markets.
The government announced on Wednesday in its budget that the stamp tax on stock transfers will be raised from 0.1% to 0.13%.
The move sparked a strong sell-off in broader markets on Wednesday, but stock prices partially rebounded on Thursday.
The Hang Seng Index rose 1.5% on Thursday afternoon after falling 3% the day before.
In Hong Kong, the exchanges and clearing continued to decline as they fell about 1.4% and continued to decline after the previous day’s slump of more than 8%. HKEX operates the city’s stock exchange and on Wednesday it saw its 2020 profit attributable to shareholders increase more than 20% year over year.
“I think it’s important to note that the overall increase, I mean yeah, it sounds like 30%, a huge number, but it’s really 3 cents per hundred dollar trade – that is hardly going to be the only or sufficient reason for people Make an investment decision, “said Moe, co-head of Asia Macro-Research and chief Asia-Pacific Equity Strategist at the US investment bank.
We think the stamp duty hike was kind of a convenient catalyst for a market that was doing very, very well.
Goldman Sachs, Chief Equity Strategist, Asia Pacific
“We think the stamp duty hike was kind of a convenient catalyst for a market that has done very, very well. It’s probably a bit of an exaggeration in terms of positioning and valuation, and we had what you could name a healthy correction, “he told CNBC’s Squawk Box Asia on Thursday.
Despite the heavy losses on Wednesday, the Hang Seng index is still more than 9% higher as of Wednesday’s close.
In January, Moe told CNBC that mainland Chinese investors were a major contributor to Hong Kong stocks’ “very strong start” in 2021.
Looking ahead, the Goldman Sachs strategist said Hong Kong markets are likely to continue their uptrend once this selling period wears off.
“What we would see as some kind of healthy cleansing of overly expansive positioning are some of the favorite sell-out stocks that are heavily owned,” said Moe. “We believe that once we complete this type of positioning the market can see further upside gains later this year.”
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