(Yicai) Oct. 26 -- The Hong Kong stock market is expected to climb in the short term after the Chinese special administrative region announced it would lower the stamp duty on stock trading, according to the Chief Analyst of Overseas Strategy at Guotai Junan Securities.

Adjusting the stamp duty will significantly lower trading costs of Hong Kong-listed shares, thus increasing the attractiveness of the stock market for onshore and offshore investors, including programmatic and quantitative trading investors, said Dai Qing. However, trading costs can only have a short-term impact, Dai added.

Hong Kong’s Chief Executive John Lee announced yesterday that the SAR will cut the stamp duty on stock transfer to 0.1 percent from 1.13 percent, which may work from the end of November.

After Lee’s statement, the Hong Kong stock market began to rebound. The Hang Seng Index jumped as much as 2.8 percent before closing up 0.6 percent yesterday. The Hang Seng Tech Index closed up 2.2 percent, after earlier gaining nearly 5 percent.

The 0.13 percent stamp duty was imposed both on share sellers and buyers, meaning that each transaction had a tax of 0.26 percent, 5.2 times higher than the figure for the Chinese mainland’s stock market, said Zhao Ran, chief analyst for non-banking finance and fintech at China Securities. In the mainland market, the stamp duty is 0.05 percent, and is charged only to sellers.

Hong Kong raised its stamp duty on stock trading to 0.13 percent from 0.1 percent in August 2021, marking the first stamp duty adjustment since September 2001, when it was lowered to 0.1 percent.

The stamp duty adjustment in 2021 was a key event for the Hong Kong stock market, which started a downturn period. The stamp duty hike was also considered one of the main factors limiting liquidity in the stock market in the past two years.

In the first year following the adjustment, the HKEX’s daily turnover averaged HKD109.7 billion (USD14 billion), down 25 percent from a year earlier. The year after, the value further plunged 23 percent to HKD84.1 billion (USD10.8 billion).

In August this year, the Hong Kong Securities and Futures Professional Association responded to a solicitation of public opinion by the SAR government asking to revert back to the original 0.1 percent tax as the hike is affecting the stock market’s trading volume and eating into investors’ profits.

Editors: Liao Shumin, Futura Costaglione