Hong Kong Should Cut Stock-Trading Tax

Hong Kong’s stock market is in need of support. While the Hang Seng Index rose the most in more than 10 months Wednesday after Chief Executive Carrie Lam formally withdrew an extradition bill that sparked months of protests, the benchmark remains 5% lower than in mid-June before the turmoil started. The government should consider cutting the trading tax, or stamp duty, on small and mid-cap stocks. That would improve liquidity and raise entrepreneurial spirits during a fragile period.

The city’s trading costs are the highest among major stock exchanges, with stamp duty and transaction fees making trading 35% more expensive than in the U.S. New York and Tokyo have no stamp duty, and there’s only a modest tax in mainland China and London2. These costs, combined with liquidity concerns, mean investors focus only on the top 100 stocks, which account for about 70% of the exchange’s HK$80 billion ($10 billion) average daily trading value.1 The next 200 account for 20% of trading, while the remaining 2,100 stocks are left to squabble over the last 10%. Clearly, the system is top-heavy.