Hong Kong Financial Secretary proposes waiving stamp duty for ETFs

27 February 2014   Category: News, Asia, Global, Hong Kong   By Asia Asset Management

Hong Kong Financial Secretary John Tsang proposed exempting exchange traded funds (ETFs) from stamp duty in the government’s budget speech on February 26. Market pundits have welcomed the initiative saying the measure would help facilitate the development of the ETF market in the territory.

Hong Kong’s government extended the stamp duty concession to cover ETFs in 2010, Mr. Tsang explained in his speech. The number of ETFs listed in the Hong Kong has since risen significantly from 69 at the end of 2010 to 116 by the end of 2013. The daily average turnover of ETFs increased from HK$2.4 billion (US$380 million) to HK$3.7 billion over the same period, making Hong Kong one of the largest ETF markets in the Asia-Pacific region.

Hong Kong Exchanges and Clearing (HKEx) applauded the proposals outlined in the Hong Kong SAR Government budget for the April 2014 to March 2015 fiscal year, which are aimed at further strengthening the competitiveness of the Hong Kong financial market. "The proposals outlined today will help enhance our securities market and sharpen our competitiveness," said HKEx Chief Executive Charles Li.  "In particular, waiving the stamp duty on the trading of all ETFs will reduce the trading cost of ETFs with a higher percentage of Hong Kong stocks in their portfolios.”

Ricky Tam, chairman of Hong Kong Investors Institute, said the initiative will encourage retail investors to pursue short-term speculations, but says it will have little effect on long-term investors. Additionally, as some ETFs are dual listed in the US and Hong Kong, the tax exemption may encourage more institutional investors to trade the ETFs listed in Hong Kong rather than their US-listed counterparts.

Hong Kong's wealth and asset management business has been growing exponentially, and is now ranked top in Asia. At the end of 2012, there were 45 banks operating private wealth management businesses in Hong Kong. The assets under management of these banks and other fund managers recorded year-on-year growth of 40%, reaching a record high of HK$12.6 trillion.