SUPERNEWS

Equities

HK Stocks Up, Dividend Tax Waiver May Boost Market

China considers waiving 20% dividend tax for Stock Connect investors to boost Hong Kong market and address double taxation.

By Max Weldon

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5/9, 22:10 EDT
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Key Takeaway

  • China considers waiving the 20% dividend tax for individual investors on Hong Kong stocks via Stock Connect, aiming to prevent double taxation.
  • CSRC and SFC's efforts to expand Stock Connect and implement market revival measures within the year highlight a push to boost Hong Kong's financial market.
  • Amidst a 17% drop in southbound trading volume and HKEX's 13% fall in Q1 profit, these initiatives signal urgency in revitalizing market attractiveness and liquidity.

Tax Exemption Proposal

China is reviewing a significant proposal that could exempt individual investors from the 20% dividend tax on Hong Kong stocks purchased through the Stock Connect program. This initiative, aimed at preventing double taxation and ensuring fairer conditions for investors in both Hong Kong and mainland China, is under consideration by the China Securities Regulatory Commission (CSRC) and the State Taxation Administration. The proposal, submitted by Hong Kong, seeks to address the current disparity, as Hong Kong itself does not impose a dividend tax. While the potential for this exemption has sparked interest, a final decision has yet to be made, and the timeline for its implementation remains uncertain.

Market Revival Efforts

Hong Kong's financial market has faced challenges, including a downturn in initial public offerings (IPOs) and trading volumes. In response, the CSRC has introduced measures to expand the scope of the Stock Connect, part of broader efforts to rejuvenate the market. Julia Leung, Chief Executive of Hong Kong's Securities and Futures Commission (SFC), has indicated that these changes are planned to be implemented within the year. This proactive stance is aimed at enhancing the market's attractiveness and liquidity, signaling a commitment to revitalizing Hong Kong's financial landscape.

Trading Activity and Financial Performance

Recent data highlights a decline in trading activity through the southbound link of the Stock Connect, with an average daily trading volume of HK$31 billion in the first quarter, representing a 17% decrease from the previous year. This downturn has also impacted the financial performance of the Hong Kong Exchanges and Clearing Limited (HKEX), which reported a 13% year-on-year drop in first-quarter profit. Additionally, HKEX's share price has significantly declined, currently standing 53% lower than its early 2021 levels. These figures underscore the challenges facing Hong Kong's financial market and the urgency of implementing measures to stimulate recovery and growth.

Street Views

  • JPMorgan Chase & Co. Analysts including Harsh Wardhan Modi (Bullish on Hong Kong stocks and trading volumes):

    "We believe it is fair to assume a degree of spike in south-bound turnover on expectations of approval and further, if approval comes."