Markets

Hong Kong's trading tax hike spurred markets into a 'healthy correction,' says Goldman Sachs

Key Points
  • In its 2021-22 budget, the Hong Kong government announced that stamp duty on stock transfers will increase to 0.13% from 0.1%.
  • Goldman Sachs' Timothy Moe said the hike in stamp duty alone is unlikely to be a "sufficient fundamental reason for people to make an investment decision."
  • Hong Kong's markets tumbled on Wednesday following the trading tax hike announcement, but bounced back partially on Thursday.
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Expect Hong Kong market to make further gains later this year: Goldman Sachs

Hong Kong's tax hike on share trading was a "convenient catalyst" that helped spur a healthy correction for the city's markets, says Tim Moe from Goldman Sachs.

The government announced in its budget on Wednesday that stamp duty on stock transfers will be raised to 0.13% from 0.1%.

The move sparked a sharp sell-off in the broader markets on Wednesday, but stock prices bounced back partially on Thursday.

The Hang Seng index rose 1.2% on Thursday, after falling about 3% a day earlier.

Meanwhile, Hong Kong Exchanges and Clearing saw further losses and slipped 1.77% on Thursday, after the previous day's plunge of more than 8%. The HKEX operates the city's stock exchange and on Wednesday posted a more than 20% year-on-year surge in its 2020 profit attributable to shareholders.

"I think it's important to note that the overall increase, I mean yes it sounds like 30%'s a big number, but it's really 3 cents on every hundred dollars of trading — that's hardly gonna be the only or sufficient fundamental reason for people to make an investment decision," said Moe, co-head of Asia macro-research and chief Asia-Pacific equity strategist at the U.S. investment bank.

Our view is that the increase in stamp duty was sort of a convenient catalyst for a market that had done very, very well.
Timothy Moe
Chief Asia-Pacific Equity Strategist, Goldman Sachs

"Our view is that the increase in stamp duty was sort of a convenient catalyst for a market that had done very, very well. It's probably a bit over its skis in terms of positioning, in valuation and we've had what you might call a healthy correction," he told CNBC's "Squawk Box Asia" on Thursday.

Despite Wednesday's sharp losses, the Hang Seng index is still more than 9% higher for the year, as of its Wednesday close.

In January, Moe told CNBC that mainland Chinese investors have contributed significantly to the "very strong start" of Hong Kong stocks in 2021.

Looking ahead, the Goldman Sachs strategist said Hong Kong's markets will likely continue their upward trek once this period of selling subsides.

"What we would view things as is kind of a healthy cleaning out of some over-extended positioning, some of the heavily-owned favorite stocks sold off," Moe said. "We think once we get through this kind of positioning clear out, that the market … can continue to make some further upward gains later this year."

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