Feb 24 (Reuters) – Hong Kong shares posted their worst daily performance in more than nine months on Wednesday after the city announced a hike in stamp duty on stock trading, prompting huge outflows of mainland cash.
The Hang Seng index closed down 2.99% at 29,718.24, its biggest daily percentage drop since May 22, 2020. The Hang Seng China Enterprises index fell 3.36% to 11,509.73.
“The market had been under selling pressure, especially selling of those tech, high-valuation shares. And the news regarding the stamp duty just sped up the selling,” said Steven Leung, executive director, institutional sales at UOB Kay Hian in Hong Kong.
The stamp duty will rise to 0.13% of the value of the transaction from the current 0.1% on Aug. 1, Hong Kong Financial Secretary Paul Chan announced in his annual budget speech.
Refinitiv data showed outflows of HK$13 billion through the southbound leg of the Stock Connect programme linking Hong Kong with the Shanghai and Shenzhen exchanges as mainland investors dumped shares, likely a record, said Yan Kaiwen, an analyst with China Fortune Securities.
Chinese retail investors, who refer to themselves self-deprecatingly as “chives”, have helped to propel Hong Kong shares to recent highs on record inflows from mainland investors through Stock Connect.
On Wednesday, some investors on China’s Reddit-like Xueqiu investor community decried the move.
“Hong Kong’s chive-mowing mentality is really inveterate. There’s no future,” said a commentator posting as Blind Tortoise Touching the Elephant.
The stamp duty tax hike could impact earnings and sentiment around exchange operator Hong Kong Exchanges and Clearing Ltd (HKEX) in the near term, Morgan Stanley analysts said in a note, despite the strong earnings it reported on Wednesday.
HKEX shares plunged as much as 11% in the afternoon session before trimming losses to end 8.69% lower.
Chinese A-shares also closed lower on Wednesday, with the benchmark Shanghai stock index witnessing its biggest daily drop in seven months, as investors worried about high valuations amid growing concerns of tightening in policies.
Reporting by Andrew Galbraith, Cheng Leng and Luoyan Liu;