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Enhancing Stock Market Liquidity and Showcasing Hong Kong’s New Advantages

Recently, Hong Kong’s stock market has been facing immense pressure, with the Hang Seng Index having fallen by over 8% in August alone, and the average daily turnover standing at around HK$100 billion. The performance of Hong Kong stocks is clearly not satisfactory, and there have been repeated calls to reduce the stamp duty on stock transfers. That said, objective data have revealed that reducing stamp duty on stock transfers is not a panacea to enhance market turnover structurally and in the long term. There is a need for us to holistically review factors affecting Hong Kong’s stock market, identify the root causes of problems and devise comprehensive and integrated solutions. Implementing piecemeal measures may fail to inject impetus to the market, and if so, it may further hamper investor confidence and be counterproductive.

This explains why I see the need to set up a task force to leverage the collective wisdom of the industry, market and regulators to thoroughly examine the strengths and challenges of Hong Kong’s stock market; and for the task force to propose short, medium and long-term proposals for the Government’s consideration, with a view to enhancing market competitiveness and unleashing its future development potential.

The Task Force on Enhancing Market Liquidity was officially established last Tuesday. Specifically, it will comprehensively review key internal and external factors, including the listing regime, market structure and trading mechanism, as well as explore how to broaden the sources and flows of funds, attract more quality enterprises to list in Hong Kong, promote product innovation and diversity, enhance price discovery mechanism and trading efficiency, etc. The Task Force will convene its first meeting this week.

In fact, the key to improving stock market performance rests with investors having a positive outlook of the market, which will have a bearing on the amount of funds flowing into the market. This hinges on the economic performance, company earnings, whether there are continuous listings of companies with business potential, etc. These cannot be achieved solely by a cut in stamp duty on stock transfers.

Moreover, statistics reveal that reducing stamp duty on stock transfers cannot fundamentally enhance market turnover. Taking the experience from 1999 to 2001 as an example, despite the lowering of stamp duty for three times during that period, the average daily turnover dropped from $14.3 billion in 1997 to $6 billion in 2002. More recently, after the rate of stamp duty was slightly adjusted upward to 0.13% in 2021, the average daily turnover in the first few months (i.e. August to December) still recorded an increase of some 2% as compared with that of the same period in 2020. If we look into the overall share turnover ratio (also known as “turnover rate”) measuring the rate of shares changing hands, it increased from 0.22% in 2020 to 0.27% in 2022, suggesting that trading activities had not been adversely affected by the upward adjustment of the rate of stamp duty.

Stock market fluctuations are also affected by geopolitical factors and market sentiment. Western political prejudice has created misunderstanding which interfered with investors’ confidence in the stock markets of Hong Kong and the Mainland. Our country’s Ambassador to the United States, Mr Xie Fung, in an article titled “The Chinese economy is doing better than you might think”, has set out objective facts and figures to demonstrate the positive momentum of the country’s economic development, especially in terms of technological innovation and green development. Many international enterprises have indeed voted with their feet to proactively expand their business in the Mainland. While the global economic recovery remains weak and regions face their own challenges in their respective development, the pessimistic views about the Mainland’s economy from the West are clearly out of touch with reality, if not with ulterior motives.

During the three years of pandemic, many overseas investors and representatives of financial institutions were unable to visit Hong Kong. Biased reports from Western media had created misconceptions about the city. In this light, we will step up efforts to promote Hong Kong’s advantages through both welcoming more guests and going out to tell our good stories. In the coming months, I will be visiting Europe and the United States to explain the unique advantages and new opportunities brought by the “one country, two systems” principle, as well as the latest developments of the city including innovation and technology, green tech and green finance, Web 3.0, etc.

We will also be hosting a series of major international financial conferences in the coming months, including the Hong Kong Fintech Week in late October, followed by the Global Financial Leaders’ Investment Summit in November, the inaugural PRIORITY Asia Summit to be staged in Hong Kong by the Saudi Arabia-based Future Investment Initiative (“FII”) Institute, as well as the Asian Financial Forum in January next year.

By actively presenting Hong Kong’s new developments and opportunities, we aim to let international investors have a clearer and more comprehensive understanding of Hong Kong. By building an extensive network of relationships, we will tap into new collaboration opportunities and funding sources, thereby enhancing the competitiveness of Hong Kong’s financial markets, and promoting their sustainable and robust development in the long run.

September 3, 2023