The Stamp Duty (Amendment) Bill 2014 was published last week and introduced into the Legislative Council on December 17 after 10 months of consultation. According to the amendment, the stamp duty for the transfer of all exchange-traded-funds (ETFs) will be waived, as a way to further promote ETFs in Hong Kong
The Hong Kong government proposed the waiver in its 2014-15 budget to reduce the transaction costs of ETFs registered in Hong Kong with more than 40% of their assets invested in Hong Kong-listed stocks.
As a result, the waiver will benefit ETFs with high percentages of Hong Kong stocks in the portfolios, such as the Tracker Fund of Hong Kong or Hang Seng H-Share Index Fund, said Johnny Yu, managing director for equity derivatives sales at UBS in Hong Kong.
In 2010, the Hong Kong Government applied the stamp duty waiver to Hong Kong registered ETFs that track indices comprising no more than 40 per cent in Hong Kong stocks, but this benefitted only one or two ETFs.
The latest change has more to do with ETFs featuring China stocks than H-share, said Yu. Yu also expects the popularity of A-share-themed ETFs to fade away. “As the Stock Connect scheme provides a cheaper channel to tap into the mainland stockmarket, coupled with profit-taking from some investors from the ETFs which are at relatively high levels, there may be some pressure for redemption from these ETFs in the short term.”
Building on the popularity of Shanghai-Hong Kong Stock Connect, A-share-themed ETFs have accounted for over 10% of trading in the market this month, with daily transactions over HK$10bn ($1.29bn).
According to Hong Kong Exchange data, the number of ETFs listed in Hong Kong had increased from 69 at the end of 2010 to 121 by September 30, 2014. The average daily turnover of ETFs also increased from $2.4bn in 2010 to $3.7bn in 2013.
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