The Hang Seng tumbled 1.4% to 16,280.22 at the close of Thursday (20th October) trading. The Hang Seng Tech index was down by 2.08%. Shares in Asia-Pacific traded lower on account of economic turmoil
Hong Kong stocks have slumped to the lowest level since May 2009 as the benchmark Hang Seng index dropped by more than 3% following Hong Kong Chief Executive John Lee’s policy address. The Hang Seng tumbled 1.4% to 16,280.22 at the close of Thursday (20th October) trading. The Hang Seng Tech index was down by 2.08%. Shares in Asia-Pacific traded lower on account of economic turmoil. Hong Kong equities have been underperforming in the USA and UK markets in 2022, with geopolitical tension rising between Washington and Beijing.
The benchmark index has gone down by 5.5% in October 2022- the fourth successive month experiencing a decline. HK$1.2 trillion (US$15.9 billion) has been wiped off the stock market so far this month, and HK$1.6 trillion since January. The offshore Yuan traded at 7.255 per USD, the lowest since August 2010. Investors are perturbed amidst global inflation, central banks around the world raising interest rates to combat price surges, monetary tightening under One Country, Two Systems, trade, and geopolitical conflicts.
John Lee’s maiden policy address on Wednesday was aimed at boosting the city’s competitiveness as an international financial hub along with attracting talents from across the globe. Hong Kong has recently relaxed the covid-19 entry barriers. Lee says Hong Kong has a massive advantage and potential to connect mainland China with the world owing to the 14th Five-year plan, the Greater Bay Area construction, and the Belt and Road Initiative. The address was also focused on fixing certain economic and social issues, mainly housing distress. The city has lost about 140,000 local labor population in a span of two years. The government had proclaimed a series of measures to attract and retain labor forces from abroad.
Hong Kong is cutting down on property taxes and also mitigating visa rules to revive the city’s financial performance and expand its foreign labor force. The government is to establish the office riveted for attracting Strategic Enterprises from the mainland and overseas by offering a one-stop service portal and a co-investment fund of HK$30 billion pooled out of the Future Fund of the city. The city also brought down its visa parameters, stating they will issue a two-year visa for job seekers who have graduated from premium universities of the world or those having an annual salary of HK$2.5 million (318,504 USD) or above, with no limit on the quota.
The property tax cut policy affirms that extra stamp duties that non-permanent resident property buyers have to pay after staying in the city for seven years will be refunded. Upon becoming permanent residents, property buyers are entitled to a refund of two different stamp duties of 15% each. There is, however, another tax capped at 4.25% that all permanent residents still have to pay.
The government plans to aid its strained housing woes by increasing the supply of simple public housing by 30,000 to minimize residents’ waiting period. In his 2025 vision, he has pledged to increase public housing production by 50%. Secondary house prices have gone down by 8% since the beginning of 2022. The easing of stamp duties for non-resident buyers has the potential to attract demand from mainland China. During his address, sub-index property developers were up by 4% as against 2.8% before his speech.
Lee’s address, however, did not embellish the economic goals which have fallen behind rival Asian financial hubs like Singapore. Dickie Wong, the executive director of Kingston Securities, said, “There’s also a sense that tax rebates are not enough to draw foreigners back to Hong Kong.”
“This is uncertainty. No matter how the economy performed in the third quarter, investors still want a clear picture,” he added. Lee may be ignoring them, but the main policy solution is staring him in the face.