Bursa must brace for stamp duty hike backlash following HK’s experience

BURSA Malaysia Bhd should learn from the Hong Kong Stock Exchange (HKEX) experience with the latter seeing red with its monthly average daily volume (ADV) falling -44% between the February to November period following the implementation of a stamp duty hike.

Above all else, the stamp duty hike would also make the local bourse the most expensive exchange to trade within ASEAN-5, according to Hong Leong Investment Bank (HLIB) Research.

“The Hong Kong experience and comparison of trading cost within ASEAN-5 suggests that a contraction in ADV seems inevitable for Bursa once the higher stamp duty kicks in next year,” head of research Jeremy Goh pointed out in a company update.

“Evidently, the quantum of the hike is also higher for Bursa (50 basis points vs 30bps for HKEX) and is further exacerbated by the cap removal.”

Taking the above into consideration, HLIB Research expects Bursa Malaysia’s FY2022 ADV to come in at RM2.48 bil or a -30% year-on-year (yoy) decline but still a tad above the pre-COVID highs of RM2.3-2.4 bil in FY2017-2018.

However, the research house’s FY2021 ADV assumption is relatively unchanged at RM3.54 bil (-1% revision; 11M 2021: RM3.71 bil). Given such outlook, HLIB Research slashed Bursa Malaysia’s FY2021/2022/2023 earnings by -1%/-13%/-16% on the back of lower ADV assumptions.

It thus lowered target price for the local bourse to RM5.95 from RM6.52 although it upgraded Bursa Malaysia’s rating to “hold” (from ‘sell’ previously) with assumption that the negatives have been largely priced in.

To recap, Budget 2022 has proposed an increase in stamp duty for stocks from 0.1% to 0.15% with the RM200/contract cap abolished with effect from Jan 1, 2022. At the same time, the 6% sales and service tax (SST) on brokerage will be removed.

“There’s no two ways about it; this would imply a rather significant increase in trading cost,” insisted HLIB Research.

“For illustration, assuming a trade size of RM1 mil and brokerage of 0.2%, the total trading cost would increase from RM2,620 to RM3,800 or +45%. The higher stamp duty which is further amplified by its cap abolishment would only be marginally offset by brokerage SST removal – a token compensation at best, we feel.”

Back to HLIB Research’s previous example, trade sizes of ≤RM200k would only see trading cost rise by +11.1% vs +45% for RM 1 mil, +50.8% (RM2 mil) or +52.8% (RM3 mil)

Intuitively, larger traders are likely to be domestic institutions and foreigners while retailers are relatively smaller traders. For the 11M 2021 period, domestic institutions and foreigners made up 43.5% and 18.9% of traded value respectively (2020: 46.1% and 16.5%).

“This suggests that over 60% of the local bourse’s demographics could be hit by significantly higher trading cost,” added HLIB Research.

At 12.02pm, Bursa Malaysia was up 1 sen or 0.16% to RM6.41 with 126,100 shares traded, thus valuing the company at RM5.19 bil. – Dec 9, 2021

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