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HK Government increases stamp duty

Updated: Feb 14, 2023

In late February, the HK Government announced that stamp duty on buys and sells on the HK Exchange will increase from 10 basis points to 13 basis points on August 1. HK shares fell sharply based on this news, even though a slight increase in the friction costs of trading does not affect the fundamental value of most companies. This presented a short-term opportunity as I was able to use my screening tools to identify oversold stocks which were being unfairly punished by investors and take short positions in relative outperformers. In the past, I have been able to generate alpha using similar opportunistic trades, most notably after the earthquake and tsunami crisis in Japan when the relative daily performance of stocks was extreme.

More broadly, the increase in stamp duty will not have a material impact on the Fund’s performance. I already adjust trading frequency in each market based on the friction costs of trading (based on stamp duty, brokerage costs and slippage). For example, turnover in Japan and Australia is much higher than in Korea and Taiwan. It is also worth noting that the Fund uses a factor-based stock selection methodology and turnover is not in the same realm as quant funds that exploit high frequency trading opportunities.

Based on the 3-basis point increase in stamp duty, I will very slightly reduce turnover in Hong Kong but given share price volatility in Hong Kong and the magnitude of the increase in stamp duty, the performance impact will be minimal.

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