As regular readers of this blog can attest, I have been unabashedly bullish on Hong Kong for some time now. However, the local Stock Exchange of Hong Kong has certainly not been immune to the global stock market correction. In fact, Hong Kong’s Heng Seng index has tumbled 17% so far this year, more than the S&P 500 decline of 11%.
However, there are lots of reasons to remain long-term bullish on this dynamic market. Not least of these is that Hong Kong is the traditional western gateway to mainland China, and benefits from booming investment flows to the People’s Republic.
Also, as Beijing continues to tinker with opening China’s closed financial system, Hong Kong will be a major destination for outbound capital flows from mainland Chinese investors too.
There’s no doubt in my mind that these trends will buoy Hong Kong shares again over the long run. But now there’s another excellent short-term reason to turn more bullish.
Huge tax cuts just proposed by the Hong Kong Monetary Authority should stimulate the economy even more in the near term as well!
Sticking to its pledge to “return wealth to the people,” the Hong Kong government just unveiled a package of tax cuts for next fiscal year that total nearly HK$52 billion (US $7 billion)… Washington DC, please take note.
Strong tax revenues thanks to robust economic growth of 6.3% last year, led to another huge budget surplus for Hong Kong. But rather than expanding its government to find new wasteful ways of “spending” this windfall, the government is doing the right thing.
The standard tax rate for Hong Kong taxpayers will be lowered to 15%, and the top marginal rate is just 17%. Contrast this with the IRS’s byzantine tax code that maintains a top marginal rate of 35%!
The stimulus package also includes among other measures, a whopping 75% reduction in profits, property, and salaries taxes paid in Hong Kong. Waivers for business registration fees, and an electricity charge subsidy are also included in the package.
Even taxes on beer and wine were abolished … attention duty-free shoppers!
The latest round of tax cuts is sure to stimulate the economy further, and draw more foreign (and domestic) businesses to expand operations in Hong Kong!
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