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Asset management sector gets govt boost

Updated: 2010-02-25 07:34

By Li Tao(HK Edition)

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Asset management sector gets govt boost

HONG KONG: Financial Secretary John Tsang has proposed measures to strengthen the competitiveness of the asset management industry and attract more talent, capital and products to Hong Kong.

He said Hong Kong, which is equipped with world-class hardware and software, including a strong asset management foundation, should benefit from a huge demand for wealth and asset management services in the mainland.

In his Budget Speech yesterday, Tsang proposed extending the stamp duty concession to the trading of exchange traded funds(ETF) to cover funds that track indices consisting of up to 40 percent Hong Kong stocks.

ETF is a stock-like investment fund traded on stock exchanges, which combines the valuation feature of a mutual fund or unit investment trust, and which can be bought or sold at the end of each trading day for its net asset value. Its features include low costs, tax efficiency, and being stock-like.

However, the government currently waives the stamp duty only for the trading of ETFs with no Hong Kong stock in their portfolios, while ETFs with Hong Kong stocks, regardless of the weighting, are not entitled to this concession.

Tsang proposed to extend the concession to cover ETFs that track indices containing not more than 40 percent Hong Kong stocks, which will reduce the trading cost and promote the diversification and healthy growth of the market.

A government official said it would be unfair if ETFs with Hong Kong stocks are all exempted from the current stamp duty. If the existing ETFs meet the new stipulation, a concession will apply to them immediately.

The preliminary plan is to conduct the new arrangement for a year, and then decide whether the concession should be extended to more ETFs with Hong Kong stocks of higher track indices.

Paul Pong, managing director of Pegasus Fund Managers, belives "with the policy assistance from the government and the economic support from the mainland, the ETFs could well be poised for a boom in Hong Kong, which is likely to become the ETF center of the world in the future."

Ronald Arculli, chairman of Hong Kong Exchange and Clearing also applauded the initiative, saying it will encourage the further development and diversification of the ETF market.

For the local bond market, currently, a concessionary profits tax rate of 50 percent of the normal rate is applied to the interest income and profits derived from qualifying debt instruments with a maturity period of less than seven years but at least three years.

John Tsang also proposed to extend a concession to cover qualifying debt instruments with a maturity period of less than three years. To better meet market requirements, he also plans to amend the provisions under the Inland Revenue Ordinance that require such debt instruments to be issued to the public in Hong Kong.

Tsang also proposes updating the lists of recognized stock exchanges and futures exchanges under the ordinance to extend the application of tax exemptions for offshore funds engaged in futures trading.

In addition, Tsang said as the mainland's capital account has yet to be fully liberalized, developing offshore RMB business in Hong Kong is the best option for promoting the use and circulation of RMB outside the mainland in an orderly manner.

(HK Edition 02/25/2010 page3)

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