Bursa Malaysia to be negatively impacted by stamp duty hike

For 11M21 period, domestic institutions and foreigners made up 43.5% and 18.9% of traded value respectively, says analyst


BURSA Malaysia Bhd is set to be negatively impacted by the impending stamp duty hike as it would drastically increase the trading cost up to 45% for big trades of RM1 million and above.

Hong Leong Investment Bank (HLIB) Research’s analyst Jeremy Goh noted that larger traders such as domestic institutions and foreign institutional investors would be hit harder and the higher stamp duty would impact more than 60% of Bursa Malaysia’s demographics.

“When comparing pre and post stamp duty restructuring, it’s not hard to see that the larger the trade, the harder the hit from higher trading cost (in percentage terms),” Jeremy wrote in a research note yesterday.

According to him, larger traders are likely to be domestic institutions and foreigners, while retailers undertake relatively smaller traders.

“For the 11 months of 2021 (11M21) period, domestic institutions and foreigners made up 43.5% and 18.9% of traded value respectively.

“This suggests that over 60% of the local bourse’s demographics could be hit by significantly higher trading costs,” he stated.

To recap, Budget 2022 proposed an increase in stamp duty for stocks from 0.1% to 0.15% and the RM200 per contract cap will be abolished effective January 2022.

At the same time, Sales and Services Tax of 6% on brokerage will be removed.

“There’s no two ways about it, this would imply a rather significant increase in trading cost,” he pressed.

For illustration, the analyst assumed a trade size of RM1 million and brokerage of 0.2%. The total trading cost would increase from RM2,620 to RM3,800 or 45%.

As comparison, Goh noted that the Hong Kong Exchange (HKX), which announced its stamp duty rise earlier this year, saw monthly average daily trading volume (ADV) fall 44% from February to November.

“The stamp duty hike would also make Bursa the most expensive exchange to trade within ASEAN-5 at 0.38% by our estimates,” he explained further.

The analysts added that the contraction in ADV as seen on the HKX is inevitable for Bursa Malaysia once the higher stamp duty kicks in next year.

“Evidently, the quantum of the hike is also higher for Bursa (50bps versus 30bps for HKX) and is further exacerbated by the cap removal,” he added.

The investment bank expects Bursa Malaysia’s ADV for the financial year 2022 (FY22) to chalk in at RM2.48 billion or 30% year-on-year decline, but still a tad above the pre-Covid highs of RM2.3 billion to RM2.4 billion in FY17 to FY18.

Its FY21 ADV assumption is relatively unchanged at RM3.54 billion.

“With the cut in ADV assumptions, FY21/22/23 earnings are reduced by -1%/13%/-16% respectively,” he further said.

HLIB upgraded Bursa to ‘Hold’ from ‘Sell’ and cut its target price to RM5.95 from RM6.52, based on 20 times price-earnings of five-year mean tagged FY22 earnings per share.

“With the share price falling 14.8% since news of the stamp duty hike, we reckon the negatives have been largely baked in. Any significant downside risk should be buffered by decent yields of 5.9%/4.2% for FY21/ FY22,” he noted.