By Sherry Qin

Hong Kong stocks climbed to their highest level in nine months after a media report that China is considering exempting individual investors from paying dividend taxes on Hong Kong stocks bought through the Stock Connect.

The city's benchmark Hang Seng Index ended 2.3% higher at 18963.68 on Friday, its highest level since August. High dividend-yield energy and bank stocks powered the gains.

China Construction Bank rose 6.8% and China Everbright Bank added 3.3%. Among energy stocks, Sinopec increased 5.4% and China Shenhua Energy climbed 6.1%. Hong Kong Exchanges & Clearing surged 7.6%, its biggest daily percentage gain since November 2022.

Bloomberg on Thursday reported that Beijing is reviewing a plan submitted by Hong Kong to waive the 20% dividend tax from Hong Kong stocks bought via the link that connects to Shanghai and Shenzhen, citing unnamed sources.

However, regulators including the China Securities Regulatory Commission and the State Taxation Administration haven't made a decision, and there is no clear timeline for implementation, it said.

The HKEX and the city's Securities and Futures Commission declined to comment.

Friday's advance added to the recent strength in Hong Kong's benchmark stock index. The HSI recently logged 10 straight sessions of gains, its longest winning streak since 2018.

Redmond Wong, Chief China Strategist at Saxo Markets, said low valuations, underweight positions and favorable policies speculated following China's recent Politburo meeting all contributed to the rally.

The proposal, if implemented, could boost investor sentiment further and lift the overall daily turnover by around 3%-5%, Maybank analyst Sonija Li said, noting that recent southbound flow accounted for 14%-16% of overall daily turnover.

The move could also boost the exchange operator's top line after a disappointing performance over the past year amid weak trading activity and tepid market sentiment. Li estimated the tax exemption could bring 1%-2% incremental growth to HKEX's revenue.

The removal of the dividend tax could also narrow the discount between A shares and H Shares given A shares trade at a 30%-50% premium to H shares, Li said.

Write to Sherry Qin at

(END) Dow Jones Newswires

05-10-24 0451ET