A European-wide financial transaction tax may wipe off as much as 10 percent from equity valuations and offset the benefits to the region’s economy of governments raising money, according to HSBC Holdings Inc.
The proposed tax “does present a major downside risk to both the banking sector and the broader market,” London-based HSBC analysts Robin Down and Lorraine Quoirez wrote in a report dated yesterday. “Investors should also anticipate a market- wide increase in the cost of both equity and debt, and major upheaval in the repo market.”
France and eight other European Union countries are seeking to introduce the levy on shares, derivatives and high-frequency trading. The European Commission in September suggested a tax of 0.1 percent on equity and bond transactions and 0.01 percent on derivatives, which it said could raise 55 billion euros ($72 billion) a year. EU finance ministers are due to discuss the tax next month.
Taxing transactions would prompt equity investors to expect higher returns from the asset class, the analysts said. The tax “as currently presented could see European valuations impacted by up to 10 percent,” they wrote.
