stock investor survey - securities and futures commission · the sfc’s retail investor survey...
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Stock Investor Survey
Hong Kong June 2006
C O N T E N T S
1. Executive Summary 1
2. Retail Participation and Demographic Profile of Stock Investors
6
3. Choice of Intermediary 7
Ways to Improve Securities Trading Services 8
4. On-line Trading 11 Rationale Behind Trading and Not Trading On-line 11
5. Types of Accounts Owned 14
6. IPO Investing 16 Factors Considered before Buying IPO Shares 16 Perceived Importance of Prospectus 17 Preferred Format of Prospectus 18 Sections of Prospectus Read 19 Application Methods 20 Selling Allotted Shares in an IPO on the First Trading Day 22
7. Choosing Stocks & Making Trading Decisions 24
8. Share of Wallet 27
9. Trading Results 29
Annex Survey Design 31
1. Executive Summary From September 2005 to February 2006, the Securities and Futures Commission (SFC) engaged the Centre for Corporate Governance and Financial Policy of the Hong Kong Baptist University to conduct the Stock Investor Survey. The Survey studied behaviour of stock investors in choosing an intermediary, IPO (initial public offering) investing, picking stocks and making trading decisions; plus share of wallet and trading results. In the study, stock investors were defined as those Hong Kong adults aged 18 or above who had traded Hong Kong, Mainland or overseas stocks in the last two years. 500 stock investors completed a questionnaire. 430 of them were among the 1,511 stock investors identified in the SFC’s Retail Investor Survey 20051. The remaining 70 stock investors were identified from calls made to a number of randomly selected residential phone numbers.
Retail participation and demographic profile of stock investors
• The SFC’s Retail Investor Survey 2005 estimated that 28.3% of Hong Kong adults aged 18 or above had traded Hong Kong stocks and 4.1% had traded Mainland or overseas stocks.
• Of the 500 stock investors participated in the Stock Investor Survey, 52.4% were male;
58.3% were aged between 30 and 49; and 46.7% had received tertiary education or above.
Choice of intermediary
• In this sample of stock investors, 53.4% had traded through banks only, 25.4% through brokerages only and 21.2% traded through both banks and brokerages.
• Size and financial soundness (81.6%), convenience and flexibility of dealing
procedures (68.8%) and commissions and fees (50.2%) were the top three factors that stock investors considered in choosing an intermediary.
1 Conducted from September to November 2005, the Retail Investor Survey 2005 estimated retail participation
rates, level of financial understanding and perceived usefulness of the SFC’s investor education work. In that survey, retail investors were defined as adults aged 18 or above who had traded SFC-regulated investment products or Mainland/overseas stocks during the last two years.
1
• Quicker order execution (48.8%), more free value-added services such as provision of real-time stock quotes or market/stock commentaries (46.6%) and more transparent fees and charges (38.8%) were the three main suggestions put forward by stock investors for the intermediaries to improve their securities trading services.
On-line trading
• 36% of stock investors had traded stocks on-line during the last two years (“on-line traders”). They enjoyed on-line trading because it allowed them to place orders anytime and anywhere they wish (78.9% of on-line traders) and monitor their accounts more easily (53.9%).
• Those who were hesitant to trade on-line were mainly worried about the system
security and stability (72.5% of non-on-line traders). 22.8% of non-on-line traders described themselves as computer illiterates.
Types of accounts owned
• Overall speaking, 90.4% owned cash accounts only, 1.4% owned margin accounts only and 8.2% owned both cash and margin accounts. A larger proportion of margin clients was found among those who had traded through brokerages alone (3.1% vs. Banks only:0.4% and Both: 1.9%).
• 49.6% of stock investors knew that “a margin account client is usually required to
authorize his brokerage to re-pledge shares in his margin account to secure the brokerage’s bank borrowings”. 43.4% were aware of the pooling risk2 of margin accounts. Those who had traded through both brokerages and banks or had traded on margin had a higher awareness of the re-pledging arrangement and the pooling risk associated with margin accounts.
IPO investing
• 82% of stock investors had subscribed for shares in an IPO (“IPO share subscribers”).
2
2 If the brokerage becomes insolvent, the bank may sell the stocks of margin clients, which have been pooled and re-pledged by the brokerage for bank borrowings, in order to discharge the brokerage’s indebtedness. In such a case, a margin client may not be able to get back all the stocks that have been re-pledged. This is commonly known as pooling risk.
• Before buying a newly listed company’s stock, IPO share subscribers considered the company’s prospects (81.7% of IPO share subscribers) and its current financial position (54.4%). Some IPO share subscribers also considered other external factors such as comments in the media (46.1%) and market response to the IPO (42.4%).
• 44.9% of IPO share subscribers read the prospectus before subscribing for shares in an IPO (“prospectus readers”). 71.5% of IPO share subscribers regarded the prospectus important.
• Among those who did not read prospectus (“non-prospectus readers”), 82.3% commented that the document was too long and 57.1% found it too legalistic. 52.2% referred to newspapers or radio/TV programs for information about the newly listed company.
• Significantly more stock investors in Hong Kong favoured a hardcopy prospectus
(69% of prospectus readers). Similar proportion of stock investors preferred a CD-ROM version (21.7%) and an electronic version on the website of the Hong Kong Exchanges and Clearing Ltd. (“HKEx”) or the respective listed company (20.1%). 69% of IPO share subscribers said that they possessed the knowledge and equipment for reading the prospectus on a CD-ROM.
• Company’s business (77.7% of prospectus readers) was the most popular section read
in a prospectus, followed by summary (62%), financial information (60.9%) and risk factors (58.7%). The expected timetable of the IPO (12%) was the least popular.
• White forms were the most popular means of submitting IPO applications. 52.9% of
IPO share subscribers usually used white forms, while 35.6% were yellow form users, i.e. they instructed the intermediaries to subscribe on their behalf. 11.5% made their own applications through the Internet.
• Those IPO share subscribers who opted for white forms normally wished to keep
physical scrips in their own names (71.4% of white form users) and avoid paying handling fees to the intermediaries (45.2%).
• Yellow form users preferred asking the intermediaries to apply on their behalf because
the allotted shares would be directly credited to their accounts at the intermediaries (73.3% of yellow form users). Moreover, 43.8% would sell the allotted shares on the first trading day.
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• Those who made on-line submissions adopted this approach mainly for its convenience (97.9% of those who applied through the Internet).
• 16.3% of IPO share subscribers said that they usually sold the allotted IPO shares on
the first trading day. More yellow form users and those who owned margin accounts only would sell their IPO shares that quickly.
• When deciding whether to sell the allotted shares quickly, IPO share subscribers
generally compared the trading price to the issue price (58.3%) and considered the market sentiment (56.6%). 4.9% were concerned about interest costs as they subscribed for the IPO shares on margin.
Choosing stocks & making trading decisions
• Over 60% of stock investors knew the business nature (76% of stock investors), price trend (67.2%) and prospects (65.0%) of a listed company before buying its shares. They were less knowledgeable of the company’s management (27%) and treatment of minority shareholders (16.4%).
• While checking price trend was popular, stock investors appeared to emphasize more
on company fundamentals than technical indicators in evaluating a stock. Relatively fewer stock investors kept track of turnover (29.6%) and knew about the technical indicators such as 20-day and 50-day moving averages (15.6%) of the respective stock.
• When making trading decisions, nearly half of the stock investors referred to financial
reports (51%) and company announcements (48.4%) of the listed company. They also heeded stock commentators’ recommendations on TV, radio or newspapers (48.2%) and paid attention to media reports (47.6%).
Share of wallet
• 14.6% of stock investors had spent HK$50,000 or less in trading stocks. Most (48.4%) had invested approximately HK$50,001 to HK$250,000. 16.8% fell in the range of HK$250,001 to HK$500,000. Around one-fifth (20.2%) had a stock portfolio exceeding HK$500,000.
4
• On average, stock investors had allocated 28.5% of their investment money on Hong Kong stocks as of September 2005. By computing similar average proportions for other asset classes, a typical portfolio was constructed for the 500 stock investors researched in the survey. Apart from Hong Kong stocks, the portfolio largely comprised managed funds (excluding MPF investments) (7.2%), others such as insurance, foreign currencies (10.6%), while 45.1% was cash. Other instruments such as warrants, leveraged foreign exchange contracts, Mainland or overseas stocks, bonds, structured products and other derivatives such as futures/options contracts traded in Hong Kong, had a weight of less than 2% each.
Trading results
53.4% of stock investors expressed that they made profits from stock investments in a defined six-month period, 21.4% suffered losses, 0.2% broke even and 25% said that they did not know or were not sure.
Among those who made profits from stock investments, their gains ranged from
1% to 80% of capital invested with an average of 13.3%. In contrast, loss-making stock investors suffered a larger loss of 20.8% on average with the lowest and highest loss of 1% and 100% respectively.
5
2. Retail Participation and Demographic Profile of Stock Investors The SFC’s Retail Investor Survey 2005 estimated that 28.3% of Hong Kong adults aged 18 or above had traded Hong Kong stocks and 4.1% had traded Mainland or overseas stocks during the last two years. This Stock Investor Survey invited 500 stock investors to complete a self-administered questionnaire. In the sample of respondents, 52.4% were male; 58.3% were between the age of 30-49; and 46.7% had received tertiary education or above (Table 1).
Table 1: Demographic Profile of Stock Investors
Stock investors (%) Gender Male 52.4 Female 47.6
Age group
18-29 13.6
30-39 26.0
40-49 32.3
50-59 19.5
60 or above 8.5
Median 45
Education
Primary 5.3
Lower secondary 9.1
Upper secondary 29.9
Matriculation 8.9
Tertiary: Non-degree 12.8
Tertiary: Degree or above 33.9
(Base: All answers excluding refusal cases)
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3. Choice of Intermediary Of the 500 stock investors who participated in this survey, 53.4% had traded through banks only, 25.4% through brokerages only and 21.2% through both banks and brokerages. When asked to indicate the three most important factors that they considered in choosing an intermediary, 81.6% of stock investors selected size and financial soundness, followed by convenience and flexibility of dealing procedures (68.8%), commissions and fees (50.2%), service quality (44.4%), location (17.4%) and whether they knew the account executive (11.4%) (Figure 1).
Figure 1: Factors Considered in Choosing an Intermediary
1.6%
5.0%
9.8%
9.8%
11.4%
17.4%
44.4%
50.2%
68.8%
81.6%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Others
Market information from account executive
Whether the firm has been disciplined by itsregulators
Friends' and relatives' recommendations
Know the account executive
Location
Service quality
Commissions and fees
Convenience and flexibility of dealingprocedures
Size and financial soundness
Percentage of stock investors
regulators
Convenience and flexibility of dealingprocedures
Note: Respondents were asked to select three most important factors.
(Base: All stock investors)
Clients of different intermediaries had dissimilar views on the importance of certain factors in selecting a securities trading services provider (Figure 2): Location: Those who had traded through banks only considered this factor more
important (Banks only: 24.7% vs. Brokerages only: 9.4% and Both: 8.5%). Commissions and fees: Stock investors who had traded through both brokerages and
banks were more cost conscious (Both: 59.4% vs. Brokerages only: 43.3% and Banks only: 49.8%).
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Know the account executive: Higher proportion of brokerage clients considered close
relationship with the account executive important (Brokerages only: 28.3% vs. Banks only: 2.2% and Both: 14.2%)
Friends’ and relatives’ recommendations: Brokerage clients were more influenced by
personal comments of their friends and relatives in selecting their securities trading services providers (Brokerages only: 21.3% vs. Banks only: 5.2% and Both: 7.5%).
Figure 2: Factors Considered in Choosing an Intermediary by Types of Intermediaries Used
9.4%
43.3%
49.8%
59.4%
5.2%8.5%
24.7%
2.2%
28.3%
14.2%
21.3%
7.5%
0%
10%
20%
30%
40%
50%
60%
Brokerages only Banks only Both brokerages andbanks
Types of intermediaries used
Perc
enta
ge o
f sto
ck in
vest
ors w
ho tr
aded
thro
ugh
a pa
rtic
ular
type
of i
nter
med
iary
Location Commissions and feesKnow the account executive Friends' and relatives' recommendations
Note: Respondents were asked to select three most important factors
(Base: All stock investors who traded through a particular type of intermediary)
Ways to Improve Securities Trading Services 48.8% of stock investors suggested quicker order execution. 46.6% requested more free value-added services such as provision of real-time stock quotes or market/stock commentaries. 38.8% called for better disclosure of fees and charges (Figure 3).
8
Figure 3: Ways to Improve Securities Trading Services
0.6%
2.8%
13.0%
13.0%
19.0%
20.4%
31.0%
34.8%
38.8%
46.6%
48.8%
0% 10% 20% 30% 40% 50% 60%
Others
No comments
Improve account executives' competence
Improve internal control procedures
Product and service diversification
Provide investment recommendations suitable to aclient's own circumstances
Easier-to-read contract notes and account statements
Better quality of customer service
More transparent fees and charges
More free value-added services such as provision ofreal-time stock quotes or market/stock commentaries
Quicker order execution
Percentage of stock investors
a client's own circumstances
Note: Multiple answers allowed. (Base: All stock investors)
Clients of different intermediaries emphasized different ways for intermediaries to improve their services (Figure 4): More transparent fees and charges: Higher proportion of bank clients and those who
had traded through both banks and brokerages advocated more transparency in fees and charges. (Banks only: 41.2%, Both: 44.3% vs. Brokerages only: 29.1%)
Quicker order execution: More stock investors who had traded through brokerages and
banks wanted quicker order execution (Both: 58.5% vs. Brokerages only: 42.5% and Banks only: 47.9%).
Improve account executives’ competence: More brokerage clients and those who traded
through both brokerages and banks pinpointed that their account executives’ competence needed improvement (Brokerages only: 18.9%, Both: 18.9% vs. Banks only: 7.9%).
Easier-to-read contract notes and account statements: Compared with brokerage
clients, a higher percentage of bank clients and those who had traded through both brokerages and banks suggested intermediaries to issue more user-friendly transaction documents (Banks only: 34.1%, Both: 34% vs. Brokerages only: 22%).
9
Figure 4: Ways for Services Improvements by Types of Intermediaries Used
29.1%
42.5%47.9%
58.5%
34.1%
41.2%44.3%
18.9%18.9%
7.9%
34.0%
22.0%
0%
10%
20%
30%
40%
50%
60%
Brokerages only Banks only Both brokerages andbanks
Types of intermediaries used
Perc
enta
ge o
f sto
ck in
vest
ors w
hotr
aded
thro
ugh
a pa
rtic
ular
type
of
inte
rmed
iary
More transparent fees and chargesQuicker order executionImprove account executives' competenceEasier-to-read contract notes and account statements
Note: Multiple answers allowed.
(Base: All stock investors who traded through a particular type of intermediary)
10
4. On-line Trading
Out of the 500 stock investors participated in the survey, 36% had traded stocks on-line during the last two years (“on-line traders”). Those who had traded through both banks and brokerage had a higher propensity to conduct stock transactions over the web (Figure 5).
Figure 5: On-line Trading vs. Types of Intermediaries Used
18.9%
39.7%47.2%
81.1%
60.3%52.8%
0%
20%
40%
60%
80%
100%
Brokerages only Banks only Both brokerages andbanks
Types of intermediaries used
Perc
enta
ge o
f sto
ck in
vest
ors
who
trad
ed th
roug
ha
part
icul
ar ty
pe o
f int
erm
edia
ry
Non-on-linetraders
On-line traders
(Base: All stock investors who traded through a particular type of intermediary)
Rationale Behind Trading and Not Trading On-line
On-line traders were asked to tell why they traded on-line. The most popular reason was the convenience of on-line trading that enabled them to place orders anytime and anywhere they wish (78.9%), followed by easier to monitor their accounts (53.9%), no interference by their account executives on their trading decisions (50.0%) and faster order execution (47.8%) (Figure 6). Compared with clients of other intermediaries, significantly more bank clients had tried on-line trading because of the ease of placing orders wherever and whenever they wish (Banks only: 86.8% vs. Brokerages only: 62.5% and Both: 70%) and faster order execution (Banks only: 55.7% vs. Brokerages only: 41.7% and Both: 34.0%).
11
Figure 6: Reasons for Trading On-line
5.0%
33.9%
43.9%
47.8%
50.0%
53.9%
78.9%
0% 20% 40% 60% 80%
Others
Easier to get market information on the Internet
Lower commission
Faster order execution
Trading decision not interfered by their accountexecutive
Easier to monitor their accounts
Can place order anytime and anywhere they wish
Percentage of on-line traders
Can place orders anytime and anywherethey wish
executive
Note: Multiple answers allowed.
(Base: All on-line traders)
On the other hand, among those who had not traded stocks on-line in the last two years (“Non-on-line traders”), 72.5% were worried about the system security and stability and 22.8% described themselves as computer illiterates (Figure 7). Out of the reasons listed in Figure 7, a higher proportion of brokerage clients cited the reasons “they preferred first receiving advice from their account executives before trading” (Brokerages only: 27.2% vs. Banks only: 12.4% and Both: 16.1%) and “no such service provided” (Brokerages only: 11.7% vs. Banks only: 4.3% and Both: 7.1%) to explain why they had never experienced on-line trading.
12
Figure 7: Reasons for Not Trading On-line
1.6%
1.6%
3.1%
7.2%
9.1%
17.8%
22.8%
72.5%
0% 10% 20% 30% 40% 50% 60% 70% 80%
No access to computer at work
Difficult to use and not fast enough
Others
No on-line trading service provided by theirbrokerage or bank
No preferred commission rate
Prefer first receiving advice from accountexecutive before trading
Computer illiterate
Lack confidence in system security and stability
Percentage of non-on-line traders
executive before trading
intermediary
Prefer first receiving advice from account
Note: Multiple answers allowed.
(Base: All non-on-line traders)
13
5. Types of Accounts Owned Overall speaking, out of the 500 stock investors, 90.4% owned cash accounts only, whereas 1.4% owned margin accounts only and 8.2% owned both types of accounts. As shown in the Figure 8 below, a higher proportion of brokerage clients (3.1%) owned margin accounts than those who had traded through banks only (0.4%) or traded through both brokerages and banks (1.9%).
Figure 8: Types of Accounts Owned vs. Types of Intermediaries Used
88.2%97.0%
76.4%
8.7%21.7%
3.1%0.4%
2.6%
0%
20%
40%
60%
80%
100%
Brokerages only Banks only Both brokeragesand banks
Types of intermediaries used
Perc
enta
ge o
f sto
ck in
vest
ors w
ho tr
aded
thro
ugh
a pa
rtic
ular
type
of i
nter
med
iary Both cash and margin
accounts
Margin accounts only
Cash accounts only
1.9%
(Base: All stock investors who traded through a particular type of intermediary)
49.6% of stock investors knew that “a margin account client is usually required to authorize his brokerage to re-pledge shares in his margin account to secure the brokerage’s bank borrowings”. 43.4% were aware of the pooling risk of margin accounts. As shown in Figure 9, brokerage clients and those who had traded through both brokerages and banks had a better understanding of the share re-pledging requirement and pooling risk of margin accounts than bank clients. Also, those who had traded on margin had higher awareness of the re-pledging arrangement and the subsequent pooling risk associated with margin accounts (Figure 10).
14
Figure 9: Understanding of Share Re-pledging Requirement and Pooling Risk
of Margin Accounts by Types of Intermediaries Used
62.3%
53.5%
47.2% 42.7%
38.6%
50.9%
0%
10%
20%
30%
40%
50%
60%
70%
Pooling risk Share re-pledging requirement
Perc
enta
ge o
f sto
ck in
vest
ors w
ho tr
aded
thro
ugh
a pa
rtic
ular
type
of i
nter
med
iary
Brokerages only
Banks only
Both brokerages and banks
(Base: All stock investors who traded through a particular type of intermediary)
Figure 10: Understanding of Share Re-pledging Requirement and Pooling Risk of Margin Accounts by Types of Accounts Owned
63.4%
41.8%
48.0%
71.4%71.4%
56.1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Pooling risk Share re-pledging requirement
Cash accounts only
Margin accounts only
Both cash and margin accounts
Perc
enta
ge o
f sto
ck in
vest
ors w
ho o
wne
da
part
icul
ar ty
pe o
f acc
ount
(Base: All stock investors who owned a particular type of account)
15
6. IPO Investing
In the sample of 500 stock investors, 82% had subscribed for shares in an IPO (“IPO share subscribers”). Factors Considered before Buying IPO Shares Prospects of the newly listed company (81.7% of IPO share subscribers) was the most popular factor considered before buying IPO shares, followed by the company’s current financial position (54.4%), comments in the media (46.1%) and market response to the IPO (42.4%). Only 8.5% approached their brokers for advice (Figure 11).
Figure 11: Factors to Consider in IPO Investing
1.7%
8.5%
15.6%
18.5%
20.0%
25.1%
25.4%
25.9%
32.0%
33.2%
42.4%
46.1%
54.4%
81.7%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Others
Brokers' advice
Minimum subscription amount in dollar terms
The professional parties that arrange the listingsuch as the sponsor and auditor
Whether there are any strategic investors
Key shareholders
Expected level of increase in the share price onthe first trading day
Size of the IPO issue
Attractiveness of the issue price vis-à-vis peerstocks
Management
Market response to the IPO
Comments in the media
Company's current financial position
Company prospects
Percentage of IPO share subscribers
the first trading day
such as the sponsor and auditor
stocks
Note: Multiple answers allowed.
(Base: All IPO share subscribers)
A higher proportion of IPO share subscribers who read the prospectus (“prospectus readers” & see discussion on P.17) considered the newly listed company’s current financial position, management and the professional parties that arranged the listing than those who did not read the prospectus (“Non-prospectus readers”). On the other hand, non-prospectus readers paid more attention to the market response to the IPO and comments in the media (Figure 12).
16
Figure 12: Factors to Consider in IPO Investing by Whether IPO Share Subscribers Read the Prospectus
15.0%
25.7%
51.3%
48.7%
45.6%
22.8%
42.4%
39.7%
34.8%
65.2%
0% 10% 20% 30% 40% 50% 60% 70%
The professional parties that arrange the listingsuch as the sponsor and auditor
Management
Comments in the media
Market response to the IPO
Company's current financial position
Percentage of prospectus/non-prospectus readers
Non-prospectus readers Prospectus readers
Note: Multiple answers allowed.
(Base: All prospectus and non-prospectus readers)
Among those who did not read the prospectus because they did not care about the company’s fundamentals (see discussion below), 61.9% considered comments in the media and 52.4% based their investment decision on the expected level of increase in the share price on the first trading day.
Perceived Importance of Prospectus
44.9% of IPO share subscribers read the prospectus before subscribing for shares in an IPO (“prospectus readers”) while 55.1% did not (“non-prospectus readers”). 71.5% of IPO share subscribers regarded the prospectus important. Among them, 58.4% read the prospectus and 41.6% did not. For those who considered the prospectus unimportant, only 11.5% read the prospectus. 82.3% of non-prospectus readers did not go through the prospectus because they said it was time consuming to read that long document. 57.1% found the prospectus too legalistic. 52.2% deemed newspapers or radio/TV programs as better sources of information about the newly listed company. 9.3% did not care about the company’s fundamentals (Figure 13).
17
Figure 13: Reasons for Not Reading the Prospectus
0.4%
1.8%
9.3%
52.2%
57.1%
82.3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Run out of hardcopies in a hot IPO
Others
Do not care about the company's fundamentals
Newspapers or radio/TV programs are bettersources of information
Too legalistic
Too long. No time to read
Percentage of non-prospectus readers
Note: Multiple answers allowed. (Base: All non-prospectus readers) Further analysis indicates that a higher proportion of non-prospectus readers who had traded through banks only (62.7% vs. Brokerages only: 59.7% and Both: 40.8%) or owned cash accounts only (Cash accounts only: 60.3% vs. Margin accounts only: 20% and Both: 29.4%) found the prospectus too legalistic. Significantly more margin account holders did not care about the company’s fundamentals and thus did not read the prospectus (Margin accounts only: 40% vs. Cash accounts only: 9.3% and Both: 0%). Preferred Format of Prospectus More stock investors favoured a hardcopy prospectus. 69% of prospectus readers liked this format, followed by a CD-ROM version (21.7%) and an electronic version on the website of the Hong Kong Exchanges and Clearing Ltd. (“HKEx”) or the respective listed company (20.1%) (Figure 14). 69% of IPO share subscribers said that they possessed the knowledge and equipment for reading the prospectus on a CD-ROM.
18
Figure 14: Preferred Format of Prospectus
20.1%
21.7%
69.0%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Electronic versionon the website of
HKEx or the listedcompany
On a CD-ROM
Hardcopy
Percentage of prospectus readers
Note: Multiple answers allowed. (Base: All prospectus readers)
Sections of Prospectus Read When reading the prospectus of a newly listed company, company’s business was the most popular section (77.7% of prospectus readers), followed by summary (62.0%), financial information (60.9%) and risk factors (58.7%). Only 12% referred to the expected timetable of the IPO (Figure 15).
Figure 15: Sections of Prospectus Read
12.0%
40.8%
51.1%
58.7%
60.9%
62.0%
77.7%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Expected timetableof the IPO
Management
Use of proceeds
Risk factors
Financialinformation
Summary
Company's business
Percentage of prospectus readers
Note: Multiple answers allowed. (Base: All prospectus readers)
19
Application Methods When submitting their IPO applications, 52.9% of IPO share subscribers usually used white forms (“White form users”), 35.6% instructed the intermediaries to subscribe on their behalf (commonly referred to as yellow form submission) (“Yellow form users”), and 11.5% submitted their applications through the Internet such as the websites of the intermediaries (Figure 16).
Figure 16: IPO Application Methods
Use white forms52.9%
Instruct theintermediaries tosubscribe on their
behalf35.6%
Subscribethrough the
Internet11.5%
(Base: All IPO share subscribers)
Among those who liked a hardcopy prospectus, more of them used white forms (75.8%) instead of submitting their IPO applications through the Internet (46.2%). This phenomenon was reversed for those who favoured an electronic prospectus on the website of the HKEx or the listed company concerned (white forms: 12.6% vs. submission through the Internet: 38.5%). IPO share subscribers adopted various application methods for different reasons. Those who preferred white forms mainly because they would like to hold physical scrips in their own names (71.4% of white form users) and avoid the intermediaries’ handling fees (45.2%) (Figure 17).
20
Figure 17: Reasons for Using White Forms in IPO Share Applications
3.2%
4.6%
10.1%
45.2%
71.4%
0% 20% 40% 60% 80%
Others
Do not have a securitiestrading account at an
intermediary
Do not know otheralternatives
Avoid handling feescharged by theintermediaries
Prefer to hold physicalscrips in their own names
Percentage of white form users Note: Multiple answers allowed.
(Base: All white form users)
Yellow form users adopted this approach because shares could be directly credited to their accounts at the intermediaries (73.3% of yellow form users) and they intended to sell the allotted shares on the first trading day (43.8%) (Figure 18).
Figure 18: Reasons for Using Yellow Forms in IPO Share Applications
1.4%
2.1%
3.4%
25.3%
37.7%
43.8%
73.3%
0% 20% 40% 60% 80%
Cannot get a white form
Others
Do not know other alternatives
Unwilling to keep physical scrips
No need to bother filling in the form as theintermediaries do it for them
Want to sell the stock on the first trading day
Shares are directly credited to the accounts attheir intermediaries
Percentage of yellow form users
the intermediaries
Note: Multiple answers allowed.
(Base: All yellow form users) 21
Stock investors subscribed IPO shares through the Internet because the approach was more convenient (97.9%) and dispensed them with the need of getting a white or yellow form (66%) (Figure 19).
Figure 19: Reasons for Submitting IPO Share Applications through the Internet
2.1%
4.3%
66.0%
97.9%
0% 20% 40% 60% 80% 100%
Others
Lower handlingcharges
No need to bothergetting a white or
yellow form
Subscription via theInternet is more
convenient
Percentage of stock investors who subscribed IPO sharesthrough the Internet
Note: Multiple answers allowed.
(Base: All stock investors who subscribed IPO shares through the Internet)
Selling Allotted Shares in an IPO on the First Trading Day 16.3% of IPO share subscribers said that they usually sold the shares allotted in an IPO on the first trading day. More yellow form users (24.7% vs. White forms: 9.7% and Submission through the Internet: 21.3%) and those who owned margin accounts only (42.9% vs. Cash accounts only: 13.7% and Both: 36.8%) sold their IPO shares that quickly. In deciding whether to sell their IPO shares quickly, IPO share subscribers more often compared the trading price to the issue price (58.3%) and considered the market sentiment (56.6%). 4.9% were concerned about the interest costs as they subscribed the IPO shares on margin (Figure 20).
22
Figure 20: Factors Considered in Deciding whether to sell the Allotted Shares in an IPO Quickly
0.5%
1.2%
4.9%
26.6%
28.8%
56.6%
58.3%
0% 20% 40% 60%
Buy IPO shares for long-term investments
Others
Interest costs as they subscribed the IPOshares on margin
Number of shares allotted
The newly listed company's prospects
Market sentiment
Trading price compared to the issue price
Percentage of IPO share subscribers
shares on margin
Note: Multiple factors allowed (Base: All IPO share subscribers)
Whether IPO share subscribers sold their shares on the first trading day correlated to the factors they considered whether to sell the allotted IPO shares quickly. The survey has found that those who considered the newly listed company’s prospects (7.6%) were less inclined to sell the IPO shares on the first trading day than those who did not look at the company’s prospects (19.9%). In contrast, those who were conscious of interest costs (45%) had a higher propensity to sell their IPO shares on the first trading day than those who were not concerned about interest costs (14.9%).
23
7. Choosing Stocks & Making Trading Decisions
Over 60% of stock investors knew the business nature (76% of stock investors), price trend (67.2%) and prospects (65.0%) of a listed company before buying its shares. However, they seemed to be less knowledgeable of the company’s management (27%) and treatment of minority shareholders (16.4%) (Figure 21). While checking price trend was popular, stock investors in general seemed to be more familiar with fundamental analysis than technical analysis. Figure 21 shows that fewer respondents kept track of turnover (29.6%) and knew about the technical indicators such as 20-day and 50-day moving averages (15.6%) of the respective stock.
Figure 21: Understanding of a Listed Company’s Attributes Before Buying Its Shares
0.8%
1.0%
13.6%
15.6%
16.4%
26.4%
27.0%
29.6%
45.0%
47.8%
54.4%
65.0%
67.2%
76.0%
0% 20% 40% 60% 80%
Company's reputation in theindustry
Others
Informal news/rumours aboutthe company
Technical indicators such as 20-day and 50-day moving averages
How it treats minorityshareholders
Recent corporateacquisitions/mergers/divestments
Management
Turnover
Past dividend record and futuredividend policy
Company earnings such as P/E,EPS
Financial position
Prospects
Price trend
Business nature
Percentage of stock investors
Company earnings such as P/E, EPSPast dividend record and future dividend policy
Recent corporate acquisitions/mergers/divestmentsTreatment of minority shareholders
Informal news/ rumours about the company
Technical indicators such as 20-day and 50-daymoving averages
Company's reputation in the industry
Note: Multiple responses allowed. (Base: All stock investors)
24
When making trading decisions, stock investors often referred to corporate documents such as financial reports (51%) and company announcements (48.4%). Stock commentators’ recommendations on TV, radio or newspapers (48.2%) and media reports (47.6%) were more influential sources of information than brokers’ advice (17%) (Figure 22).
Figure 22: Sources of Information for Making Trading Decisions
2.2%
3.6%
14.2%
17.0%
21.2%
47.6%
48.2%
48.4%
51.0%
0% 20% 40% 60%
Price or market information
Others
Informal news/rumours about the company
Advice of brokers
Recommendations from friends or relatives
Media reports
Stock commentators' recommendations on TV,radio or newspapers
Company announcements
Financial reports
Percentage of stock investors
radio or newspapers
Note: Multiple responses allowed (Base: All stock investors)
Stock investors owning different types of accounts had different preferences concerning the sources of information. Those who owned cash accounts only relied more on stock commentators’ recommendations on TV, radio or newspapers. Margin account holders followed brokers’ advice more closely while those who owned both cash and margin accounts tended to rely more on company announcements (Figure 23).
25
Figure 23: Sources of Information by Types of Accounts Owned
50.0%
36.6%31.7%
14.8%
47.3%
28.6%
42.9%
14.3%
65.9%
0%
10%
20%
30%
40%
50%
60%
70%
Company annoucements Advice of brokers Stock commentators'recommendations on TV,
radio or newspapers
Cash accounts onlyMargin accounts onlyBoth cash and margin accounts
Perc
enta
ge o
f sto
ck in
vest
ors w
ho o
wne
da
part
icul
ar ty
pe o
f acc
ount
(Base: All stock investors who owned a particular type of account)
When making trading decisions in the secondary market, IPO prospectus readers were more inclined to read financial reports and company announcements. Non-IPO-prospectus readers more often referred to media reports and recommendations from stock commentators and friends (Figure 24).
Figure 24: Sources of Information by IPO Prospectus/Non-IPO-Prospectus Readers
27.0%
14.1%
40.2%43.5%
54.9%
70.7%
59.3%58.0%
43.4%
32.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Financial reports Company annoucements Media reports Stock commentators' Friends' recommendations
Perc
enta
ge o
f IPO
pro
spec
tus/
non-
IPO
-pro
spec
tus r
eade
rs
IPO prospectus readersNon-IPO-prospectus readers
Financial reports
Companyannouncements Media
reports
Stock commentators'recommendations
on TV, radioor newspapers
Friends'recommendations
(Base: All IPO prospectus and non-IPO-prospectus readers)
26
8. Share of Wallet 14.6% of stock investors had spent less than HK$50,000 in trading stocks. 48.4% had invested approximately HK$50,001 to HK$250,000 in stocks (of which 23.2% lied in the range of HK$50,001 - HK$100,000 and 25.2% in the range of HK$100,001 - HK$250,000). 16.8% fell in the range of HK$250,001 to HK$500,000 and 20.2% had a portfolio exceeding HK$500,000 in value (Figure 25).
Figure 25: Amounts Invested in Stocks By Stock Investors
25.2%
16.8%
6.8%
1.2%
14.6%
5.8%6.4%
23.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
$50,0
00 or
less
$50,0
01 to
$100
,000
$100
,001 t
o $25
0,000
$250
,001 t
o $50
0,000
$500
,001 t
o $75
0,000
$750
,001 t
o $1,0
00,00
0
$1,00
0,001
to $5
,000,0
00
Over $
5,000
,000
Amount invested in stocks (HK$)
Perc
enta
ge o
f sto
ck in
vest
ors
(Base: All stock investors)
Stock investors were asked to recall how they allocated their investment money as of September 2005 on a bundle of SFC-regulated investment products, Mainland and overseas stocks. Based on the average percentage calculated for each asset class, the composition of the portfolio was deduced as follows:
Cash – 45.1%; Hong Kong stocks – 28.5%; Managed funds (excluding MPF investments) – 7.2%; Others such as insurance, foreign currencies, etc. – 10.6%; Warrants, leveraged foreign exchange contracts, Mainland or overseas stocks,
bonds, structured products and other derivatives such as futures/options contracts traded in Hong Kong, each had a weight of less than 2% (Figure 26).
27
Figure 26: Allocation of Investment Money by Stock Investors in September 2005
Cash45.1%
Hong Kong stocks28.5%
Other derivativessuch as futures/
options traded inHong Kong
0.9%
Others (e.g.insurance, foreigncurrencies, etc.)
10.6%
Managed funds(excluding MPF
investments)7.2%
Mainland oroverseas stocks
1.6%Bonds1.4%
Warrants1.9%
Structured products1.3% Leveraged
foreign exchangecontracts
1.6%
(Base: All stock investors)
28
9. Trading Results When asked to review the performance of their stock investments in a defined period of six months, 53.4% of stock investors responded that they made profits, 21.4% suffered losses, 0.2% broke even and 25% said that they did not know or were not sure. Among those who made profits from stock investments, their gains ranged from 1% to 80% of capital invested in stocks with an average of 13.3% (Figure 27).
Figure 27: Returns of Profit-Making Stock Investors
0%
5%
10%
15%
20%
25%
1.0 1.5 2.0 3.0 3.5 4.0 4.8 5.0 6.0 7.0 7.5 8.0 10.0
11.0
12.0
13.0
15.0
18.0
19.0
20.0
25.0
30.0
31.5
35.0
40.0
50.0
80.0
Gains (% of capital invested)
Perc
enta
ge o
f pro
fit-m
akin
g st
ock
inve
stor
s
(Base: All profit-making stock investors)
Among those who suffered losses in trading stocks, their losses represented approximately 1% to 100% of their capital invested in stocks with an average of 20.8% (Figure 28).
29
Figure 28: Negative Returns of Loss-Making Stock Investors
0%
5%
10%
15%
20%
25%
1.0 1.5 2.0 2.5 3.0 5.0 8.0 9.0 10.0
11.0
12.0
13.5
15.0
20.0
25.0
30.0
40.0
50.0
60.0
80.0
90.0
100.0
Losses (% of capital invested)
Perc
enta
ge o
f los
s-m
akin
g st
ock
inve
stor
s
(Base: All loss-making stock investors)
Interestingly, while there was no statistically significant difference in the gains of those profit-making stock investors who read or did not read financial reports, those loss-making stock investors who did not read financial reports suffered a bigger trading loss (25.2%) than their counterparts who read financial reports (16%).
30
Annex Survey Design Target Respondents Stock investors were defined as adults aged 18 or above who had traded Hong Kong, Mainland or overseas stocks during the last two years. Data Collection Method The survey data were collected through self-completed questionnaires during the period from 30 September 2005 to 13 February 2006. Sampling Method The target respondents were identified from two sources. The first source was the 1,511 stock investors identified in the SFC’s Retail Investor Survey conducted in 2005. All those stock investors were invited to participate in the Stock Investor Survey and 679 of them agreed to help. After several follow-up contacts, 430 completed questionnaires were received. To achieve the target sample size of 500, a number of calls were made from a random sample of residential telephone numbers. 184 stock investors were identified and agreed to take part in the survey. Finally, 70 completed questionnaires were collected from this booster sample.
31