Stock Investor Survey - Securities and Futures Commission · The SFC’s Retail Investor Survey...

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.

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• 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.

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• 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.

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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

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vest

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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).

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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


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%).

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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%



Perc

enta

ge o

f sto

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vest

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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.


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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%



Perc

enta

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f sto

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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


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%).

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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


(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.

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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


(Base: All non-on-line traders)

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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


Perc

enta

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f sto

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vest

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ho tr

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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%


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).

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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

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f sto

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vest

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ho tr

aded

thro

ugh

a pa

rtic

ular

type

of i

nter

med

iary

Brokerages only

Banks only

Both brokerages and banks


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

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f sto

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vest

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ho o

wne

da

part

icul

ar ty

pe o

f acc

ount

(Base: All stock investors who owned a particular type of account)

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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


(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).

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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


(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).

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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.

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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).

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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


(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


(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%).

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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


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)

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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


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)

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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


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).

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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%


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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).

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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%).

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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.

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Stock Investor Survey - Securities and Futures Commission · The SFC’s Retail Investor Survey...

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