08 Feb 2018
The Investor Education Centre (IEC) conducted a research study in 2017 comprising both qualitative investigation and quantitative interviews to understand Hong Kong retail investors’ attitudes and behaviour towards investing, with a view to inform the formulation of future investor education initiatives.
Key research findings are outlined below:
Retail Investor Participation
Perception of Investment Products
- Three out of five adults aged 18-70 had invested in financial products in the past year with close to half (48%) investing in stocks. Foreign exchange followed at a distant second of 27% while investment funds (excluding MPF/ORSO schemes) came at third (14%). Other products saw less than 10% incidence. Investors on average invested in 1.63 out of the eight types of financial products covered in the research.
- Investors held HK$0.43 million of liquid asset on average and allocated 45% of it in the investment of financial products.
- While majority had long-term capital growth in mind, a significant proportion (41%) of investors also aimed for quick profits.
- When asked to rate different investment products’ risk level on a three-point scale of high/medium/low risk level, a vast majority rated derivatives and structured products as high risk products (81% and 70% respectively). Stocks and funds were largely seen as being of medium risk (71% and 63% respectively), with 21% perceiving funds as low-risk and 7% for stocks. Bonds and forex were generally regarded as carrying low risks.
- While risk level appeared to be a common concept among investors, the research also explored whether investors perceived different investment products by the level of complexity - and if they distinguished product complexity and risk level as two distinct concepts. From focus group discussions, it appeared that complexity of products was not a well-defined concept and investors generally equated complexity with risk level.
In the survey, when asked to rate different investment products as “complex”, “simple” and “half and half”, majority rated derivatives and structured products as complex products (79% and 72% respectively). Bonds and forex sat at the other end of the spectrum with 51% and 79% categorising them as simple products respectively. Stocks and funds were again in the middle with slightly more investors seeing them as simple rather than complex products.
Regression analysis revealed that the two variables were highly correlated with an R-squared as high as 0.97. Apparently there was a lack of understanding that complexity of a financial product is not necessarily related to its risk level.