Hong Kong has 2.2 million retail investors, just below 40% of the adult population. And they are a force to be reckoned with. For example, when they invest in an initial public offering in great enough numbers, they have the power to claw back shares originally aimed at institutions. Hence their behaviour is a worthy subject of observation.
In order to shine a light on the make-up and behaviour of this important part of the Hong Kong market, Celent has produced a study based on research consisting of interviews, a survey, and extra data from a range of financial organisations.
There are three broad kinds of retail investors. A third of the total are 'savers' - risk averse investors, with little experience, who make their decisions based on simple materials. Then there are the 'delegators', who make up about 10%-15% of investors. These people are interested in a broad range of investment products, but they require advice from a third party.
The remaining half are 'self-directed investors', who handle their own transactions via discount and online brokers. Most are buy-and-hold investors, but within the self-directed group, is a subset of active traders. This group, which makes up about 10% of the total pool of all retail investors, can account for a disproportionately large number of a listed company's trading volume, which makes them a key target market to the financial companies that serve them.
The Celent report highlights three main points about active traders. First, they prefer stocks over other kinds of products. Equities, on average, make up around 70% to 90% of their portfolio, with the rest accounted for by options, futures, warrants and foreign currency. Most active investors are not on the look-out for alternative products, with only 19% of the people questioned saying they are constantly seeking new ways to invest their money.
Second, active investors use a wide variety of sources for their trading information, but the bad news for analysts is that only 8% use data from subscriptions. Instead they prefer immediate sources -- newspapers, television news, chatrooms, etcetera.
Finally, active traders like to keep it local, with Hong Kong holdings accounting for 60% to 70% of their portfolios. They are "apprehensive about investing in overseas markets mainly because of lack of market knowledge, and also the return on their investments", says the report. When they do take a punt outside the territory, the Bric countries (Brazil, Russia, India and China) are popular, and so too is Korea.
Like similar investors in other parts of the world, Hong Kong's active retail investors value liquidity. But what makes them stand out from their peers in the US, UK, Germany and Korea is that the most important trading quality after liquidity, is low fees.
The report contains other interesting demographic facts. Most Hongkongers wait until middle age before they start investing, with 64% being over the age of 40. This suggests that most Hong Kong investors are experienced, while the 35% of investors in their thirties have a higher risk appetite. Investors in their twenties are fewer, probably because they don't have much cash.
On the gender front, retail investors are split equally between male and female. The participation of women is therefore much higher than in Japan and Korea, where female market participants account for 20% and 33% respectively.
