The FINANCIAL — The Shenzhen Stock Exchange (SZSE) recently conducted a survey on individual investors, the 9th such survey since 2009, in order to get an overall picture of individual investors, deliver more targeted and effective investment education services and protection measures, and issued a survey report on Individual Investors 2017.
The survey follows the original methodology used over the years, involving multiple aspects including investor structure, knowledge level, investment philosophy, investor behavior, the right to know and execute. In addition, investors’ views on risk factors in the stock market and other hot topics of the capital market in 2018 are added.
The survey adopts a stratified sampling method based on geographic distribution of securities accounts. Questionnaires are given to 15,890 investors in the targeted areas, aging 18 to 60 and who have traded in the Shanghai and Shenzhen stock markets over the past 12 months, covering 307 small, medium and large cities all over the country. The survey results are summarized as follows:
I. From the perspective of investor structure, over 70% are small and medium investors, and newly entered investors are getting younger. There are stark disparities between the investor structure of the ChiNext Board and that of non-ChiNext boards.
1. In 2017, the security market continues to be dominated by small and medium-sized investors. Investors (small and medium investors) with less than RMB 500,000 in securities accounts for 75.1% of the total, down by around 2 percentage points compared with 2016. The average asset of interviewees is RMB 539,000, an increase of 25,000 yuan over the previous year.
2. Among the newly entered investors in 2017, 28.2% is under 25, 55.8% is under 30, with an average age of 31.2, as opposed to 36 five years ago. Investors entering the market are getting younger.
3. There are stark disparities between the investor structure of the ChiNext Board and that of non-ChiNext boards. First, the average asset of the ChiNext Board investors’ account reaches 632,000 yuan, which is significantly higher than that of the ChiNext boards’ investors, 400,000 yuan. Second, only 28.0% of investors on the ChiNext Board are retail investors with an asset less than 100,000 yuan, which is significantly lower than the 49.3% of non-ChiNext boards.
II. From the perspective of investors’ knowledge level, the overall level has improved significantly, but varies by region, age group, and sector.
Interviewees’ investment knowledge score averages at 69.4 (out of 100 points), which is significantly higher than that of 63.1 over the previous year. Among which 27.4% are investors with less than 60 points, a decrease of 15% over the previous year, and the number of investors who get more than 80 points accounts for 33.1%, an increase of 11.8% over the previous year. By region, investors in East China get an average score of 71.1 points, maintaining a leading position among seven regions. The average score of the Northwestern region is the lowest, only 66.9 points. By age group, investors aged 18 to 24 score the lowest (66.9 points); investors aged 45-49 score the highest (71.2 points). By investment sectors, the average score of the ChiNext Board investors is 71.2 points, much higher than that of non- ChiNext boards investors (66.7).
III. In terms of information source for decision-making, online media and technical indicators analysis are the most important information channels, but the ChiNext Board investors have access to much wider channels.
1. In 2017, the average number of investment information channels for investors is 2.8, a slight increase from 2.5 in the previous year. Among them, the top three channels are “Internet media on mobile phones” (47.6%), “analysis of technical indicators such as movements of stock price and transaction volume” (42.4%) and “online media on PC” (42.0%).
2. The average number of channels used by the ChiNext Board investors is 3.0, more than 2.5 of non- ChiNext board investors, indicating a more extensive source of information for decision-making. The ChiNext Board investors’ average utilization rate of information sources such as listed company announcements, financial institution research reports, and technical indicators analysis is 10 percentage points higher than that of non-ChiNext board investors.
IV. In terms of investment philosophy, investors are more rational in general.
1. An increasing number of investors begin to accept and embrace value investing. The survey shows that value overrides trend trading and short-wing trading for the first time and has become the most popular type of investment among investors. Investors of long-term value investing account for 26.5%, up 5.5% over the previous year; investors of short-wing trading account for 18.1%, down 5.3% over the previous year and investors of trend trading account for 25.9%, basically the same as the previous year.
2. Psychological tendencies of investors toward short-wing and excessive trading are improved. The survey shows that in terms of various psychological descriptions provided by the survey options, the proportion of irrational investors fell by 3.8% on average. The proportion of investors with a view that “I would buy a stock that may go up 10% tomorrow instead of one that may double in a year” has the highest drop (7.3%), followed by the proportion of those with a view that “I like trading stocks and if I don’t do it, I always feel I miss something”, with a drop of 4.9%.
V. In terms of investment behaviors, although the overall investment rationality is improved, irrational investing remains an issue that should not be overlooked.
1. The proportion of irrational investing is still high. Irrational investors of various behaviors as described in the survey options account for 39.2% on average. A comparatively higher proportion of investors believe that it’s easier to earn money if they invest in the stocks that they had bought than other stocks” (preferences or familiarity stocks, 63.8%), while some believe that stocks traded by themselves are with a higher yield than funds” (overconfidence, 47.5%) and some think that they can’t hold a profitable stock, but are always stuck with the money-losing one” (disposition effect, 40.8%).
2. Investors after rising stocks outnumber bottom fishers. According to the survey, only 8.5% of investors are bottom fishers, while 46.9% of investors are going after rising stocks, with the rest of them do not have an obvious tendency for buying rising stocks or for bottom fishing.
3. Nearly 60% of investors do not have a clear stop-loss strategy. According to the survey, 21.1% of investors do not attach importance to the stop-loss strategy, saying that “even if the stock price falls, it will not be a loss as long as I do not sell”. 38.5% of investors are not clear about stop-loss and only 40.4% of investors tend to use a stop-loss strategy.
4. Investors tend to focus on a few stocks. The survey shows that the majority of investors hold less than 3 stocks, with an average of 4.9 stocks, down from 5.1 stocks in the previous year.
VI. Judging from the reasons for gains and losses, investment losses are closely related to investors’ experience, knowledge, research and behaviors.
1. The survey shows that the main reasons for the losses of the interviewed investors are “insufficient investment experience” (52.5%), “insufficient investment knowledge” (49.8%) and “changes in economic situation” (31.5%).
2. Further analysis on the behaviors of investors in different profitability situations shows that money-losing investors of frequent trading and of the disposition effect (referring to the phenomenon that “individual investors cannot hold profitable stocks, but hold long-term money-losing stocks”) are 37.3% and 47.3% respectively, 10% and 12% higher than money-makers, while the percentage losing investors using stop-loss strategies is 38.0%, 4.5 percentage points lower than money-making investors. At the same time, the proportion of losing investors reading the public announcements of listed companies is 22.5%, 10.8% lower; the proportion of investors reading research reports by financial institutions is 32%, 9.3% lower and the proportion of investors following rumors and others’ recommendations is 31.4%, 6.2% higher.
VII. In terms of investors’ awareness and exercising of rights, the proportion of investors informed of their rights has been significantly improved, while awareness and ability to exercise remain to be improved.
1. The situation of investors’ right-to-know improved significantly. As the survey showed, the average informed investors take up 44.1%, the proportion of investors informed of the right-to-vote and right-to-know exceed 55%, and the proportion of right-to-know of various rights rise 5% to 10% comparing to last year.
2. Investors’ awareness and ability of exercise of rights still need to improve. The survey shows that only 25.2% of the investors exercise voting rights through online voting, only 22.4% of investors acquire the information of the listed company and exercise the right-to-know via phone or internet. The percentage of investors who exercise other rights did not exceed 10%, even more than half of the investors (52.5%) have never exercised the shareholder’s rights.
VIII. Technological supervision, share offering and M&A restructuring reform are highly concerned. Investors have full expectation on the reform of the ChiNext Board.
1. For the major reform and development of capital market in 2018, investors showed high attention on “advancing technology supervision” (accounting for 66.0%) and “accelerating share offering system and the reform on M&A restructuring” (accounting for 64.5%). In addition, 65.7% of investors show more attention on the return of China’s technology-based innovative companies listed overseas to the A-share market, indicating an interest in investment.
2. The reform on the ChiNext Board attracted much attention, nearly 90% investors expressed that the ChiNext Board should strengthen its support for the technological and innovative enterprises. Among these investors, 74.6% supported the prioritized arrangement made on financial standard among the IPO requirements, and 57.6% of investors supported the prioritized arrangement made on IPO requirement for the double equity structure enterprises.
IX. Investors’ confidence in the stock market in 2018 is generally positive.
1. Investors’ confidence in the stock market in 2018 is generally positive. According to the survey, 39.0% of investors are optimistic on stock market, and increase by 10.8% over the previous year. 51.1% of investors have a neutral attitude, 5.9% less than last year; and 9.9% of investors are pessimistic, 4.9% less than last year. The event of MSCI index’s official inclusion of A-share in June are positively commented by the investors, with 63.1% investors considering it as a long-term positive factors for the stock market, and 26.7% investors believing that short-term stocks will rise.
2. From the perspective of market risk, what investors are most worried about is the following: “In the context of financial deleveraging, the amount of bonds due to maturity increases significantly, and bond default events may increase significantly” (59.0%), “Implementation of new asset management regulations results in liquidity shock , which may lead to a tightening of the stock market’s liquidity in the short term” (57.6%) and “the global steps into gradual interest rate increase cycle, and higher interest rates may lead to an overall decline in the valuation of equity and other equity assets” (55.4%). In addition, the uncertainty of corporate profits and the transfer of risk of high price downward adjustment in the US stock market are also risk factors that investors are more concerned about.
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