The number of retail investors in Hong Kong has grown nearly 30 per cent since 2003 to more than a third of the adult population, though their investment knowledge is poor, according to a study by the territory’s regulatory watchdog.

While stock trading is the most popular form of investment in the territory, more than half of investors thought they would receive dividends automatically when a company made profit, said the study by the Securities and Futures Commission.

Just 52 per cent knew that bond prices would go up when interest rates went down.

“This was our first attempt to measure retail investors’ financial understanding. The results are thought-provoking,” said Martin Wheatley, SFC chairman.

The SFC surveyed 5,210 adults to test their understanding of their basic rights and investment products such as stocks, warrants and bonds. Hong Kong’s small investors, who often rely on radio and television programmes and newspaper columns for advice, scored an average of 3.39 out of seven simple multiple-choice questions.

Only 3.8 per cent of the investors could answer all questions correctly and 5.5 per cent got all the answers wrong. Most investors gave three correct answers.

In the question about equity-linked deposits, two-thirds of investors did not know that either cash or stock could be possible returns when a deposit matured.

Even in the best understood question, about voting rights, only a little more than half of investors knew they could vote in a shareholder meeting if the shares were kept by their brokerage or bank.

“Investment knowledge of retail investors needs to be boosted,” said the SFC, which is now educating investors through newspaper articles, radio dramas, TV series, websites and forums.

Fewer than a fifth of retail investors in Hong Kong had sought professional investment advice in the past two years.

The SFC found that 36.8 per cent of Hong Kong people aged 18 or over, or 2.1m people, had traded investment products such as stocks and warrants over the past two years, up from 29.8 per cent in a similar survey in 2003.

Close to 29 per cent of the investors had traded Hong Kong-listed stocks, making them the most popular investments.

More than 70 per cent of stock investors had subscribed for shares in initial public offerings.

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