Public needs more education, says regulator
SFC warns of a growing need to understand financial issues as more Hongkongers invest in various products, writes Zoran Nedeljkovic
WITH HONG KONG once again enjoying economic good times, the scent of money is in the air. Unemployment is down, inflation is hardly an issue and, more than ever, people have the funds to invest in a growing range of financial products and wealth management options.
A recent survey by the Securities and Futures Commission (SFC) found that about 470,000 more Hong Kong adults had invested in financial products between 2003 and 2005 compared with the previous survey. But with this positive trend comes a word of caution.
The SFC emphasised that members of the public needed to be better informed, and the survey confirmed that investor education needed a boost.
Of the 5,210 potential retail investors interviewed, 1,915 had put money into one or more financial products in the past two years. This represented a participation rate of 36.8 per cent, equivalent to about 2.1million adults if the results were applied to Hong Kong's total population. That was up from 29.8 per cent, or about 1.63million in 2003.
The survey showed that Hong Kong stocks were still the most popular form of investment for private individuals, with a participation rate of 28.3 per cent, up from 23.8 per cent in 2003.
Managed funds, excluding Mandatory Provident Fund investments, ranked second, with the reported rate of participation nearly doubling to 18.1 per cent since 2003. Seven multiple-choice or yes/no questions were used to test the general level of understanding about topics such as basic investor rights and the most common investment tools. The average score was 3.39 out of seven, indicating that investor education was needed.
Apart from regulating the market, the Securities and Futures Commission spearheads this initiative and for the past 10 years has had a team dedicated to educating the public about financial issues.
This year, using the theme 'Before you invest, ask the right questions', the commission has introduced a new programme to encourage investors to research investment products and services more thoroughly and to weigh up the recommendations offered by advisers.
'It is important for all parties - regulators, market operators, investment advisers, brokers and educators - to play a role in increasing the knowledge of retail investors,' Securities and Futures Commission chairman Martin Wheatley said at the launch of the Investor Education programme.
Frederick Ma Si-hang, Secretary for Financial Services and the Treasury Bureau, supported this view. 'Both the government and the SFC attach great importance to investor education ... to promote public understanding of investment products and associated risks. Armed with this knowledge, investors can make better decisions,' he said.
To help, the commission set up www.invested.hk - a dedicated website with relevant information and details about upcoming investor education events.
As the investors of the future, younger people are an important target group. For this reason, Citic Ka Wah Bank hosted a seminar in April for Lingnan University undergraduates in support of 'The Wisdom of Investing', a programme organised jointly by the university and the commission.
The seminar offered tips on wealth management and explained various tools and strategies, as well as providing pointers for budding investors. Further events are planned.
Even though the World Bank report on 'Doing Business in 2006' gave Hong Kong the third- highest score in its investor protection index, Mr Wheatley said more had to be done.
'Investors need to take responsibility for researching and understanding the investment vehicles they choose,' he said.