Buying of shares perceived risky-SEC survey

Buying of shares was perceived ‘very strongly’ as a high risk investment, which people are not very familiar with, and which requires a high level of involvement to achieve results, data on a survey conducted by the Securities and Exchange Commission (SEC) earlier this year revealed.

The purpose of this survey was to ascertain ‘consumer perceptions of share trading as a savings instrument,’ increase awareness, and thereby increase the participation of the public in share investment and determine the views and opinions of target consumers in relation to investing in shares as a savings instrument, an SEC document published in this connection said.

The survey was funded by the Swedish International Development Corporation Agency (SIDA). A sample of 3,000 was chosen in this connection of which 2,700 (90%) were income earners, while 300 (10%) were housewives.

The target group comprised public servants, professionals, self-employed persons, artisans, housewives, small and medium scale business persons, unskilled workers and retired persons residing in urban, semi-urban and rural areas. The sample included 300 female income earners mainly from the Western Province. The age of the average sample member was 38.6 years.

900 urban and 1,800 rural income earners also consisted the sample. ‘Out of this, approximately 96% consisted of males,’ the SEC said. The average monthly household income of the urban sample member was Rs. 27,000, while that of the rural sample member was Rs 23,000.

Meanwhile, 43% of the urban sample were professionals, senior executives and big business persons. The corresponding number of members in the rural category was 28%. 53% of the urban sample and 37% of the rural sample indicated that they possessed over Rs 250,000 for the purpose of investment.

The average sample member in both sectors had invested in savings accounts, fixed deposits and insurance policies. Out of these, savings accounts had the highest penetration. The consumers spontaneous association of the purchase of shares as a savings instrument was very weak.

The finding further revealed that a sample member purchasing shares as an investment over the next 12 months was weak. Approximately two in three members of both sectors would not purchase shares within the next 12 months, the study revealed.

Low level of public awareness/ lack of knowledge of the stock market were identified as a key factor in low levels of investor activity. ‘The majority in both sectors do not perceive the purchase of shares as a popular, reliable and long-term investment. Further, they do not believe that the purchase of shares provide a high rate of return or high growth opportunities,’ the findings further revealed.

Purchase of shares is considered mostly as a low growth and low liquidity investment. It was noted that savings accounts and fixed deposits were associated strongly with the term ‘savings instrument.’

Factors influencing the choice of saving instrument were high returns, security and reliability of investment, ease of transaction and the range of benefits. The majority of the urban sample responded that in order for the share market operations to improve, public awareness and knowledge of the share market must be enhanced through mass media, and the economy of the country must be properly directed.

Further, rural members were also of the view that the stock market should be widened by the entry of more companies and investors, and also by providing better facilities to customers.

Approximately 51% of the urban sector and 59% of the rural sector knew very little about purchasing shares. Only 48% of those who traded in shares claimed to have a high level of knowledge in share trading. However, with experience in share trading, the perception with regard to all attributes, such as its popularity, high rate of return and reliability, increased, the report said.

In the urban sample, 49% of members showed a keen interest in learning more about the purchase of shares as a savings instrument. In comparison, in the rural sample, a larger proportion of 51% showed an interest in learning more about the purchase of shares.

Perceived strengths of share trading were getting good returns, being a good investment, convertibility to cash at any time (liquidity), ‘no need to worry if an investment has been made in a stable company’ and ease of transaction.

Perceived weaknesses were ‘it is too risky,’ ‘not a reliable investment,’ ‘prices are not stable,’ ‘not trustworthy,’ ‘controlled by a small group of persons,’ ‘have to invest large amounts’ and ‘rules and regulations are not implemented properly.’

Only one in five urban respondents and one in eight rural respondents had purchased shares. From this, a conclusion could be drawn that a majority of members had yet to be motivated to purchase shares as a savings instrument.

One in three urban sample members and one in four rural members were favourably inclined towards investing in the purchasing of shares. Of these members who considered purchasing shares in the future, less than 40% in the urban sector and 56% in the rural sector, had never bought shares previously.

Approximately 76% of share investors, both in the urban and rural sectors, have not yet lodged their certificates for trading. Thus, they have not yet entered the arena of share trading.

Only two in five persons in the urban sector and one in five persons in the rural sector are currently highly active players in share trading. Current active investors in share trading perceive that the key factors responsible for the low levels of investor activity were due to the low level of public awareness and knowledge of the stock market and the low levels of participation by companies and investors.

The majority in the urban and rural sectors preferred trading in shares indirectly through an institution, rather than directly through a stockbroker. The preferred institutions to deal indirectly in shares were banks, private companies and unit trusts. The strong preference for banks (urban 100% and rural 91%) may reflect that the members needed a reassurance that their investments were safe. (PA)