Retail investors and the Stock Market.

Second report by Borsa Italiana on shareholding in Italy.

Risk taking decreases as diversification increases.

Interest in stock market investments remains stable.

Personal relations play an increasingly important role in deciding how to allocate savings.

Almost three years after the previous survey, Borsa Italiana once again takes a close look at retail investors on the stock market, who since 1999 stably hold over 25% of the total Italian market capitalisation.

The survey was carried out - with technical support from Doxa - in December 2003 and January 2004 through personal interviews of families who invest in the stock market, defined as those who in the years 2001 to 2003 directly held, bought or sold shares in Italian companies.

3 million Italian families, , 14% of the total number of families in Italy, invest their savings in the Italian stock market.

A more complete version of the survey will be made available in the Fall.

Reference context and propensity to risk

The period under scrutiny (2001-2003) covers a phase of the economic and financial cycle marked by extraordinarily significant events that had a profound effect on the behaviour of Italian investors. In this period the number of families worried about their current financial situation rose from 14% to 27.7% while those worried about their future financial condition rose from 5.3% to 16.1%. The saving capability is viewed as increasingly important (very useful according to 70.3% of interviewees, up from 64.6% in 2001) but also increasingly difficult (families that are able to save drop from 83.2% to 67.3%).

Stock market investors tend to take fewer financial risks. The number of self-defined "conservative investors" is up to 68.8% from 55.2%. Portfolio structures change to reflect the level of perceived (and real) uncertainty in favour of less risky assets whose weight is now up to 58.1% from 45%.

This does not mean that investors are moving away from stocks for good. One out of ten investors did not feel repercussions from stock market fluctuations in the period under survey. Approximately 85% of investors answered that they will be more cautious in the future, but half of these did not change their long term attitude towards investing in stocks. Only one out of twenty interviewees declared they will never again invest in stocks.

There is a high degree of uncertainty. 47.3% of investors do not intend to make additional changes to the asset allocation of their portfolio in the short term and 39.6% do not know what to do.

Portfolios and trading activity

Direct stock market investment absorbs approximately 25% of the total assets of investors, almost a third if equity mutual funds are included. Close to 40% of the investor portfolio is kept liquid, government securities and corporate bonds (including mutual funds) account for 20% and insurance products and pension funds account for 7%. Since 2001 there has been a move away from stocks and managed assets towards less risky and more simple products.

90.3% of Italian stock market investors have Blue Chip stocks in their portfolio. The average portfolio is highly concentrated: 51% have just one stock and almost 24% have two stocks.

Almost 40% of the investors interviewed bought their shares following privatisations. Approximately 6% hold stock that has been bought at the initial public offering of private companies.

Investor activity is down. Since 2001 there has been a significant increase in those who did not make a single trade in the preceding 12 month period (up to 66.9% from 26.6%). Investors who traded did so less often (an average of 12,4 trades/year as compared to 18.1 trades/year the previous survey).

Reasons for investing

57% of interviewees state they invest to improve the yield on their portfolio with respect to staying liquid. 30.8% wish to diversify their investments and 23.7% want to hedge against inflation.

Compared to 2001 there is an increase in medium-term objectives/requirements such as saving to secure the family future, for retirement, to buy a house. Stock market investments in fact do not reflect these requirements, generally associated with shorter term expectations such as quick profits.

Increasingly, stock market investments are viewed as a means of portfolio diversification, a requirement which went up from 23.8% to 34.4% over the last three years. The "play" aspect of investing in the stock market is no longer as strong as it was.

Brokers and sources of information

Banks are the main reference point in the decision to invest, as mentioned by 95% of interviewees: 76.4% mention traditional banks, 29.9% agents, 8.7% online channels. Insurance companies are mentioned by 7.5% of investors and the Post Office by 4.2%. Despite a low level of satisfaction investors tend to resist change in their relation with brokers: the situation is almost unchanged from 2001 and only 5.9% of the interviewees changed their main broker in the last three years. Brokers are chosen out of habit (48.6%) or because of a contact with a person within the organisation (45.1%).

The most critical aspects are commissions and costs (36.9% of interviewees express dissatisfaction), yields on investments (27.1%), the availability of updated and complete information (13.3%) and broker independence (11.1%).

Among the sources of information there is a significant increase in personal relationships, mentioned by 77.8% of interviewees against 60% in 2001. These are bank employees (41.5%), family and friends (34.7%), and agents (29.9%). Other sources of information are less consulted with respect to the previous survey. 53.2% of the interviewees mention the press (30.4% the general press, 28.9% financial newspapers and 12.7% financial magazines) against 65.2% in 2001, with a marked reduction in the financial press (in 2001 42.8% of interviewees mentioned financial newspapers as a source of information and 19.8% mentioned financial magazines).

29.9% use TV/radio as a source of information (especially teletext - 16.3%). 15.3% mention Internet.

The type of information consists mainly in investment advice from experts or friends (52.4%) rather than editorials or articles on company performance (31%), price charts (21.3%), macroeconomic forecasts (17%), financial statements (12.6%) or analyst reports (9.2%).

More than one third of those who invest in stocks make an independent decision on how to invest without soliciting outside advice, down from 45.7% in 2001. But the remaining prefer to decide for themselves after consulting their broker (up from 23% to 38.2%) rather than delegate someone else to make the decision for them.

There is still significant room for improving the financial education and awareness of retail investors. Uncertainty about basic notions is widespread and only 3% of investors took courses in finance. Only 40.4% say they know the difference between listed and unlisted instruments.

The socio-demographic characteristics of retail investors

Stock market investors form a cluster both with respect to the Italian population and to investors in general. They are:

  • Men: 66.4% against 48.7% of the population at large, but less than the overall population of investors (70%), meaning those that have a bank account, government securities or other fixed income assets;
  • Residents of the Northwest (41.5% against 24.7% of the overall population, similar to investors in general (36.7%);
  • Between the ages of 35 and 54: 61.2% against 40% of the overall population and 54.4% of investors in general;
  • Professionals, self-employed or entrepreneurs: 17.3% against 4.5% of the population at large;
  • More educated: 22.2% are university graduates against 6.7% of the Italian population and 14.9% of investors in general;
  • More affluent: 51.1% have an average monthly income over 2,300 Euros, against 26.5% of the population; 66.7% have assets valued over 15,000 Euro against 32.3% of the population; 91.3% of the interviewees own real estate against 72% of the Italian population.

Milan, July 29, 2004

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