text: Margin lending to edge back | afr.com
  Updated Jan 9 2013 at 7:47 AM
  Margin lending to edge back
  Investor interest in margin lending products plunged following the devastating losses wrought by the global financial crisis.
  by Ruth Liew Margin lending in Australia fell to its lowest point in almost a decade last year but lenders are gearing up for an increase in borrower numbers in 2013 if the sharemarket rally continues.Margin loan clients – people who borrow to invest in shares or managed funds – dropped from 119,000 in 2011 to 95,000 last year, according to a survey provided to The Australian Financial Review by Investment Trends. The number of investors taking out margin loans has been in steady decline since 2009, when Investment Trends began collecting the data.At the same time, the latest figures from the Reserve Bank of Australia show margin lending debt hit $12.7 billion in September, plummeting from the 2007 high of $41.6 billion. This represents the least amount borrowed to invest in the sharemarket since late 2003, and coincides with declines in the S&P/ASX200 including a 14.5 per cent drop during 2011. However, industry observers expect the negative tide to turn as squeezed term deposit and cash rates prompt investors to hunt for alternative vehicles for their cash.
  Australia's largest margin lender, CommSec, said its margin lending book had been growing since November last year.
  ASX gained 5.9pc in final quarter"If the sharemarket improves, we'll probably see a gradual increase in clients in margin lending this year," said Brian Phelps, head of distribution at CommSec. "Our clients tend to react to the market fairly quickly."The ASX 200 posted a 5.9 per cent gain in the final quarter of 2012 as the RBA cut the official cash rate by 50 basis points. Investor interest in margin lending products plunged following the devastating losses wrought by the global financial crisis. The fall in loan debt also coincides with wider deleveraging – or debt reduction by selling assets – across Australia's investment community. Around 57,000 Australian investors say they are interested in establishing their first margin loans in 2013, Investment Trends chief operating officer Eric Blewitt says."Not all of them will establish a fund of course, but by way of comparison, it's almost double the amount of people interested [in obtaining a margin loan] last year."National Australia Bank head of margin lending Adrian Hanley said attractive dividend yields, improved returns and lower interest rates on loans were some of the factors fuelling investors' interest in the sector. heady days of heavy gearing over
  NAB received "fairly steady" demand from financial planners but inquiries from self-directed investors had been growing strongly."With interest rates drifting down . . . people may seek to commit more money into equities," he said. BT Financial Group head of equities and gearing solutions Cathy Kovacs said high net worth investors had been more active in taking up margin loans and testing the direct equities market this past year. But the heady days of heavy gearing were over. "The past has changed investor sentiment. We would all like to see positive growth in the market, but margin lending will never get back to the pre-GFC level." The "fear factor" of margin calls and potential losses among investors had largely dissipated, planner Rob Pyne from HPH Solutions noted. That said, clients were not actively putting their hands up for loans. "I expect interest will increase if the market improves over the next six to eight months," he said. READ NEXT: