In­vestor GFC pain lingers

Herald Sun - - NEWS - AN­THONY KEANE

BIT­TER mem­o­ries of the global fi­nan­cial cri­sis are stop­ping in­vestors from tak­ing risks.

De­spite Aussie shares climb­ing back to­wards record highs, the once-pop­u­lar strat­egy of mar­gin lend­ing — where in­vestors bor­row money to buy shares and use the shares as se­cu­rity for their loan — is still wal­low­ing at about a quar­ter of lev­els a decade ago.

The lat­est Re­serve Bank of Aus­tralia data shows there are $11.7 bil­lion worth of mar­gin loans out­stand­ing, down from $41.6 bil­lion in late 2007, just be­fore the GFC hit.

In­vest­ment an­a­lysts do not ex­pect a big re­bound soon, even though Aus­tralia’s share mar­ket has climbed 15 per cent in the past year.

“There was a lot of dam­age done in the GFC and those scars run pretty deep,” said Baker Young Stock­bro­kers man­aged port­fo­lio an­a­lyst Toby Grimm.

“The mar­ket as a whole is noth­ing like it was be­fore the GFC. The ex­u­ber­ance is not there. Peo­ple got taught a very valu­able les­son that the debt is what kills you.”

If shares se­cured against a mar­gin loan drop be­low a prea­greed level, the lender can make a mar­gin call — where if they don’t re­ceive an im­me­di­ate cash top-up pay­ment from the in­vestor, they can sell their shares from un­der them.

Mr Grimm said in­ter­est rates on mar­gin loans were higher than other forms of bor­row­ing, such as home eq­uity loans, and banks had not been com­pet­ing in the space.

Aus­tralian Stock Re­port chief mar­ket and trad­ing strate­gist Chris Con­way said in­vestors’ de­sire for riskier prod­ucts had waned, with a surge in pas­sive in­vest­ment strate­gies in re­cent years.

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