Investor GFC pain lingers
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.