Scars leave investors too scared to dare with shares
PAINFUL 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 to buy shares and use them as security for their loan – is still at about a quarter of its levels of a decade ago.
The latest Reserve Bank data shows there are $11.7 billion in margin loans outstanding, down from $41.6 billion in late 2007, before the GFC.
Investment analysts do not expect a rebound soon, even though our sharemarket has climbed 15 per cent in a year.
“There was a lot of damage done in the GFC and those scars run deep,” Baker Young Stockbrokers analyst Toby Grimm said. “The market 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 on margin loans was higher than other forms of borrowing. BUSINESS P24