RBA figures show the total margin lending industry has shrunk from a high of $42bn five years ago to $12.7bn in September 2012.
Against this backdrop the eighth annual Investment Trends Margin Lending Investor Report looks at the way forward for the industry. Key trends included:
- The number of current margin lending investors may have bottomed, with a significant number of ‘next wave’ and ‘dormant’ investors intending to utilize margin lending over the next 12 months
- The number of active margin lending investors in Australia has declined to 95,000 in September 2012 from 119,000 in September 2011. Under the surface there were 6,000 new borrowers (compared to 9,000 in 2011) entering the margin lending market and 4,000 returned to borrowing having been dormant in the past. 30,000 stopped using margin lending.
Commenting on the research, Eric Blewitt, COO at Investment Trends said, “While there has been a downward trend in the number of current margin lending investors, a substantial pool of next wave borrowers looks very promising, rising significantly from 30,000 in 2011 to 57,000 in 2012.
“Not all of these potential borrowers will act on their intention. Historically, only a proportion of who said they intended to commence borrowing actually did so (24% in 2011 and 20% in 2012). If the conversion rate remained at 20%, 11,000 potential borrowers would be expected to commence margin lending over the next twelve months, compared to only 6,000 over the previous year.”
The number of dormant clients (who used margin lending in the past and stopped using it at some point) has increased from 18,000 in 2011 to 46,000 in 2012. 22% of the dormant borrowers became active in 2012. If this conversion rate remains the same, there will be an addition of 9,000 dormant clients returning to the pool of active margin lending investors over the next twelve months.
Among existing margin loan users, those planning to increase their use of margin lending outnumber those planning to decrease by two to one.
39% of current margin lending investors (compared to 33% last year) expected to increase their borrowing level over the next year. A further 41% (down from 46%) stated they expected to keep their level of borrowing the same, while 21% (same as last year) indicated that they would reduce their level of borrowing.
Investors, who are intending to increase their margin lending usage, mainly cited good buying opportunities (61%), undervalued assets (40%), and borrowing more as investments increase in value (40%) as reasons.