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Investors regain appetite for margin lending

Despite the three per cent decline in margin lending from $12.2 billion in December 2012 to $11.8 billion in September 2013, the direct channel continues to grow, according to Investment Trends.


The Investment Trends Margin Lending Investor report, based on a survey of 2,200 investors, revealed the direct channel grew $480 million to $4.74 billion during this nine-month period. 

The report also found investor return expectations are increasing, with investors expecting an average return of seven per cent per annum at September 2013, compared to the expected return of three per cent a year before. 

Investment Trends analyst S M Shahed said the rising confidence among Australian investors has “coincided with an increased momentum in the direct lending channel”.

"The rate of decline in the number of active margin lending users slowed considerably and these current users began drawing down a larger part of their loan in 2013." 

According to the report, the number of margin lending users only decreased by five per cent from 95,000 to 90,000 compared with the 20 per cent decline the previous year. 

In the last 12 months, 6,000 new margin lending investors entered the market, 4,000 investors returned to margin lending after being dormant and 15,000 investors chose to completely stop using margin lending. 

The number of investors who intend to begin using margin lending in the next 12 months is also on the rise, with a 37 per cent increase from 57,000 in 2012 to 78,000 in 2013.

The report noted that historically, only a proportion of those stating they plan to begin borrowing actually do so. 

Based on the three-year average, Investment Trends estimates there will be around 14,000 investors who will begin margin lending in the next 12 months. 

Investment Trends believes existing margin lending users are another growth opportunity, with the proportion of current users planning to draw down on their margin loans increasing to 46 per cent in 2013, up from 39 per cent in 2012. 

“Helping investors identify opportunities will be the key to realising this demand,” said Mr Shahed.

“Forty-four per cent of those planning to increase their margin lending usage over the next year say they are waiting for the right investment opportunities to arise.”

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