Margin lending intentions rise strongly


By Krystine Lumanta

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The number of investors planning to establish their first margin lending loan within the next 12 months has jumped by 37 per cent compared to the previous year, according to Investment Trends research.

The “September 2013 Margin Lending Investor Report”, released yesterday, found 78,000 investors in 2013 indicated they intended to commence borrowing compared to 57,000 in 2012.

“Not all of them will do so and this number is normally a bit overstated, but the key thing here is the trend where it has grown by 37 per cent,” Investment Trends senior analyst Recep Peker told financialobserver.

“So the intention is stronger and based on what we’ve seen historically, thanks to this increase it may mean that the actual number of margin lending users might grow for the first time since the global financial crisis, assuming that all things hold constant in the market.”

Peker said 14,000 investors could commence margin lending over the next 12 months if the conversion rate matched the last three-year average.

The report found that despite the market continuing to shrink, the direct channel had bucked the trend by growing to $4.74 billion in September 2013, with a net increase of $480 million over the year.

The overall margin lending market fell by 3 per cent from $12.2 billion in December 2012 to $11.8 billion in September 2013.

The uptick from the direct channel had resulted in the broker channel flattening, while the planner channel had lost some ground, the report said.

However, one of the differences between the direct channel and the planner channel was that planners were more likely to write new loans, Investment Trends analyst SM Shahed said.

“Planners can help grow the number, but for the planners to do so they need help from margin lenders around compliance with the new legislation because it’s fairly new and some of them are still trying to understand how they can do more margin lending with the legislation in place,” Shahed said.

“If the planner channel increases, it will grow the overall margin lending market as well because we’ve seen two-thirds of the margin loans that planners write are new as opposed to replacement loans.”

Peker said while the proportion of planners who recommended margin lending had decreased over the years, a sizeable number of advisers still had some involvement with margin lending.

“It’s now at about 45 per cent and usually what you’ll find is that amongst planners who write margin lending, there’s an increase in client demand for margin lending,” he said.

In 2013, the number of margin lending users fell by 5 per cent to 90,000 from 95,000, versus a drop of 20 per cent in the previous year, the report said.

“What’s happened underneath is 6000 started a new margin loan and 4000 people who used to have a margin loan sometime in the past came back to the market,” Peker said.

“That’s 10,000 combined coming in versus only 15,000 who stopped using margin lending, so the rate of attrition has declined.”

The report was based on a survey of 2200 investors conducted between August and September 2013.

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