PAINFUL memories of the global financial crisis are holding back 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 its levels of a decade ago.
The latest Reserve Bank of Australia data shows that there are $11.7 billion worth of margin loans outstanding, down from $41.6 billion in late 2007, just before the GFC struck.
Investment analysts do not expect a big rebound soon, even though Australia’s sharemarket has climbed 15 per cent in the past year.
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“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 pre-agreed 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.
“It caused such a lot of grief in the GFC. The banks’ responses to margin calls caused litigation and bad PR,” he said.
Mr Grimm said while margin loans still stacked up for long-term investment and tax benefits, he did not expect a big bounce-back quickly.
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Australian Stock Report chief market and trading strategist Chris Conway said investors’ desire for riskier products had waned.
“There’s people out there who took on a whole bunch of risk before the GFC and will never do that again,” he said.
Mr Conway said the nature of investing had changed, with a surge in passive investment strategies in recent years where people no longer tried to beat the market — they only wanted to match the growth of a sharemarket index.
“There’s a lot more index fund investment where you don’t really have to think about it, and will take whatever performance the market will give you,” he said.
Investors had seen reports that most investment fund managers did not beat the index, Mr Conway said. “Investors are a lot more savvy and aware of how hard it is to beat the market — people think if 80 per cent of fund managers can’t beat the market, why am I going to try?”
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