The number of investors using margin lending loans has been falling steadily year after year to match declining confidence and less appetite for risk.
However, this may be about to change with analysts Investment Trends identifying a ‘new wave’ of margin lenders indicating they are about to take the plunge.
This chart compares the actual number of investors using margin lending against the intentions of a new group of investors who say they will be using margin lending:
Overall the margin lending market continues to shrink, falling by 3% to $11.8 billion in September 2013 from $12.2 billion in December 2012.
The direct channel, those individual investors, has bucked this trend by growing to $4.74 billion, with a net increase of $480 million over the same period.
And there are other signs that margin lending is making a comeback.
The ninth annual Investment Trends Margin Lending Investor Report, based on a survey of 2,200 investors, says investor return expectations are finally start to rise.
By September 2013, investors were expecting an average return of 7% per a year (excluding dividends) from the Australian equity market compared to just 3% a year ago.
“The rising confidence among Australian investors has coincided with an increased momentum in the direct margin lending channel,” said S M Shahed, analyst at Investment Trends.
“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.”
The number of margin lending users fell by only 5% in 2013 (from 95,000 to 90,000) versus 20% in the previous year.
There were 6,000 new margin lending investors entering the market and 4,000 investors who returned to margin lending after being dormant, versus 15,000 investors who stopped using margin lending altogether within the last 12 months.
And the number of investors who plan to start using margin lending in the next 12 months is 37% higher than in 2012.
The number of investors planning to establish their first margin loan within the next 12 months rose significantly from 57,000 in 2012 to 78,000 in 2013, growing by 37%.
Historically, only a proportion of those who said they intended to commence borrowing actually did so.
If the conversion rate matches the last three year average, there may be some 14,000 investors who may start margin lending over the next 12 months.