THE share market’s unconvincing showing during the past year has failed to deter further share investments among those caught out by the under-perform-ing sector.
A recent survey of Macquarie Margin Lending clients indicated overwhelming support for Australian shares as the preferred asset class for investors. Eighty nine per cent of respondents said they intended to increase their margin loan facility rather than reduce the size of their investments during the past 12 months.
Despite the share market remaining flat (falling only 34 points to 3,113 points in the year to October 19), investor sentiment is more optimistic than at any other time during the past 18 months.
While the survey was undertaken just prior to the World Trade Center tragedy, Macquarie Margin Lending head Scott Young said early indications showed that the US terror attacks have not deterred investors, although their was a slight drop in interest in margin lending for a short period.
“It seems that currently retail investors are actually quite bullish,” Mr Young said.
“We recorded a large increase in the percentage of investors who planned to increase their level of gearing over the next 12 months.”
Six months ago just 49 per cent of Macquarie clients said they were likely to increase their level of gearing over the following 12 months, compared with almost 90 per cent today.
Margin lending facilities allow investors to use current shareholdings or cash as a deposit to buy more shares.
On the upside, margin lending gives the investor access to dividends received as well as any capital gain and tax deductions on interest paid, but the costs of any fall in share prices are magnified in the event of a margin call.
CIBC Eyres Reed client adviser Timothy Reed said margin lending was something that should be reviewed in the current market.
“You need to make sure you are not in a position where you will be called upon. It’s important not to over-stretch yourself,” he said.
Macquarie experienced a record number of margin calls following the events of September 11.
“Five per cent of our clients had margin calls, which in a market fall that we had is quite a good result really,” Mr Reed said.
