Key findings of the Investment Trends September 2013 Margin Lending Investor Report:

– Returning investor confidence is stoking some life into margin lending through the direct channel
– The number of investors who plan to start using margin lending in the next 12 months is 37% higher than in 2012
– Existing margin lending users are another growth opportunity, with more planning to draw down on their loans over the next 12 months versus recent years

While the overall margin lending market continued to shrink, falling by 3% from $12.2 billion in December 2012 to $11.8 billion in September 2013, the direct channel has bucked this trend by growing to $4.74 billion, with a net increase of $480 million during this period. Against this backdrop, the ninth annual Investment Trends Margin Lending Investor Report, based on a survey of 2,200 investors, investigates the current state as well as the way forward for the industry. Key trends included:

Returning investor confidence is stoking some life into margin lending through the direct channel

2013 saw investor return expectations finally start to rise. By September 2013, investors were expecting an average return of 7% per annum (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.

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 3 year average, there may be some 14,000 investors who may commence margin lending over the next 12 months.

Existing margin lending users are another growth opportunity, with more planning to draw down on their loans over the next 12 months versus recent years

“For lenders, the current pool of margin lending investors represent low-hanging fruit,” Said Shahed.

The proportion of current users planning to draw down more on their margin loans increased to 46% in 2013, up from 39% in 2012.

“Helping investors identify opportunities will be the key to realising this demand,” said Shahed. “44% of those planning to increase their margin lending usage over the next year say they are waiting for the right investment opportunities to arise.”