Margin lending collapses

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The Reserve Bank of Australia (RBA) released the September 2011 margin lending statistics (D10) today (but have not released household finance data (B21), which was scheduled at the same time).

I’ve covered this data previously, as it is one of the sub-factors in my macro model for the Australian share market, as I explained then:

One of the key factors in a new bull market in stocks, just like property, is a propensity for investors to borrow more on expectation of higher earnings – alongside a move to higher price/earnings ratio premia, reversal from a lower interest rate environment and the “lazy balance sheet” theory.

Margin Lending totals
The September 2011 quarter nominal value of margin loans outstanding – $15.9 billion, is a significant reduction from the June quarter at just over $18 billion and is the lowest since the Dec 2004 quarter (approx. $18.5 billion), after rising to the heady heights of over $41.5 billion in the December 2007 quarter.

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From the March 2009 share market lows, to the December 2009 quarter, margin lending increased slightly, but has been in outright de-leveraging ever since, averaging 4.2% quarterly or over 25% in the last year.

Notably, the market value of the security backing the lending (note: not the market itself, but the aggregate of the securities borrowed) has fallen to December 2008 levels.

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Client Accounts and Margin Calls
This is also reflected in the number of client accounts, unadjusted for population increases, as shown below:


The number of client accounts – approx. 216,000 – is now below the March 2009 low, heading back to March 2007 levels and goes someway to explain the reduced returns on the major institutional retail and wholesale investment trading banks and wealth management houses.

Margin calls have almost doubled in the quarter, rising from 1 per day per 1000 clients to 1.82 per day, a level not seen since the volatility of 2008.

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