Taking the call … margin lenders are calling borrowers after the market slump. Photo: Peter BraigBanks say they are issuing more margin calls to investors after recent falls in the sharemarket wiped most of the bourse’s gains for the year.
The S&P/ASX200 is now down more than 10 per cent since its peak in May, as investors sold off shares in the wake of the world’s biggest economy flagging it will wind back its stimulus program. Fears over the prospect of a credit bubble in China have also weighed heavily on sentiment.
Margin lending occurs when investors borrow money to put on the sharemarket. Banks are required to make a call to investors when the securities they hold decreases in value beyond a certain level.
Bendigo and Adelaide Bank, the country’s equal fourth-largest margin lender, said the recent sharemarket falls had triggered a rise in the number of margin calls, but the number was still low given ‘‘market volatility and when compared to historic levels’’.
‘‘Of course, in a falling market, people are required to cover their security,’’ a spokeswoman said.
The sharemarket fall has coincided with an extraordinary sell-off in Australian government bonds, with 10-year bond yields hitting a 15-month high on Monday. Chinese equity markets also witnessed their biggest daily loss in four years this week after diving 5.3 per cent in Hangzhou and 6.7 per cent in Shenzhen on Monday.
BT Financial Group’s head of equities, Cathy Kovacs, said the sharemarket fall had meant the bank was putting in more calls to borrowers, but that loan-to-value ratio was still low, meaning it was low risk to the bank.
‘‘People are not excessively geared in this market,’’ she said. ‘‘There has been an increase [in margin calls] but levels remain very low.’’
Investors who receive a margin call are required to either deposit more money into their account or sell off some assets.
Reserve Bank figures from March show about $12.5 billion is tied up in margin loans across Australia, well down from a peak of $41.5 billion in the December quarter of 2007, but higher than the previous quarter at $12.2 billion.
The country’s biggest lender in the sector, CommSec, would not comment on the state of its margin lending book.
The sell-off in equities has seen billions stripped from the Australian sharemarket, after the US Federal Reserve flagged last week that it might end its multimillion-dollar bond-buying program. This caused 10-year US government bonds to spike – rising 14 per cent last week.
It comes amid further sell downs, with shares in the country’s largest life insurer, AMP, falling 12.9 per cent after the company downgraded its profit outlook on Monday.
Resources stocks have also taken a battering as investors grew more concerned about a looming credit crisis in China, which weighed heavily on commodity prices.
The original release of this article first appeared on the website of Hangzhou Night Net.Categories : 杭州龙凤