Market slump sparks margin calls

Falling share prices have sparked a large number of margin calls on highly geared portfolios, but lenders in the $9.2 billion market have tried to reassure investors in order to ward off panic.

Macquarie Bank's margin lending division head Scott Young claims that the average investor will avoid margin calls as his or her portfolio is not highly geared. But he admitted that his division had “been busy” and said that you can't expect a period of sustained share price drops without making a significant number of margin calls.

Jason Flanagan, director of BT's margin lending, said that he was expecting things to be more heated. We're not as busy as we were in September 2001, he said, as investors have become more conservatively geared. There's no panicking, the market is very controlled, he added, as most investors have built a buffer into their portfolios.

But while the more cautious investors are riding out the turmoil, other, more highly geared investors are having to top up their equity. The market has fallen 10 per cent since the middle of May, Young said, so you can't avoid this having an impact on some investors. Macquarie Bank advises people to hold diversified portfolios in case the market slides, thus guarding against margin calls.

At TD Waterhouse, margin calls were numerous, with the ratio of sells to buys running at two to one. But Karen Buck, managing director of investor services, said that there's no panic, even amongst very active day traders. With general investors, too, there are “no significant issues”, as most are not highly leveraged.

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