The return of more positive sentiment towards the market is driving a demand for margin lending, but investors should be cautious, according to one investment expert.
Wealth Within chief analyst Dale Gillham told InvestorDaily that a perceived bull market has resulted in the first rise in margin lending applications since prior to the global financial crisis.
“I think that because we’ve had six months of the market rising, people are generally more positive,” Mr Gillham said.
“But the market hasn’t really confirmed that it’s a long-term bull market yet and that’s really the best time to do margin lending – when the market is in a nice, steady, long-term bull market.”
Traditionally, most applications for margin lending occur when the market hits bottom, Mr Gillham said.
While he expects the Australian share market to continue its rally over the next few months, he said it is overdue both for a four-year low and a year low.
“With margin lending, people only think about the upside, but normally if you look at the history of margin lending, when you get the most amount of applications for margin lending and the most amount of borrowing is just before the crash,” he said.
“There is still too much around the world at the moment to lead us to believe that there is going to be a spectacular bull run in the [next] 12 months to two years.
“There is not going to be too much upside, so it’s just exceptionally high risk,” he said.
