Margin calls and fund inflows stand firm

Fears overheightened market volatility in the Australian stockmarket following the confirmation of more US corporate accounting disasters and the crackdown by President George W Bush on corporate reporting, has not been realised with only a two per cent market fall over the past week.

According to Tolhurst Noall stockbroker, institutional and corporate adviser Lee LaFrate, the Australian market is showing its relative immunity to the prevailing US concerns over credibility and accountability of corporate businesses.

However the damage of world market fluctuations, with the MSCI World Index currently down 40 per cent from its peak, will erode investor confidence, the real killer in terms of investor activity.

“This damage to confidence has impregnated fortress Australia,” LaFrate says.

Geared investments such as margin lending products are inherently linked to movements in the market, leaving the destiny of these products out of investors’ hands.

Further, La Frate says fund inflows will slow as the investors market will accept a three to four per cent return on cash in better than facing market volatility.

However, the warnings are not having much of an effect on margin lending providers of fund inflows.

According to St George’s national sales and distribution manager, Craig Mowll, while the business has received less than 10 margin calls in the past month, it has also received an “incredible amount” of loan applications as people realise a fall in the market represents a good chance to buy undervalued stocks.

Meanwhile Assirt’s associate director Anthony Serhan says while the overall level of inflows into the funds management industry is trending downwards, net inflows remain positive.

“This whole situation will be a big test. It will have an adverse effect on overall inflows,” he says.