Liquidity is returning to the Australian share market, with one of the key indicators of liquidity – market turnover – up by both value and volume compared to lows at the start of the year.
While value (dollars traded) is still below the level it was 12 months ago, Investment Technology Group’s (ITG) new Asia Pacific Liquidity Barometer revealed volumes are up as appetite for risk and trading in quantity returns, primarily from institutional investors at home and abroad.
The Barometer, which was launched by ITG today, provides monthly statistics and commentary intended to help traders and portfolio managers understand and manage liquidity across Asia.
August’s monthly liquidity reading for the region is 970, down slightly from the previous month’s reading of 1021. The figure is significantly lower than the 1136 spike seen in October 2008 at the start of the equity sell-off around the time of the Lehman collapse.
Clare Rowsell, head of client relationship management for ITG in Asia Pacific said market volatility during the financial crisis has added an extra layer of complexity and caused average trading costs to soar.
“What we saw when the market was very volatile was that turnover initially was very high, but that was in one direction – everyone wanted to sell, so there was a move out of equities quite rapidly,” she said.
“The fact that volatility triggered a large sell off in equities meant turnover was high and then subsequently dropped and spreads widened quite a lot. Those two factors meant the cost of trading was very high, particularly in October 2008.”
According to the Barometer, liquidity across Asia Pacific in August has dropped slightly from June’s recent high, primarily due to a drop in turnover.
Typical trade size by volume in the Australian market remained fairly constant throughout the turbulent period of October 2008 to February 2009, and has been rapidly rising month on month from February to May.
Rowsell said the increase in volume in
Australia “is a positive sign towards market recovery, and indicates renewed appetite for trading”.
While Australia and Japan are still below the dollar value turnover levels of August 2008, Hong Kong, Singapore and Korea volumes all surpassed their August 2008 levels in May this year.
The Barometer covers Japan, Australia, Hong Kong, Singapore, Korea and