Sharp rise in UK share buys

Private investors have been aggressively buying UK shares following sharp market falls – in spite of warnings over ongoing volatility, and in sharp contrast to fund investors who have been switching out of equities.

Stockbrokers have reported trading volumes at more than double their normal level, as short-term traders have sought to buy high-yield stocks on historically low valuations. This week, TD Waterhouse said volumes were more than 100 per cent up on previous weeks, reaching 140 per cent of average levels on Tuesday when transaction numbers hit a new hit record. Barclays Stockbrokers has seen a 150 per cent increase in trading activity, with volumes 25 per cent above the previous record high.

A majority of all trades have been buys, accounting for 84 in every 100 deals handled by The Share Centre on Wednesday. At Barclays, the buy/sell ratio peaked at 76/24 on the same day, while at TD Waterhouse it reached 75/25. Selftrade saw trades in the ten most popular stocks maintain a ratio of 73/27 in favour of buyers over the first three days of the week.

In normal conditions, brokers expect the buy/sell ratio to be closer to 50/50. On Wednesday August 3, for example, sellers outnumbered buyers at Selftrade by 51 to 49. Barclays said its average buy/sell ratio earlier in the summer was down to 56:44.

“On an average day, our buy to sell rations are normally on an even keel,” explained Nick Raynor, investment adviser at The Share Centre. “However, the activity so far this week has seen the ratio skew dramatically in favour of the buying side, as investors start to return to the market with what seems a varying attitude to risk.”

He said clients had been buying “quality FTSE 100 companies that are now sitting on impressive yields”, such as Aviva and Vodafone. Des Byrne, head of Barclays Stockbrokers, said his clients had focused on financial stocks.

However, Willem Sels, UK head of investment strategy at HSBC Private Bank warned: “It wouldn’t be prudent to say that this is a buying opportunity. Market valuations may need to become really compelling before investors feel the need to step in.”

Financial adviser Brian Dennehy advised against simplistic measures of value. “We are concerned that the financial services industry keeps trotting how ‘cheap’ the market is using current year or forward price/earnings ratios – some might say that amounts to negligence.”

Fund investors, by contrast, have taken a more cautious approach. While 73 per cent of Hargreaves Lansdown sharedealing clients bought this week, 55 per cent of fund investors were sellers.