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That Great Rotation...
Posted: 06 February 2013 11:03:58(UTC)

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Like many others I have been thinking (since last September) that with the fear of general collapses diminishing, money would be coming out of bonds (and gold), and equities would benefit.

In the past three months we have seen many reports of significant capital (+20% - ish) going into equity funds both here and in the US, and one consequence of that is that shares in the fund managers themselves have risen (I did well out of Aberdeen Asset Management).

LSE has also done well and I took my profit in that last week. However, I have been curiously monitoring the trading stats at the LSE in the expectation that increased interest in equities would be reflected there.

UK order book:
Month **** Average daily trades **** value
Jan 2012 **** 660742 **** 4.018m ** 4.829m
Nov 2012 **** 567292 **** 3.694m ** 4.595m
Jan 2013 **** 543102 **** 3.831m ** 4.801m

Jan 2013 av daily trades down 17.8% on year traded value down 4.7% and only a slight sign of a pickup in value when you look at e.g. Jan 2013 compared with November 2012.

So do I need some help with finding and interpreting the statistics? Am I looking in the wrong place? Or how would you interpret what appears to signal a continuing decline in trading of equities (if a weak uptick in value) even as the whole financial press is talking them up and the index is rising?
2 users thanked Micawber for this post.
Brian C on 06/02/2013(UTC), Powerful Pierre on 06/02/2013(UTC)
felix s
Posted: 06 February 2013 15:12:55(UTC)

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Presumably there might be a lot of trading off the LSE on the other exchanges like BATS and other dark pools - so you havent got a complete set of data to make a conclusion off ?

Mike Deverell
Posted: 06 February 2013 15:26:36(UTC)

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I'm not going to comment on whether the so called great rotation is happening as I don't think anyone knows. However, I can perhaps offer an explanation for those trading volume figures. Volatilty.

Volatility is much lower now than it has been for years. Volatility comes from lots of people trading throughout the day. In uncertain times volatility picks up, so trading volumes are high.
For example, say people sell a stock, this then slides in value so others buy it back. The direction of the market might be down, but there's been lots of trading.

Volatility in January was very low - this intraday trading wasn't so prevalent. To simply look at the value of trades misses the point as all the trades could be from people looking to buy, rather than sell.

Hope that makes sense!
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Micawber on 06/02/2013(UTC)
Mike R
Posted: 06 February 2013 15:33:52(UTC)

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Well I am cynical-- but I think like today in the DM newspaper, it is almost like some sections of the City placing Ad's for equity input, from any passing potential PI.
Is this almost a scam ?? will the unwary see any return ?
A lot of what I see, seems to be Financial numbers being recycled by Computers or HFT. The genuine trade as a buy or a sell is in some stocks less obvious.This would perhaps suggest genuine equity participation is falling.
The FTSE may in numerical terms be portrayed as high-- but the SP of many stocks is closer to 2008 levels.So somebody is slicing any fresh money perhaps.
Posted: 06 February 2013 15:55:06(UTC)

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Mike Deverell;17907 wrote:

..... I can perhaps offer an explanation for those trading volume figures. Volatilty.

Volatility is much lower now than it has been for years.
Hope that makes sense!

Ah yes, I hadn't considered volatility. Thanks - good point.

Granted the figs I quoted aren't for all the equity trades taking place in UK, the idea was that monitoring the LSE electronic trades stats (volume and value) would give an indication as to whether the predicted uptick in equities was really coming through or not. I think these trades are a useful sample. Certainly they show no sign that there is anything like 'overheating!' Rather, that the price movements we are seeing are still in quite a thin market.
Rob Walker
Posted: 06 February 2013 16:38:41(UTC)

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Surely the key issue for this 'movement' is whether trades are coming out of retained cash or out of bond sales proceeds or just trades between shares. Surely it is the selling vs buying of bonds that is critical.
Posted: 09 February 2013 08:35:12(UTC)

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....and I notice from Reuter's report of yesterday that volume was roughly 5.6 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Volatility may have declined, and investor funds under management have increased sharply (about as much seems to have gone into bonds as into equities last quarter); but there is no sign that the substantial rise in major indices is accompanied by heavier trading. The market remains thin both sides of the Atlantic, indeed thinner than last years' averages.

So apart from funds under management, few if any signs (yet) that a substantial rebalancing out of fixed interest and gold into riskier equities is actually occurring......

Lights remain on amber rather than green.

Edit: PS: I see that Stevenson of Fidelity has been reading this LOL: - see
Dividend Income
Posted: 11 February 2013 17:14:35(UTC)

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Wall of money, the great rotation, under/overvalued, this time it's different.

Based on our unique dividend share valuation investment method most if not all dividend paying FTSE350 are now not any longer historically undervalued. Read here for more about our methodology:

An increasing number of dividend paying companies are nearing their historically overvalued share price levels. That is not to say that share prices can not be overvalued for some time in particular as decreasing fear and low level bond yields drive more and more money int dividend paying shares setting us all up for a large fall in due course once bond yields increase, due to inflation going up and Pound Sterling devaluing further.
Posted: 12 February 2013 00:12:14(UTC)

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Going into shares, provided you invest wisely, is in my view a long-term no-brainer, particularly as most FTSE shares are effectively international business, so should be partially insulated from the mess the UK economy was left in, which is likely to cause depreciation of the pound. Obviously, if your portfolio is large, it should be sheltered within an ISA, to reduce tax. 1 problem with ISA's, however, which was highlighted by the Sunday times this weekend, is the exit charge if the ISA is closed, which may ammount to of order £30 to £40 FOR EACH STOCK HELD!. Not only that, there can be in-my view unreasonably large charges for taking income from foreign stocks in an ISA. I hold some $ stocks in a TD Waterhouse (UK) ISA, and was told that to transfer accumulated $ dividends into a US$ bank account held with a UK bank would cost me $48!!!! There is little or no charge for drawing income in £Sterling, so it amazes me that there is a minimum charge of this magnitude when no currency conversion is involved!
Posted: 15 February 2013 22:21:22(UTC)

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Further indications that equity trading volumes have remained remain very thin: JP Morgan fires many equity traders today:
"Equities trading was hardest-hit by job cuts in 2012, with the top 10 investment banks eliminating 2,700 front-office workers, or about 14 per cent"

Funny, since I started this thread there hasn't been so much in the popular financial press about "the great rotation"...;-)
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