This year is on course for the lowest trading volume in British equities since 2002, hitting government coffers through falling stamp duty reserve tax.
Research from Equiniti, a share registrar, predicts £2.5 trillion will be traded this year, equivalent to 1.46 times the value of Britain’s stockmarket, against more than £4 trillion in 2007.
On average, shares worth 1.56 times the market have traded yearly for the past decade, meaning 2010 is set to be below normal despite the economic recovery and upturn in the stockmarket.
This year will show an improvement on 2009, but only in cash terms.
Equiniti estimates the sharp recovery in share prices since the trough of March 2009 will boost 2010 trading values by £400 billion compared with last year. But, after adjusting for the increase in prices, volumes changing hands will fall 2% this year. (article continues below)
Wayne Story, the chief executive at Equiniti, says: “While index value is a measure of wealth, volume is an important constituent of market health. If volumes are too low, markets become illiquid, making it harder for large investors to trade. An illiquid market is also inefficient, meaning prices can move quickly and irrationally, out of kilter with fundamentals.”
He adds the euphoria of the five-year bull market to its peak in June 2007 brought a massive increase in trading volumes but there has been a dramatic loss of energy since.