* Institutional EMEA liquidity on Liquidnet up 42 pct
* Spain, Portugal, Greece see some of strongest pick-up
* Fund holdings of euro zone stocks at 20-month high
By Toni Vorobyova
LONDON, Nov 1 Institutional investors have come
back in force to European equities this year, gaining the
confidence to do bigger trades and prompting a fresh focus on
The return of pension funds and top asset managers to
European equities bodes well for a market that had been
dominated by speculative, high frequency traders through the
years of the financial crisis, leading to high volatility and a
disconnect between companies' health and share performance.
Average daily liquidity in EMEA in Liquidnet - a platform
which allows some 700 institutional investors globally to trade
anonymously - jumped 42 percent to $19.7 billion in
January-September compared to last year. That marks the biggest
rise in principal traded since 2009 for EMEA, contrasting with a
drop in overall market volumes reported by banks.
The trend has continued into October, as the STOXX Europe
600 index set five-year highs, up 16 percent this year
and rewarding investors for their confidence in the region.
"Europe has outperformed for Liquidnet globally. We have
seen an increase in inflows from the U.S. into Europe, and an
overall increase in investor confidence which has resulted in a
strong desire to trade blocks in Europe," Mark Pumfrey, CEO of
Liquidnet Europe, told Reuters.
"The biggest liquidity increases we've seen are in the
markets that were most damaged by the financial crisis. If
you're an institution that thinks the euro will survive, then
companies that were priced low 18 months ago are going to look
very cheap (today)."
Liquidity in Spain more than doubled, Portugal rose 166
percent and Greece jumped 281 percent, albeit from low levels.
"For us, Europe is definitely one of the areas to be
overweight into next year," said Veronica Peculate, head of
global equities at Ashburn.
"We have been historically very underweight the periphery,
but now we are much more broadly spread."
That chimes with the Reuters global asset allocation poll,
released on Thursday, showing holdings of euro zone equities
rising for the fourth month in a row to a 20-month high.
GOOD NEWS FOR MARKETS
Backing the trend seen on Liquidnet, the percentage of STOXX
Europe 600 shares held in lending programmes of institutional
investors has risen to nearly 18.5 percent from less than 17.5
percent in January, according to Markit.
"It's not a huge increase, but could be taken as supporting
evidence that international institutional investors are
increasing exposure to Europe," said Alex Borg, director at
Markit, adding that the data suggests investor overweights in
economically sensitive software, real estate and tech hardware.
The institutional investors are also doing bigger trades, as
signs of economic recovery in Europe and progress in resolving
the euro zone debt crisis have restored confidence.
Since the end of June, trade in large blocks of over $1
million on Liquidnet - which has a 73 percent market share in
such deals - has totalled $15.8 billion - already 55 percent
more than for the whole of the second half of 2012. The average
executions' size has risen to a two-year high of $1.3 million.
"It's good news. Investors that are focused on long-term
fundamentals have been inclined to trade more this year ... and
it really reflects the overall macro environment, which isn't
perfect by any means but is much better than it was 18 months
ago," Liquidnet's Pumfrey said.
"When institutional investors are trading, it's a much
healthier position for the market - you really don't want
fundamental investors pulling away."