Day trades soar and shares dive

AT last, it seemed that the bear market was over. Private investors were again piling into shares as the Footsie boomed. But now the question is being asked - is the party over already?

The stock market suffered its worst shock for a year last week as the American economy took a dive and terrorists struck in Spain. The market wobble came as stockbrokers had been enjoying a huge increase in share trading by ordinary investors and some analysts now believe that punters might again have bought into a bubble about to burst.

The number of shares traded by private investors in January rocketed by 57% on last year, while last month the volume was 77% up on February last year.

And in the first eight days of business in March, trading by ordinary investors was also galloping ahead. At the current rate, private investors will have made more than a million trades this month.

But as private investors were flooding back to the market, share prices were dealt a series of blows.

The American market was hit by official figures showing a record high in the US trade deficit. The fallout on Wall Street, combined with Thursday's terrorist outrage in Madrid, sent the FTSE 100 down almost two% over the week to 4,467. The 100-point fall on Thursday was the biggest one-day drop for ten months.

Ironically, Friday was the first anniversary of last year's stock market low, when the Footsie closed at 3,287 as war in Iraq loomed. The index is up 35% since then, even taking account of the sudden reverse. But some analysts believe the drop marked a permanent shift in mood.

Analysts at investment bank Dresdner Kleinwort Wasserstein have long taken a bearish view of the market, warning that recent gains by shares around the globe were a blip. In a brief but doom-laden report, its global strategy team warned: 'Now is the time to exit equities.'

American billionaire and investment guru Warren Buffett also struck a cautious note. In his annual letter to shareholders in his company, Berkshire Hathaway, he said he was still avoiding most share investments.

The surge in retail share trading over the past two months, however, suggests that British investors feel differently. The question is whether they have spotted the trend too late and are buying just when they should be selling.

The answer is no, according to Michael Wheeler, finance officer at stockbroker Redmayne Bentley.

He said: 'Our volumes in February were 84% up on last year, but the frothy part of the market has not come back. We are seeing far more investing than punting and we are not getting that many people going back into the speculative end of the market such as the dotcoms.'

Hilary Cook at Barclays Private Clients said history showed that private investors often timed their trades badly, but added that she did not believe the market was taking a permanent turn for the worse.

'Retail investors do tend to get sucked into the market at the top and panicked out at the bottom,' she said. 'But we think there is still value in the market and this drop could be a buying opportunity.'

But even Cook admits that the best time to buy was last year. 'We've already seen the best rise we'll probably get over the year,' she said.