ITG has created a new tool to measure trading activity in Asia-Pacific, a liquidity barometer with a baseline level of activity calculated from August 2008.

If that month is '1,000' on the index, then trading activity is almost back to normal. In June the barometer closed at 1,021, although in July it fell back to 970 -- the last month for which ITG has crunched the data. Other data in its analysis suggests this dip is more related to summer holidays than it is to a fall in risk taking.

If the recovery in trading is not full-blooded, it is real. The typical order size (volume) has recovered and in fact surpassed levels from August 2008 in all markets covered by ITG's analysis, which include Japan, Australia, Hong Kong, Singapore, Korea and Taiwan.

"This indicates a renewed interest for block trading and a return to trading in volume, rather than the trend of small order sizes," which prevailed recently when liquidity was thin, says Clare Rowsell, head of client relationship management in Hong Kong.

"The overall message is that trading is on the up," she adds.

The analysis shows that volume does not necessarily equal liquidity. In October, when the liquidity barometer for Asia-Pacific fell from 1,136 to 923, there was plenty of trading activity -- but it was all one way. The result was that average trading costs rose from 67 basis points in August to 120bps. Today, average trading costs have returned to around 70bps; the average varies among markets, but the pattern is the same.

The semi-exception has been Japan, the region's largest market. Its volumes declined but not by so much, which meant its market capitalisation ended up more stable during the worst months of the credit crunch. Although some of this may be due to the government's early stimulus package, ITG says the loyalty of domestic institutional investors and state-affiliated funds played an important role.

Nonetheless, the overall drop in market valuations means that, while trading volumes have reached pre-Lehman collapse levels, the absolute value of trades is struggling to keep up. Clare Rowsell says, however, the data suggests a renewal of investor appetite.

"There is an increased appetite for risk and institutional investors are making large-volume plays," she says. This suggests that not only is block trading on the mend, but so will be demand for many algos and program trades, as the return of liquidity allows buy-side traders to rely more on electronic execution rather than high-touch sales trading.