Directors of British companies have increasingly been buying shares in their firms in a strong signal that companies are recovering after a difficult two years. "Directors have to commit their own cash. If they don't believe the shares will rise, they are effectively throwing money down the drain." Mr Khuram Chaudhry, a Merrill Lynch strategist, said.
"The current [director] buy to sell ratio is 13 buys for every sell in the market. This ratio is up from 11 to one at the beginning of August and has risen sharply from four to one six weeks ago," he said.
Mr Dominic Connolly, chief strategist at brokerage GNI, said clusters of director stock purchases provided encouraging signals. Such dealings often take place before and after the "closed" period ahead of results announcements, when directors are not allowed to deal in their companies' shares.
"If the shares rose after the release of in-line earnings and the directors are prepared to buy then, this shows they are very confident about the outlook for their company," Mr Connolly said.
A recent example of stocks that have seen significant director buying is food retailer Big Food Group, in which directors Mr William Hoskins, Mr Gerald Johnson and Mr George Greener bought shares in July and August.