While global markets are getting bigger, they are also getting thinner. State Street Bank & Trust - which has US$6.2 trillion in assets under custody (or 12 per cent of the world's tradeable assets) and $720 billion under management - yesterday released fresh data on the global fund flows of its clients. From the data - released to Hong Kong clients yesterday - London-based managing director and head of global research Avinash Persaud said he came to the 'unpopular' conclusion that increasing illiquidity was partly the result of an absence of hedge funds. Furthermore, with the proliferation of electronic communication networks and the fragmentation of exchanges, liquidity was being taken away from exchanges. 'It means everyone needs to manage their liquidity more as it means the cost of trading goes up . . . it starts to eat into your investment returns. 'They need to be thinking more about timing - is it seasonal, is it better to trade on a Monday or a Friday? With this data we can tell clients as we rank markets by liquidity on a daily basis.' State Street also found investors' appetite for risk was growing and could increase further. 'We're in an environment today where investors are searching for risk and that should support undervalued markets.' Mr Persaud said such data could be used as a way to value markets at a time when investors were placing less emphasis on fundamentals. State Street found through the data that investors globally operated under a herd mentality and that subsequently, investors' risk profiles were changing. 'There is new compelling evidence that investors herd - their behaviour is contagious,' he said. 'The fundamentals get the direction right about 70 per cent of the time,' he said of a graphic showing currency flows over a one-year period. 'It's not that fundamentals don't matter, it's just that they matter over a longer period of time.' Mr Persaud said the data was offered to clients on State Street's online trading and research platform Global Link.