US Markets continue to rise as risk ticks up; Momentum excels globally, except in China; Loonie surges against the greenback

On February 28, Axioma introduced its new US Small Cap risk model, and we are pleased to announce that we will now be producing a corresponding Risk Monitor. Our US Small Cap Risk Monitor will highlight the same useful data we already produce for 11 other markets worldwide. As always, we welcome comments and suggestions.

All components of risk rise for US small caps; Momentum takes off in Australia; China’s risk climbs to the top




All components of risk rise for US small caps


The forecasted risk for the Russell 2000 rose about 300 basis points over the past month, as measured by Axioma’s new fundamental medium-horizon US Small Cap model. A look at the major components of risk shows that while market risk was the main driver of the risk increase, industry, style and stock-specific risks (which represent a smaller part of total benchmark risk) rose, too. Stock-specific risk started ascending in November of last year and reached at least a six-month peak last week. Industry risk has been rising since January, while style risk only saw an increase in February.

US large caps saw a much steeper increase in risk, with the Russell 1000’s risk soaring 420 basis points over the past month, as measured by Axioma’s US4 medium-term fundamental model. Market risk also drove the rise in risk for the large caps, but style risk remained relatively flat and stock-specific and industry risk rose only slightly in February.

See graph from the US Small Cap Equity Risk Monitors as of 1 March 2018:

Risk Monitor Image 1



Momentum takes off in Australia


As Australia’s market rebounded from the sharp downturn in early February, Momentum took off. Medium-Term Momentum recorded gains of over 170 basis points over the past five days, as measured by Axioma’s medium-term fundamental Australia model. No other region saw such a jump in Momentum last week. Momentum’s returns in Australia were also positive over longer horizons: 2.33% for one month, 2.64% for three months, and 5.05% for six months. All other regions Axioma tracks closely saw strong positive six-month returns for Momentum, with Emerging Markets (5.80%) being at the top.

See graph from the Australia Equity Risk Monitor as of 1 March 2018:

Risk Monitor Image 2



China’s risk climbs to the top


China’s risk climbed to the top of the country heap, as investors mulled the proposal of the country’s Communist Party to remove limits on presidential terms. China’s market risk neared 18%, as measured by Axioma’s short-horizon Worldwide fundamental model and based on all Chinese stocks in the worldwide universe, denominated in US dollars. China’s risk surpassed that of Greece—long the riskiest country among developed and emerging markets. Chinese equities also jumped, with six-month returns of about 13%, making China’s return the third-highest after those of Brazil and Peru as of last Thursday.

At the same time, Axioma’s short-horizon fundamental China model reported a forecast of 16.9% for the Chinese A-share market denominated in yuan, as represented by the CSI 300. This forecast came second after the short-horizon risk of Emerging Markets (17.4%), and higher than that of all other regions Axioma tracks closely.

See graph from the Equity Risk Monitors as of 1 March 2018:

Risk Monitor Image 3



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