Axioma Risk Monitor
Equity edition

Wild swings in stocks spur volatility at year end; Emerging Markets fare better amid market tumult; Currency risk remains low

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Wild swings in stocks spur volatility at year end


Stock indices around the world saw wild swings in recent weeks, spurring volatility on the heels of months-long trade tensions between the US and China, concerns over a global economic slowdown, and an end to major central banks’ quantitative-easing policies. Most major indices recorded steep losses in 2018. The highest levels of short-horizon risk at year end were recorded in the US, Japan and China, where risk rose 12, 8, and 2 percentage points, respectively, in the fourth quarter. Japan finished the year as the riskiest among the geographies Axioma tracks closely (23%), followed by China (22%), and the US (21%). Canada and Australia ended 2018 as the least risky regions, each recording a short-horizon risk level of around 14%. While China and Japan have recently and longer term been at the top of the risk list, the appearance of the US as one of the riskiest countries is highly unusual.

See graph from the US Equity Risk Monitor as of 31 December 2018:


Emerging Markets fare better amid market tumult


Developed Markets saw a surge in risk of close to 300 basis points this month, but Emerging Markets have weathered this turbulent climate better than the developed world, having seen their volatility drop 90 basis points over the past four weeks, as measured by Axioma’s Worldwide and Emerging short-horizon fundamental models, respectively. This pattern is similar to what we had seen earlier in the year around the February market rout. FTSE Emerging became much less risky relative to FTSE Developed. The ratio between FTSE Emerging and Developed short-horizon risk forecasts dipped to 1.04 on December 31st, from a high of 1.9 in late September. Emerging Markets’ risk (19%) is now only one percentage point higher than that of Developed Markets (18%). However, FTSE Emerging Markets recorded steeper cumulative year-to-date losses than Developed Markets.

The chart below does not appear in our Equity Risk Monitors, but can be provided upon request:



Currency risk remains low


As the US dollar strengthened in 2018, most developed and emerging country currency returns were pushed into negative territory, where they reached the bottom of their six-month return ranges against the greenback. But their volatilities remained relatively low as that of the US dollar increased. The Singaporean dollar, Swiss franc, Japanese yen, Canadian dollar and the euro all ended the year at the low ends of their six-month volatility ranges relative to the US dollar. Among major (for the most part) emerging currencies, the Egyptian pound, Chinese yuan, Philippine peso, Peruvian sol, Russian ruble, and Hungarian forint also ended the year at the low-ends of their six-month volatility ranges against the US dollar. The Colombian peso ended the year as the worst performing currency, with a loss greater than 10%, while the Egyptian pound turned in the best performance. As of December 31st, the most volatile currency was the Turkish lira.

See graph from the Equity Risk Monitors as of 31 December 2018:



Stay Connected


Webinar | Look Back, Look Ahead: Q4 2018 Risk Review

January 9, 2018 | 11:00 AM ET / 4:00 PM GMT

In this webinar, Melissa R. Brown, Managing Director of Applied Research, will review the risk environment during 2018, paying particular attention to the fourth quarter. She will focus on aspects of risk that changed the most, driving the necessity for investors and risk managers to be even more vigilant.

Register here.

Webinar | Axioma Insight™ Q4 2018 Risk Review, APAC & Outlook for 2019

January 10, 2018 | 10:00 AM HKT / 11:00 AM JST

In this webinar Olivier d’Assier will identify the key drivers of market risk in Q4 and touch upon what 2019 may bring.

Register here.


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Axioma Risk Monitor

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