Axioma Risk Monitor
Equity edition

US riskier than Greece, as developed and emerging markets decouple; Emerging markets risk falls below that of developed; The yen gains ground against the greenback




US riskier than Greece, as developed and emerging markets decouple


In a risk world turned upside down, the US became riskier than all major emerging countries—an unprecedented event in modern times, based on our analysis of available data. The US risk soared to 21.6%, second only to Luxemburg (24.2%), and Japan (24.1%) among both developed and emerging markets, as measured by Axioma’s short-horizon Worldwide fundamental model and based on stocks in our worldwide universe, denominated in US dollars. US risk is now even higher than that of Greece (21.4%), which was the riskiest country for much of the last several years. US stocks rose in the first two weeks of 2019, after reported progress in US-China talks, a strong US job report, and dovish statements by the Fed. But this short rally – which added to volatility—did little to offset the large losses recorded by most countries in the second half of 2018. The US was one of the biggest losers, with a six-month return around -10%. Still, China and Japan both posted higher losses (denominated in US dollars) than the US for the same period.

See graph from the Equity Risk Monitors as of 10 January 2019:


Emerging markets risk falls below that of developed


At the aggregate level, Emerging Markets saw a decline in volatility as their developed counterparts continued to see risk rise in recent weeks. The short-horizon risk of the FTSE Emerging index fell 220 basis points over the past month, with the decrease in stock correlations leading the drop in index risk and accounting for 62% of the decline in total risk last month. The decline in stock volatility and changes in index composition also helped drive risk down. In contrast, FTSE Developed recorded an increase in risk over the one-month horizon of 292 basis points. In the developed index, the increase in both stock volatility and stock correlation pushed up total risk. The FTSE Emerging index’s risk forecast fell 87 basis points below that of FTSE Developed (18.94%) by the end of last week, as measured by Axioma’s short-horizon fundamental Emerging and Worldwide models.

See graph from the Emerging Markets Equity Risk Monitor as of 10 January 2019:



The yen gains ground against the greenback


The US dollar has slipped against major currencies after the Fed expressed flexibility in the pace of interest-rate increases. The Japanese yen was the biggest winner, also helped by investor’s flight to safe havens amid intensifying market volatility. The yen’s six-month return of about 3% against the US dollar was the highest among major developed currencies, and pushed the Japanese currency close to the high end of its six-month return range. Despite the weakening of the US dollar, only the Singapore dollar, New Zealand dollar and Swiss franc recorded positive six-month returns against the greenback (among major developed currencies) as of last Thursday. The yen’s volatility remained close to the low-end of its six-month volatility range relative to the US dollar—just slightly above 6%. The Japanese yen was the third least risky among developed currencies, after the Singaporean dollar and Swiss franc.

See graph from the Equity Risk Monitors as of 10 January 2019:



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