Axioma Risk Monitor
AXIOMA RISK MONITOR
Equity edition

China’s risk keeps falling, despite a slowdown in growth; Earnings Yield factor boosted by positive reports in the US; Euro drops but volatility remains low


We are excited to introduce our new China Equity Risk Model (CN4) into the CN Risk Monitor. For more details on this new model click here.
 

HIGHLIGHTS FOR THE WEEK ENDED JANUARY 24

 
 
 

China’s risk keeps falling, despite a slowdown in growth

 

With steady market gains since the beginning of this year, China’s short-horizon risk continued to drop, despite news of a slowdown in the growth of the Chinese economy. The short-horizon risk forecast for the CSI 300 index declined more than 7 percentage points since the peak of 26% recorded in the beginning of November by Axioma’s newly released China model (CN4). China’s short-horizon risk fell 50 basis points last week, dipping to 19%—about 150 basis points lower than that of the US as of last Thursday. Even the medium-horizon fundamental forecast for the CSI 300, which held steady around 22% since November, ticked down last week, as measured by Axioma’s medium-horizon fundamental variant of the new CN4 model. At the medium horizon, China’s risk of 21% remained higher than the US’s risk of 17%.

See graph from the China Equity Risk Monitor as of 24 January 2019:



 

Earnings Yield factor boosted by positive reports in the US

 

The Earnings Yield style factor has seen steady gains in the US over the past three months. Both of Axioma’s US medium-horizon fundamental models—US4 All Cap (US4) and US Small Cap (USSC4)—recorded positive returns at the one-, three- and six-month horizons. However, the style factor posted a positive five-day return in the US4 model and negative in the USSC4 model, following the earnings reports that came out last week. The three-month cumulative factor returns were 2.49% and 3.19% for the US4 and USSC4, respectively. Earnings Yield had the highest three-month return (in absolute terms) among style factors in each of the US models. Despite the downturn last week, Earnings Yield in the USSC4 model also recorded the highest positive six-month return (1.99%), although low volatility stocks outperformed high earnings stocks over this horizon, with the Volatility factor posting a six-month cumulative return of negative 3.04%.

See graph from the US Small Cap Equity Risk Monitor as of 24 January 2019:

 

 

Euro drops but volatility remains low

 

The euro’s six-month return against the US dollar turned more negative last week, as the common currency reacted to the European Central Bank’s comments suggesting the possibility of new stimulus measures and warning of increasing economic risks. As expected by the market, the ECB kept interest rates unchanged. The euro’s six-month return against the US dollar was around negative 4%, positioning the common currency at the low-end of its six-month return range against the greenback. As of last week, the euro was the third-worst performer among major currencies over this period, after the Norwegian krone and Australian dollar. Still, the European common currency continued to be one of the least risky major developed currencies, and remained at the low-end of its six-month volatility range against the greenback, a position it has held for the past couple of months. The euro was the third least volatile developed currency (at 6%), behind the Singapore dollar and Swiss franc, as of last Thursday.

See graph from the Equity Risk Monitors as of 24 January 2019:

 

 

 
 
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