Axioma Risk Monitor
AXIOMA RISK MONITOR
Equity edition

Asia Pacific ex-Japan Edition: Short-horizon risk lower than medium-horizon; Profitability fares well; Pakistan leads in risk


We are excited to introduce our new Asia Pacific ex-Japan Equity Risk Model (APxJP4) into the APxJP Risk Monitor. For more details on this new model click here.
 

HIGHLIGHTS FOR THE WEEK ENDED FEBRUARY 21

 
 
 

Short-horizon risk lower than medium-horizon in Asia Pacific ex-Japan

 

Equity market risk retreated over the past three months in Australia, China, Asia Pacific ex-Japan, and Emerging Markets, as measured by Axioma’s short-horizon fundamental regional models. The decomposition of the change in risk from the factor models revealed that the decline was mainly driven by a decrease in factor volatility. The risk forecasts of both the fundamental and statistical short-horizon variants fell below those of their medium-horizon counterparts in all of these four regions, except China. For more analysis on what risk spreads are telling us about the volatility cycle, see the blogpost Are the wheels coming off the volatility cycle?

See graph from the Asia Pacific ex-Japan Equity Risk Monitor as of 21 February 2019:



 

Profitability fares well in Asia Pacific ex-Japan

 

Profitability has fared well in Asia Pacific ex-Japan, where the style factor recorded strong positive one-week and one-, three-, and six-month cumulative returns. As we noted in our recent blog post, over the long-term, profitability produced the second-highest return/risk ratio with APxJP4 model, after Volatility. It has been strong in the recent period as well, recording a three-month return of 1.62% last Thursday—the third-highest after that of Profitability in Australia and Emerging Markets, among Axioma models that contain this factor. However, Profitability’s three-month return was in the middle of the pack among style factors in the Asia Pacific ex-Japan medium-horizon fundamental model. Size and Market Sensitivity had the best performance in Asia Pacific ex-Japan over the past three months. That is, large cap and high-beta stocks strongly outperformed in this region. For more details on the long-term performance of the style factors in the new Asia Pacific ex-Japan model, please see the blog post Finding opportunities with Axioma’s Asia-Pacific ex-Japan Model.

See graph from the Asia Pacific ex-Japan Equity Risk Monitor as of 21 February 2019:

 

 

Pakistan leads in Asia Pacific ex-Japan risk

 

Country risk varies widely across Asian countries, possibly more so than in other regions, with Pakistan ranking highest in terms of country risk, and Hong Kong and Singapore ranking lowest. Note that this measure of risk is over-and-above that of the Asian market, Domestic China, and other factors comprising the new Asia Pacific ex-Japan model, what we often call “extra-market” risk. However, since Pakistan is so small relative to others in the index, it is not a major source of benchmark risk. Risk in the region continues to be driven by China, whose contribution to FTSE Asia Pacific ex-Japan risk far outweighs its weight in the index.

See graph from the Asia Pacific ex-Japan Equity Risk Monitor as of 21 February 2019:

 

 

 
 
Stay Connected
 
 

Events

Webinar Recording | Axioma Insight™ Quarterly Multi-Asset Risk Review

In this webinar, Christoph V. Schon, Axioma's Executive Director of Applied Research, examined how portfolio risk has changed from very little diversification in a climate of inflation fears to a ‘flight-to-quality’ environment entirely dominated by stock market volatility.

Watch the recording here.


Webinar Recording | ESG Vendor Data Inconsistency and Its Impact on Investment Portfolios

Using a small set of different ESG vendors, Anthony Renshaw, Ph.D., Director of Index Solutions at Axioma, examined how pervasive ESG disparities are and what drives material differences in vendor scores. He also evaluated how those disparities impact portfolio construction.

Watch the recording here.


 

On the Blog

The impact of Fed policy on portfolio risk and diversification

As the latest US rate-hiking cycle enters its final phase, market participants are paying ever-closer attention to comments and actions of Federal Reserve Bank officials.

Finding Opportunities with Axioma’s Asia Pacific ex-Japan Model

A study of style factor returns for Axioma’s Asia ex-Japan (APxJP) fundamental variant risk model reveals some potential investment opportunities for factor-based managers investing in the region.

Are the wheels coming off the volatility cycle?

As Mark Twain reputedly said, “History doesn’t repeat itself, but it often rhymes.” If the last three months of market volatility seem eerily familiar, it is because they are.

Latest Research

Catch Me If You Can - Capturing Runaway Asian Spreads in the Equity World

In this research note, we use the newly released APAC ex-Japan model from Axioma (AX-APxJP4) to construct an equity portfolio of high-yield issuers and use the new fundamental style factors in the model to draw a parallel between the equity and the bond world.

Q4 2019 Insights: Risk Finally Rears Its Ugly Head

What a quarter, and year, it was. Most markets finished 2018 under water, while volatility soared around the globe. Our Applied Research Team offers a full debrief and analysis of risk during the year and Q4 in this whitepaper.

The Year of the Central Banks

2019 will be a decisive year for three of the world’s biggest central banks. In this paper, we use the stress-testing capabilities of our Axioma Risk™ platform to examine the impact of rate hikes on a global multi-asset class portfolio, with a particular focus on equity and credit spread performance in response to a yield curve inversion.


In the News

Base case scenario is still a slowdown in China, analyst says

Olivier D'Assier, head of applied research, APAC at Axioma discusses the investment in Chinese markets amid ongoing trade tensions.

CNBC: Any kind of relief from trade war will be positive for markets

Olivier D'Assier, head of applied research for APAC at Axioma, is hopeful for a positive outcome of the U.S.-China trade talks.

Axioma Risk Monitor

A Weekly Report on Market Risk

The Axioma Risk Monitor reports use Axioma’s solutions to bring you insights on trends in market and portfolio risk. You can subscribe to both the multi-asset class and equity edition here.

 
 
 
 

MiFID II Statement: Axioma believes that the research we provide falls outside the purview of the MiFID II regulations, which are intended to provide transactional transparency and unbundle research and trading costs. Axioma does not provide recommendation research, is not a regulated company and our business is not transactional. As such, we do not believe that we are subject to MiFID II regulation. For more information, please click here: MiFID II Statement.

Axioma  17 State Street, 2700    New York  NY  10004  United States