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.



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:



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