Axioma Risk Monitor
Equity edition

Momentum thrives in Australia, but struggles globally; Currency risk falls in Developed Markets; China’s risk jumps as stocks rally




Momentum thrives in Australia, but struggles globally


As Australia’s market rebounded in recent months (following the global trend), Momentum took off. Medium-Term Momentum recorded gains of over 420 basis points over the past three months, as measured by Axioma’s medium-term fundamental Australia model. No other region saw such a jump in Momentum in the same period. In fact, Momentum has produced negative returns in most regions. Momentum’s return in Australia was also positive over the six-month horizon, at 2.45%. All other regions Axioma tracks closely saw either zero or negative cumulative six-month returns for Momentum as of last Thursday, with China (-3.59%) seeing the largest loss.

See graph from the Australia Equity Risk Monitor as of 28 February 2019:


Currency risk falls in Developed Markets


Benchmark risk for the FTSE Developed and FTSE Emerging indices is down in 2019, as developed and emerging markets rebounded from the year-end downturn in 2018. The decrease in market risk was the major driver of the decline in total risk for both indices, as measured by Axioma’s medium-horizon fundamental Developed Markets and Emerging Markets models, respectively. A closer look at the major components of risk revealed that currency risk declined in Developed Markets, boosting the decrease in total risk, while for Emerging Markets it did not change much. In terms of the other components of risk, industry risk, country risk, style risk, and stock-specific risk (which is only a small part of total benchmark risk) have been relatively flat since the beginning of the year in both emerging and developed markets.

See graph from the Developed Markets Equity Risk Monitor as of 28 February 2019:



China risk jumps as stocks rally


Chinese stocks staged a sharp rally last week, following President Xi’s remarks related to the country’s financial sector, and increased optimism regarding a US-China trade agreement. The risk of the Chinese market also jumped last week. The risk forecast swelled 352 basis points over the past five days, as measured by Axioma’s short-horizon fundamental China model. The average trading volume almost doubled for the CSI 300 in February, exceeding $25 billion last week, with trading activity surging most for the Chinese Financials sector.

See graphs from the China Equity Risk Monitor as of 28 February 2019:



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