Axioma Risk Monitor
Equity edition

US risk climbs in volatile week; Trading volume balloons in the US; South Korea posts big losses




US risk climbs in volatile week


Short-horizon risk for the Russell 1000 advanced 67 basis points over the past five days, as the US market suffered the biggest drop of the year on Wednesday. Risk has been climbing since the end of July, rising by nearly 300 basis points over the past month, as measured by Axioma’s US short-horizon fundamental model. At 15.35% last Thursday, the US market’s risk was more than one percentage point above the 37-year median of 14%. The increase in factor volatility was the sole contributor of this week’s jump in risk. The spread between the short- and medium-horizon fundamental variants of the US model has widened in August, and reached 1.6 percentage points last week, though the spread is relatively low compared with its January peak of over 3 percentage points.

The US’s contribution to FTSE Developed’s risk also rose in recent weeks, and it is now exceeding the US’s weight in the index of 61% by 5.6 percentage points, as measured by Axioma’s Worldwide short-horizon fundamental model.

See graph from the US Equity Risk Monitor as of 15 August 2019:


Trading volume balloons in the US


Trade volume jumped from a six-month low at the end of June to a nearly six-month high last week, as market uncertainty intensified and investment sentiment shifted. Average daily dollar volume traded in the US was close to $200 billion last Thursday, driven by an abundance of breaking news, including: threats and delays of tariffs to be imposed on Chinese imports by the US; inversion of the yield curve; weak economic data for China and Germany, adding to fears of a global economic slowdown; and upbeat retail-sales data in the US, to name a few. The volume increase was widespread across most economic sectors, with the biggest rise relative to the past six months being seen in Information Technology.

For insights on the changes in investor sentiment and how the current lack of risk appetite helped fuel the market decline last week, see blog post Succumbing to Sentiment - Axioma ROOF™ Scores Provide Insights into an Abrupt Market Turn.

See graph from the US Equity Risk Monitor as of 15 August 2019:



South Korea posts big losses


The South Korean market posted steep declines, as the trade dispute between Japan and South Korea intensified. The spat started in July when Japan restricted certain technology-related exports to South Korea. Earlier this month, Japan dropped South Korea as a preferred trading partner. South Korea followed suit, taking a similar stand against Japan last week. The new testing of ballistic missiles by North Korea last week added to the instability in the region. South Korea reported the largest market losses—about 17% over the past six months—among major emerging and developed countries. The second and third biggest losers over the same period were Hong Kong and China.

South Korea was the third-riskiest country after Greece and Turkey, as measured by Axioma’s short-horizon fundamental Worldwide model. South Korea’s risk has been rising since May, when it dipped to a six-month low of 12%, with the latest trade dispute pushing risk close to 18%. South Korea’s risk jumped about 3 percentage points in August alone.

See graph from the Equity Risk Monitors as of 15 August 2019:



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On the Blog

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Succumbing to Sentiment - Axioma ROOF™ Scores Provide Insights into an Abrupt Market Turn

Axioma’s ROOF™ Scores captured a declining risk appetite from investors since mid-July. This rise in risk aversion prior to the US yield curve inversion helps explain the abrupt reaction to negative news.

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Over the last five years, the style factor returns in Axioma’s Asia ex-Japan fundamental model for Profitability really stand out. If an asset manager were to show investors a cumulative return chart like the one in Figure 1 below, the client would be thinking, “I’ve got to get me some of that!” The question is, how much of “that” can a manager actually get them?

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