Axioma Risk Monitor
Equity edition

US among the riskiest developed countries; UK importers at an advantage; Trading volume jumps in the UK




US among the riskiest developed countries


The US has been among the three riskiest developed countries since September. Risk has been rising for most countries since August-end, with the US as one of the frontrunners. US risk currently lags that of only Hong Kong and Ireland among developed countries, and Greece, Turkey and India among emerging countries, as measured by Axioma’s short-horizon Worldwide fundamental model, and based on stocks in our worldwide universe, denominated in US dollars. US risk climbed from a year-to-date low of 12.5% at the end of July to around 16% since September (still a much lower level than what we saw in January when US risk approached 22%). The US is not the only developed country whose risk is now higher than that of countries that are typically much more volatile. Most European developed markets, for example, are now riskier than Mexico, Russia and Taiwan.

See graph from the Equity Risk Monitors as of 17 October 2019:


UK importers at an advantage


Exchange Rate Sensitivity (ERS) spiked as the British pound surged last week on optimism about a preliminary Brexit deal between the UK and European Union. The factor return jumped 300 basis points over the past five days alone, wiping out losses in earlier months and producing the highest positive six-month return among all factors in Axioma’s UK medium-horizon fundamental model. ERS six-month cumulative returns exceeded 3% last Thursday. That is, stocks with positive exposure to the Exchange Rate Sensitivity factor benefited during this period, as importers are generally expected to fare well as the currency appreciates. Not surprisingly, given the massive moves in the factor, the volatility of the ERS factor climbed and it is now positioned at the high end of its volatility range.

See graph from the UK Equity Risk Monitor as of 17 October 2019:



Trading volume jumps in the UK


Trading volume in the UK rose to a six-month high, as the European Union and the UK agreed on a draft Brexit deal, which still requires the approval of British Parliament. Average daily dollar volume traded in the FTSE 350 neared $7 billion last Thursday. The volume increase was widespread across all sectors in the index, with the biggest rise relative to the past six months being seen in Financials and Consumer Discretionary. Developed Europe was the only other geography where trading volume increased; all other regions Axioma tracks closely saw a decline in trading volumes.

See graphs from the UK Equity Risk Monitor as of 17 October 2019:



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In this webinar, the Applied Research team broke down the drivers of volatility, style factor returns and their portfolio implications, and other topics that will help investors better understand the risk environment that drove their portfolio returns.

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