Axioma Risk Monitor
AXIOMA RISK MONITOR
Equity edition

Correlations and volatility plunge around the globe; China’s subdued reaction to economic slowdown and preliminary trade deal; Pound riskier than emerging market currencies

 

HIGHLIGHTS FOR THE WEEK ENDED OCTOBER 24

 
 
 

Correlations and volatility plunge around the globe

 

The latest charts of global volatility and correlation hotspots were peppered with downward arrows, reflecting sharp decreases in volatility and correlations at the individual country level (from the US dollar perspective), on the heels of a “phase-one” US-China trade deal and a UK-European Union agreement on Brexit. Axioma’s Worldwide short-horizon fundamental model showed that volatility fell more than one percentage point, while correlations decreased by more than two percentage points last week in a majority of countries around the globe. Chile was one of the few exceptions, where recent protests weighed on the country.

At an aggregate level, forecasted risk for the FTSE Developed and FTSE Emerging indices saw sharp declines, as measured by Axioma’s short-horizon fundamental Worldwide model and Emerging Market model, respectively. Risk fell somewhat more for Developed Markets (170 basis points) than for Emerging Markets (115 basis points) over the past five days.

See graphs from the Equity Risk Monitors as of 24 October 2019:




 

China’s subdued reaction to economic slowdown and preliminary trade deal

 

The Chinese market had a subdued reaction to the news of a preliminary US-China trade agreement and disappointing third-quarter growth data. China’s CSI 300 index shed about 1% for the week, with the benchmark’s loss remaining within one standard deviation of the expectation at the beginning of the week. Risk continued to decline, falling 66 basis points over the past five days, as measured by Axioma’s short-horizon fundamental China model. Trading activity was also thin, with the average daily trading volume dipping below $20 billion and nearing the six-month low recorded in August. The modest moves of the Chinese market reflect the fact that investors are caught between parsing fresh data showing a further slowdown in the Chinese economy on one hand, and reacting to a “phase-one” trade agreement between the US and China—which prevented additional tariffs from taking effect—on the other.

See graph from the China Equity Risk Monitor as of 24 October 2019:


 

 

Pound riskier than emerging market currencies

 

Most major developed and emerging currencies saw their volatilities decline last week, but the British pound remained the riskiest developed currency, its volatility surpassing even that of a number of emerging currencies. The pound wavered last week as the UK Parliament endorsed the terms of a Brexit agreement, but rejected Prime Minister Boris Johnson’s accelerated timetable. All that said, the British currency’s risk remained relatively flat for the week. The pound has been the riskiest developed currency in October, its risk rising 60 basis points since the end of September.

The pound became riskier than even some emerging market currencies, including the Mexican peso, Korean won, and Indian Rupee, to name a few. However, the current level of the pound’s volatility (8.2%) is much lower than the peak of 18% seen immediately after the Brexit referendum in 2016.

See graph from the Equity Risk Monitors as of 24 October 2019:

 

 

 
 
Stay Connected
 
 

Events

Webinar Recording | Axioma Insight™ Q3 2019 Risk Review

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.

Watch the recording here.


Axioma Financial Intelligence Summit: New York 2019

Date: November 20, 2019

Join us in New York for a full day of expert presenters, illuminating presentations and thought-provoking discussion.

Register here.



Latest Research

Q3 2019 Insights

Markets around the globe wavered over the past three months, but the decade-long global bull market endured in the third quarter. Despite the market’s gyrations, risk was little changed. Nonetheless, a lot has happened beneath the surface.

Qontigo's New Granular Fixed-Income DTS-Style Risk Model for Axioma Risk

Modeling potential losses of a credit-risky bond portfolio based on granular, issuer-level return data is notoriously difficult. 

On the Blog

Minimum Variance: A Leg Up on Geopolitical Risk?

In our latest paper, we examined the impact of recent market risk events on a range of STOXX® minimum-variance indices vis-à-vis their corresponding global and regional broad benchmarks.

The Value of Getting Sentimental about Your Alphas

We believe that investors would benefit from combining their independent alpha signal with some measure of investor sentiment via an alpha-shrinking process.

Stress Testing a Presidential Impeachment – Part Deux

Unlike the threat of impeachment proceedings in May 2017, this time it’s for real. So, what might investors expect from this development and how might they best respond?

 

In the News

Deutsche Börse launches new investment intelligence leader Qontigo

Axioma Inc. acquisition successfully completed; combined with Deutsche Börse’s existing index businesses STOXX and DAX.

Axioma Risk Monitor

A 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