Equity Risk Monitors — June 17, 2022

Equity Risk Monitor Highlights | Week Ended 16 June 2022

  • Volatility and correlations jump as global markets fall
  • Country and currency risk continue to march up
  • China bucks the trend

Volatility and correlations jump as global markets fall

Volatilities and correlations at the individual country level climbed last week, as markets fell around the world, driven by rising concerns over persistent inflation and a slowdown in global economic growth. Global Volatility and Correlations Hotspots charts (see below) were peppered with black upward arrows, indicating that volatilities rose at least 1%, while correlations rose more than 2% in countries on all continents.

At an aggregate level, the STOXX® Global 1800 Index fell more than 8% last week. The risk for the global index rose 300 basis points over the past five business days, and is now approaching 25%, as indicated by Axioma’s Worldwide fundamental short-horizon model.

See graphs from the Equity Risk Monitors of 16 June 2022:

Country and currency risk continue to march up

While market risk has been the major driver of the increase in the total risk of the STOXX® Global 1800 Index this year (as measured by Axioma’s Worldwide medium-horizon fundamental model), country and currency risk contributed as well. However, not all factor blocks experienced higher volatility. Aggregate style, industry and specific risk (which is only a small part of total benchmark risk) have fallen since the beginning of the year.

Still, multiple individual style factors in the Worldwide model were positioned at or near the high ends of their one-year volatility ranges as of last Thursday: Earnings Yield, Exchange Rate Sensitivity, Market Sensitivity, Size and Volatility.

See graphs from the Global Developed Markets Equity Risk Monitor as of 16 June 2022:

China bucks the trend

China was the only region among the geographies covered by Qontigo’s Equity Risk Monitors to see its stock market rise last week. The STOXX® China A 900 Index recorded a 2% weekly return, which remained within one standard deviation of the expectations at the beginning of the week, as measured by Axioma’s China fundamental short-horizon model.

At the same time, the short-horizon risk of the STOXX® China A 900 Index fell about two percentage points last week. Since the beginning of May, when the Chinese Index’s risk reached its year-to-date peak of 23.5%, it had fallen 360 basis points. After being the riskiest region in May, China is now positioned somewhere in the middle of the pack.

See graph from the China Equity Risk Monitor as of 16 June 2022:

For more insights and research from the Applied Research team, please click here.