Equity Risk Monitors — May 2, 2022

Equity Risk Monitor Highlights | Week Ended 28 April 2022

  • Global market rout led by Financials
  • China becomes riskiest among major regions
  • US Earnings Yield outperforms amid mixed reports

Global market rout led by Financials

After a choppy week the STOXX® Global 1800 Index posted a weekly loss of about 3%, as investors weighed concerns about inflation, the surge in Covid-19 cases in China, the war in Ukraine, which could all lead to a global economic slowdown and other concerns. At the same time, volatility swelled, with all four variants of Axioma’s Worldwide model—fundamental and statistical at short- and medium-horizons—indicating an increase in the risk forecast for the STOXX® Global 1800 Index.

Last week’s decline in the global index was not driven by technology stocks, as has been the case in previous months, rather, it was the Financials sector that had the largest contribution to the index’s weekly loss. While all sectors in the STOXX® Global 1800 Index fell last week, as the second largest sector (at parity with Health Care) after Information Technology in the Index, Financials had a substantial impact. Financials is also the third-largest contributor to the global index’s risk after Information Technology and Consumer Discretionary, although the gap between its weight and contribution to risk has fallen from a year ago.

See graph from the Global Developed Markets Equity Risk Monitor as of 28 April 2022:

China becomes riskiest among major regions

Chinese stocks continued to plunge last week as Covid-related lockdowns were expanded in China, and China became the riskiest among major regions. China is now the biggest loser, with a year-to-date loss of 21%—far behind the global market which recorded a still-substantial year-to-date decline of 12% as of last Thursday.

The risk forecast for the STOXX® China A 900 Index rose 250 basis points over the past five business days, for a total increase of 11 percentage points since the beginning of the year, as measured by Axioma’s China fundamental short-horizon model. For most of 2022, China’s risk was somewhere in the middle of the pack, with the US and Japan in the lead, but last week’s jump in risk pushed China to the top of the major benchmarks we track closely.

See graph from the China Equity Risk Monitor  as of 28 April 2022:

US Earnings Yield outperforms amid mixed reports

Earnings Yield remained the best performer among all fundamental style factors in Axioma’s US medium-horizon fundamental model despite the five-day downturn following the earnings reports issued last week.

Earning Yield has recorded a six-month return of nearly 7% last Thursday, which was four standard deviations above the expectations at the beginning of the period. Earnings Yield’s 12-month return (of 6%) was two standard deviations above the expectations a year ago, and the factor produced the largest positive 12-month return among all other fundamental style factors in the US model.

See graph from the United States Equity Risk Monitor as of 28 April 2022:

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