Equity Risk Monitors — May 3, 2021

Equity Risk Monitor Highlights | Week Ended April 29, 2021

  • Markets climb, as correlations and volatility ease
  • Earnings Yield style factor underperforms
  • India market up, as COVID cases soar

Markets climb, as correlations and volatilities ease

Equity markets continued to climb around the globe last week, despite surging COVID cases in some countries. At the same time, volatility and correlations at the individual country level have eased, with some exceptions in Latin America. This was highlighted by the latest charts of global volatility and correlation hotspots, which were peppered with downward arrows, reflecting sharp decreases in volatility and asset-asset correlations in most countries.

Volatility forecasts from Axioma’s Worldwide short-horizon fundamental model fell more than one percentage point, while correlations declined by more than two percentage points last week, particularly in Europe, North America and a number of countries in Asia. The main exception was Chile, where both correlations and volatility increased over the past five days.

See graphs from the Equity Risk Monitors as of 29 April 2021:

Earnings Yield style factor underperforms

The Earnings Yield style factor has underperformed worldwide, as investors continue to favor higher growth in April. After an uptick at the beginning of March, the Earnings Yield factor in Axioma’s Worldwide medium-horizon fundamental model has been relatively flat over the past four weeks, while recording the highest negative one-year return (-2%) among all fundamental style factors in the Worldwide model. Earnings Yield posted one-year negative returns in all Axioma models that include this factor, except Japan.

Growth was slightly down last week—but not enough to offset recent gains—while posting the second-highest 12-month return after Value in the Worldwide model. Growth saw positive returns in all other regions Axioma models track closely over the same period, with the exception of Australia.

See graph from the Global Developed Markets Equity Risk Monitor as of 29 April 2021:

India market up, as COVID cases soar

Indian stocks were up 5% last week, despite skyrocketing coronavirus infections in the country. The weekly positive return added to previous gains: India posted a staggering 12-month return of 65% as of last Thursday. Only Taiwan and South Africa posted higher gains (denominated in US dollars) over the same period, among major emerging markets.

India’s risk fell in recent weeks, after reaching a year-to-date peak of 23% on April 13, as measured by Axioma Worldwide short-horizon fundamental model. India remained among the least risky emerging countries, with a volatility of 21% last Thursday.

See graph from the Global Developed Markets Equity Risk Monitor as of 29 April 2021:

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