by Qontigo
- US Small Caps take a deeper plunge than large caps
- China becomes one of the biggest losers
- British pound is beating every other developed currency
US Small Caps take a deeper plunge than large caps
Both small and large capitalization US stocks took a plunge last week, but small caps took a deeper dive. The 3% weekly loss of the STOXX® US Small Cap exceeded one standard deviation of the expectations at the beginning of the five-day period, as measured by Axioma’s US Small Cap fundamental short-horizon model. Last week’s drop in the Small Cap index added to the prior two weeks’ losses, resulting in a month-to-date loss of 6.5%.
The STOXX® US Index lost about 2% last week, for a total August loss of 5%. The large-cap’s index five-day loss stayed within one standard deviation of the expectation at the beginning of the week, as measured by Axioma’s US fundamental short-horizon model. The short-horizon risk of each of the two US indices remained relatively flat last week. As of last Friday, US Small Caps were 30% riskier than their larger cap counterparts.
See graph from the STOXX US Small Cap Equity Risk Monitor of 18 August 2023:
China becomes one of the biggest losers
China turned into one of the biggest losers, as concerns about the Chinese economy have been mounting. The Chinese markets experienced a loss of nearly 20% (denominated in USD) over the past 12 months—one of the largest losses among major emerging markets. With the fear of financial contagion looming, stock correlations shot up and the diversification ratio of the STOXX China A 900 index plummeted.
At the same time, China’s risk came down more than 30% in 12 months, driven by a large decline in stock volatility. With 15% volatility, China is now somewhere in the middle of the pack, as measured by Axioma’s Worldwide fundamental short-horizon model.
See graphs from the China Equity Risk Monitor as of 18 August 2023:
British pound is beating every other developed currency
Nearly one year since hitting record lows against the US dollar, the British pound has emerged as the best performing among major developed currencies. The pound gained about 5% over the past 12 months and is now positioned near the high end of its one-year return range against the greenback. In contrast, the Japanese yen lost more than 10% over the same period.
Pound’s volatility remained low, despite recent setbacks in the British economy. At 9% volatility, the pound was positioned near the low end of its one-year volatility range against the US dollar, and somewhere in the middle among major developed currencies’ risks.
See graph from the STOXX Word UK Equity Risk Monitor of 18 August 2023:
