Equity Risk Monitors — August 2, 2021

Equity Risk Monitor Highlights | Week Ended July 29, 2021

  • All US sectors up despite GDP data
  • Risk surges in China as market drops
  • Momentum fares better in Emerging Markets

All US sectors up despite GDP data

All US sectors were up last week and for the year, despite disappointing GDP data showing that the US economy grew at a slower-than-expected pace in the second quarter. Energy, Materials and Financials were the big gainers last week. Energy remained the top performer with a staggering year-to-date return of 37%, while Financials was tied with Real Estate for second place (both with returns of 28%) and Materials’ 16% year-to-date return positioned it in third place.

Energy and Materials were the riskiest US sectors, while Financials was in the middle of the pack last Thursday, as measured by Axioma’s US short-horizon fundamental model. However, Energy, Materials and Financials were not the dominant sectors in the US market. Information Technology, Healthcare and Consumer Discretionary had the highest weights in the STOXX USA 900 index. Info Tech and Consumer Discretionary were the third and fourth riskiest sectors after Materials, and were also the largest contributors to the benchmark risk.

See graph from the US Equity Risk Monitor as of 29 July 2021:

Risk surges in China as market drops

Risk spiked as Chinese stocks tumbled following the introduction of new restrictions by the China Securities Regulatory Commission last week. The STOXX China A 900 index fell more than 6%, well below the one standard deviation of the expectation at the beginning of the week, as measured by Axioma’s China short-horizon fundamental model. All four variants of Axioma’s China model—fundamental and statistical at both the short and medium horizons—spiked over the five business days, but statistical forecasts remained below fundamental forecasts. The short-horizon fundamental risk forecast saw the largest jump of almost 300 basis points last week.

See graph from the China Equity Risk Monitor as of 29 July 2021:

Momentum fares better in Emerging Markets

Momentum has been rebounding strongly in both Developed and Emerging Markets, but thus far has recouped its earlier losses only in Emerging Markets. The Medium-Term Momentum style factor has followed an upward trajectory since March, producing positive returns at the one-week, and one-, three and six-month horizons in both Axioma’s Developed and Emerging Markets medium-horizon fundamental models. However, while Momentum’s 12-month return neared 5% in Emerging Markets, it was still slightly negative in Developed Markets as of last Thursday. Momentum is now the second-best performer after Market Sensitivity among market-based style factors in the Emerging Market model over the past 12 months.

See graph from the Emerging Markets Equity Risk Monitor as of 29 July 2021:

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