Equity Risk Monitors — August 1, 2022

Equity Risk Monitor Highlights | Week Ended July 29, 2022

  • Gulf Arab markets emerge as top performers
  • Falling factor volatility drives down index risk around the globe
  • The US dollar remains at strongest level in decades

We are excited to introduce four new charts showing risk and return data for the 11 GICS sectors in each major benchmark covered by our Equity Risk Monitors. The new data is reflected in Charts 29, 30, 31, and 32 on each Risk Monitor. Chart 29 shows the cumulative sector return over the past 12 months. Charts 30 and 31 show sector risk and returns, respectively, at various points in time. Chart 32 shows each sector’s contribution to the benchmark return for various periods.

Browse the new charts >

Gulf Arab markets emerge as top performers

Equity markets of Gulf Arab states—United Arab Emirates, Kuwait, Qatar and Oman—rose to the top, buoyed by higher oil production as oil prices soared. The four countries recorded twelve-month gains of about 20% and higher, as most other developed and emerging markets fell over the same period. The United Arab Emirates saw the largest yearly gain of over 40%.

At the same time, the Gulf Arab markets were also among the least volatile, with Oman becoming the least risky among both emerging and developed countries. In contrast, Russia stayed the riskiest country, with its risk nearing 70% last Friday, as measured by Axioma’s Worldwide short-horizon fundamental model.

See graph from the Equity Risk Monitors as of 29 July 2022:

Falling factor volatility drives down index risk around the globe

The decline in factor volatility drove down risk in most geographies covered by Qontigo’s Equity Risk Monitors, as markets continued to rise on relatively low volume attributable to the summer lull. The decomposition of the change in risk from a factor model perspective revealed that lower factor volatility was mainly behind the decrease in major indices’ risk over the past four weeks. This is a change in pattern, as factor volatility rose over the past three, six, and twelve months.

When analyzing the decomposition of risk from the stock-level vantage point, both lower stock volatility and lower stock correlations were responsible for the monthly drop in benchmark risk, as measured by Axioma’s fundamental short-horizon model.

See graphs from the Global Developed Markets Equity Risk Monitor of 29 July 2022:

The US dollar remains at strongest level in decades

The US dollar weakened last week but remained at one of the strongest levels in decades, with major emerging and developed market currencies still posting significant one-year losses against the greenback. The US dollar fell against a basket of currencies over the past five business days after the Fed met expectations by raising rates by 75 basis points while the Fed Chairman’s comments fueled speculations of a slower hiking path, and as new data revealed that the US economy contracted again in the second quarter.

Still, the greenback remained at its highest level since the early 2000s. While it is anticipated for emerging market currencies to succumb when investors flock to the safety of the US dollar, developed currencies have also fallen abruptly in recent months. The euro, Swedish krona and Japanese yen have seen the biggest losses against the US currency over the past twelve months. All major developed currencies were positioned at or near the high ends of their one-year volatility ranges against the greenback as of last Friday, with the Norwegian krone in the lead. The Singapore dollar remained the least risky developed currency.

See graph from the Equity Risk Monitors as of 29 July 2022:

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