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Equity Risk Monitors — July 11, 2023

Equity Risk Monitor Highlights | Week Ended July 7, 2023

  • Europe sees worst week in months
  • Asia Pacific ex-Japan becomes the worst performer so far in 2023
  • Developed currencies keep calm vs. the greenback

Europe sees worst week in months

The STOXX Europe 600 index’s weekly loss of 3% was one of the worst in months, and was about two standard deviations higher than the expectations at the beginning of the week, as measured by Axioma’s Europe short-horizon fundamental model. All sectors dragged down the European index, except Real Estate. However, given its minor weight in the index, Real Estate’s positive five-day return did little to offset the aggregate loss from the rest of the sectors. STOXX Europe 600’s one and three-month returns are also negative. While the risk of the European index jumped last week, it remained the second least-risky after the STOXX UK 180, among the 12 indices tracked by Axioma’s equity risk monitors.

See graphs from the Europe Equity Risk Monitor of 7 July 2023:

Asia Pacific ex-Japan becomes the worst performer so far in 2023

A stark contrast in stock performance has appeared in Asia. While Japan became the best performer by far this year—with STOXX Japan 600 recording a staggering 19% year-to-date return, STOXX Asia Pacific ex-Japan’s return sunk into negative territory, with its -3% year-to-date return making it the biggest loser among the indices covered by the Equity Risk Monitors. Japan’s return was 200 basis points higher than the second-best performer this year: the STOXX USA 900 index. Among the 12 indices the monitors track closely, STOXX UK 180 was the only other index to see its year-to-date return dip below zero as of last Friday.

Asia Pacific ex-Japan also turned into the riskiest region. STOXX Asia-Pacific ex-Japan’s risk forecast of 16% was nearly two percentage points higher than that of STOXX China 900. This is quite unusual, since the Asia Pacific ex-Japan index is expected to benefit from the diversification effect of a multi-country index. Yet, when looking at the decomposition of the change in risk from a dense matrix perspective, an increase in stock correlations drove the index risk higher over the past week and month, as measured by Axioma Asia Pacific ex-Japan short-horizon fundamental model.

See graphs from the Asia Pacific ex-Japan Equity Risk Monitor of 7 July 2023:

Developed currencies keep calm vs. the greenback

The aggregate currency risk for the STOXX Global 1800 has dropped substantially and consistently since the beginning of the year. All major developed market currencies were positioned at or near the low ends of their one-year volatility ranges against the US dollar on Friday. The Norwegian krone remained the riskiest developed currency and the Singapore dollar the least risky against the greenback.

Despite the US dollar continuing to fall last week, some developed currencies were still recording one-year losses against the greenback, with the Japanese yen posting the largest one-year loss (greater than 5%). All major developed currencies were positioned at the high ends of their one-year return ranges against the US dollar as of last Friday, with the Swiss franc and British pound showing the largest positive 12-month returns.

See graphs from the Global Developed Markets Equity Risk Monitor as of 7 July 2023: