Equity Risk Monitors — June 1, 2021

Equity Risk Monitor Highlights | Week Ended May 27, 2021

  • Emerging Markets’ country risk rises as total risk ebbs
  • Momentum’s return ticks up globally
  • India’s equity market surges to the top, despite humanitarian crisis

Emerging Markets’ country risk rises as total risk ebbs

The aggregate country risk of emerging countries has been rising since March, while total risk continued to recede, as measured by Axioma’s Emerging Markets medium-horizon fundamental model. In terms of the major components of risk, declines in market, currency, and style risk all contributed to the fall in total risk over the past three months. In contrast, both industry and stock-specific risk were relatively flat during this period. Investors making bets on emerging market stocks using the STOXX Emerging Markets 1500 as their benchmark could see a shift in tracking error and may want or need to make adjustments to their portfolios.

See graph from the Emerging Markets Equity Risk Monitor as of 27 May 2021:

Momentum’s return ticks up globally

Momentum’s return has improved globally since the beginning of May, after wavering for several months. Medium-Term Momentum produced positive one-week and one- and three-month returns in all of Axioma’s medium-horizon fundamental models. Still, all returns remained within one standard deviation of the expectation at the beginning of each period in each local model. One-year returns diverged greatly among regions. Momentum posted the largest 12-month return (11%) in Australia and the lowest 12-month return (-3%) in Japan. The US, China, Japan and Worldwide models were the only models to see negative one-year returns for Momentum.

See graph from the Global Developed Markets Equity Risk Monitor as of 27 May 2021:

India’s equity market surges to the top, despite humanitarian crisis

India became the top performer among both developed and emerging market countries, despite a devastating second wave of Covid-19 cases. India’s one-year return, denominated in US dollars, neared 80% last week.

At the same time, India’s risk continued to fall, as measured by Axioma’s Worldwide short-horizon fundamental model. India’s volatility of 19% last Thursday was less than half the peak recorded in April 2020, but still higher than pre-pandemic levels. India’s risk is somewhere in the middle of the pack among other emerging markets. In addition, the rupee has appreciated more than 8% and its volatility remains at the low end of its 12-month range.

See graph from the Equity Risk Monitors as of 27 May 2021:

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