Equity Risk Monitors — September 20, 2021

Equity Risk Monitor Highlights | Week Ended September 16, 2021

  • Global Markets’ style risk climbs, as total risk keeps falling
  • China market flat for the year-to-date
  • Trading activity still in a summery mood, except in Japan and China

Global Markets’ style risk climbs, as total risk keeps falling

The style risk of developed countries has been rising since the beginning of the year, while total risk has continued to recede, as measured by Axioma’s Worldwide medium-horizon fundamental model. In terms of the other major components of risk, declines in market, currency, country, industry, and specific risk all contributed to the fall in total risk over the past eight months. Led by the decline in market risk, the total risk of the STOXX Global 1800 index dipped to a level not seen since February 2020 (nearing 12%) on Thursday, as the global market remained relatively flat last week. In contrast, after rising in March 2021 to levels not seen in at least a decade, style risk stabilized around those peak levels.

See graph from the Global Developed Markets Equity Risk Monitor as of 16 September 2021:

China market flat for the year-to-date

Chinese stocks took a hit last week as weak factory and retail growth data, along with news of debt problems with a major Chinese property developer, weighed on the Chinese market, which was already crippled by tightening government regulations. The STOXX China A 900 index fell more than 5% over the past five business days, more than two standard deviations of the expectations at the beginning of the week. Last week’s plunge pushed down the STOXX China A 900 index year-to-date return to nearly zero. The move was in stark contrast to the performance of both global and emerging markets, which are up 16% and 11%, respectively, so far in 2021.

China’s risk rose slightly, approaching 18% last Thursday, as measured by Axioma’s China fundamental short-horizon model. Last week’s uptick in risk consolidated China’s position as the riskiest among all regions Axioma models track closely.

See graph from the China Equity Risk Monitor as of 16 September 2021:

Trading activity still in a summery mood, except in Japan and China

Trading volumes have remained subdued, even after the unofficial end of summer, except in China and Japan. While trading activity picked up in most geographies in September, it did not rebound from the summer lull as much as it typically does this time of the year. Average trading volumes for most sectors in the STOXX Global 1800 and STOXX Emerging 1500 indices were at or below their respective 12-month averages last week.

However, Japan and China’s trading volumes shot up in the past couple of weeks, but for different reasons. Trading activity intensified in the wake of—or as a driver of—the market rally in Japan, while trading volumes soared in China as the market fell. China’s trading volume reached a new year-to-date high (at about $120 billion) last week—almost double the level at the start of the year.

See graph from the Global Developed Markets Equity Risk Monitor as of 16 September 2021

See graph from the China Equity Risk Monitor as of 16 September 2021:

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