Axioma Risk Monitor
Equity edition

China’s risk shoots up as market re-opens
US trading climbs as stocks rebound
UK keeps calm after official Brexit




China’s risk shoots up as market re-opens


Volatility shot up in China, where exchanges opened last Monday after an extended Lunar New Year holiday. As expected, Chinese stocks slid on the opening, given that the exchanges had closed just as the coronavirus began to spread worldwide. The CSI 300 index dropped close to 8% on Monday, with many businesses closed, travel suspended, and borders shut, leaving investors wondering about the impact on the Chinese economy and global growth. Chinese stocks rebounded somewhat later in the week, lifted by China’s announcement of cutting tariffs on US imports, but the CSI 300 still posted a 3% loss for the week ending last Thursday.

At the same time, China’s volatility soared last week, with all variants of Axioma’s China model (fundamental and statistical at the short- and medium-horizons) rising. The short-horizon fundamental variant posted the largest surge last Monday, up 850 basis points, pushing the risk forecast near 23%. Later in the week, both the short-horizon fundamental and statistical variants retreated somewhat, but their current levels remain near those seen in the summer of 2019, when the US-China trade spat was at its height.

See graph from the China Equity Risk Monitor as of 6 February 2020:


US trading climbs as stocks rebound


US stocks and trading volumes were both up last week, with some US indices reaching fresh records. Winners dominated losers over the past five days, in contrast with the prior week, as investors turned their attention to earnings and economic reports, following President Trump’s impeachment acquittal and China’s signaling of tariff cuts.

Trading activity shot up in the past couple of weeks. The daily average volume neared $230 billion last Thursday—the highest level seen in the past 12 months. Current trading volume has been the highest in Information Technology and Consumer Discretionary, both surpassing their respective six-month average.

See graph from the US Equity Risk Monitor as of 6 February 2020:



UK keeps calm after official Brexit


The UK market, as represented by the FTSE 350 index, rose last week following the UK’s formal exit from the European Union on January 31 and ahead of EU-UK negotiations. The “Risk Watch” chart showed UK’s weekly return as having remained within one standard deviation of expectation at the beginning of the prior week. Stock volatility in the UK increased last week, but at a slower pace than it did in the other regions Axioma’s models track closely. Nonetheless, the UK’s volatility of 13% as of last Thursday, as measured by Axioma’s short-term fundamental UK model, placed the UK among the riskiest geographies. UK’s volatility lagged only that of China, Emerging Markets and Asia-Pacific ex-Japan.

The British pound, however, took a hit last week on news that European Union regulators are planning to toughen financial regulations (known as MiFID II), which would weigh on the UK’s financial sector. The pound departed from the high-end of its six-month return range against the US dollar, but remained the best performer among major developed market currencies, posting a six-month gain of 6% against the greenback. The pound’s volatility increased over the past five days, exceeding 8% last Thursday, and keeping the British currency the riskiest among major developed currencies.

See graph from the UK Equity Risk Monitor as of 6 February 2020:



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Qontigo's ROOF Scores were created to quantify market sentiment — bullish or bearish? ROOF is an acronym for Risk-On/Risk-Off market conditions; the Scores are calculated from the factor returns to eight style factors from Axioma’s fundamental factor risk models, plus two indicators of changing market volatility. 

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