Axioma Risk Monitor
Equity edition

China’s risk jumps as stocks rally
Momentum sees a strong comeback globally
US small caps turn much riskier than large caps




China’s risk jumps as stocks rally


China’s risk spiked as Chinese shares extended their rally last week, boosted by the prospect of a recovering economy. All four variants of Axioma’s China model—statistical and fundamental at short- and medium-horizons—climbed over the past five days. The short-horizon fundamental forecast jumped the most (close to seven percentage points) among the four variants. China has maintained its status as the least risky region across all geographies Axioma tracks closely for most of 2020, except in March. But as other regions across the globe continued to see risk fall recently, last week’s jump pushed China to somewhere in the middle of the pack.

China was the only region among the geographies Axioma tracks closely to record a year-to-date gain by the end of June. Last week’s rise in shares added to those prior gains, making China one of the most profitable investments this year among both emerging and developed countries.

See graph from the China Equity Risk Monitor as of 9 July 2020:


Momentum sees a strong comeback globally


After falling precipitously in May and early June, Momentum rebounded strongly over the past four weeks. The Medium-Term Momentum style factor recorded robust positive one-month cumulative returns in all of Axioma’s country and regional fundamental models. The highest four-week cumulative return was observed in Canada, where it exceeded 7%. Momentum produced the lowest monthly return in China, where it fell last week, recording a cumulative four-week gain of just 70 basis points. Nonetheless, China’s Momentum has been following a steady upward trend in 2020. China’s Momentum posted one of the highest six-month cumulative returns (close to 5%) across all models. Canada recorded not only the highest one-month return for Momentum, but also the highest six-month return (of 11%) among all regions Axioma tracks closely. In the Worldwide model, Momentum posted a 4% cumulative gain both at the one-month and six-month horizons. For more details on style-factor performance in the second quarter, see the Qontigo Q2 2020 Insight Report: The Storm After the Storm?

See graph from the STOXX Global 1800 Equity Risk Monitor as of 9 July 2020:



US small caps turn much riskier than large caps


While both Large Caps and Small Caps have seen sharp declines in risk in the US since April, the risk of Large Caps has fallen more rapidly, making Small Caps much riskier relative to their larger counterparts. The ratio between short-horizon risk forecasts for Small Caps and Large Caps (as measured by Axioma’s fundamental US Small Cap and US All Cap models, respectively) rose from about 1 to 1.5 since April, although forecasts for both shrunk. That is, Small Caps were about 50% riskier than Large Caps as of last Thursday. Investors making a small-versus-large cap decision may want to keep this relative disparity in risk in mind, as it suggests the need for more conviction in relative return forecasts.

The chart below does not appear in our Equity Risk Monitors, but can be provided upon request:



Stay Connected


Webinar | Qontigo Insight™ Q2 2020 Risk Review, APAC

Date: July 15, 2020
Time: 10:00 AM HKT | 11:00 AM JST

In this webinar, Olivier d'Assier will discuss various aspects of the risk environment in the second quarter and more.

Register here >

Webinar Recording | Qontigo Insight™ Q2 2020 Risk Review: The Storm After the Storm?

Although equity markets seem to have recovered much of the ground they lost in Q1, volatility remains high, certain style factors have been behaving “badly” and dispersion of risk and return across countries and currencies is widening. In this webinar, Melissa R. Brown discussed all these aspects of the risk environment in the second quarter and more.

Watch the recording here >

On the Blog

Tracking error of Russell 2000 vs. Russell 3000 soars to 25-year high…and yours could too

Equity markets have mostly recouped the losses of the downturn that started in February of this year, but at different rates. Notably, the broad market Russell 3000 index ended the first half down just 3.5%, whereas the small-cap Russell 2000 is down more than 13% year to date.

Fed bond purchases do little for leveraged firms

Much of the recent market turmoil has been driven by worries about debt. Granted, debt is not a bad thing, per se. But the fact that many households and corporations must now borrow extensively just to stay afloat is a major concern. This is reflected in both wider credit spreads and the fact that the shares of heavily leveraged companies have significantly underperformed the overall market.

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Axioma Risk Monitor

The Axioma Risk Monitor reports use Axioma’s solutions to bring you insights on trends in market and portfolio risk. You can subscribe to both the multi-asset class and equity edition here.

Qontigo ROOF Scores

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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