Equity Monitor Insights

Technology stocks have had a fantastic 2017, not only in developed markets but also in the emerging world. FTSE Emerging Market’s Information Technology sector boomed last week, as trading in the sector skyrocketed above $7 billion (a $5 billion increase in one week). The sector’s trading volume as of last Thursday was almost four times its six-month average, pushing the index’s volume above $24 billion. We have not seen this high level of trading in FTSE Emerging Markets since May 2015. Information Technology’s weight in the index has been trending upward since 2009, but this year’s steep increase is startling: about three percentage points year to date. The sector’s weight is now above 18%—a level not seen since 2004. The tech sector’s contribution to benchmark risk also increased and it has been exceeding its weight since June.

Correlation in Asia Pacific ex-Japan fell sharply from the near-term peak reached in the first week of September. As North Korea tensions started building in the region, correlations shot up in August. The median pairwise realized 20-day correlation more than doubled in one month, rising well above 0.10 by September 5, following North Korea’s largest-ever nuclear test and its first missile launch over Japan. After reaching this peak, short-term correlations plummeted—perhaps an indication that investors’ concerns related to North Korean geopolitical risk are starting to ease. As of last Thursday, the 20-day median reverted to around 0.05. The 60-day median pairwise realize correlation also jumped in August, but to a lesser extent, and has remained around 0.06 since then.

Five emerging markets surfaced as the best performing countries for the past six months: Brazil, Turkey, Hungary, Greece and China, with six-month returns each in excess of 15%. Greece, Brazil and Turkey were also among the riskiest countries, with Greece in the lead, as measured by Axioma’s short-horizon fundamental Worldwide model. The volatilities of China and Hungary were surpassed, however, by those of multiple European developed countries, including Italy, Portugal, France, Denmark and Ireland.

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Melissa R. Brown, CFA

As Managing Director of Applied Research, Melissa Brown generates unique insights into risk trends by consolidating and analyzing the vast amount of data on market and portfolio risk maintained by Axioma. Brown’s perspectives help both clients and prospects to better understand and adapt to the constantly changing risk environment. 

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