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Quarterly Risk Review
Melissa Brown
Senior Director, Marketing
Scott Hamilton
Director, Client Services
For this issue we are tracking a few additional benchmarks and benchmark derivatives. In addition, for many regional benchmarks we are calculating risk in both the local currency and US dollars. Due to currency effects, these estimates can be quite different, as Table 1 illustrates. Most benchmarks saw their risk increase since the end of the third quarter, and risk estimates were substantially higher across the board than they were a year ago. For many of the benchmarks we track, however, risk peaked in October or November, and declined by the end of the year.
PIIGS, FTSE Europe, FTSE Eurobloc and the SP-ASX 200 denominated in USD showed the highest risk, joined by the Russell 2000. Among the European indexes, PIIGS and FTSE Eurobloc also appeared quite risky even in their home currency, whereas the non-Eurobloc indexes exhibited some of the lowest risk when denominated in EUR. Risk estimates in USD for many of these developed markets are also substantially higher than predicted risk in the same currency for the FTSE Emerging index, indicating the ongoing fragility of the markets. The SP-ASX 200 denominated in AUD, with one of the lowest risk estimates, stood in sharp contrast to the high risk of the same stocks in USD.
The death of Kim Jong Il in December, although big news in Asia and globally, did not seem to have any meaningful impact on risk forecasts for the Asia Pacific region, Japan or in emerging markets.
Melissa Brown
Senior Director, Marketing
Scott Hamilton
Director, Client Services
Quarter-end predicted risk for many benchmarks around the world was higher, in most cases substantially higher, than it was at the end of the prior quarter (Table 1). The one exception was Japan, which was likely still suffering the effects of the earthquake and tsunami at the end of July. Japan has now moved from above-average risk relative to other major markets last quarter to below-average risk. Not surprisingly the Euro block forecast risk is currently the highest of the major markets.
