Risk Appetite Data Still Rising

by Michael J. Howell14. January 2014 21:12
Risk Appetite can be measured by deviations of actual portfolio composition away from average levels, country-by-country. We do this now for more than 50 markets Worldwide by subtracting Government bond exposure from equity exposure, normalising the result and expressing it in index form. The index tends to range between +/- 50: risk asset markets tend to peak out around an index of 40 and readings of 30 and above suggest some prudence needs to be taken. Latest end-2013 puts developed markets at 17.1 and emerging markets at minus 3. Japan has fallen back to 10.3, but the UK exceeds 22 and the US at 30.8 is straying onto more volatile ground. The party is not over yet, but it may be about to get more rowdy! For full list see CBC Add-in database.

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Safe Assets, Low Risks

by Michael J. Howell31. December 2013 12:42
At CrossBorder Capital we measure risk appetite by the 'normalised' actual portfolio exposure of investors to equities less bonds. Based on an index that can range +/- 100, the current reading is around +20 for Developed stock markets. Significant corrections tend to occur at +60, or noticeably different from current readings. These readings reflect the balance between risky and 'safe' assets. In other words risk appetite is currently above average, but not by too much. What are safe assets? Simply, cash and government bonds or looked at another way the sum of Central Bank QE policies and the swollen Government deficits. Any chance of these reversing? Not much. Therefore, the safe asset mix is only just below average and the supply of safe assets looks set to continue expanding. Not too bad for risk asset prices? See Report 'Risk Appetite Indexes'

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