Risk Management
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RiskNotes
10 February 2012
Evidence that MENA correlations with global industry groups are tightening, possibly reflecting optimism associated with relative calm following political upheaval.
Gradual convergence of sub-Saharan Africa to major industry groups now evident in Nigeria.
Indian rupee appears to loosen correlations with other growth factors. This is not reflected in the Indian market factor so may be due to central bank operations.
3 February 2012
Sub-Saharan currencies continue to converge with major industry groups, now joined by Libya.
Increased correlations of Latin American markets x Brazil x Mexico also showing slightly higher correlations with Consumer Staples, Consumer Discretionary and Industrials factors, evidence of strengthening in those markets.
27 January 2012
Selected sub-Saharan currencies, notably Tanzania, Ghana and Kenya show increased volatility and closer correlations with major industry groups, especially Financials, IT and Telecoms as well as with east Asian country factors.
20 January 2012
Notable persistence in existing factor correlations and volatilities, probably reflecting signs of sustainable recovery in the US, with positive consequences for emerging markets and hopes of a lasting solution to the EUR situation.
13 January 2012
Progressively closer correlations between Sub-Saharan Africa x SA and other growth markets such as SE Asia, Indian Subcontinent and Latin America.
This tightening of correlations is also apparent in the relationship between the African group and major industrial groups: evidence of the emergence of Africa as a growth centre in its own right.
Noticeably, the pattern is not repeated in correlations of Sub-Saharan currencies with growth markets and industrial groups, probably because those currencies are not yet fully convertible.
The African case contrasts with the European cluster, which shows continuing weak relationships with major industrial groups; with the noticeable exception of the Nordic currencies which continue to be positively correlated with energy.
16 December 2011
Continued increase in correlations between China bloc, commodities and EUR bloc currencies reflects the anticipated impact on the world economy of EUR recession and possible break-up.
Mexico joins this correlation group, indicating that nervousness is affecting US sentiment too.
Japan continues to be a diversifier as its large firms seek bargains in Developed Market economies.
Average correlation between global industries is 0.82, with the exception of Health Care, which has a correlation of 0.72.
9 December 2011
Emerging Europe and North Africa correlations continue to converge with EUR area while Swedish and Norwegian currencies gradually disengage, probably reflecting investors’ efforts to diversify EUR exposures.
Liquidity factor increasingly correlated with AUD, China, Brazil, Energy, Materials and Financials, while correlations with other currency, country and industry factors remain muted. Correlation with Volatility factor remains modest.
25 November
Continued strong positive correlations between most industry groups and emerging markets with the exception of MENA.
Volatility in MENA tourism and property, probably associated with renewed protests in Egypt and continued disruption in Syria and contaminating Lebanon reflected in statistical factor returns.
4 November 2011
Returns to volatility settled down – no doubt temporarily – in response to potential respite to EUR crisis.
Slight increase in the correlation between volatility and liquidity factors suggests calm before storm.
Strong positive correlations between volatility and cyclical industry factors, particularly in Emerging Markets.
Strong positive correlations between commodity currencies coupled with moderate correlation with volatility suggests that volatility is not the main driver, leaving possibility that anticipated Emerging Market growth is behind it.
Scandinavian currencies remain strongly correlated with each other but only moderately correlated with EUR; while North Africa and Emerging Europe currencies retain strong correlation with EUR, underlines the broader trade base of the former as well as its potential to dis-engage with EUR.
Japanese yen negative correlation with commodities currencies suggests a haven from this source of uncertainty but not from EUR
14 October 2011
Statistical factor picking up transient correlations within small Materials producers in the Former CIS and India-bloc markets, contrasting with small industrials in China-bloc markets.
Correlations between China-bloc and energy-bloc markets as strong as within those blocs.
China showing much stronger correlations with major industry sectors, notably Industrials, Consumer Discretionary and Staples, Financials, Telcoms and Utilities.