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Analysis: September numbers suggest volatile month ahead
By Jeremy Gaunt, European Investment Correspondent
LONDON | Wed Aug 25, 2010 1:50am EDT
LONDON (Reuters) - Investors hoping for clarity within financial markets next month after a summer of risk-on, risk-off drift may get more than they are bargaining for -- September is as much about major losses as it is gentle gains.
Data from Thomson Reuters Datastream, furthermore, shows that within this volatility, September is on average the worst month of the year for developed market equities.
With movements among assets highly correlated at the moment, this has even greater implications than normal for currencies, government bonds and corporate debt, as well as for stocks.
The correlation between developed market stocks and the Japanese yen/Australian dollar, for example, has been above 0.8 during the latest three months, roughly meaning that every time stocks rise or fall so does the Aussie against the yen and vice-versa.
Over the past 30 years, the MSCI World index of developed stocks has lost an average of 0.9 percent in September, compared with a loss of 0.2 percent in June and gains in every other month. April is the best, up 2.5 percent.
Burrowing further down into the data shows that September has actually been an up month slightly more than half the time, or in 17 out of 30 years.
But its average has been dragged down by at least seven black Septembers, with losses ranging from 4 percent to 12 percent.
Some of these have been specifically event-driven -- 9/11, the collapse of Lehman Brothers and so on. Analysts note, however, that September is also the month when investors reassess their portfolios after the northern hemisphere summer break.
"People do come back and realize that things are worse than when they went away in the summer, or have not improved," said Andrew Clare, professor of asset management at Cass Business School in London.
With the U.S. economy struggling more than it was a few months ago -- a condition corroborated by the Federal Reserve itself -- this does not bode well for risk in the coming month.
By Jeremy Gaunt, European Investment Correspondent
LONDON | Wed Aug 25, 2010 1:50am EDT
LONDON (Reuters) - Investors hoping for clarity within financial markets next month after a summer of risk-on, risk-off drift may get more than they are bargaining for -- September is as much about major losses as it is gentle gains.
Data from Thomson Reuters Datastream, furthermore, shows that within this volatility, September is on average the worst month of the year for developed market equities.
With movements among assets highly correlated at the moment, this has even greater implications than normal for currencies, government bonds and corporate debt, as well as for stocks.
The correlation between developed market stocks and the Japanese yen/Australian dollar, for example, has been above 0.8 during the latest three months, roughly meaning that every time stocks rise or fall so does the Aussie against the yen and vice-versa.
Over the past 30 years, the MSCI World index of developed stocks has lost an average of 0.9 percent in September, compared with a loss of 0.2 percent in June and gains in every other month. April is the best, up 2.5 percent.
Burrowing further down into the data shows that September has actually been an up month slightly more than half the time, or in 17 out of 30 years.
But its average has been dragged down by at least seven black Septembers, with losses ranging from 4 percent to 12 percent.
Some of these have been specifically event-driven -- 9/11, the collapse of Lehman Brothers and so on. Analysts note, however, that September is also the month when investors reassess their portfolios after the northern hemisphere summer break.
"People do come back and realize that things are worse than when they went away in the summer, or have not improved," said Andrew Clare, professor of asset management at Cass Business School in London.
With the U.S. economy struggling more than it was a few months ago -- a condition corroborated by the Federal Reserve itself -- this does not bode well for risk in the coming month.
