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HSBC Index Points to Danger for Investors

HSBC Index Points to Danger for Investors

By    |   Tuesday, 03 May 2016 08:01 AM

The “risk-on, risk-off” theme from the years after the 2008 financial crisis is making a comeback, giving headaches to investors who try to beat the market with traditional methods of measuring value, say analysts at multinational bank HSBC Holdings Plc.

“Risk-on assets rally when investors are upbeat and fall when the mood turns sour. Risk-off assets do the opposite,” according to MarketWatch, which obtained a copy of the HSBC report. “The tendency of assets to move in lockstep can make life difficult for stock pickers and other investors because it renders long-standing investing strategies less effective and individual stock picks less relevant.”

HSBC’s index that measures how closely securities move in tandem has jumped to its highest level since 2010, reversing a multiyear decline as markets were driven by quantitative easing. QE is a way for central banks like the Federal Reserve to push down borrowing costs by buying debt securities including Treasurys and mortgage-backed notes. Interest rates fall as bond prices rise.

“Based on the bank’s analysis of correlations, emerging market, Europe and Middle East equities, as well as U.S. equities and high-yield bonds, are considered the most risk-on assets in global markets,” MarketWatch’s Ellie Ismailidou reports. “Government bonds, mainly U.K 10-year gilts, Japanese 10-year government bonds and 10-year Treasurys are the most risk-off.”

This risk-on, risk-off theme differs from the QE-driven environment when bonds and stocks moved together. The market shifted to risk-off at the end of last year as oil collapsed to 13-year lows while bonds and gold rallied. As oil recovered from its February nadir, riskier assets like junk bonds and stocks rebounded.

Gold rose to a 15-month high of more than $1,300 an ounce on Monday as the U.S. dollar lost value.

The dollar had its worst week since 2008 versus the yen after the Bank of Japan unexpectedly decided not to pursue additional monetary stimulus.

“The dollar was the reason behind the spike up (last week), and we broke all the important levels on the upside," says Afshin Nabavi, head of trading at MKS, according to Reuters. "$1,285 was a huge number, and we got through $1,290 pretty easily. $1,300 is going to be a very important one."

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The "risk-on, risk-off" theme from the years after the 2008 financial crisis is making a comeback, giving headaches to investors who try to beat the market with traditional methods of measuring value, say analysts at multinational bank HSBC Holdings Plc.
markets, risk, HSBC, MarketWatch
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2016-01-03
Tuesday, 03 May 2016 08:01 AM
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