Emerging Risk & Safe Havens

Yesterday’s cross asset FNA Correlations map revealed a classic flight to safety to US Government bonds. Global market tremors have escalated since Bank of Japan shocked markets last week by announcing no additional stimulus. The left panel on Fig. 1 ranks cross asset class 95% Confidence Level Value-at-Risk (VaR) outliers. Emerging Markets $EEM were yesterday’s top surprise with a -2.2sd plunge, followed by CAD and European equities. Chinese large caps $FXI declined as China’s PMI disappointment led to a third day of falling commodities.

Fig. 1. Cross Asset FNA Correlations 3 May outlier ranking 


It’s worth focusing on Emerging Markets, which saw its first negative surprise since 3 Feb as volatility edged up from 100 day lows. As Fig. 2 illustrates, surprises in Emerging Markets tend cluster, so expect more volatility going forward.

Fig. 2. Emerging Markets surprises tend to cluster: get ready for turbulence


Asset Allocation To Diversifying Safe Havens

As Emerging Market volatility jumps from 100 day lows, expect contagion to broader risk assets, especially oil, commodities, EMBI, junk bonds, financials and developed market equities. Asset allocation to safe havens will be critical to minimize portfolio volatility and drawdowns.

The short video below analyzes the most effective safe haven assets given the market’s correlation structure, focusing especially on JPY, US Government Bonds, TIPS and Gold.

Video 1: Most Reliable Flight To Safety Assets

Thank you for tuning in. Please feel free to suggest additional market themes and emerging risks to explore at alan@fna.fi.

2 thoughts on “Emerging Risk & Safe Havens

  1. Great research which belongs on every computer of institutional investors. Its a must have road map to navigate through our ever changing financial road map, plus its non bias which makes it even more spectacular.


    Joseph Nodarse
    Hudson, Riley Asset Counsel, Inc.


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