State Street has recorded an all-time high for its systemic risk measure, around three weeks since the index had its highest leap since 2015 in the face of the coronavirus outbreak.
The Global Equity Systemic Risk Index, a measure of market fragility, hit its peak on Wednesday.
Tim Graf, head of macro strategy EMEA at State Street Global Markets said the group will continue to monitor the metric as a means of assessing when it may be safe to re-enter risky assets.
“A better sense that this gauge of market fragility has entered a sustained decline is needed before we have more confidence that the crisis is finally quelled,” Mr Graf said.
“Global equities are clearly a better value proposition than they were a month ago, but we would exercise caution against value opportunities becoming value traps, due to the many variables around the spread of COVID-19 and its effects on economies and corporate earnings, which are still highly uncertain.
“Bull markets do not typically begin with 10 percent rallies in a single day, even if the policy response to this crisis has been more expansive and powerful than any previously offered.”
Amlan Roy, head of global macro policy research at State Street Global Advisors added biological risks need to become a key part of systemic risk modelling.
“Measures of volatility such as the Volatility Index (VIX), MOVE and Economic Policy Uncertainty are just one aspect of a much broader challenge on the entire macroeconomic and financial ecosystem and infrastructure,” Mr Roy said.
“In these unprecedented times, with market dislocations in credit, high-yield and mortgage-backed securities (MBS), models and frameworks such as risk parity are coming under intense scrutiny, but monetary policy actions have been very well coordinated and timely.
“Whilst direct support on incomes, credit payments, mortgages and health/essential supplies is important, efforts to treat and stop the virus spreading through masks, tests, ventilators, doctors, nurses and hospitals [are] critical.”
Sarah Simpkins
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
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