Investors’ appetite for risk has fallen during the third quarter of 2014, following an increase in both absolute and implied volatility.
The period has shown negative returns across many risk assets and a shift in market trends, with government bond yields in decline and momentum in European stocks flatlining.
Investors are also increasingly concerned about key event risks such as the impact of policy tightening in the US, stagnation of the eurozone, and increased geopolitical risk, according to Blackrock’s latest quarterly Market Risk Monitor, which analyses volatility, persistence, valuation, events, correlations and concentration.
The report shows that correlations have risen over the quarter, indicating fewer opportunities for diversification. While significant divergence can be found in the behaviour of bonds and equities, within fixed income correlations are relatively high, and yields are low.
BlackRock identifies US growth and monetary policy, European deflation and quantitative easing, continued geopolitical risk, reduced market liquidity and increased volatility as key risks for continued monitoring. Failure of the Japanese recovery programme may also have a significant impact on markets in the final quarter of the year.
Other fund managers have recently warned investors to expect more volatility this year.
©2014 funds europe
