William Bourne warns of the approaching end of this bull market in risk assets

Our colleagues at CrossBorder have published their monthly Risk Update. It shows risk at the Global level at 74.6 (on a scale of 0 to 100) in April 2017. This is the highest level since October 2007, when the risk index stood at 80.6. The only other time when this risk indicator has been higher was in the early 1990s. However, as followers of my blogs in this area will be aware, there is a heavy skew within today's global risk aggregate. Risk is highest in the US and Japan, where the composite indexes stand at 86.5 and 79.5 respectively, but very low in the Eurozone at 16.2. The key driver has been investor ebullience - ie. greed is winning over fear or, as the optimists would put it, we are climbing the wall of worry. It is no surprise that Emerging Markets, where sentiment has improved most, have shown the greatest rise in risk.

 

The level of this risk measure today is a clear indication that markets are generally heady. It is not necessarily prophesying a repeat of 2008's financial crisis and it is worth noting that it took nearly a year from October 1987's high reading before markets reacted. However, the benign conditions, for investors at least, of the past 25 years are unlikely to continue for much longer. Investors should begin to take their exposure off the table, the US and Japan first. Do not say Linchpin did not give you due warning!

 

CrossBorder's full article is available for purchase here.