Putnam Investments | The Macro Reportmarket
PUTNAM GLOBAL RISK APPETITE INDEX | March 2020

The Putnam Global Risk Appetite (RA) Index is a proprietary quantitative model that aims to measure investors’ willingness to invest in risky assets, including equities, commodities, high-yield bonds, and other spread sectors. With a composite view of risk-appetite signals across a broad mix of asset types, Putnam’s RA Index provides a framework for discussing investor preferences and can signal trend changes in broad market sentiment.

Risk appetite collapses in February

SHORT-TERM TREND

Coronavirus and oil volatility weigh on global markets.

Risk

  • U.S. fixed-income securities outperformed globally, and Treasuries rallied.
  • High-beta assets such as U.S. and international stocks tumbled.
  • Gold prices remained volatile.
  • The dollar lost ground against the euro and the yen.
  • Emerging-market currencies depreciated after a period of contained weakness.

LONG-TERM CYCLE

This 10-year illustration captures the cyclicality of investors' appetite for risk.

Sept–Nov '11

Eruption and subsequent clearing of concerns over EU sovereign debt crisis, U.S. debt ceiling, and fear of China hard landing drive major risk sell-off and rally.

March '16–Jan '18

Risk assets rally amid improving commodity prices, perceived stability in China's macro data, and expectations for gradualist Fed policy.

Source: Putnam. Data as of February 29, 2020. To create the Global Risk Appetite Index, we weigh the monthly excess returns of 30 different asset classes over 3-month T-bills relative to the trailing 2-year volatility of each asset class. The higher the excess return and the lower the volatility, the greater the risk appetite; conversely, the lower the excess return and the higher the volatility, the stronger the risk aversion.