Putnam Investments | The Macro Reportmarket
PUTNAM GLOBAL RISK APPETITE INDEX | June 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 remained strong in May

SHORT-TERM TREND

Sentiment was buoyed by policy support and economic prospects amid easing restrictions.

Risk

  • Divergence in asset returns declined during the second half of May.
  • U.S. assets, including equities and so-called "secular winners," outperformed other securities.
  • U.S. Treasuries have been edging higher.
  • The dollar has depreciated against major currencies.
  • Commodities have rallied, including oil prices.

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 May 31, 2020. To create the Global Risk Appetite Index, we weigh the monthly relative 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 relative return and the lower the volatility, the greater the risk appetite; conversely, the lower the relative return and the higher the volatility, the stronger the risk aversion.