PUTNAM GLOBAL RISK APPETITE INDEX | September 2022

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.


Interest rates cause sell-off

SHORT-TERM TREND

Another rates-driven sell-off

Risk

  • Risk assets sold off in August, with higher rates as the main culprit
  • Chair Powell's Jackson Hole speech clarified rate expectations
  • In Europe and the U.K., central banks have been steepening the yield curve
  • EM assets outperformed, with China contributing
risk key

LONG-TERM CYCLE

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

risk key

March '16–Jan '18

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

March '20–Dec '21

Easy monetary policies and reopenings supported risk assets.

Jan '22–present

Central bank tightening expectations along with the Russia-Ukraine crisis raise market volatility.

Source: Putnam. Data as of August 31, 2022. 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.

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