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PUTNAM GLOBAL RISK APPETITE INDEX | June 2023

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.

Debt ceiling debate throttled risk appetite

SHORT-TERM TREND

While banking sector concerns remained in the background, the market focus shifted in May to the debt ceiling discussions and to AI (artificial intelligence). The rates market prepared for a rising supply of Treasuries to come after the resolution of the debt ceiling, pushing rates higher. This was helped along by the fact that no recession signs emerged. Higher rates turned the Risk Appetite down, but sectors more exposed to growth — and to AI — did better.

Risk

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LONG-TERM CYCLE

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

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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, inflation, and Russia-Ukraine War increase volatility and uncertainty.

Source: Putnam. Data as of May 31, 2023. 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.

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon as research or investment advice regarding any strategy or security in particular.

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