Global return to volatility underlines Frontier markets’ low correlation to other markets

Silk Invest believes that global stock markets are moving in line with expectations and the recent change in volatility regime will be the new norm for the year.

We presented our views for 2018 in our global outlook document but one factor to emphasise is the volatility chart in slide 19. Twelve months rolling volatility has dived to 2.8% for global developed markets in 2017.

The best reference point for 2018 is 2011 where annualised volatility was 18% over that year. As global markets normalise, volatility has the potential to increase significantly and it probably will.

Market impact: as of 6th of February, Developed Markets, as measured by the MSCI World index, have lost 5.2% MTD, taking YTD performance to -0.1% in U.S. dollar terms while Emerging Markets fell 6.2% over the same period and have posted 1.6% positive return on a YTD basis. Frontier Markets held-up relatively well as the MSCI Frontier Markets index fell 3.2% MTD while FM Africa retreated 0.7% in U.S. dollar terms.

The last few days were a stress test for many of our assumptions, markets are moving in line with our convictions and we remain comfortable with our positioning.


Baldwin Berges