How This Market Downdraft Is Playing Out Across the World

  • Measures of volatility soar, VIX index surges 34% this week
  • Hedge fund Renaissance warns of significant risk of correction

Union Bancaire's Calder Sees Stock Selloff as an Opportunity

One of the best starts to a year in recent history for global stock markets is ending with a bump as volatility spikes and a bond selloff deepens, with investors assessing whether prices ran too hard in too short a space of time.

Amid warnings of a correction in equities from the likes of Renaissance Technologies, the world’s most profitable hedge fund, and Goldman Sachs Group Inc., it’s clear why there’s concern. The unprecedented surge in stocks over a relatively short period of time has been accompanied by a steep kick higher in government bond yields, reducing the relative appeal that equities have enjoyed for many years during an era of unprecedented central bank stimulus.

As volatility returns to equity, bond and currency markets, some money managers say that’s something investors need to get used to.

“You have to hold on to your seat and look at opportunities as they come,” Douglas Peebles, chief investment officer for fixed income at AllianceBernstein LP, told Bloomberg TV. “Volatility is going to be much higher.”

Since the MSCI All-Country World Index reached a record high on Friday it’s posted its largest one day loss since August. Still, it’s a mere 1.5 percent below that peak and remains 5.7 percent higher year-to-date. That’s the best January on record going back to at least 1987.

No Sanctuary

All MSCI World sectors have dropped in last two days led by energy and healthcare

Source: Bloomberg

The market drop has been broad-based with all sectors in the MSCI World declining. Energy and healthcare stocks have fallen the most, with consumer discretionary and real-estate shares the relative outperformers.

Chinese companies trading in Hong Kong, as measured by the Hang Seng China Enterprises Index, are one notable underperformer this week though they remain on course to end January up more than 14 percent.

The VIX index, as the Cboe Volatility Index is known, is up 34 percent in two days, while measures of currency market volatility and swings in bond prices are also climbing. That surge for the VIX has taken the gauge above a resistance level, in a sign that stock-market swings may just be starting.

The market turbulence was sparked by an ongoing selloff in the world’s largest-debt market that began last September. The benchmark Treasury yield rose to the highest level in more than three years this week.

— With assistance by Cormac Mullen, Cecile Vannucci, and Namitha Jagadeesh

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