Correlations Flash Warning Signs in Five Major Markets

Written by Thulisa Shandu | Jul 23, 2024 6:00:00 AM

EasyAssetManagement says that the recent decline in global equity correlations suggests potential for increased market volatility and weaker returns, particularly in the US, China, Korea, Thailand, and Malaysia.

Global equity correlations plummeted to near-record lows in June, marking the second such instance this year. This means markets are moving less in sync with each other. It's important to note that only five individual markets exhibited correlation levels significantly below their historical averages, compared to eleven in March. These five markets – the US, China, Korea, Thailand, and Malaysia – have historically seen periods of weaker returns following such low correlation readings.

The decline in global correlations was primarily driven by lower correlations within the US and Chinese markets, which together constitute a significant portion of the global equity index. Conversely, France experienced unusually high correlations, a pattern often observed during market panics. India, Mexico, and Saudi Arabia also ended the quarter with elevated correlation levels.

Overall, the recent decline in global equity correlations suggests a potential increase in market volatility and the possibility of weaker returns in the near term.

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