There are two main risk environments that can be observed in the markets – “risk on” and “risk off”. As their names imply, the changes in market participants’ risk appetite is reflected from the assets they choose to allocate their money in.
In a risk-on environment, market participants are optimistic about the future prospects of businesses and the economy, expecting healthy earnings growth and overall economic expansion. In such an environment, investors move from less risky assets such as fixed income and safe haven currencies (i.e. Yen) to riskier assets like stocks and commodities.
In a risk-off environment, market participants are uncertain or pessimistic about the future prospects of businesses and the economy, expecting a decline in earnings growth and overall economic contraction. In such an environment, investors move from riskier assets such as stocks and commodities to less risky assets like fixed income and safe haven currencies (i.e. Yen).
This will definitely make the next financial news article a little easier to comprehend.
Like our content? Drop us a like on Facebook and be the first to receive updates! More importantly, share this article with someone who may benefit from it!
Till next week, have a good weekend!