RORO: Risk on, risk off

Assets are moving in lockstep with each other, which is making life very hard for traders indeed.

The phenomenon of RORO – risk on, risk off – is nicely illustrated in two graphs from HSBC, via alphaville:

What you are seeing is two maps of correlations between various assets, in 2005 and 2012. Dark red means the two assets are strongly positively correlated, dark blue means they are strongly negatively correlated, and turquoise, green and yellow means no real correlation either way.

In 2005, most assets were roughly uncorrelated. Some, like the NASDAQ, S&P500 and Dow Jones, moved in tandem, as did the four key European markets, and the key sovereign and investment-grade bonds. But for the most part, different assets gained and lost value in an uncorrelated manner.

Come 2012, and everything changed. In the top left are all the assets which get stronger in the good times – mostly indexes like the FTSE, but also a few currencies and copper. In the bottom right, there are the assets used to hedge bets when times are rough: the sovereign bonds, the Yen, and right down at the bottom, the US Dollar.

The former class are the risk-on assets; those investors buy when they want to take on risk to make money. The latter are the risk-off assets; those which they buy to get themselves some stability.

The simplified reason for the change is the bimodal nature of responses to crises. When things go wrong, one of two things happen: Governments step in and save the day, or they don't. Quantitative easing is one example of this, but so are bank bailouts, expansions of the "firewall", and so on. If they happen, every risk-on asset rises; if they don't, everything falls.

For those interested, a deeper examination of what RORO means for markets is given by Bryce Elder over at the FT, but the overall problem with the phenomenon is that it reduces trading to a bet on up or down. As a result, traders hate it. As Elder writes, instead of being able to do their job well, by focusing on the fundamentals of each asset they buy (asking questions like "is copper going to be in demand because of growing infrastructure demands"), "each day’s profit or loss is determined to a large degree by results of a sovereign bond auction or comments by a central banker".

Until the crisis is over, though, RORO is sticking around, so investors had better learn to live with it.

Risk on: A trader at the New York Stock Exchange. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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A global marketplace: the internet represents exporting’s biggest opportunity

The advent of the internet age has made the whole world a single marketplace. Selling goods online through digital means offers British businesses huge opportunities for international growth. The UK was one of the earliest adopters of online retail platforms, and UK online sales revenues are growing at around 20 per cent each year, not just driving wider economic growth, but promoting the British brand to an enthusiastic audience.

Global e-commerce turnover grew at a similar rate in 2014-15 to over $2.2trln. The Asia-Pacific region, for example, is embracing e-marketplaces with 28 per cent growth in 2015 to over $1trln of sales. This demonstrates the massive opportunities for UK exporters to sell their goods more easily to the world’s largest consumer markets. My department, the Department for International Trade, is committed to being a leader in promoting these opportunities. We are supporting UK businesses in identifying these markets, and are providing access to services and support to exploit this dramatic growth in digital commerce.

With the UK leading innovation, it is one of the responsibilities of government to demonstrate just what can be done. My department is investing more in digital services to reach and support many more businesses, and last November we launched our new digital trade hub: www.great.gov.uk. Working with partners such as Lloyds Banking Group, the new site will make it easier for UK businesses to access overseas business opportunities and to take those first steps to exporting.

The ‘Selling Online Overseas Tool’ within the hub was launched in collaboration with 37 e-marketplaces including Amazon and Rakuten, who collectively represent over 2bn online consumers across the globe. The first government service of its kind, the tool allows UK exporters to apply to some of the world’s leading overseas e-marketplaces in order to sell their products to customers they otherwise would not have reached. Companies can also access thousands of pounds’ worth of discounts, including waived commission and special marketing packages, created exclusively for Department for International Trade clients and the e-exporting programme team plans to deliver additional online promotions with some of the world’s leading e-marketplaces across priority markets.

We are also working with over 50 private sector partners to promote our Exporting is GREAT campaign, and to support the development and launch of our digital trade platform. The government’s Exporting is GREAT campaign is targeting potential partners across the world as our export trade hub launches in key international markets to open direct export opportunities for UK businesses. Overseas buyers will now be able to access our new ‘Find a Supplier’ service on the website which will match them with exporters across the UK who have created profiles and will be able to meet their needs.

With Lloyds in particular we are pleased that our partnership last year helped over 6,000 UK businesses to start trading overseas, and are proud of our association with the International Trade Portal. Digital marketplaces have revolutionised retail in the UK, and are now connecting consumers across the world. UK businesses need to seize this opportunity to offer their products to potentially billions of buyers and we, along with partners like Lloyds, will do all we can to help them do just that.

Taken from the New Statesman roundtable supplement Going Digital, Going Global: How digital skills can help any business trade internationally

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