Nvidia’s market dominance, US political polarization and Europe’s gas crisis
This week's chart pack covers the following topics:
Nvidia’s market value surpasses entire developed markets in AI boom
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This chart compares Nvidia's market capitalization to the total market cap of eight selected developed markets, tracked monthly from January 2023 to the present. Each cell represents the total market value of a given country or region, as measured by the MSCI All Cap index. A transparent overlay within each cell highlights the proportion of Nvidia's market cap relative to the country's total market size, turning into a solid colour when its market value exceeds the total for that market. This chart highlights the remarkable rise of the US semiconductor company renowned for graphics processing units (GPUs) that power AI technologies.
Behind the data
Nvidia's extraordinary growth amidst the AI-driven boom has turned it into the largest company in the world by market value. Its market cap first surpassed the combined total of Italy, Spain and Portugal in May 2023. By January 2024, the company had overtaken the total market sizes of Australia, Germany and the Nordics. By June 2024, it had surpassed even the United Kingdom for the first time, one of the world’s biggest developed markets. Nvidia's valuation growth underscores the growing dominance of mega-cap technology companies amid speculation and enthusiasm over the transformative potential of emerging technologies like AI.
Spotting mispriced assets with macro-driven insights
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This table, created using Quant Insight’s (QI) macro fair value model, examines the relationship between asset prices and macroeconomic drivers. It highlights whether the prices of various securities and FX pairs are aligned with their macro-driven fair value, and the extent of any deviation.
The first two columns show the spot price and the model-derived fair value price. The third column, colour-coded with green for undervalued and red for overvalued assets, quantifies the fair valuation gap (FVG). The fourth column tracks this gap in terms of the degree of overvaluation or undervaluation. The final column shows the R2 value, which measures the degree to which macroeconomic factors explain price movements. An R2 above 65 indicates strong macroeconomic influence, providing confidence in the model’s validity.
Behind the data
Several insights emerge from this analysis: EUR/USD and aluminium may look like an attractive trade, as they are priced significantly below fair value. But their R2 values hover around 50, indicating price movements are likely influenced by factors such as momentum or market sentiment rather than macroeconomic drivers.
On the other hand, GBP/USD and Hang Seng Index both show R2 values around 70 and FVG exceeding 1.5 standard deviations, making them attractive candidates for further exploration, particularly after accounting for trading cost. Investors can use this table to identify and prioritize assets for potential trading strategies based on valuation gaps and the influence of macroeconomic conditions.
Are risk-adjusted metrics overstating market performance
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This scatter plot compares the Sharpe ratio and Sortino ratio of major country and region equity indices, with the size of each bubble representing the returns of each index. The Y-axis shows the Sharpe ratio, calculated using the 10-year annualized excess return over 10-year government bonds divided by standard deviation. The X-axis shows the Sortino ratio, which uses the same numerator, but considers only downside risk in its denominator. The green reference line marks where the Sharpe ratio equals the Sortino ratio, providing a benchmark for comparison. This chart provides context for evaluating the relative performance of equity indices and the importance of considering both metrics for a fuller picture of risk-adjusted returns.
Behind the data
Both the Sharpe and Sortino ratios are widely used measures of risk-adjusted returns, with higher values indicating better performance relative to risk. However, the two ratios differ in how they treat volatility:
By comparing the two ratios in a scatter plot, we can observe that several developed markets fall above the green line, where the Sharpe ratio exceeds the Sortino ratio. This suggests that the Sharpe ratio may overstate the risk-adjusted performance by penalizing positive volatility alongside negative. The Sortino ratio offers a more nuanced view, particularly for investors more concerned with downside risks.
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