Kroll puts UK market risk in perspective

BVWire–UKIssue #34-1
January 4, 2022

The UK economy has performed independently of the US and eurozone countries since COVID-19 began, as the first edition of the “International Guide to Cost of Capital (IGCC) Summary Edition” from Kroll confirms. This 173-page work was released in conjunction with the CFA Institute Foundation last month and is available free of charge.

Highlights of this often-undesirable independence during this period include the overall stock market performance. Kroll notes the following returns as of 30 November 2021:

Stock market   Overall performance since COVID-19
FTSE 100                            -6.9%
STOXX Europe 600                           10.2%
S&P 500                            37.3%

Ten-year government bond yields also vary widely, impacting valuation.

Country            Yield as of 30 November 2021
UK                             0.84%
Eurozone                            -0.35%
China                             2.83%
US                             1.43%

A further economic differentiator is annualized 3Q growth rates. The eurozone and the UK led most global economies comparing the most recent third quarter with 2020.

Country    Annualized 3Q 2021 to 3Q 2020 growth rate
UK                                     5.1%
Eurozone                                     9.3%
US                                     2.1%

The Kroll “Summary Edition” examines the important difference in risk characteristics of investing in various countries and has the following seven chapters:

  1. “International Cost of Capital Overview”;
  2. “Strengths and Weaknesses of Commonly Used Models”;
  3. “International Equity Risk Premia”;
  4. “Country Yield Spread Model”;
  5. “Relative Volatility Model”;
  6. “Erb-Harvey-Viskanta Country Credit Rating Mode”; and
  7. “Firm Size and the Cost of Equity Capital in Europe.”
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