The GESI Risk Allocator favours being underweight risk assets given the distribution of stresses within the GFSI. The percentages of Bullish, Bearish and Neutral GFSI components (as used in the Risk Allocator) were 8.7%, 13.0% & 78.3%, respectively as of 5-Aug. The Risk Allocator (using Bull, Bear & Neutral weights of 2, 0, 1) suggests reducing the underweight position to 4.3% UW from last week’s 17.4% UW.
Chart 3: Stress across assets (Rates & FX are the most stressed asset classes — credit stress declined the most last week
0.6 0.5 0.4 0.3 0.2 0.1 0.0
of 0.01 0.01 0.05
-~0.2
0.12 Commodities Rates FX Equities Credit
m Latest stress (05-Aug-16) | © Change in stress
Source: BofA Merrill Lynch Global Research. 1wk change (22-Jul-16 to 29-Jul-16).
Chart 5: Top 10 movers in stress (1-week abs chg %-ile vs history*)
Chart 4: Stress across regions (Europe is the most stressed region in the GFSI while EM is the least stressed)
am Stress fall Stress rise
100% 99% = 100% 95% 93% 90% 80% 10%
60%
85% 81% 80% 79% 779%
69%
%-ile of abs chg in stress vs history*
50%
S -— & oO > Ss a Qa aa aa00950 eo - o@. e275 ADas5S a o 5 AD
= mao x = SS € ro no cau = ga = Oo =~22 ee ce @o=—~ f= + E€w 5 3 Siu Ff = = rep) o oO
e228 fg 2 a iS 8 LESH £ w a 4 §& 2 2 OO 3 4 . - 8 S35
Source: BofA Merrill Lynch Global Research. * %-ile of weekly move in stress vs all historical weekly
moves (earliest 3-Jan-00). Bar colours represent rise (red) or fall (green) in stress. 1wk change (22-Jul-
16 to 29-Jul-16).
0.1
0.1
0.0
-0.11 -0.11 0.11
US Japan Europe EM mLatest stress (05-Aug-16) | = Change in stress
Source: BofA Merrill Lynch Global Research. Iwk change (22-Jul-16 to 29-Jul-16).
Chart 6: Global volatility & credit spread stress in the GFSI
0.4 mLatest stress (05-Aug-16) = Change in stress
0.2 0.04 0.01
0.0 — 0.2 0.4 0.6 -0.8 -1.0 -1.2
HY CDS IG CDS FX Vol
Equity Vol Sovrn risk
i} > n 2 o a
Commodity Vol
Source: BofA Merrill Lynch Global Research. Iwk change (22-Jul-16 to 29-Jul-16).
Bankof America Merrill Lynch
Global Equity Volatility Insights | 09 August 2016 3
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