巴黎银行-拉丁美洲-投资策略-市场修正和风险溢价模型：我们看到它的到来-20180205-11页_430kb

Latin America Strategy Summary

Core Content Overview

This document outlines the Latin America Strategy from Banco BNP Paribas Brasil S.A., focusing on the market correction and risk premium model. It provides an analysis of how the market has responded to a previously identified risk scenario and discusses the framework used to measure risk and risk appetite.

Main Points

1. Market Correction and Risk Premium Model

• The document is a follow-up to a previous report from 04 January, which warned of a potential market correction based on the low perceived risk and low risk premium.
• A correction did occur, but it took one month to materialize and was fast and deep.
• The authors updated their models after the market movement, noting that both models' values now appear normalized.
• Hedges are still in place for existing core allocations due to the continued market risk.

2. Risk vs. Risk Appetite

• Risk is considered structural, meaning it is based on fundamental economic conditions.
• Risk appetite is cyclical, fluctuating based on investor sentiment and expectations.
• During upturns, investors tend to have high risk appetite, and asset prices rise due to optimism.
• During downturns, economic distress is overemphasized, leading to lower risk appetite and higher premiums for risky assets.

3. Measuring Risk Appetite

• The authors use the BNPSGRP Index to proxy for risk appetite, which is based on abnormally high or low risk premiums.
• They rely on Spearman rank correlation to assess the relationship between asset risk (σ²) and excess returns, as Pearson correlation may not be reliable due to its linear nature and sensitivity to extreme values.
• The framework suggests that changes in risk appetite can lead to significant price swings, especially for more volatile assets.

Key Information

Risk Index and Historical Context

• A risk index was constructed using a weighted average of multiple variables:

  • Equity implied volatility (US, Emerging Markets, Europe)
  • Yield spread between Baa and B rated corporate bonds
  • Carry vs. funding currency performance
  • USD European swaption vol ATM OIS discount vs. US0003M index 3MoX10Yr
  • US swap spreads (2y, 5y, 10y)
  • EM government local currency rates performance
  • Implied volatility of global risk-free rates

• Chart 1 shows the risk index since 2015, indicating it has stabilized from very low levels.

• Chart 2 depicts the historical non-parametric distribution of the risk index, with a k-density value of 55.2%, suggesting a return to normalcy.

Risk Appetite Model

• The model assumes that expected return (Y) on an asset is a function of:

  • Systemic or global risk (α)
  • Risk appetite (θ)
  • Asset variance (σ²)

• The formula:
  Expected Return (Y) = α + θ(σ²)
  or
  Current Price of Y = Long Term Price of Y - α - θ(σ²)

• A change in θ (risk appetite) affects the price of risky assets in proportion to their volatility (σ²).

Empirical Analysis

• The authors calculate the rolling 1-month excess return of 23 global assets and compare them to the level of risk ex ante.
• They use Spearman rank correlation to quantify changes in risk appetite.
• The results are presented in Charts 4 and 5, which show the risk premium (appetite) trend.

Strategy Contacts

Legal and Compliance Notes

• The document is a marketing communication, not independent investment research.
• It is not investment research under MiFID II.
• No investment, financial, legal, or tax advice is provided.
• Past performance is not indicative of future results.
• Simulated performance is based on estimates and assumptions, and may not reflect actual market conditions, including liquidity and transaction costs.
• Confidentiality is emphasized, and the document must not be copied or distributed without prior written consent.

United States Disclosures

• Options are complex instruments with high risk and are only suitable for sophisticated investors.
• ETFs have associated risks, including tracking error, currency, geopolitical, credit, and interest rate risks.
• Convertibles securities or other unregistered securities are considered restricted and are only available to Qualified Institutional Buyers (QIBs) or non-U.S. persons under Regulation S.

Distribution Restrictions

• The document is distributed only to Relevant Persons as defined under MiFID II and U.S. securities laws.
• It may not be used by non-Relevant Persons without appropriate legal authorization.
• BNPP and its affiliates may have conflicts of interest and may engage in transactions inconsistent with the document's views.

Conclusion

The document emphasizes that market corrections are anticipated based on risk and risk appetite indicators, and that risk appetite is a more volatile and critical factor in predicting market sell-offs. The authors continue to monitor and hedge against market risks, using a combination of statistical models and market data to inform their strategy. The legal and compliance aspects are clearly outlined, highlighting the non-advisory nature of the document and its intended audience.