1FLASH02/07/19BNPP-GlobalRiskPremium:Whentheparty’sover…1RiskpremiummodelupdateThemodel’sreturntotheover-boughtcampsuggeststhat,allelseequal,apullbackinthecurrentrally(β)and/ordifferentiation(α)acrossriskassetsisexpected.Yet,asthemodelaimstomatchex-anteriskwithex-postreturn,riskassetpricesareonlylikelytoremainstableorevencontinueappreciating,ifthereisaconsiderabledropinrisk(30-dayimpliedvolatility).Fig.1-2:BNPParibasglobalriskpremiummodel(riskappetite)Sources:BNPParibas,BloombergLLP;asof1July2019ContrarianrecommendationinthemiddleofabearishmarketFullyinvestedatthebeginningoftheyearScalebackpositionsinFebruary-0.57(1.0)(0.8)(0.5)(0.3)0.00.30.50.81.0Dec-15Jul-16Feb-17Sep-17Apr-18Nov-18Jun-19DefinitionZone;↓appetiteDefinitionZone;appetiteAppetiteislow,but,atextremevaluesreversalprobabilityishighPremiumistoolow(appetitehigh);probabilityofreversal()()()()()()()()()()()()(150)(90)(30)3090-90%-70%-50%-30%-10%10%30%50%70%90%RiskPremiumLowRiskPremiumHighPremiumup↑PremiumdfownRiskPremiumLowRiskPremiumHighPremiumup↑PremiumdownTheoreticallyreducepositionswhenpremiumistoolowTriggertooverweight;premiumisabnormallyhighNOW3mAGORiskAppetiteslowlyup→premiumstartstoconvergebacktoequilibrium;DatadependenceShortTermRiskPremiumCycleLATINAMERICASTRATEGYPleaserefertoimportantinformationattheendofthereportFLASHEMERGINGMARKETS02July2019GabrielGerszteinGlobalHeadofEmergingMarketsStrategyBancoBNPParibasBrasilS.A.Performanceofselectedassetssincetriggeringlong/overweightsignalon27May2019:EMCDX-42bpBRL-USD+5.2%TRY-USD+7.0%PLN-USD+2.3%EUR-USD+1.0%EMFXIndex+2.3%EMMSCI+4.3%BarclaysEMAgg+3.2%BarclaysGlobalHY+2.6%Asof1July2019KEYMESSAGESTheBNPParibasglobalriskpremiummodelsuggestsriskassetsarenearingover-boughtlevelsandthat–allelseequal–apullbackinthecurrentrally(β)and/orincreasingdifferentiation(α)acrossriskassetsisthereforeexpected.InthelastweekofMay,themodelsignalledthatinvestorriskappetitewascriticallylow,indicatingapotentialappreciationinEMriskassets,a...
