劍橋風(fēng)險(xiǎn)研究中心-歐元區(qū)金融崩潰街頭測試（英）

CambridgeCentreforRiskStudies

CambridgeRiskFramework

SovereignDefaultCrisisStressTestScenario

EUROZONEMELTDOWNSTRESSTESTSCENARIO

CambridgeCentreforRiskStudies

UniversityofCambridgeJudgeBusinessSchool

TrumpingtonStreet

Cambridge,CB21AG

UnitedKingdom

enquiries.risk@jbs.cam.ac.uk

http://www.risk.jbs.cam.ac.uk

December2015

TheCambridgeCentreforRiskStudiesacknowledgesthegeneroussupportprovidedforthis

researchbythefollowingorganisations:

TheviewscontainedinthisreportareentirelythoseoftheresearchteamoftheCambridgeCentreforRiskStudies,anddonotimplyanyendorsementoftheseviewsbytheorganisationssupportingtheresearch.

Thisreportdescribesahypotheticalscenariodevelopedasastresstestforriskmanagementpurposes.Itdoesnotconstituteaprediction.TheCambridgeCentreforRiskStudiesdevelopshypotheticalscenariosforuseinimprovingbusinessresiliencetoshocks.Thesearecontingencyscenariosusedfor‘what-if’studiesanddonotconstituteforecastsofwhatislikelytohappen.

SovereignDefaultCrisisStressTestScenario

EurozoneMeltdown

Contents

1ExecutiveSummary2

2FinancialCatastropheStressTestScenarios6

3SovereignDefaultasaFinancialCatastrophe10

4DefiningtheScenario12

5TheScenario14

6MacroeconomicAnalysis15

7ImpactonInvestmentPortfolio23

8MitigationandConclusions30

9Bibliography31

2

CambridgeCentreforRiskStudies

SovereignDefaultCrisisStressTestScenario

EurozoneMeltdown

1ExecutiveSummary

Sovereigndefaultisafailureorrefusalbyacountry’sgovernmenttomakearepaymentofnationaldebts.Consequencesincludedevaluationoftheprincipal,aswellaslossofyieldfromthebond.

Thisreportexplorestheimpactofunexpecteddevaluationoffixedincomeassetsresultingfromacascadeofsovereigndebtdevaluationscausedbythesequentialexitofcountriesfromacurrencyunion.

Suchdevaluationscanhaveasimilarfinancialeffectasdefaultswhich,ifoccurringinwhatareconventionallyregardedashighquality,lowriskinvestments,fromoneofourfourFinancialCatastrophescenarios.

Scenariosmoregenerallycanbeusedtocoverthespectrumofextremeshocks,suchasthoseproposedintheCambridgeTaxonomyofThreats,whichencompassesfiveclassesofbusinessrisk.Asuiteofscenariosisabasisforaglobalenterprisetostresstestitselfandimproveitsresilience.

EurozoneMeltdown

InthisscenariopoliticalpressuresforceablocofEuropeancountriesintoacascadeofexitsfromthecurrencyunion.Thespeedandrapidincidenceofmultiplecountriesexitingisthemostsignificantdimensionofthescenario.

TheexitfromtheEurospreadsbycontagionofsimilarpoliticalandeconomicissuesacrossanumberofcountriesandaffectsothereconomiesthataretypicallythoughtofasbeingcorecountriesoftheEurozone.Theseproblematicpoliticaldriversmightstillendangerthecurrencyunion,althoughthepurefinancialmarketrisksnowseemtobeundercontrolasapowerfulrescuearchitecturehasbeensetupsince2011.

Whilethe“standard”scenariovariantS1limitssuchacontagionontheperipheralcountries,itcomes,inthemoreseverescenariovariants,S2andX1,toaEurozonemeltdownwithsevereglobaleffects.

Thesescenarioscauseaworldwiderecessionlastingjustoverayear(approximatelyfivetosixfiscalquarters).

Theoverallexpectedoutputloss,expressedaslostglobalGrossDomesticProductduringthescenariocomparedwiththeprojectedrateofgrowthwithoutthecatastropheoccurring(“GDP@Risk”),isbetween$11.2,$16.3and$23.2trillion,dependingonthevariantnarrative.TheGreatRecessionof2007-2011,comparatively,sawalossof$20trillionin2015dollarestimates.

AHistoryofCountryDefaults

Scenarioselection

Overthepasttwohundredyearstherehavebeenover180recordedsovereigndefaults,with120ofthemoccurringinthepastcentury.1

Causesofdefaultsincludemajorincreasesinpublicdebtinforeigncurrencies,reductionintaxreceipts,corruption,declineinemploymentlevels,governmentregulationorperceivedthreatsofregulationoffinancialmarkets,andpopularunrestatausteritymeasuresputinplacetorepaydebtfully.

TheEurozoneMeltdownScenariodescribesscenarioscomparabletoadefaultdrivenbythefirstofthesecauses,i.e.,highdebtinacurrencythatcreatespoliticalcoststhatcannotbemanagedbytheaffectedsovereign.Apremiseisthatincreasingconnectednessofglobalfinancialmarketswidenschannelsforthecontagion.

Variantsofthescenario

Inour“standard”scenariovariantS1,someoftheweakerEuropeaneconomies–Italyandtheotherso-calledPIGS(Portugal,Ireland,GreeceandSpain)–arecaughtupinawaveofnegotiatedcurrencyexits.InvariantS2,weexplorehowthismightcascadefurthertotriggerthecreationofshadowcurrenciesinGermanyandFrance.InthemostextremevariantX1thisfurtherleadstothemeltdownoftheEurozoneinthesenseofacompletedissolutionoftheEuro.

1C.Reinhart,K.Rogoff,“FinancialandSovereignDebtCrises:SomeLessonsLearnedandThoseForgotten”,IMFWorkingPaper13/266,December2013

3

EurozoneMeltdownStressTestScenario

Thisisastresstest,notaprediction

ThisreportisoneofaseriesofstresstestscenariosthathavebeendevelopedbytheCentreforRiskStudiestoexploremanagementprocessesfordealingwithanextremeshock.Itdoesnotpredictacatastrophe.

CascadeofexitsfromtheEurozone

PopulistgovernmentinItaly

AgainstthebackdropofGermany’scontinuedhardlineonservicingItaly’sdebtstrokedarebellionamongthePopulistparties.Thethird-partymovementdrawswidespreadsupportfromthedisgruntledItaliansprotestinganti-austerity,andthesepopulistpartiesmanagetochannelpublicdissatisfaction,togetherwiththeeconomicdifficultiescausedbyaseriesoflong-overduereformsagainsttheEuropeanpoliticalandmonetaryunion.

Comingintopower,thesepartiesrejectthestabilitymeasuresthatconstitutethemonetaryandfiscalframeworkofthecurrencyunionandhencetriggeringanexitfromtheEurozone.SpillovereffectsfromthepoliticalandeconomicagendafromItalyforceotherperipheralcountriestofollowsuit.

Politicalreactionsinthecorecountries

Thecostlyexitsoftheperipheralcountrieshavefinallyputpopulist,anti-EuropartiesintopowereveninGermanyandFrance.

Thesepartiessupporttheevolvementofshadowcurrenciesinbothcountries,furtherweakeningtheEuro.AweakEurowithoutpoliticalsupportisaneconomicalriskfortheremainingmembercountries.Hence,itisnegotiatedtocompletelydissolvethiscurrency.

GlobalGDPImpact

ToestimatethemacroeconomicimpactoftheEurozoneMeltdownScenario,weapplyshockstoexchangeratesandshort-termcentralbankinterestratesindefaultingcountrieswithintheOxfordEconomics’GlobalEconomicModel(GEM).Thecurrencydepreciationiscalibratedbetween25and40%,andshort-terminterestratesaredrivenupby0.5to15percentagepoints.Thisyields“GDP@Risk”whichestimatesthelosstotheglobalgrossdomesticproductover5years,i.e.,thecumulativeeffectofthisscenarioontheglobaleconomy.

ThecascadeofEurozonedefaultshasasignificantimpactontheworldeconomy.GDP@Riskisbetween$11.2and$23.2trillionacrossthevariants,indicatingamoresevereeffectthantheGreatFinancialCrisisiftheEurozoneinitsentiretyweretofailanddisband.

Financialmarketimpact

WeestimatetheportfolioimpactsofthisscenariobymodellingtheoutputsfromOxfordEconomics’GEMintoportfolioreturns,projectingmarketchangesandcashflowswhilekeeptheallocationpercentagesfixed.Wedefaultallcorporatebondsconservativelygiventhe2008defaultratesandgovernmentbondsusingthemostseveregovernmentdefaultsinhistory.

Theeconomicshocksareappliedgenerallyover5yearsandweseetheportfolionotrecoveroverthebaselineperformance.ThemaximumdownturnexperiencedfortheConservativeportfoliointheS1variantis-9.86%nominaloccursinYr1Q2.TheworstperformingequityistheGermanequityindex(DAX)andthebestperformingstocksisJapan(N225).TheworstperformingfixedincomebondsaretheGermanwhiletheUSbondsperformthebest.Theworstperformingportfoliostructureistheaggressivewitha-13.41%lossfortheS1variant.

ForportfolioprotectionitisrecommendedthatequityallocationisshiftedawayfromEuropetowardsJapanandawayfromEurofixedincometowardsUSfixedincome.

Riskmanagementstrategies

Scenariosasstresstests

Thisscenarioisanillustrationoftherisksposedbysocialunresttriggeredbycatastrophicevent.TheHighInflationWorldscenarioisjustoneexampleofawiderangeofscenariosthatcouldoccur.

Thisscenarioaimstoimproveorganizations’operationalriskmanagementplansaroundcontingencies,andstrategiesforsurvivingfinancialandcounterpartychallenges.Itpresentsacapitalstresstestforinsurerstoassesstheirabilitytomanageunderwritinglosseswhilealsosufferingmarketimpactsontheirinvestmentportfolios.Thisscenarioisanillustrationoftherisksposedbyaplausiblebutextremefinancialmarketbasedcatastrophe.Itrepresentsjustoneexampleofsuchacatastropheandisnotaprediction.Itisa“what-if”exercise,designedtoprovideastresstestforriskmanagementpurposesbyinstitutionsandinvestorswishingtoassesshowtheirsystemswouldfareunderextremecircumstances.

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CambridgeCentreforRiskStudies

SummaryofEffectsofEurozoneMeltdownScenarioandVariants

ScenarioVariantS1S2X1

VariantDescriptionStandardScenarioScenarioVariantExtremeVariant

DefaultingCountrieslI,IS1plandS2plustheEurozone

Worldfoodpriceshock180%250%310%

CurrencyExchangeRatesShock25–40%25–40%25–40%

GrossGovernmentDebtShock50%50%50%

Macroeconomiclosses

Globalrecessionseverity

(MinimumqtrlygrowthrateglobalGDP)

Globalrecessionduration

GDP@Risk$Tr

(5yearlossofglobaloutput)

GDP@Risk%

(as%of5-yearbaselineGDP)

PortfolioImpact

Performanceatperiodofmaxdownturn

HighFixedIncome

Conservative

Balanced

Aggressive

Assetclassperformance

USEquities(W5000),%Change

UKEquities(FTSE100),%Change

GermanTreasuries2yrNotes,%Change

GermanTreasuries10yrNotes,%Change

0%

N/A

$11.2Trillion

2.8%

-1.8%

5Qtrs

$16.3Trillion

4.1%

-2.6%

6Qtrs

$23.2Trillion

5.9%

-5%-16%-18%

-10%-25%-28%

-12%-29%-31%

-13%-32%-35%

Yr1Qr4Yr3Qr4Yr1Qr4Yr3Qr4Yr1Qr4Yr3Qr4

-4%-2%-10%-15%-15%-39%

-21%-2%-36%-15%-43%-39%

-18%-36%-61%-76%-64%-82%

-13%-18%-68%-65%-70%-69%

Table1:SummaryimpactsoftheEurozoneMeltdownscenario

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EurozoneMeltdownStressTestScenario

TrillionUS$GDP@Riskacrossscenarios

S1

S2

X1

1.6

4.6

8.1

MillennialUprising

SocialUnrestRisk

1.9

1.6

-1.6

DollarDeposed

De-AmericanizationoftheFinancialSystemRisk

15

4.5

7.4

SybilLogicBomb

CyberCatastropheRisk

4.9

8

10.9

HighInflationWorld

FoodandOilPriceSpiralRisk

10

23

7

SaoPaoloInfluenzaVirus

PandemicRisk

EurozoneMeltdown

SovereignDefaultRisk

11.2

16.3

23.2

13.2

19.6

GlobalPropertyCrash

AssetBubbleCollapseRisk

China-JapanConflict

GeopoliticalWarRisk

17

27

32

2007-12GreatFinancialCrisis

18

GreatFinancialCrisisat201420

Table2:GDP@RiskimpactoftheEurozoneMeltdownscenariocomparedwithpreviousCentreforRiskStudiesstresstestscenarios

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CambridgeCentreforRiskStudies

2FinancialCatastropheStressTestScenarios

Thisscenarioisanillustrationoftherisksposedbyaplausiblebutextremefinancialmarketbasedcatastrophe.Itrepresentsjustoneexampleofsuchacatastropheandisnotaprediction.Itisa“what-if”exercise,designedtoprovideastresstestforriskmanagementpurposesbyinstitutionsandinvestorswishingtoassesshowtheirsystemswouldfareunderextremecircumstances.

ThisscenarioisoneofaseriesofstresstestscenariosdevelopedbytheCentreforRiskStudiestoexplorethemanagementprocessesfordealingwithanextremeshockevent.Itisoneoffourfinancialmarketcatastrophescenariosbeingmodelledunderthisworkpackageandincludesthefollowing:

?GlobalPropertyCrash:AssetBubbleCollapse;

?DollarDeposed:De-AmericanisationoftheGlobalFinancialSystem;

?HighInflationWorld:FoodandOilPriceSpiral.Thescenariospresentaframeworkforunderstandinghowglobaleconomicandfinancialcollapsewill

impactregions,sectorsandbusinessesthroughoutthenetworkedstructureoftheeconomy.Thesefinancialstresstestsaimtoimproveorganisations’operationalriskmanagementplanstoformcontingenciesandstrategiesforsurvivingandminimisingtheimpactsfrommarket-basedfinancialcatastrophe.Inparticular,thestresstestsallowinstitutionstomanageandbuildresiliencetodifferentformsofriskduringperiodsoffinancialstress.

Theserisksinclude:

?financialandinvestmentriskstemmingfromacollapseinassetpricesacrossdifferentsectorsandregions;

?supplychainriskandtheabilityofaninstitutiontoeffectivelymanageitsinputrequirementsthroughitssupplychain,tomeetinternalproductionandoperationalrequirements;

?customerdemandriskandknowledgeforhowdemandmightshiftforgoodsandservicesduringperiodsoflowinvestmentandconsumerspending;

?marketorsegmentationriskandanunderstandingofhowotherfirmswithinthesamesectorwillreactandperformduringperiodsoffinancialstressandhowthismayimpactonthebusiness;

?reputationalriskandtheprotectionofbrandimageforreactingappropriatelyandconfidentlyundercrisisconditions.

Eachindividualscenariomayrevealsomeaspectsofpotentialvulnerabilityforanorganisation,buttheyareintendedtobeexploredasasuiteinordertoidentifywaysofimprovingoverallresiliencetounexpectedshocksthatarecomplexandhavemulti-facetedimpacts.

Marketcatastropheriskandfinancialcontagion

TheGreatFinancialCrisisof2007-8notonlyrevealedtheextenttowhichtheglobalfinancialsystemisinterconnectedbuthowinterrelationshipsbetweencommercialbanks,investmentbanks,centralbanks,corporations,governments,andhouseholdscanultimatelyleadtosystemicinstability.Asglobalfinancialsystemsbecomeincreasinglyinterconnected,ashocktoonepartofthesystemhasthepotentialtosendacascadeofdefaultsthroughouttheentirenetwork.

In2008,itwasonlythroughgovernmentinterventionintheformofextensivebailoutpackagesthatawidespreadcollapseoftheglobalfinancialsystemwasavoided.Newmodelsoftheglobalfinancialsystemareanessentialtoolforidentifyingandassessingpotentialrisksandvulnerabilitiesthatmayleadtoasystemicfinancialcrisis.

Theliteratureidentifiesthreetypesofsystemicrisk:(i)build-upofwide-spreadimbalances,(ii)exogenousaggregateshocksand(iii)contagion(Sarlin,2013).Similarlyweworkwiththreeanalyticalmethodsthathelpdealwithdecisionsupport:(i)early-warningsystems,(ii)macrostress-testing,and(iii)contagionmodels.AllthreemethodsareactivelyunderresearchintheCentreforRiskStudiesandutilisedinthedevelopmentofthesestresstestscenarios.

Understandingfinancialcatastrophethreats

Thisscenarioexplorestheconsequencesofafinancialmarketcatastrophebyexaminingthenotional1-in-100possibilityforaHighInflationWorldScenarioandexamininghowtheshockwouldworkthroughthesystem.

Foraprocessthattrulyassessesresiliencetomarketcatastrophe,weneedtoconsiderhowdifferentmarket-basedcatastrophesoccurandthenpropagatetheseshocksthroughglobalfinancialandeconomicsystems.Thisexercisewouldideallyincludeathoroughanalysisforeachdifferenttypeofmarketcatastropheinadditiontothefourfinancialcatastrophesincludedinthissuiteofstresstests.

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EurozoneMeltdownStressTestScenario

Suchananalysiswouldalsoincludearangeofdifferentseveritiesandcharacteristicsforthesescenarioswouldoccurasaresultofthesedifferentfinancialandeconomiccrises.

TheCambridgeRiskFrameworkattemptstocategorizeallpotentialcausesoffutureshocksintoa“UniversalThreatTaxonomy.”Wehavereviewedmorethanathousandyearsofhistoryinordertoidentifythedifferentcausesofdisruptiveevents,collatingotherdisastercataloguesandcategorizationstructures,andresearchingscientificconjectureandcounterfactualhypotheses,combinedwithafinalreviewprocess.TheresultingCambridgetaxonomycataloguesthosemacro-catastrophethreatswiththepotentialtocausedamageanddisruptiontoamodernglobalisedworld.ThereportCambridgeSystemShockRiskFramework:Ataxonomyofthreatsformacro-catastropheriskmanagement(CCRS,2014)providesafulldescriptionofthemethodologyandtaxonomycontent.

Withinthisuniversalthreatframeworkwehavedevelopedaspecifiedtaxonomyforfinancialcatastrophes.ThiscanbeseeninFigure1andincludesalistofsevenuniquefinancial,marketandeconomiccatastrophes.Alargeeconomicorfinancialcatastropheseldomaffectsjustonepartofthesystem.

Thehistoricalrecordshowsthatmultiplemarketcatastrophestendtooccuratthesametimeandimpactscascadefromonecrisistothenext.TherecentGreatFinancialCrisis(GFC)isoneexampleofthis.ThefinancialcrisisstartedintheUSasasub-primeassetbubblebutquicklyspreadtothebankingsectorwheremanymajorbankswereleftholdingassetsworthmuchlessthanhadoriginallybeenestimated.Thecomplicatednatureofthevariousfinancialderivativesthatwerebeingsoldmadeitdifficultfortraderstounderstandthetrueunderlyingvalueoftheassetthatwasbeingpurchased.Thisresultwasasystemicbankingcollapsethathadworldwideimplicationsthatstillremainstobesolvedacrosstheglobe.

Throughouthistorytherehavebeenmanyotherexampleswheremultipleformsoffinancialcatastrophehavecascadedfromoneformofcrisistothenext,examplesincludethe1720SouthSeaBubble;1825LatinAmericanBankingCrisis;1873LongDepression;1893BearingBankCrisis;1929WallStreetCrashandDepression;1997AsianCrisisandthe2008GlobalFinancialCrisis.

Scenariodesign

Eachscenarioisselectedasaplausible,butnotprobable,extremeeventthatisdrivenbyanumberoffactorsandwouldcausesignificantdisruptiontonormallifestylesandbusinessactivities.

Theyareillustrativeofthetypeofdisruptionthatwouldoccurwithinaparticularcategoryof“threat”or“peril”–i.e.acauseofdisruption.

Inthisscenario,weexploretheconsequencesofa“EurozoneMeltdown”resultingfromcascadeofsovereigndebtdevaluationscausedbythesequentialexitofcountriesfromacurrencyunion.

TheanalysisestimateslossestotherealeconomyusingtheOEMtocalculatelossesinexpectedGDPoutput.Wehavealsoestimatedhowtheeventwouldimpactinvestmentassetvalues,usingstandardizedinvestmentportfoliostoshowtheeffectonindicativeaggregatereturns.

Investmentmanagerscouldapplytheseassetvaluechangestotheirownportfoliostructurestoseehowthescenariowouldpotentiallyaffecttheirholdings.Theimpactsofthedifferentvariantsofthisscenarioareappliedtofourfinancialportfolios:high-qualityfixedincome,conservative,balanced,andaggressive.

Developingacoherentscenario

Figure1:Financialcatastrophe“FinCat”taxonomy

Itisachallengetodevelopascenariothatisusefulforawiderangeofriskmanagementapplications.Fullyunderstandingtheconsequencesofascenarioofthistypeisproblematicbecauseofthecomplexityoftheinteractionsandsystemsthatitwillaffect.

Theeconomic,financial,andbusinesssystemsthatwearetryingtounderstandinthisprocessarelikelytobehaveinnon-intuitiveways,andexhibitsurprisingcharacteristics.

Duringthisprocesswetrytoobtaininsightsintotheinterlinkagesthroughusinganextremescenario.

Todevelopacoherentstresstestwehavedevisedamethodologyforunderstandingtheconsequencesofascenario,assummarisedinFigure2.

8

LossEstimation

Impactonworkforce;insurancelosslines;utilities;supplychains;finance;sentiment

MarketImpactAssessment

Valuationofkeyassetclasses,suchasequities,fixedincome,FX

CambridgeCentreforRiskStudies

Thisinvolvessequentialprocessingofthescenariothroughseveralstagesandsub-modellingexercises,withiterationprocessestoalignandimproveassumptions.

Webelieveitisimportanttocreatearobustandtransparentestimationprocess,andhavetriedtoachievethisthroughadetailedrecordingoftheassumptionsmade,andbymakinguseofsensitivitytestsregardingtherelativeimportanceofoneinputintoanother.

Inthemacroeconomicstagesofthemodelling,weareconsciousthatweareattemptingtopushmacroeconomicmodels,calibratedfromnormaleconomicbehaviour,outsidetheircomfortzone,andtousetheminmodellingextremeevents.Wehaveworkedcloselywitheconomiststounderstandtheusefullimitsofthesemodelsandtoidentifytheboundariesofthemodelsfunctionality.

ScenarioDefinition

Processdefinition,timeline,footprint,

sectoralimpacts,contagionmechanisms

MacroeconomicModelling

Sectoral®ionalproductivitylossonkeymetricssuchasGDP,Employment

Figure2:Structuralmodellingmethodologytodevelopacoherentstresstestscenario

Uncertaintyandprecision

Overallthescenarioconsequenceestimationprocessretainselementsofuncertainty.Theprocessentailsmakinganumberofassumptionstoassesslossesanddirectimpacts.Thesearethenusedasinputswithinamacroeconomicmodel,withadditionalassumptionsandtheintroductionofuncertaintyandvariation.

Theoutputsthenfeedtheassessmentofportfolioperformance,withfurtherassumptionsgeneratingadditionaluncertainty.Linkingallthecomponentsintoacoherentscenarioisproblematictoachieveandtheprocessdescribedinthisreportisoneparticularapproachthathasattemptedtodothis.

Itissuboptimalinthattheprocessisimpreciseandoneofcompoundeduncertaintyateachsuccessivestageandthemethodologyofvariousaspectsofanyparticularscenarioneedstobeunderstoodinthiscontext.

Thepoint,however,ofproducingthescenarioistounderstandtheconsequencesintermsoftheirholisticeffects,theirrelativeseveritiesandthepatternsofoutcomethatoccur.Infact,thescenarioisdeterministicandisnotdesignedtoprovideexceedanceprobabilitydatapoints.Anapproximationselectionprocesshasbeenadoptedonthebasisofexpertelicitation,tobeintherangeofthe1-in-100annualprobabilityofoccurrenceworldwide,butnotrigorouslydetermined.Thescenarioproductionprocess,limitedasitis,doesprovideinterestinginsights,andmanyoftheapplicationsofthescenarioareachievedthroughthisimperfectapproach.Thescenarioisofferedasastresstest,tochallengeassumptionsofcontinuingstatusquoandtoenablepractitionerstobenchmarktheirriskmanagementprocedures.

Useofthescenariobyinvestmentmanagers

Thescenarioprovidesatimelineandanestimationofthechangeoffundamentalvalueinassetsinaninvestmentportfolio.Thesearesegmentedintobroadassetclassesandgeographicalmarketstoprovideindicativedirectionalmovements.

Theseprovideinsightsforinvestmentmanagersintolikelymarketmovementsthatwouldoccurifaneventofthistypestartedtomanifest.Inrealevents,marketmovementscansometimesappearrandom.

Thisanalysissuggestshowtheunderlyingfundamentalsarelikelytochangeovertime,duetothemacroeconomicinfluences.Thespreadofassetclassandgeographicaldistributionsenableinvestorstoconsiderhowdifferentportfoliostructureswouldperformundertheseconditionsandhowtodevelopstrategiesforportfoliomanagementthatwillminimizethelossesthatmightoccur.

Wherethereareobviouswinnersandlosersbyeconomicsector,thesehavebeenhighlightedtoprovideinputsintooptimalhedgingstrategiesandportfoliodiversificationstructures.

Thisreportprovidesperformanceprojectionsforastandardizedhigh-quality,fixedincomeportfolio,underpassivemanagement.

9

EurozoneMeltdownStressTestScenario

Thisistoenablecomparisonsovertimeandbetweenscenarios.Wealsoestimatereturnsforindividualassetclassestohelpinvestmentmanagersconsiderhowthisscenar