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 Chart 4: Stress across regions (Europe is the most stressed region in the classes — credit stress declined the most last week GFSI while EM is the least stressed) 0.6 0.1 0.5 0.4 0.1 0.03 0.3 00 0.2 0.1 0.01 o 0.0 — 0.01 0.01 0.1 0.1 i. 0.05 Te 0.11 0.11 0.11 02 “ 0.2 Commodities Rates FX Equities Credit US Japan Europe EM m Latest stress (05-Aug-16) = Change in stress mLatest stress (05-Aug-16) = Change in stress Source: BofA Merrill Lynch Global Research. 1wk change (22-Jul-16 to 29-Jul-16). Source: BofA Merrill Lynch Global Research. Iwk change (22-Jul-16 to 29-Jul-16). Chart 5: Top 10 movers in stress (1-week abs chg %-ile vs history*) Chart 6: Global volatility & credit spread stress in the GFSI = aes fal 0.4 mw Latest stress (05-Aug-16) = Change in stress 100% 99% ... i 0.24 0.04 001 _ 100% 95% 93% 00 __ = 85% Ss 90% 9 g49 0.2 0.01 j 2 sox 8% 80% Ta% 77% 04 P88 0.08 M010 4g 2 : 69% 0.6 g 10% 08 wm 60% -1.0 c @ 0% ? = - 1 S S D D i i ¥ 2 seep Bs S&S $QaQ 5 >= = 8 8 £ =& # s BSES O B 2 » FR®ID G 2 = > a) ts | 5 % S560 85 5 9 S885 0 59 e 2g F ~*~ Gg 8 2 @u2sS £ 208 5s FSRSgui =F = = ©5838 Bo 7p &E& 2 2 g ro) non a a a rs a a Source: BofA Merrill Lynch Global Research. * %-ile of weekly move in stress vs all historical weekly Source: BofA Merrill Lynch Global Research. Iwk change (22-Jul-16 to 29-Jul-16). moves (earliest 3-Jan-00). Bar colours represent rise (red) or fall (green) in stress. 1wk change (22-Jul- 16 to 29-Jul-16). Merion Global Equity Volatility Insights | 09 August 2016 3 HOUSE_