multi-asset class market report stress-testing in barraone

MSCI [Applied Research] msci.com © 2012 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document RV Jan 2012 1 of 20

MAC Market ReportEurozone Stress Testing in Barra One

April 2012

Multi-Asset Class Market Report

Stress-Testing in BarraOne: Contemplating a Eurozone Breakup Audrey Costabile and Keshav Choudhary

April 2012

Introduction Since the Eurozone crisis in 2009, it is apparent that structural issues may persist for some time with painful fiscal austerity and explosive levels of debt. To date, Greece has been on the brink of bankruptcy and has received bailout funds from other EU members as well as private investor support. Even though it appears the storm in Athens has quieted for now, the potential for future crisis still lurks for Greece and the rest of the Eurozone.

Most recently, investors questioned the legitimacy of fiscal consolidation plans in Spain. In Italy, concerns about backsliding the reform agenda remain. Pressure is increasingly reflected in funding markets as borrowing spreads have widened and liquidity has declined. The Eurozone periphery is not out of danger and institutional investors will need to consider the possibility of future bailouts, restructurings, and default.

This paper shows one way to create a stress test for a Greek default, even though no historical reference exists for one. Although the paper focuses on Greece, the methodology to create BarraOne’s Euro Stress Test Scenario can be applied to other hypothetical sovereign defaults in the remaining Eurozone nations.

This analysis is organized into four sections. The first one provides a storyline of cross-asset risks resulting from a hypothetical Greek default. The second defines a stress test by choosing relevant market variables for predictive shocks. The third provides a step-by-step description of how the stress test was implemented in BarraOne. The results of implementing our stressed scenario on three mock equity and fixed income portfolios follows. Finally, the fourth section concludes with the monthly Barra Integrated Model Risk Report.



April 2012

The Storyline of Default Creating a Hypothetical Greek Default

Hypothetical scenarios allow the simulation of shocks that may happen more frequently than suggested by historical observation, shocks that have not yet occurred, shocks that cause a breakdown of statistical patterns, and shocks reflecting structural breaks.

In this analysis, we use the following storyline in Figure 1 to think through one possible scenario resulting from a Greek default. In this case, Greece leaves the Eurozone and the new drachma heavily devalues versus the Euro as the country defaults on its debt1.

Figure 1: Events Following a Eurozone Default: Greek Use-Case

1. Greece leaves the Eurozone and issues new drachma, which heavily devalues versus the Euro

2. Greece defaults on its government debt

3. All Greek domiciled assets are forced to re-denominate

4. Remaining countries stay in the Euro and the Eurozone stabilizes

5. Runs on Greek bonds pose risk to European banks as stocks are punished

6. Flight to quality inflows are seen in US Treasuries and other safe-haven assets

Which Assets are Impacted by a Greek Default? Once a default occurs, there are many possible routes that assets may follow given cross-asset correlations, volatility, and market dynamics. In this section, we translate a structural break in the Eurozone into market risk by creating a stress test. This allows us to envision how a sovereign default affects risky assets, such as banking shares, and in turn how it affects other asset classes because of contagion, de-risking, and flight-to-quality trading.

In Figure 2 below, we can visualize some of the cross effects a Greek default may have on a variety of asset types. In order to choose our market variables, it is important to consider two possible contagion channels. The first is the wealth channel, which propagates an income shock of one country to lenders in other countries, generating losses, and results in a pullback in overall lending. The second channel deals with rebalancing where similar country fundamentals lead to perceptions of similar risks that in turn may lead to a reduction in allocation (whether justified or not). Both effects tend to foster flight to quality reactions as investors move into safer assets.

1 Alternatively a similar storyline can be applied to different peripheral economies such as Spain and Italy. A description of respective market variables is shown in Figure 6 in Appendix 1.



April 2012

Figure 2: Wealth and Rebalancing Shocks lead to Flight to Quality Behavior across Global Asset Classes

Immediate devaluation of all Greek assets in Euro terms

Flight to other European currencies such as CHF; Flight to USD and JPY

Eurozone periphery sees short-term contagion to sovereign bonds

Peripheral CDS spreads widen and bond yields push higher

European financials see a spike in financing spreads

Equities, particularly bank stocks, are punished

Peripheral contagion fears lead to flight to quality trading

US Treasuries and core European bonds see inflows; emergence of negative short rates

Choosing the Desired Risk Climate and Horizon Since correlations and volatilities may vary between normal times and stressed times, we utilize historical periods to represent the environment following a Greek default. The time path of a scenario is also an important consideration. For example, if volatility is mean-reverting, a longer half life may be used for a shock that is expected to occur through a longer horizon.

In Figure 3 below, we utilize data from the Russia (1998), Argentina (2002), and Mexico (1994) default loss profiles. History tells us that across these crises 60-70 percent of the maximum loss was realized over the first 10 days of the initial shock and 90 percent of the total loss was realized within 60 days. Volatility in the respective currency market of each defaulting country remained elevated for roughly 90 days past the initial event.

Figure 3: Historical Precedents used to select historical loss patterns Country Crisis Date 10-day 60-day 90-day Mexico 20-Dec-94 3-Jan-95 14-Mar-95 25-Apr-95 Russia 17-Aug-98 31-Aug-98 9-Nov-98 21-Dec-98

Argentina 3-Jan-02 17-Jan-02 28-Mar-02 9-May-02

We will use historical 10-60-90-day respective asset returns in Figure 3 for each country as a proxy to predict what may happen in the case of a Greek default. Results are shown by asset class in Figure 4 below. The 10-day timeframe is the most relevant for this analysis given the severity of losses seen over that period, and this will be the horizon we focus on for our stress test implementation. Note that there is no change to portfolio composition during the shock.



April 2012

Figure 4: Historical Asset Returns Post Sovereign Default Country Crisis Date 10-day 60-day 90-day

Equi

ty

Mexico 20-Dec-94 -33% -60% -60% US 20-Dec-94 2% 9% 11% Russia 17-Aug-98 -43% -40% -40% US 17-Aug-98 -14% -1% 6% Argentina 3-Jan-02 -42% -53% -62% US 3-Jan-02 -2% -1% -8%

Curr

ency

USD/MXN 20-Dec-94 -30.0% -46.0% -42.0% USD/JPY 20-Dec-94 0.4% -9.1% -18.6% USD/CHF 20-Dec-94 -1.3% -11.5% -15.2% USD/RUB 17-Aug-98 -34.0% -59.0% -69.0% USD/JPY 17-Aug-98 -3.2% -16.8% -20.4% USD/CHF 17-Aug-98 -3.8% -7.6% -9.5% USD/ARS 3-Jan-02 -49.0% -67.0% -69.0% USD/JPY 3-Jan-02 0.3% 0.6% -2.4% USD/CHF 3-Jan-02 1.2% 2.1% -2.8%

U.S

. Int

eres

t Rat

es

MXN 1Y 20-Dec-94 2.4% -9.5% -12.3% MXN 5Y 20-Dec-94 1.5% -10.6% -12.5% MXN 10Y 20-Dec-94 0.9% -9.2% -10.2% MXN 30Y 20-Dec-94 1.0% -6.4% -6.6% RUB 1Y 17-Aug-98 -5.5% -13.4% -13.5% RUB 5Y 17-Aug-98 -7.8% -14.6% -16.5% RUB 10Y 17-Aug-98 -6.5% -9.6% -14.1% RUB 30Y 17-Aug-98 -4.7% -5.0% -8.8% ARS 1Y 3-Jan-02 -6.6% 20.5% 4.1% ARS 5Y 3-Jan-02 -4.5% 9.6% 1.1% ARS 10Y 3-Jan-02 -3.5% 5.0% 0.7% ARS 30Y 3-Jan-02 -2.3% 5.0% 0.7%

Stress Test Definition in BarraOne Choosing Market Variables Through the discussion in the preceding pages, we have arrived at a candidate stress test to capture the Eurozone Crisis. For Greek bonds, we will utilize BarraOne’s correlated shock methodology in order to utilize a covariance structure on a given date. By stressing Greek rates we can assume a possible impaired recovery rate for debt.

In Figure 5 below, we first assume a 30 percent recovery rate that is similar to the Argentine case. We then define a more impaired recovery of 18 percent that is in line with the Russian recovery rate. Figure 6 defines market variables for Spanish and Italian defaults with an 18 percent recovery rate assumption.



April 2012

At the time of this writing, nearly 100 percent of investors holding private sector Greek bonds agreed to the terms of a debt swap in which they would take a 75 percent loss in return for a new package of debt securities. Although participation in the swap will offer Greece some relief, the country still suffers a debt burden of 165 percent of GDP and tough austerity measures. Default may still be an option at some point in the future.

Figure 5: Predictive Stress Test Shocks

30% Recovery 18% Recovery

Greek Government Yield 2Y node +5,000bps +8,000bps

German Government Yield 2Y node +50bps +50bps

Italian Government Yield 2Y node +1,000bps +1,000bps

Euro -20% depreciation versus USD -20% depreciation versus USD

Greek Athens General Index -30% -40%

Euro AAA Corporate Spread +100 bps +100 bps

Euro A+ to A- Corporate Spread +200 bps +200 bps

Euro BB+ to BB- Corporate Spread +500 bps +500 bps

One important observation made while choosing market variables was the impact a stress of Italian and German short yields had on other Eurozone nations. For example, stressing Italian 2-year yields by 1,000bps had a far greater impact on peripheral countries than core European economies. This higher beta or greater sensitivity across peripheral states is intuitive given wealth and rebalancing effects described in the first section. Alternatively, stressing German 2-year yields by 50bps had more of an impact on Belgium, Finland and the Netherlands versus other European nations.

Using these dependent versus independent variable relationships to simulate contagion, combined with historical references, it is straight forward to create a default scenario for Spain or Italy as show in Figure 6 below. Note that higher Italian 2-year yields were still representative of peripheral contagion. For Spain and Italy, the respective equity estimation universes were shocked rather than the Greek one. Also, the Euro depreciated more strongly against the USD (30 percent) and corporate bond spreads2 in Europe had a greater impact primarily because these were much larger economies than Greece.

2 Barra One does not allow credit shocks to propagate through to other asset classes when using correlated stress test functionality. (In this case, we would shock these spreads to investigate corporate bond returns that are directly exposed to this factor at magnitudes which correspond to default levels.) To overcome this deficiency, the pre-canned European stress test will offer the entire range of credit shocks.



April 2012

Figure 6: Alternative Predictive Stress Test Shocks for Spain and Italy

Defaulting Country Government Yield 2Y node (Spain or Italy)

+5,000bps

German Government Yield 2Y node +50bps

Euro -30% depreciation versus USD

Defaulting Country Equity Estimation Universe -30%

Euro AAA Corporate Spread +200 bps

Euro A+ to A- Corporate Spread +300 bps

Euro BB+ to BB- Corporate Spread +800 bps

Since risky assets will be most affected by a sovereign default, we make assumptions about the behavior of corporate spreads and equities that are most sensitive to the crisis given contagion effects. The decline in the Euro reflects initial disruption from the default and continued stress as lending fears work through the market. These shocks, ranging between 25-30 percent, are less severe than their historical emerging market references because of liquidity effects.

Conclusion As the Greek crisis persists and threatens its Eurozone neighbors, institutional investors must stay aware of potential pitfalls caused by additional bailouts, restructurings, and defaults. Since Greece nearly defaulted and still has an enormous debt burden as a percentage of GDP, designing and implementing stress tests with severely impaired recovery rates is an important component to understanding future risks.

During a stress test, one makes a set of choices (i.e., which factors to stress, the magnitude of shocks, the correlation structure, and so on) that have an impact on the results. By choosing intuitive predictive variables and understanding the relationship of independent and dependent variables, it is possible to extend this Greek analysis to other spotlight peripheral economies such as Spain and Italy. BarraOne allows users to investigate the impact of these choices and to change the parameters as necessary.

In Appendix 1, stress test results describe the impact of Greek, Spanish and Italian shocks on representative equity and bond portfolios. These results are segmented by country, GICS® sector, and pure factor settings in order to drill down to various portfolio holdings. Institutional investors may wish to change these settings according to specific needs.



April 2012

Appendix 1: Implementation in BarraOne

In the following paragraphs, we walk through the key steps of implementing the Euro Stress Test Scenario in BarraOne.

Predictive Stress Test The BarraOne stress test module supports predictive stress testing and is widely used by our client base. Stress test scenarios can be accessed through the ‘Simulation’ tab on BarraOne.

Step 1

Enter the shocks identified in Figure 5: Predictive Stress Test Shocks as shown in the screenshot below. Alternatively, one can enter the shocks detailed in Figure 6: Predictive Stress Test Shocks for Spain and Italy in an analogous fashion.

Interest rate shocks can be entered both in absolute change in basis points or percent change. This can be controlled using the ‘Use relative Interest Rate shocks’ and ‘Use relative Spread shocks’ check boxes.

Select the ‘Use correlated shock methodology’ to leverage the existing relationships between factors as defined by Barra Integrated Model’s covariance matrix on a given date to assess the impact of existing correlations between the Barra Integrated Model factors. As an example, a Greek equity shock will only impact Greek equities when using the uncorrelated shocks but a Greek equity shock will also impact Singapore, China and Australia equity when using the correlated shock methodology.



April 2012

Predictive Stress Test

Step 2

Choose an analysis date and risk model to run the stress test. Reports can be run on different analysis dates to see the behaviour of the portfolio under various prevailing market conditions. The analysis date defines the covariance matrix to be used for the correlated shock methodology.



April 2012

Stress Test Results Three representative portfolios were created to test the scenario consisting of equity and fixed income constituents. They were run for March 19, 2012 for a Greek default (30 percent and 18 percent recovery scenarios) and for April 18, 2012 for Spanish, Italian and Greek defaults (18 percent recovery) to simulate ongoing market conditions. Clients may use multiple dates to run scenarios that simulate prevailing market conditions. MSCI Europe Index – representative of the European equity market SSB European Govt – representative of the European sovereign fixed income MSCI USA Index – representative of the US equity market In addition, two factor portfolios were created to analyze the impact of the scenario on a factor level. Equal Weighted USE3 factor portfolio – US factors Equal Weighted EUE3 factor portfolio – European factors



April 2012

MSCI Europe Index Portfolio

Greece: 30 Percent Recovery The results revealed that Greece, Spain, Italy and Portugal were expected to lose most value while Switzerland, Denmark and Great Britain showed better resilience. An industry analysis reveals that Financial Services, Real Estate and IT were expected to lose over 24 percent value, while Utilities, Tobacco and Containers and Packaging were expected to perform better with losses limited to less than 15 percent.

March 2012: Analysis by country (left) & Analysis by GICS industry (right)

Spain, Italy, Greece: 18 Percent Recovery

Spanish and Italian defaults hurt the MSCI Europe Index portfolio by approximately 26 percent and 23 percent, respectively. A more severe Greek default hurt the MSCI Europe Index portfolio by 21 percent because of the relative sizes of the Spanish and Italian economy in contrast to the Greek economy.

A Spanish or Italian default also stressed Austria and Portugal severely sending these markets plummeting by at least 35 percent, indicating that these were among the most threatened economies in Europe. Spain affected Scandinavian countries much more than Italy or Greece, which explains the higher overall loss in the Spanish scenario.



April 2012

April 2012 - MSCI Europe - Spain/ Italy/ Greece Default Scenarios



April 2012

European Government Index Portfolio

Greece: 30 Percent Recovery

A European Sovereign Bond index was chosen to see the impact of the scenario on fixed income assets. The overall portfolio lost about 20 percent in March 2012, with Ireland, Spain, Belgium and Portugal losing over 24 percent each, while Britain and the Scandinavian countries lost less than 20 percent. Another observation was that longer maturity bonds performed better than shorter maturity bonds, both in Sweden and Norway.

March 2012 - European Bond Portfolio Performance by country (left) Individual bond performance (right)



April 2012


April 2012: European Sovereign Bond Index Performance

The bond portfolio of European sovereign bonds lost 34 percent, 32 percent and 20 percent, respectively, in the Spanish, Italian and Greek default scenarios chosen. Austria and Belgium emerged as economies with highest exposures to Spain and Italy. Great Britain was the most resilient economy in the region followed by Sweden and Germany in all cases.



April 2012

MSCI USA Index Portfolio

Greece: 30 Percent Recovery

The MSCI USA Index portfolio was minimally impacted by this scenario losing less than 3 percent in the stress test. This was due to the correlation between the US and European market. The US market did not however participate in the regression for this scenario as it was localized to Europe. It is worth noting, however, that Metals and Mining (-15 percent) and Financials (-8 percent) were more significantly impacted by the shock. Airlines and Utilities gained marginally in the scenario. The Airline industry gaining was related to the Energy Services industry falling as they shared a high negative correlation.

March 2012: MSCI USA P&L by industry



April 2012


April 2012: MSCI USA P&L by Industry

Metals and Mining remained the worst performing industry in the US for all scenarios, indicating its close correlation to global growth. Real Estate, Biotechnology and Pharmaceuticals were other major losers. Luxury goods, Leisure Equipment gained as most European luxury goods gain on better EUR/USD rates forecasted. Airlines gained on lower fuel prices in the short run without a noticeable drop in domestic consumption.



April 2012

Europe Factor Portfolio

The European factor portfolio shed insight into the behaviour of various EUE3 factors in the stress test scenario. A distillation of factors by country shows the worst performing countries of Europe. Eastern European countries like Hungary, Poland and Turkey were highly affected by the scenario they share a strong correlation with European growth.

March 2012: Worst performing countries in equal weighted European factor portfolios

Factors can be classified further into industry and style, of which style factors are discussed below.

Style factors Style factors are common across Europe and had the same movement for each country across Europe. Volatility and Earnings Yield were the worst performing factors while Momentum and Size actually gained in the scenario.

March 2012: European Style Factor Performance



April 2012

US Factor Portfolio

In the US Equal Weighted factor portfolio, US Gold was surprisingly down 22 percent in the scenario – the worst performing factor in the factor universe by a large margin. US Metals (-7.68 percent) and US Mining and Real Estate Trusts (-6.28 percent) were the other significant losers.

US Airline was the only factor to gain value, climbing over 5 percent. US Motor Vehicles and Parts and US Leverage showed immunity to the European crisis losing less than 0.15 percent each.

The Airlines industry is an interesting factor because it performed well in the short term if the economy weakened – due to reducing energy costs. However, a prolonged downturn in the economy hit airlines hard with both business and leisure travel slowing down.

March 2012: US Industry and Style Factor Performance



April 2012

Appendix 2: Barra Integrated Model Risk Report

In this monthly appendix published in the Multi-Asset Class Market Report series, we report the recent cross asset class correlations and asset class volatilities based on the Barra Integrated Model. Last year same month values are included for comparison.

Table A.1: Cross asset class correlations (upper triangle: April 2012; lower triangle: April 2011)

Glo

bal E

quiti

es1

USA

Equ

ities

2

Euro

Equ

ities

3

Emer

ging

Mar

ket E

quiti

es4

Smal

l Cap

Equ

ities

5

Glo

bal G

over

nmen

t Fix

ed In

com

e6

USA

Tre

asur

ies7

USA

Cor

pora

te F

ixed

Inco

me8

USA

Fix

ed In

com

e H

igh

Yiel

d9

EMU

Gov

ernm

ent F

ixed

Inco

me10

Com

mod

ities

11

Global Equities1 1 0.96 0.95 0.93 0.98 0.06 -0.33 0.30 0.67 0.31 0.52

USA Equities2 0.96 1 0.85 0.82 0.96 -0.07 -0.35 0.24 0.63 0.16 0.44

Euro Equities3 0.96 0.88 1 0.89 0.92 0.18 -0.29 0.29 0.63 0.45 0.51

Emerging Market Equities4 0.92 0.82 0.88 1 0.89 0.10 -0.28 0.34 0.66 0.35 0.52

Small Cap Equities5 0.98 0.96 0.92 0.88 1 0.03 -0.34 0.29 0.68 0.27 0.51

Global Government Fixed Income6 0.10 0.00 0.14 0.17 0.07 1 0.63 0.49 0.04 0.83 0.04

USA Treasuries7 -0.28 -0.29 -0.27 -0.22 -0.30 0.61 1 0.57 -0.19 0.33 -0.26

USA Corporate Fixed Income8 0.39 0.34 0.36 0.42 0.37 0.44 0.48 1 0.59 0.41 0.14

USA Fixed Income High Yield9 0.67 0.63 0.64 0.65 0.67 0.04 -0.22 0.64 1 0.20 0.46

EMU Government Fixed Income10 0.31 0.20 0.37 0.38 0.27 0.87 0.35 0.40 0.19 1 0.25

Commodities11 0.49 0.42 0.46 0.48 0.49 0.10 -0.23 0.19 0.46 0.29 1 Source: BarraOne, BIM301L risk model. As of the 15th of the month. Model portfolios:

1 MSCI All Country Investable Market Index

2 MSCI USA Investable Market Index

3 MSCI Europe Investable Market Index

4 MSCI Emerging Markets Investable Market Index

5 MSCI World Small Cap Index

6 Bank of America Merrill Lynch Global Government Bond II Index

7 Bank of America Merrill Lynch US Domestic Treasury Master Index

8 Bank of America Merrill Lynch US Domestic Corporate Master Index

9 Bank of America Merrill Lynch US High Yield Master II Index

10 Bank of America Merrill Lynch EMU Direct Government Index

11 S&P GSCI Index



April 2012

Table A.2: Asset class volatilities (annualized)

April 2011 April 2012

Global Equities1 20.85 20.89

USA Equities2 21.01 20.49

Euro Equities3 21.86 24.80

Emerging Market Equities4 25.48 25.99

Small Cap Equities5 22.96 23.17

Global Government Fixed Income6 7.27 6.66

USA Treasuries7 4.60 4.62

USA Corporate Fixed Income8 6.58 5.88

USA Fixed Income High Yield9 11.37 8.79

EMU Government Fixed Income10 13.05 12.65

Commodities11 26.62 24.50 Source: BarraOne, BIM301L risk model. As of the 15th of the month. Model portfolios:

1 MSCI All Country Investable Market Index

2 MSCI USA Investable Market Index

3 MSCI Europe Investable Market Index

4 MSCI Emerging Markets Investable Market Index

5 MSCI World Small Cap Index

6 Bank of America Merrill Lynch Global Government Bond II Index

7 Bank of America Merrill Lynch US Domestic Treasury Master Index

8 Bank of America Merrill Lynch US Domestic Corporate Master Index

9 Bank of America Merrill Lynch US High Yield Master II Index

10 Bank of America Merrill Lynch EMU Direct Government Index

11 S&P GSCI Index



April 2012

Client Service Information is Available 24 Hours a Day [email protected]

Notice and Disclaimer This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of MSCl Inc. or its

subsidiaries (collectively, “MSCI”), or MSCI’s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the “Information Providers”) and is provided for informational purposes only. The Information may not be reproduced or redisseminated in whole or in part without prior written permission from MSCI.

The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information many not be used to create indices, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other MSCI data, information, products or services.

The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF THE INFORMATION PROVIDERS MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH INFORMATION PROVIDER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.

Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Provider have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited, including without limitation (as applicable), any liability for death or personal injury to the extent that such injury results from the negligence or wilful default of itself, its servants, agents or sub-contractors.

Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results.

None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), any security, financial product or other investment vehicle or any trading strategy.

MSCI’s indirect wholly-owned subsidiary Institutional Shareholder Services, Inc. (“ISS”) is a Registered Investment Adviser under the Investment Advisers Act of 1940. Except with respect to any applicable products or services from ISS (including applicable products or services from MSCI ESG Research Information, which are provided by ISS), none of MSCI’s products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies and none of MSCI’s products or services is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

The MSCI ESG Indices use ratings and other data, analysis and information from MSCI ESG Research. MSCI ESG Research is produced by ISS or its subsidiaries. Issuers mentioned or included in any MSCI ESG Research materials may be a client of MSCI, ISS, or another MSCI subsidiary, or the parent of, or affiliated with, a client of MSCI, ISS, or another MSCI subsidiary, including ISS Corporate Services, Inc., which provides tools and services to issuers. MSCI ESG Research materials, including materials utilized in any MSCI ESG Indices or other products, have not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body.

Any use of or access to products, services or information of MSCI requires a license from MSCI. MSCI, Barra, RiskMetrics, ISS, CFRA, FEA, and other MSCI brands and product names are the trademarks, service marks, or registered trademarks or service marks of MSCI or its subsidiaries in the United States and other jurisdictions. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and Standard & Poor’s. “Global Industry Classification Standard (GICS)” is a service mark of MSCI and Standard & Poor’s.

About MSCI MSCI Inc. is a leading provider of investment decision support tools to investors globally, including asset managers, banks, hedge funds and pension funds. MSCI products and services include indices, portfolio risk and performance analytics, and governance tools.

The company’s flagship product offerings are: the MSCI indices with approximately USD 7 trillion estimated to be benchmarked to them on a worldwide basis1; Barra multi-asset class factor models, portfolio risk and performance analytics; RiskMetrics multi-asset class market and credit risk analytics; MSCI ESG (environmental, social and governance) Research screening, analysis and ratings; ISS governance research and outsourced proxy voting and reporting services; FEA valuation models and risk management software for the energy and commodities markets; and CFRA forensic accounting risk research, legal/regulatory risk assessment, and due-diligence. MSCI is headquartered in New York, with research and commercial offices around the world.

1As of June 30, 2011, based on eVestment, Lipper and Bloomberg data.

Americas Europe, Middle East & Africa Asia Pacific

Americas Atlanta Boston Chicago Montreal Monterrey New York San Francisco Sao Paulo Stamford Toronto

1.888.588.4567 (toll free) + 1.404.551.3212 + 1.617.532.0920 + 1.312.675.0545 + 1.514.847.7506 + 52.81.1253.4020 + 1.212.804.3901 + 1.415.836.8800 + 55.11.3706.1360 +1.203.325.5630 + 1.416.628.1007

Cape TownFrankfurt Geneva London Milan Paris

+ 27.21.673.0100+ 49.69.133.859.00 + 41.22.817.9777 + 44.20.7618.2222 + 39.02.5849.0415 0800.91.59.17 (toll free)

China NorthChina South Hong Kong Seoul Singapore Sydney Tokyo

10800.852.1032 (toll free)10800.152.1032 (toll free) + 852.2844.9333 798.8521.3392 (toll free) 800.852.3749 (toll free) + 61.2.9033.9333 + 81.3.5226.8222

multi-asset class market report stress-testing in barraone

Documents