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Chart 40: Volatility measures of major Asian indices (data as of 02-Jun-17) 3Mth ATM Implied Volatility 10D Realized Volatility {2Mth-1Mth ATM Vol Spread 3Mth 90-110 Skew Spread Equity Market Weekly 4Yr Weekly 4Yr Weekly 4Yr Weekly 4Yr Weekly Current change percentile Current change percentile Current change percentile Current change percentile return HSI 124% 0.3% 14% 54% = --2.4A% 0.3% 5.1% 0.4% 99.1% 2.3% 0.4% 19.9% 1.1% HSCEI 15.7% 0.3% 1.8% 92% -5.1% 1.6% 43% 0.2% 93.6% 0.4% 0.0% 20.4% 0.8% NKY 14.2% 0.2% 0.3% 10.7% 1.0% 13.4% 42% 04% 93.8% 5.0% -1.0% 59.4% 2.5% KOSPI 200 12.8% 0.3% 34.5% 9.8% 2.6% 36.9% 2.9% 0.7% 44 8% 3.0% 0.2% 15.8% 0.3% ASX 200 11.5% 0.1% 12.8% 85% -0.7% 20.5% 3.5% 0.3% 86.5% 6.3% 0.2% 20.1% 0.6% NIFTY 10.5% 0.7% 0.7% 97% -2.2% 18.9% 3.8% 0.5% 74.0% 5.5% 0.1% 53.0% 0.6% TWSE 10.7% 0.3% 8.2% 1.2% 1.5% 14.1% 2.9% 04% 12.6% -1.5% 0.1% 0.0% 0.5% Source: BofA Merrill Lynch Global Research Chart 41: Index correlation is generally further away from their 10-year Except for the ASX200, Asian stock and index vols are more lows while index and stock vols are near their lows, except for ASX200 depressed than index correlation 9, 20% ; 22% Today’s ultra-low Asian index realized volatility is largely driven wo 20% a by depressed single stock realized volatility and low realized = ; correlation. Stock and index volatilities are generally more 3 . te sy depressed than index correlation. For instance, the KOSPI2 3- = 15% ° month realized correlation (0.13) is the highest relative to its 2 ga 10° history (at its 22"¢ percentile since 2008) as foreign inflows = 10% ; have pushed the index to an all-time high and have driven 5 eh O% eo, correlation up. Korean market activities used to be dominated ~ 5% dil 30, by domestic sector rotation trades. 0% Os Oa On the other hand, ASX200 correlation is relatively depressed as HSI HSCEI NKY KOSPI2 ASI the correlation between the banks and materials sectors has ™3M Stock Vol = 3M Index Vol mi Index Correlation broken down in recent months. Source: BofA Merrill Lynch Global Research US53.6bn Korean auto-callable issuance in May-17, down 21% MoM - Korean issuance fell 21% MoM to US$3.6bn in May-17, which is close to the average monthly issuance of USS3.8bn since 2014. Products issued in Oct-16 (US$3.1bn) and Nov-2016 (USS3.4bn) have knocked out recently and rolled into new products. However, the legacy HSCEI-linked products issued in May-15 were struck at a very high HSCEI spot level and were not able to knock-out this month. We think issuance may pick up in July and August as ~US$4.0bn of legacy products may knock-out in Jul-17 with an average HSCEI knock-out level of 9665 (Chart 43). e Issuance in KOSPI2-linked products (up from US$840mn to US$846mn) remained steady in May-17; HSI-linked products fell 66% from USS360mn to US$120mn as investors prefered HSCEI-linked products (which only fell from USS760mn to USS700mpn). e §X5E-linked (US$1.0bn)}, KOSPI2-linked (US$846mn), HSCElI-linked (US$700mn), and SPX-linked products (US$550mn) accounted for 86% of the May-17 issuance. We estimate that structured product issuers are currently long US$10mn of KOSPI2 vega and USS89mn HSCEI vega respectively. The majority of the US$89mn HSCE! outstanding vega came from the US$14bn of HSCEI-linked legacy products issued between Apr-15 and Jul-15 that have not knocked-out. deg oct Bankof America 20 Global Equity Volatility Insights | 06 June 2017 Merrill Lynch HOUSE_OVERSIGHT_023594