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8. US Stocks with High China Sales vs. S&P 500 106 - - - US Stocks with High China Sales vs. S&P 500 104 | 102 | “4 fy t t Ve yee. ; pt, ¢ 100 + ie : a Oe 2 a. ane i c ’ 17 fl E 98 | i! Li £ , , wo o4 o Ny e 96 ave a“ AS oy g vi, 1 an\y 8 \ vy SUS fea 94 4 ae a LS E . 7 92 - 1 ‘ ‘ 90 4 9/24— \ 10/44 Ly 88 - 64% Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Note: High China sales basket is aggregated and defined by Goldman Sachs Global Investment Research. Source: Investment Strategy Group, Goldman Sachs Global Investment Research, Bloomberg. Italy: Concerns about Italy have risen to peak levels since the election of a populist government in May and credit default swaps have increased to reflect these higher risks. The government’s expansive fiscal plan, with a proposed budget deficit of 2.4% of GDP, may be rejected by the European Union commission and result in rating downgrades. While the EU is likely to manage this situation in its usual incremental and reactive way, the possibility of new elections in late 2019 reigniting euro viability questions will keep Italy on our radar screens. BREXIT: It is hard to know whether Brexit risks are unchanged, higher or lower given the minute by minute headlines out of the UK. Our base case remains that while the internal politics of the Conservative party will keep uncertainty at elevated levels and the European Union will not compromise on its key tenants of free movement of goods, services, and people, the two sides will agree to a deal that defers the difficult choices on the shape of a final agreement with the EU until late 2020. The Middle East: Risks in the Middle East have not changed substantially with respect to Iraq, Syria, or even the impositions of sanctions on Iran. However, the disappearance of the Saudi journalist who entered the Saudi Embassy in Turkey on October 2™ has the potential to raise risks to global oil supply. While there has been a global uproar, it is not yet clear whether the US will impose serious sanctions or Saudi Arabia would retaliate by reducing oil exports if the US finds sufficient evidence regarding the alleged killing of the Saudi journalist. The recession in 1973-74 was partly due to the quadrupling of oil prices due to the Arab Oil Embargo. Later in that decade, the Iranian Revolution and the Iran-lraq War also led to a 2.5 times spike in oil prices that, along with Federal Reserve tightening by then Chairman Paul Volcker, led to a US recession. While we think it is unlikely that Saudi Arabia would react so aggressively in the face of serious US reprisals, we note that it remains a real risk. HOUSE_OVERSIGHT_026917