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Chart 40: Volatility measures of major Asian indices (data as of 02-Jun-17)

3Mth ATM Implied Volatility
Weekly 4Yr
Current change percentile
HSI 12.4% 0.3% 1.4%
HSCEI 15.7% 0.3% 1.8%
NKY 14.2% -0.2% 0.3%
KOSPI 200 12.8% -0.3% 34.5%
ASX 200 11.5% -0.1% 12.8%
NIFTY 10.5% 0.7% 0.7%
TWSE 10.7% 0.3% 8.2%

10D Realized Volatility
Weekly 4Yr
Current change percentile
5.4% -2.4% 0.3%
9.2% -5.1% 1.6%
10.7% 1.0% 13.4%
9.8% 2.6% 36.9%
8.5% -0.7% 20.5%
9.7% -2.2% 18.9%
7.2% 1.5% 14.1%

12Mth-1Mth ATM Vol Spread
Weekly 4Yr
Current change percentile
5.1% 0.4% 99.1%
4.3% 0.2% 93.6%
4.2% -0.4% 93.8%
2.9% 0.7% 44.8%
3.5% 0.3% 86.5%
3.8% -0.5% 74.0%
2.9% -0.4% 72.6%

3Mth 90-110 Skew Spread
Weekly 4Yr
Current change percentile
2.3% -0.4% 19.9%
0.4% 0.0% 20.4%
5.0% -1.0% 59.4%
3.0% 0.2% 15.8%
6.3% -0.2% 20.1%
5.5% 0.1% 53.0%
-1.5% -0.1% 0.0%

Equity Market
Weekly return
1.1%
0.8%
2.5%
0.3%
0.6%
0.6%
0.5%

Source: BofA Merrill Lynch Global Research

Chart 41: Index correlation is generally further away from their 10-year lows while index and stock vols are near their lows, except for ASX200

Percentile Since 2008
25%
20%
15%
10%
5%
0%

[Chart Data Labels: HSI 0% 0% 6%, HSCEI 0% 4% 20%, NKY 3% 2% 16%, KOSPI2 9% 10% 22%, AS51 13% 6% 5%]
Legend: 3M Stock Vol, 3M Index Vol, Index Correlation

Source: BofA Merrill Lynch Global Research

Except for the ASX200, Asian stock and index vols are more depressed than index correlation

Today's ultra-low Asian index realized volatility is largely driven by depressed single stock realized volatility and low realized correlation. Stock and index volatilities are generally more depressed than index correlation. For instance, the KOSPI2 3-month realized correlation (0.13) is the highest relative to its history (at its 22nd percentile since 2008) as foreign inflows have pushed the index to an all-time high and have driven correlation up. Korean market activities used to be dominated by domestic sector rotation trades.

On the other hand, ASX200 correlation is relatively depressed as the correlation between the banks and materials sectors has broken down in recent months.

US$3.6bn 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 US$3.8bn since 2014. Products issued in Oct-16 (US$3.1bn) and Nov-2016 (US$3.4bn) 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).

• Issuance in KOSPI2-linked products (up from US$840mn to US$846mn) remained steady in May-17; HSI-linked products fell 66% from US$360mn to US$120mn as investors prefered HSCEI-linked products (which only fell from US$760mn to US$700mn).

• SX5E-linked (US$1.0bn), KOSPI2-linked (US$846mn), HSCEI-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 US$89mn HSCEI vega respectively. The majority of the US$89mn HSCEI outstanding vega came from the US$14bn of HSCEI-linked legacy products issued between Apr-15 and Jul-15 that have not knocked-out.

20 Global Equity Volatility Insights | 06 June 2017
Bank of America Merrill Lynch
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