Escalating systemic risk: BREXIT & more

We’ve observed a classic escalation of systemic risk last week, culminating in Friday’s European Equities led plunge, as several Brexit polls showed “Leave” in the lead. While UK is currently at the periphery of the global equity network, contagion spread throughout Europe and global equities as seen in Fig. 1 below.

Fig. 1. Global Equities FNA Correlations Outlier Ranking 10 Jun 2016

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Risk continued to escalate into this week, as Asian markets continued a negative cascade. Particularly worrying is was the 15 to 22 VIX spike from Friday to Monday, the biggest two day moves since last year’s August Flash Crash. Investors will do well holding on to safe haven assets like US Government Bonds and JPY. Not to mention Bitcoin, which has reached new two year highs and looks like an increasingly attractive asset class. The video below illustrated key risk dynamics.

Brexit Systemic Risk Escalation Video

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