The MSCI Macroeconomic Risk Model and scenario analysis service

A new toolkit to measure the impact of macroeconomic scenarios on global multi-asset class portfolios

From the risks of a hard landing in China to the future course of U.S. interest rates, today’s institutional investors face persistent global macroeconomic uncertainties. The need for a toolkit to help design and stress test portfolios under divergent macroeconomic scenarios has become critical.

To this end, we have introduced MSCI’s Macroeconomic Risk Model and Scenario Analysis Service to help investors evaluate and attribute the impact of macroeconomic scenarios of their own design on global multi-asset class portfolios.

The service allows investors to specify views on GDP growth and inflation for as many as 23 countries that together account for 80% of world GDP. The model traces the effects of each scenario on equity, bonds and credit factors by country. MSCI’s multi-asset class stress testing capabilities then propagate the impact of shocks to these factors to investors’ portfolio. The impact can be attributed at both the asset class and granular levels.

 



 

For example, as the exhibit below shows, MSCI stress tested such a diversified multi-asset class portfolio for a hard landing in China, using two scenarios, one with a medium degree of contagion, one with high contagion.

 


The impact could depend on the investor’s perception of China’s economic integration with the rest of the world. While the portfolio might lose only 3% under the medium-contagion scenario, the impact could be a more severe decline of 8.4% under the high-contagion scenario, mostly driven by a sharp 14% drop in global equities.

To learn more about the MSCI Macroeconomic Risk Model and Scenario-Analysis Service, please contact your MSCI representative or email us at support@msci.com


Linking Macroeconomic Factors to Returns and Risk

How the new risk model works and results from sample stress tests

MSCI Macroeconomic Risk Model and Scenario Analysis Service

A new globally integrated model for generating scenarios and tracing the effects of macroeconomic shocks on global multi-asset class portfolios

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