atans1

China Black Swan risks quantified

In Banks, China on 14/09/2010 at 5:27 am

Morgan Stanley’s Qing Wang created a new tracking concept, the China Macro Risk Radar (CMRR). The  goal is to provide a framework to asses and monitor risk events of low to moderate probability (high probability events already have their own standing at the firm and are singled out in client calls) and high impact.

As part of its inaugural edition, MS has assigned 10 risk events to four different categories on the CMRR – each risk event is assessed according to six aspects, including its description, content, potential impact, likelihood, timeframe, and evolving direction. The top 10 event  that shld concern investors  can be summarized along the following four verticals:

Risk Category A: Macroeconomic

Risk Event 1: Massive NPLs

Risk Event 2: Local Governments Default

Risk Event 3: Economic Hard Landing

Risk Category B: Policy and Regulatory Changes

Risk Event 4: Rapid Wage Increase

Risk Event 5: Introduction of Property Tax

Risk Event 6: Resource Tax Reform

Risk Category C: Financial Market Shocks

Risk Event 7: Property Bubble Burst

Risk Event 8: Commodity Prices Spike

Risk Category D: External Shocks

Risk Event 9: European Sovereign Debt Crisis Redux

Risk Event 10: Trade Protectionism

A visual summary

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