Imagining the Impact of a Hard Landing in China

Thoughtful stress-testing gives you the ability to evaluate the impact of potential market scenarios on your portfolios, or on a specific subset of positions. A scenario can be based on historical market events, (such as the Global Financial Crisis), or hypothetical events – set up to provide insight into portfolio risk under anticipated, best-case or worst-case future market conditions.

As China confronts numerous internal and external challenges from slowing economic growth, disruption in Hong Kong and a volatile trade conflict with the United States, it may be prudent to assess and understand the risk a hard landing for the Chinese economy may pose to your portfolio.

 Moderate SlowdownHard Landing
Chinese Yuan-5%-9%
Mainland Equities-15%-30%
Hong Kong Equities-10%-25%
MSCI Emerging Markets Index-10%-25%
US Equities-5%-15%
US Dollar Index3%5%
US Bond Prices3%5%
Gold3%7%

The scenarios below attempt to capture the potential impact of either a moderate slowdown or hard landing for the Chinese economy on select asset classes, incorporating both a risk-off sentiment towards Chinese equities and risk assets as well as a flight to safety towards the US dollar, US treasuries and gold.

The highly customizable nature of Imagine’s stress-testing scenarios allows you to create scenarios specifically tailored to your own risk monitoring priorities and market expectations. Imagine’s scenarios evaluate the performance of your positions under each scenario, analyzing the historical relationship between the shocked asset class and each holding in your portfolio.

Portfolio View

In addition to viewing position-by-position results and portfolio totals, you can aggregate positions by parameters such as Industry or Currency to display meaningful breakdowns of the stress-test results.

The examples below leverage ‘View-By’ templates that allow for quick toggling between aggregation criteria, making it easier to examine exposures and identify sources of risk within a portfolio. From here, you can drill into specific industries or currencies to see the contribution of each constituent position.

Aggregation by Industry

Aggregation by Currency

Please contact Consulting or your Imagine representative for help with constructing your own scenario analysis.

Disclaimer

The stresses described in this blog post illustrate one possible scenario and are intended to be used in general as guidance towards risk management of market events.

About the Author 
Andrew Jay
 works as a consultant in Imagine’s Hong Kong office, working on APAC client implementations and customization projects. Andrew holds a bachelor’s degree from the University of Miami and Masters degrees from The Hong Kong Polytechnic University and Antwerp Management School. He can be reached by email and by phone at 852-3929-2233

You Have Questions? We’ve Got Answers

A Q&A with Eric Pearl

Eric Pearl is the Director of Platform Marketplace and Consulting at Imagine. We sat down to ask him a few questions about the Excel Add-in.

Hey Eric, first, can you give some background on what Imagine Apps are?

An Imagine App is our name for a small JavaScript program that provides access to the rich universe of Imagine data and analytics. These Imagine Apps are made with standard JavaScript that access modules allowing you to access your positions, query current and historical data related to those positions, utilize Imagine’s curves, create analytic functions, run risk tools, and more. We do not run the JavaScript inside a browser – it runs in a process on our servers, and has API access to our business logic and persistent store. You can learn more about our JavaScript API here.

So is the Excel Add-in an App?

No, our add-in is built incorporating two separate pieces of technology; Imagine Apps and Imagine’s REST API.  Imagine’s REST web services provides a standard web service interface to Imagine Apps. And, remember, the apps are just JavaScript. You can learn more about Web Services here, and Imagine’s REST web service here.  Our web service uses the language-independent data format JSON for passing and returning data. So what happens is that our add-in does a translation of inputs to JSON for the REST call, and translates the JSON results back out to a cell (or range of cells).  The bottom line is this—the IFP Excel Add-in seamlessly integrates Imagine with Excel.

Can you give us an example of how it works?

Sure! Our add-in provides an Excel UDF (User Defined Functions) named IMAGINE() which can be used like other Excel functions like AVERAGE() or SUM(). Below is a screenshot showing how to use IMAGINE() in a formula to invoke an Imagine App named myApp. (We also demonstrate this in our demo located here).

eric article

The IMAGINE() formula passes the user’s input (the contents of A1 and B1) to the function with the exported name getVolSurface in the Imagine App myApp. Naturally, inputs and outputs can include Excel cell ranges as well.

In addition to the IMAGINE() UDF, we also provide IMAGINE.VBA(), which is easier when you are writing macros or VBA. See our demo for an example of how this works.

Where can I get the App? What if I want to write my own App?

Want to write your own App? Great, more details on the process are included for you  here.  Rather have Imagine Consulting write the App for you? The Imagine Consulting team can do that—contact us at consulting@imagine-sw.com.

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About the Author
Eric Pearl has been developing risk and portfolio systems for over twenty years. In 2000, he helped launch the industry’s first and leading SaaS solution and in 2012, he launched Imagine’s Platform Marketplace.

Contact our consultants by email or phone: 212-317-7600