On Tuesday, the CBOE VIX index briefly crossed above 50, the highest level since Aug 2015 before fading to settle around 30. It is more likely technical and also due to lack of liquidity though the initial spike on Monday was triggered by a sell-off in equities. Recall that the markets had been relatively tame for an extended period especially in 2017, which allowed us to form a view then on the potential risk of a sharp snapback like what is happening now. We feel that this equity-centric shock will eventually fade. Still, in our view, one should not be too complacent as the recent spike acts as a wake-up call to investors who benefitted from the strong returns over the past year in betting against a volatility rise and could be in risk of the strong returns being wiped out potentially.

• On Tuesday, the CBOE VIX index briefly crossed above 50, the highest level since Aug 2015 before fading to settle at around 30. The VIX surged by 115.6% on Monday to 37.32.

• We believe the latest spike in VIX is technical, aggravated by lack of liquidity though the initial spike on Monday was driven by the sell-off in equities.

• An important point to note is that the rise in volatility remains confined to the equity markets, a positive sign for global financial markets.

• Recall that the markets had been relatively tame for an extended period especially in 2017, which allowed us to form a view then on the potential risk of a sharp snapback like what is happening now.

• We feel that this equity-centric shock will eventually fade. Still, in our view one should not be too complacent as the recent spike acts as a wake-up call to investors who benefitted from the strong returns over the past year in betting against a volatility rise and could be in risk of the strong returns being wiped out potentially.

• On the local scene, the MYR softened further against the dollar by 0.42% to 3.9165 partly due to lower crude oil prices, namely the WTI and Brent which fell by 1.43% to US$63.49/barrel and 1.01% to US$66.94/barrel respectively. Sell-offs in the broader market dragged the KLCI down by 2.19% to 1,812.45, following a massive foreign net outflow of RM868.7mil. Meanwhile, MGS yields remained unchanged across the curve; the 5-year at 3.605%, 7- at 3.930% and 10- at 3.960%.

Source: AmInvest Research - 7 Feb 2018