<table><tr><th>From:</th><th>Richard Kahn &lt;</th></tr><tr><td>Sent:</td><td>Wednesday, March 14, 2018 4:52 PM</td></tr><tr><td>To:</td><td>jeffrey E.</td></tr><tr><td>Subject:</td><td>Fwd: MEGA Trade --&gt; Long Saudi...</td></tr></table>

Richard Kahn
HBRK Associates Inc.
575 =exington Avenue 4th Floor
New York, NY 10022
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Begin forwarded message:

From: =/b>"Ens, Amanda" <███████████████████████████>

Subject: =/b>MEGA Trade --> =ong Saudi...

Date: March 14, 2018 at 12:45:33 PM EDT

To: =/b>"rkahn"<████████████████████████████>

Reply-To: =/b>"Ens, Amanda" <██████████████████████████>

Global Equities
MEGA — Europe

Opening New MEGA Trade:

Long Saudi Equities ( Buy M1SAP on Swap / Liquidity $100mm a =ay)

- Potentially the EM Flow Story of 2018... if FTSE =ddition is announced on March 28th we expect an inflow of S5bn =n a basket which trades 100mm USD a day (50X ADV)... this is even =efore MSCI announcement in June where inflows could be substantially =igher

- The Most Powerful Macro Trades are when Macro =undemantals + Flow Meet... This is Saudi in 2018

Key Points:

1. Saudi has significantly underperformed Oil by 14% last = months. With the recent introduction of the citizens account =rogramme, subsidy cuts, pushing out the budget balance to 2023, and the =ews of increased handouts, Saudi should re correlate with oil and move =igher from here.

2. Saudi equities remain under-owned globally a foreign ownership of Saudi equities is at 1.3% vs Russia 70%, Turkey 55%, =outh Africa 50%, Brazil 45%, UAE 20%, Qatar 10%

3. Good liquidity vs other EMs but volume trading at lows =elative to history a Tadawul ADV close to all-time lows at $lbn (10yr range =s $1-8bn)

4. Major index events in 2018/19 with FTSE announcement =n 28th March next =atalysta FTSE announcement could =rigger inflows of up to $5bn . =ombined with the MSCI announcement later this year, potential active =nd passive inflows can total $15-$40bn. So the =otential of at least $20bn inflows on a basket which trades 100mm USD a =ay (200 Days Volume) ?

5. In comparison, during the MSCI UAE and Qatar =nclusions, UAE was trading 10% below historic avg @14x PE and rerated to 22x =nto MSCI EM inclusion with 0ubai up +110% (vs +47% prey year). Qatar was =rading inline with historic avg @llx PE and rerated to 18x =SCI EM inclusion with Qatar up +60% (vs +9% prey year)

6. Saudi risk indicators at 2015 =re-crisis levels a Saudi Syr =DS is trading at 76 vs 40-210 3yr range; SAR 2yr fwd suggests market is less =orried about depeg fears and forward points can be used as a macro hedge

7. Valuations & dividend yields remain =ttractive a Market trades at a 10% =iscount (13.5x) to its historic PE (Saudi PE range is 10-26x). Avg dividend yield is 3.6% with =5 stocks yield more than 4%.

Our Middle East Team ready for Calls - Hamdy Hamoudi in London next week =9th-23rd March. Talal marketing in US 23rd-27th =pril. Marwan in Trading

MAR disclosure

Saudi has =nderperformed both Oil and EM in the last 6 months

Saudi equities =emain under-owned globally

Risk indicators are back to 2015 pre-crisis =evels. Saudi 5yr CDS down from 210 to 76 (note 40 was all time =ow)

Valuations =emain attractive – Saudi trading at 10% below historic PE; =audi ERR now at 1.22 vs 0.4 in 2016

MEGA Open =rades

Theme/Trade
Trade =xpression
Entry Date
Expiry
Entry Level
Current Level
Hit Ratio

We think Fed rates =xpectations for 2019 remain on the low side with just marginally more =han 1 hike priced. Buy Dec18 =urodollar Futures (EDZ8) vs Sell Dec19 Eurodollar Futures (EDZ9) 07/02/2018 97.63/97.31 97.455/97.125

✓

We do not think the =oE will hike as much as the Fed next year when markets are pricing =arginally more from the BoE. Buy Dec19 Short =terling futures (L Z9) vs Sell Dec18 Short Sterling Futures (L Z8) 07/02/2018 98.76/99.09 98.67/98.98

✓

The risk for =quities is a further rise in yields led by higher real rates. Last time =0y real rates were here S&P was closer
to 2720.
Long SPX Mar18 =640/2600 put spread
28/02/2018
16/03/2018
10
0.00
X

We see asymmetry in =URGBP. We expect EUR to react positively if Italy/Germany is neutral/ =ositive this weekend and
ECB pricing to become firmer. On GBP leg, UK =olitical risk remain underpriced with odds of early election in 2018
=ncreasing Long EURGBP 3m =.91/0.94 call spread
02/03/2018
-
0.62%
0.45%

×

MEGA Closed =rades (Hit=Ratio Closed Trades = 77%)

Theme/Trade
Trade =xpression
Entry Date
Close Date
Entry Level

Close Level
Hit Ratio

Equities set up for hawkish BoE hike. =ignificant unwinds of FTSE longs into meeting. Dovish hike delivered =earls Long FTSE remains a catch up trade. Long FTSE Feb18 =550/7700 call spread for 42 offer (7476 ref) (rolled from Dec, 7460 =ef) 02/11/2017 11/01/2018 42 100

✓

Dovish ECB priced in. With a 9x30bn =apering priced, risks skewed to higher core rates and/or tighter =preads both of which benefit SX7E
Long SX7E Feb18 =40 calls (rolled from Jan, 134 fut ref)
24/10/2017
25/01/2018
0.9
3.3

We think Fed rates =xpectations for 2019 remain on the low side with just marginally more =han 1 hike priced. Buy Mar18 Eurodollar Futures (EDH8) vs Sell Dec19 Eurodollar =utures (EDZ9) 11/01/2018 07/02/2018 98.18/ 97.535 98.12/97.31

✓

Positioning short/underweight. Positive =ews flow for Italy and Spain causing a squeeze in peripheral bonds and =quities
Long equal =eighted basket of Telefonica; lberdrola; Enel; Unicredit & Santander
26/10/2017
15/02/2018
97.8
92.9
X

Rates market =ontinues to re-price ECB. lyly Eonia is almost back at recent =ighs pointing to more upside for SX7E. Long SX7E Mar18 145 calls (40d, 142 ref) 25/01/2018 22/02/2018 2.85 0.2

x

Russia is one of the =orst performing markets in 2017. Under-positioning and fundamentals =etting better Long equal =eighted basket of Russian Oil names: Gazprom, Lukoil, Rosneft 07/11/2017 22/02/2018 98.95 113.04

4

We think we are entering a period of =ncreasing volatility into the Italian Elections (4th March) and reduce =ur Long Equity exposure Long SXSE Mar18 =350 puts (35d vs 3406 ref) 22/02/2018 02/03/2018 39 58.40

✓

We see Political =isk underpriced in Europe into 4 March (Italian elections and German =PD member vote)
Short FTSEMIB Index via Mar18 futures (STH8 Index)
22/02/2018
02/03/2018
22505
22005

✓

FTSE is the worst performing major =arket ytd. Moreover, we see asymmetry in GBP with UK =olitical risk underpriced and BoE hikes overpriced. We do not agree =hat the BoE can hike more than the Fed next year. Long UKX Mar18 =375 calls 07/02/2018 02/03/2018 55 1.50

x

The risk for equities is a further rise =n yields led by higher real rates. Last time 10y real rates were here =&P was closer to 2720.
Long SPX Mar18 =750/2700 put spread
28/02/2018
02/03/2018
15
30.40

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