There is limited upside for credit improvement but large downside from the threat of default. We have therefore limited our exposure to some large government bond markets, taking into account the default risk of these bonds. Another area where we have customised our benchmark is with respect to Renminbi (RMB) assets, in particular Chinese government bonds. Here, the consideration was not to limit exposure but to gain exposure ahead of market benchmark inclusion as markets develop. MAS started investing in RMB assets in 2012, fully expecting market indices to catch up at some point. Indeed, recent announcements by major index providers to include or accelerate the schedule of inclusion for RMB assets in their indices reflect this trend. Next, tapping on relevant investment expertise. Part of the MAS portfolio is managed by reputable external fund managers. These investment managers are hired for their deep investment expertise and specialised knowledge in particular investment fields. For instance, factor-based investing is an area that we are watching closely. Institutional investors are starting to look beyond asset classes to view returns via a “factor lens”. There are two applications of this approach, return enhancement and portfolio analysis. Looking through asset class labels to underlying risk factor exposures can enhance understanding of return sources. Flipping them around, they also help to enhance understanding of risk drivers. In fact, the vulnerability-based stress tests that I described earlier is an application of this factor approach. This can help investors to create more efficient and diversified portfolios, compared to a traditional asset class-driven approach.

Andres Lipstok: The Estonian economy Speech by Mr Andres Lipstok, Governor of Bank of Estonia, at a lunch for the EU Deputies, organised by the Ambassador of the Czech Republic, Mr A Langer, Tallinn, 28 May 2009. *  *  *  Excellencies, Ladies and gentlemen, I am genuinely pleased for the invitation of Ambassador Langer to join you here at the working lunch. First of all, I would like to provide a short overview of Estonia's current economic situation and the plans related to the adoption of the euro. Afterwards I would be glad to discuss these issues with you. The global crisis has had a strong impact on Estonia's small and open economy via trade channel. Collapse of world trade and decreasing demand in Estonia's main trading partners has decreased considerably also Estonia's exports. Although financial channel is also somewhat strained, we have not witnessed particularly excessive tightening of credit inside the banking groups that operate in Estonia. Estonian banking market is fully integrated into Scandinavian groups, which has provided stability. Estonia's banking sector has enough capital and liquidity to support restructuring in the real economy. The global turmoil is clearly not over yet, though there have been some signs of stabilisation over the past months. Estonia, too, is showing some signs of stabilisation and confidence indicators have also slightly improved. However, it has to be stressed that outlooks for this and next year are highly uncertain everywhere in the world.