Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Guide To The Markets - J.P. Morgan Asset Management
Document related concepts
Transcript
MARKET INSIGHTS Guide to the Markets Europe | 2Q 2017 | As of 31 March 2017 Global Market Insights Strategy Team Americas Europe Asia Dr. David P. Kelly, CFA New York Stephanie H. Flanders London Tai Hui Hong Kong Julio C. Callegari São Paulo Manuel Arroyo Ozores, CFA Madrid Yoshinori Shigemi Tokyo Samantha M. Azzarello New York Tilmann Galler, CFA Frankfurt Marcella Chow Hong Kong David M. Lebovitz New York Lucia Gutierrez-Mellado Madrid Kerry Craig, CFA Melbourne Gabriela D. Santos New York Vincent Juvyns Luxembourg Dr. Jasslyn Yeo, CFA Singapore Abigail B. Dwyer, CFA New York Dr. David Stubbs London Ian Hui Hong Kong John C. Manley New York Maria Paola Toschi Milan Akira Kunikyo Tokyo Ainsley E. Woolridge, CFA New York Michael J. Bell, CFA London Ben Luk Hong Kong Tyler J. Voigt New York Alexander W. Dryden, CFA London Hannah J. Anderson Hong Kong Nandini L. Ramakrishnan London 2 Page reference Europe economy 4. Europe: GDP and inflation 5. Eurozone growth monitor 6. Eurozone: Unemployment and labour costs 7. Eurozone recovery monitor 8. Eurozone credit conditions 9. European Central Bank (ECB) policies 10. European monetary policy and relative bond supplies 11. European politics 12. UK economic indicators 13. Brexit: Outcomes for the UK 14. Brexit: Trade and financial services Global economy 15. World economic data 16. Global Purchasing Managers’ Index (PMI) for manufacturing 17. Global inflation dynamics 18. Global central bank policy 19. Fed funds long-run expectations 20. Global supply dynamics 21. Developed market fiscal policy 22. Global currency trends 23. US: GDP and inflation 24. US Federal Reserve outlook 25. US labour market 26. US growth monitor 27. US consumer finances 28. Long-term drivers of US economic growth 29. US fiscal policy 30. US business environment 31. Japan: Abenomics and the economy 32. China: GDP, inflation and policy rate 33. China economic indicators 34. China financial dynamics 35. Emerging market adjustments 36. Globalisation and trade Equities 37. World stock market returns 38. European sector returns and valuations 39. Relative equity valuations 40. Relative performance of European equities 41. MSCI Europe performance and drivers 42. MSCI Europe equity valuations 43. MSCI Europe Index at inflection points 44. European small capitalisation equities 45. UK equities 3 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. US S&P 500 at inflection points US equities US S&P 500 equity indicators Equity markets and reflation US bear markets Interest rates and equities Japanese equities performance and drivers Developed market equity valuations by country Emerging market equity valuations by country Emerging markets: Valuations and returns Emerging markets: Investment drivers Emerging markets: Flows, earnings and income Equity income Correlation and dispersion Fixed income 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. Global fixed income: Yields and returns Fixed income interest rate risk Inflation implications for fixed income Historical yields of government bonds Government bond yields Global investment-grade bonds Global investment-grade bond market US high yield bonds European high yield bonds Emerging market debt Other assets 70. 71. 72. 73. 74. 75. 76. Commodities Oil market drivers Gold market dynamics Risk-adjusted returns and downside protection Alternative strategies Correlation of returns (EUR) Asset markets in coming decades Investing principles 77. 78. 79. 80. 81. 82. 83. Life expectancy Cash investments The power of compounding Annual returns and intra-year declines Impact of being out of the market US asset returns by holding period Asset class returns (EUR) Europe economy Europe: GDP and inflation Real GDP EU28, % change quarter on quarter 1,5 Average since 1999 4Q16 0,4% 0,5% Real GDP GTM – Europe | 4 Average since 1999 Feb 2017 1,9% 1,6% 1,9% 0,9% Inflation EU28, % change year on year 5 Headline CPI* Core CPI 1,0 4 Average 0,5 3 0,0 -0,5 2 -1,0 1 -1,5 -2,0 0 -2,5 -1 -3,0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '00 '02 '04 '06 '08 '10 Source: (Both charts) Eurostat, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding energy and unprocessed food. Guide to the Markets - Europe. Data as of 31 March 2017. 4 '12 '14 '16 Europe economy Eurozone growth monitor GTM – Europe Change in unemployment and unemployment rate Retail sales and industrial production Thousands of people per three months (LHS); % rate (RHS) Index level 13 2.000 Recession 120 Industrial production (LHS) 115 Retail sales (RHS) 120 115 110 Unemployment rate 12 1.500 110 105 105 100 Change in unemployment 100 95 11 95 90 90 85 1.000 '00 10 '02 '04 '06 '08 '10 '12 9 0 8 7 -500 '02 '04 '06 '08 '10 '12 '14 '16 '16 Composite PMI and GDP GDP 6 60 4 55 2 50 0 45 -2 40 -4 35 -6 '00 '02 '04 '06 '08 '10 '12 Source: (Left and top right) Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Eurostat, Markit, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns in all charts indicate recession. Guide to the Markets - UK. Data as of 31 March 2017. 5 '14 Index level (LHS); % change year on year (RHS) 65 PMI 500 '00 | 5 '14 '16 Europe economy Eurozone: Unemployment and labour costs Unemployment rate GTM – Europe Unit labour costs % Average of Portugal, Spain, Italy France Eurozone Rebased to 100 as of December 1998 Greece France Germany Spain Germany Ireland Service sector productivity Index level, rebased to 100 as of December 2006 130 US 120 110 100 Eurozone 90 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Source: (Top) Eurostat, FactSet, J.P. Morgan Asset Management. (Bottom left) FactSet, Haver, BEA, J.P. Morgan Asset Management. (Right) ECB, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 6 | 6 Europe economy Eurozone recovery monitor GTM – Europe Contribution to eurozone GDP growth Eurozone government expenditure % change year on year % change year on year 3 6 | 7 Change in inventories Exports 5 2 Investment 4 1 Consumption 0 Imports 3 GDP -1 2 '99 1 '01 '03 '05 '07 '09 '11 '13 '15 '17 Gross fixed capital formation % of GDP, non-residential 17 0 16 -1 Eurozone 15 14 -2 13 12 -3 US 11 -4 10 '12 '13 '14 '15 '16 '99 '01 '03 '05 '07 '09 Source: (Left) Eurostat, Haver Analytics, J.P. Morgan Asset Management. (Top right) OECD, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) BEA, Eurostat, Haver Analytics, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 7 '11 '13 '15 Europe economy Eurozone credit conditions GTM – Europe Credit demand and eurozone GDP growth | 8 Bank loans to households and non-financial corporations Net % of banks reporting positive loan demand (LHS); % GDP growth (RHS) EUR billions, net lending flow, three-month moving average 6 150 Stronger loan demand 100 4 50 2 0 0 Corporate lending rates to smaller companies -2 -50 -100 Weaker loan demand % interest, non-financial corporations* -4 -6 -150 Consumer credit (LHS) Overall corporate (LHS) Housing loans (LHS) Eurozone GDP growth y/y (RHS) -200 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 -8 '16 Source: (Left) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Top and bottom right) ECB, FactSet, J.P. Morgan Asset Management. *Interest on new business lending up to €1 million, on a 1-5 year maturity. Guide to the Markets - Europe. Data as of 31 March 2017. 8 Italy Germany Spain France Europe economy European Central Bank (ECB) policies GTM – Europe | 9 ECB balance sheet: Assets* Cumulative ECB sovereign bond purchases by country EUR trillions EUR billions 340 5,0 ECB March 2017 forecasts 240 2017 2018 2019 4,5 140 CPI inflation** 1,7 1,6 1,7 40 4,0 -60 3,5 3,0 Aug 2012 – Sep 2014: -35% Jan 2005 – Jul 2012: 249% 2,5 Trade-weighted euro and EUR/USD Index level (LHS); price of euro in dollars (RHS) 2,0 110 1,6 EUR/USD 1,5 1,5 105 1,4 1,0 100 1,3 1,2 0,5 95 1,1 Trade-weighted euro 0,0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 90 1,0 '11 '12 '13 '14 Source: (Left) ECB, FactSet, J.P. Morgan Asset Management. *Balance sheet forecast does not include Targeted Longer Term Refinancing Operations (TLTRO). Expansion in balance sheet still to come assumes EUR 60bn per month expansion between April 2017 and December 2017. **Inflation is Q4 to Q4 for each year. (Top right) ECB, J.P. Morgan Asset Management. Purchases up to December 23. (Bottom right) FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 9 '15 '16 '17 Europe economy European monetary policy and relative bond supplies GTM – Europe Available universe of corporate bonds for CSPP* Size of bond markets EUR billions EUR billions 2.000 8.000 1.800 | 10 6.830 1.600 540 1.400 6.000 1.200 212 1.000 800 4.000 1.728 377 1.188 600 976 2.000 400 599 1.174 419 200 207 0 Euro IG Exfinancials Exsubordinated debt Ex-noneligible corps 70% ISIN limit 0 Euro govt. Euro IG ex-financials Source: (Left) Barclays POINT, BofA/ML, ECB, J.P. Morgan Asset Management. *CSPP is the corporate sector purchase programme. (Right) Bloomberg, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 10 BB 63 13 B CCC Europe economy European politics GTM – Europe Europe 2017 political timeline 22-29 January France Socialist presidential primaries Jan 25 January Italy Court decision on “Italicum” electoral reform 29 March UK Article 50 invoked Feb Mar 15 March Netherlands General election Apr September Spain Possible Catalonia independence referendum 7 May France Second round of the presidential election May 23 April France First round of the presidential election Jun Jul Aug 11-18 June France Legislative election Sep Survey results: Do you support the euro? % % answering “yes” as of November 2016 90 40 2011 Highest* 30 2017 Oct 24 September Germany Federal election Support for populist parties 80 20 70 10 60 50 0 Alternative für Deutschland (Germany) Syriza (Greece) Podemos (Spain) Movimento 5 Front National Stelle (France) (Italy) 40 Italy France Spain Belgium Source: (Top) J.P. Morgan Asset Management. (Bottom left) National surveys, J.P. Morgan Asset Management. *Highest dates: Alternative für Deutschland: October 2015, Syriza: September 2015, Podemos: June 2016, Movimento 5 Stelle: March 2017, Front National: September 2016. (Bottom right) European Commission, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 11 | 11 N’lands Germany Europe economy UK economic indicators GTM – Europe | 12 Real GDP growth comparison Unemployment rate and consumer confidence Index level, rebased to 100 at 1Q08 Index level, consumer confidence (LHS); %, unemployment rate (RHS) US UK Germany Consumer confidence France Japan Unemployment rate Current account Wage growth Investment income % of GDP 4 Trade balance 2 Current account balance Nominal wage growth* Headline CPI Real wage growth % change year on year 6 0 3 -2 0 -4 -3 -6 -6 -8 '05 '07 '09 '11 '13 '15 '02 '04 '06 '08 '10 Source: (Top left) OECD, J.P. Morgan Asset Management. (Bottom left) ONS, Thompson Reuters Datastream, J.P. Morgan Asset Management. (Top right) FactSet, GFK, ONS, J.P. Morgan Asset Management. (Bottom right) FactSet, ONS, J.P. Morgan Asset Management. *Nominal wages include bonuses. Guide to the Markets - Europe. Data as of 31 March 2017. 12 '12 '14 '16 Europe economy Brexit: Outcomes for the UK GTM – Europe | 13 Trade-offs for the UK post EU exit MARKET ACCESS TO THE EU Participation in EU legislation process EU Full market access Market access by negotiation Norway Switzerland Turkey Goods market access but not services Canada WTO ACCESS Free movement of labour Some financial contribution No financial contribution EU member SHARING OF SOVEREIGNTY Source: J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 13 Europe economy Brexit: Trade and financial services GTM – Europe Goods and services exports and imports UK financial services % of UK GDP Annual gross value added, GBP billion | 14 Sales & trading EU27 Investment banking 14% 11% US 5% Retail & business banking Private wealth management Switzerland 25% Exports Imports China 29% Asset Management Insurance & reinsurance 13% 3% Japan Australia Market infrastructure & other UK financial services industry revenues GBP billion Singapore UK export share Hong Kong Canada 200 EU27 44% US 20% Asia 13% Middle East 5% EU related international business 150 Non-EU international business 100 Saudi Arabia 50 India 0 5 10 15 20 Domestic business with UK clients 0 Source: (Left) UK ONS Pink Book, JP. Morgan Asset Management. (Top and bottom right) Oliver Wyman, J.P. Morgan Asset Management. International business revenues include wholesale revenues. Guide to the Markets - UK. Data as of 31 March 2017. 14 World economic data Global economy Selected countries Switzerland US Sweden Netherlands Finland Germany Japan UK France Eurozone Italy Spain Greece Russia Brazil China India GTM – Europe Gross domestic product (GDP) Real GDP % Inflation % EUR per capita EUR billions 2017* 2018* 2017* 2018* 74.336 55.598 50.002 42.576 40.039 40.024 36.938 35.894 35.485 33.114 28.765 25.066 16.507 10.098 9.023 8.526 1.637 617 17.890 489 721 220 3.230 4.675 2.323 2.285 11.096 1.720 1.156 181 1.449 1.875 11.732 2.147 1,5 2,2 2,4 1,8 1,1 1,6 1,1 1,7 1,3 1,6 0,9 2,5 1,4 1,2 0,7 6,5 7,0 1,6 2,3 2,3 1,6 1,3 1,6 1,0 1,3 1,4 1,6 1,0 2,1 1,8 1,6 2,2 6,2 7,3 0,3 2,5 1,6 1,3 1,2 1,8 0,7 2,6 1,4 1,7 1,3 2,0 0,9 4,4 4,3 2,2 4,5 0,7 2,4 1,9 1,5 1,3 1,6 1,0 2,6 1,3 1,5 1,3 1,5 1,0 4,3 4,5 2,3 4,9 Policy rate % Unemployment % -0,75 0,50 -0,50 -0,40 -0,40 -0,40 0,10 0,25 -0,40 -0,40 -0,40 -0,40 -0,40 9,75 12,25 4,35 6,25 3,6 4,7 7,4 7,2 9,2 5,8 2,8 4,7 9,7 9,5 11,9 18,6 23,6 5,4 8,2 4,0 7,1 Source: Bloomberg, FactSet, various national statistical agencies, J.P. Morgan Asset Management. Table ordered by GDP per capita. Nominal GDP figure is latest quarter annualised. *Forecasts are Bloomberg consensus estimates. Guide to the Markets - Europe. Data as of 31 March 2017. 15 | 15 Global Purchasing Managers’ Index (PMI) for manufacturing Dec Jan Feb Mar Apr May Jun Nov Dec 50,4 51,0 51,0 50,7 50,9 50,0 50,7 50,2 50,1 50,4 51,0 50,7 51,0 51,9 52,0 52,7 52,7 53,0 53,0 51,9 52,1 51,7 52,1 51,9 51,7 52,6 52,3 52,0 52,1 50,8 50,9 50,5 50,3 51,2 51,4 51,2 51,5 52,6 52,9 53,7 54,2 54,1 53,9 Emerging 49,6 49,8 49,9 49,1 48,6 48,5 49,0 49,2 49,0 49,3 48,9 50,2 49,6 49,5 49,3 50,3 50,1 50,4 51,0 50,7 51,0 50,8 51,3 51,6 Eurozone 52,0 52,2 52,5 52,4 52,3 52,0 52,3 52,8 53,2 52,3 51,2 51,6 51,7 51,5 52,8 52,0 51,7 52,6 53,5 53,7 54,9 55,2 55,4 56,2 France 48,0 49,4 50,7 49,6 48,3 50,6 50,6 50,6 51,4 50,0 50,2 49,6 48,0 48,4 48,3 48,6 48,3 49,7 51,8 51,7 53,5 53,6 52,2 53,3 Germany 52,1 51,1 51,9 51,8 53,3 52,3 52,1 52,9 53,2 52,3 50,5 50,7 51,8 52,1 54,5 53,8 53,6 54,3 55,0 54,3 55,6 56,4 56,8 58,3 Italy 53,8 54,8 54,1 55,3 53,8 52,7 54,1 54,9 55,6 53,2 52,2 53,5 53,9 52,4 53,5 51,2 49,8 51,0 50,9 52,2 53,2 53,0 55,0 55,7 Spain 54,2 55,8 54,5 53,6 53,2 51,7 51,3 53,1 53,0 55,4 54,1 53,4 53,5 51,8 52,2 51,0 51,0 52,3 53,3 54,5 55,3 55,6 54,8 53,9 Switzerland 48,0 47,3 50,0 50,0 51,3 48,0 49,6 49,0 49,9 50,2 51,1 53,0 53,1 55,3 51,5 51,5 51,6 54,4 55,2 55,9 56,2 54,6 57,8 58,6 UK 52,3 52,2 51,5 52,3 51,8 51,3 54,9 52,5 51,3 52,3 50,9 51,2 49,7 50,7 52,5 48,2 53,5 55,2 54,6 53,5 56,0 55,4 54,5 54,2 US 54,1 54,0 53,6 53,8 53,0 53,1 54,1 52,8 51,2 52,4 51,3 51,5 50,8 50,7 51,3 52,9 52,0 51,5 53,4 54,1 54,3 55,0 54,2 53,3 Japan 49,9 50,9 50,1 51,2 51,7 51,0 52,4 52,6 52,6 52,3 50,1 49,1 48,2 47,7 48,1 49,3 49,5 50,4 51,4 51,3 52,4 52,7 53,3 52,4 Brazil 46,0 45,9 46,5 47,2 45,8 47,0 44,1 43,8 45,6 47,4 44,5 46,0 42,6 41,6 43,2 46,0 45,7 46,0 46,3 46,2 45,2 44,0 46,9 49,6 Russia 48,9 47,6 48,7 48,3 47,9 49,1 50,2 50,1 48,7 49,8 49,3 48,3 48,0 49,6 51,5 49,5 50,8 51,1 52,4 53,6 53,7 54,7 52,5 52,4 India 51,3 52,6 51,3 52,7 52,3 51,2 50,7 50,3 49,1 51,1 51,1 52,4 50,5 50,7 51,7 51,8 52,6 52,1 54,4 52,3 49,6 50,4 50,7 52,5 China 48,9 49,2 49,4 47,8 47,3 47,2 48,3 48,6 48,2 48,4 48,0 49,7 49,4 49,2 48,6 50,6 50,0 50,1 51,2 50,9 51,9 51,0 51,7 51,2 Korea 48,8 47,8 46,1 47,6 47,9 49,2 49,1 49,1 50,7 49,5 48,7 49,5 50,0 50,1 50,5 50,1 48,6 47,6 48,0 48,0 49,4 49,0 49,2 48,4 Taiwan 49,2 49,3 46,3 47,1 46,1 46,9 47,8 49,5 51,7 50,6 49,4 51,1 49,7 48,5 50,5 51,0 51,8 52,2 52,7 54,7 56,2 55,6 54,5 56,2 50 Mar Nov 50,5 Feb Oct 50,8 Jan Sep 50,9 Oct Aug 51,1 Sep Jul 50,8 Aug Jun Global Jul May 2017 Developed Lowest relative to 50 PMI 16 2016 | 16 Apr Eurozone Emerging Developed Global economy 2015 GTM – Europe Highest relative to 50 PMI Source: FactSet, Markit, J.P. Morgan Asset Management. The Global Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions. The Global Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions. The results are rebased such that a score of 50 means that economic conditions are neither accelerating nor deteriorating. Guide to the Markets - Europe. Data as of 31 March 2017. Global inflation dynamics GTM – Europe Consumer price inflation and forecasts Producer price inflation % change year on year 3 % change year on year Forecasts* China Eurozone Global economy US UK Japan 2 Policy target 1 0 UK US China Eurozone Japan -1 '15 '16 '17 '18 Source: (Left) Bloomberg, BLS, Bureau of Statistics of China, Eurostat, J.P. Morgan Economic Research, Ministry of Internal Affairs and Communications, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Inflation forecasts are from Bloomberg consensus forecasts. (Right) Bank of Japan, Bureau of Statistics of China, Conference Board, Eurostat, FactSet, ONS, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 17 | 17 Global central bank policy | 18 Market expectations for policy rate Percent of government bond market held by central banks % % 2,5 Global economy GTM – Europe 2,0 US 50 Projection* UK Eurozone Japan UK Japan Eurozone 40 US 1,5 30 1,0 0,5 20 0,0 10 -0,5 -1,0 Mar '17 Mar '18 Mar ‘19 Mar ‘20 Mar ‘21 0 '08 '09 '10 '11 '12 '13 Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Right) Bank of England, Bank of Japan, ECB, US Federal Reserve, J.P. Morgan Asset Management. *Projection from central banks, national sources and J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 18 '14 '15 '16 '17 '18 Fed funds long-run expectations GTM – Europe | 19 Market expectations of Fed funds rate % 7 Global economy Mar 2001 6 Mar 2006 Mar 2008 5 4 Mar 2012 Mar 2017 3 Sep 2016 2 1 0 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 Source: Bloomberg, J.P. Morgan Asset Management. The lines show the market expectation for the path of interest rates at the stated date. Values shown are from the last day of the month. Guide to the Markets - Europe. Data as of 31 March 2017. 19 '23 '25 Global supply dynamics GTM – Europe Labour productivity Medium-term GDP growth projections % change year on year 6 % annual GDP growth for the next five years | 20 8 2011 2013 2015 Global economy 6 4 Developed markets post-crisis average: 0,3% 2 4 2 0 0 World Developed markets Emerging markets Global population and old age share -2 -4 Developed markets pre-crisis average: 1,4% Forecast** % change year on year (LHS); % of population (RHS) Developed markets 16 2,0 Age 65+ Emerging markets* 14 1,5 -6 15 Population growth 13 12 1,0 11 10 -8 0,5 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 9 '60 '65 '70 '75 '80 '85 '90 '95 Source: (Left) J.P. Morgan Economic Research, J.P. Morgan Asset Management. *Emerging markets productivity data excludes China and India due to data availability. (Top right) IMF, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Economic Research, United Nations, J.P. Morgan Asset Management. **Forecasts from UN. Guide to the Markets - Europe. Data as of 31 March 2017. 20 '00 '05 '10 '15 '20 Developed market fiscal policy Developed economy government debt and interest expense % of potential GDP % of GDP Forecast* Forecast** 120 2,2 Tighter policy 1,0 Gross debt 110 2,0 0,5 Interest expense 0,0 -0,5 100 1,8 90 1,6 Euro area -1,0 80 Japan 2007 to 2016 US -1,5 Rest of OECD US Eurozone UK Japan 70 OECD Looser policy -2,0 -2,5 Change in gross debt (% of GDP) 44,2 26,8 46,8 67,3 1,4 Change in interest costs (% of GDP) -0,12 -0,58 0,05 0,08 1,2 60 '06 '08 '10 '12 '14 '16 '18 1,0 '07 '08 '09 '10 '11 '12 '13 '14 Source: (Left) OECD, J.P. Morgan Asset Management. Figures correspond to the estimated change in the primary balance or structural deficit excluding net interest payments as a share of GDP. *Forecasts from the OECD. (Right) IMF Fiscal Monitor October 2016, J.P. Morgan Asset Management. Government debt ratio is gross debt for all advanced economies in the G20. **Forecasts from the IMF. Guide to the Markets - Europe. Data as of 31 March 2017. 21 | 21 Change in deficit excluding debt interest 1,5 Global economy GTM – Europe '15 '16 '17 '18 Global currency trends GTM – Europe US dollar in historical perspective Average Feb 2017 since 1973 Index level, broad real effective exchange rate (REER) 130 Global economy 120 1973-1978: -21,8% 110 US dollar index 1985: Plaza Accord 1978-1985: +52,7% 1995-2002: +34,2% 1987: Louvre Accord 2002-2011: -28,9% 1985-1988: -29,5% 100 90 95,8 101,3 2011-2017: +26,2% 1988-1995: -7,1% 80 70 '73 '77 '81 '85 '89 '93 US-German interest rate differential '97 '05 '09 '13 '17 Index (LHS); basis points (RHS) 1,00 100 70 60 50 40 30 20 10 0 -10 Trade-weighted dollar 95 0,90 90 1,0 0,0 0,80 85 80 -1,0 USD/EUR -2,0 -3,0 '06 '01 US dollar vs. market rate expectations in the next 12 months %, 2-year yields (LHS); price of a dollar in EUR (RHS) 3,0 2-year spread 2,0 '08 '10 '12 '14 '16 0,70 0,60 75 US rate hikes priced over 12 months 70 '13 '14 '15 Source: (Top) US Federal Reserve, J.P. Morgan Asset Management. (Bottom left) FactSet, J.P. Morgan Asset Management. (Bottom right) Bloomberg, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 22 | 22 '16 '17 US: GDP and inflation GTM – Europe Real GDP % change quarter on quarter, SAAR 4Q16 1,8% 2,1% Real GDP 8 Global economy Average since 1999 Inflation | 23 Average Feb since 2017 1999 % change year on year 8 6 Headline CPI* 2,2% 2,7% Core CPI 2,0% 2,2% 6 4 Average 4 2 0 2 -2 Components of nominal GDP 4Q16 -4 Consumption Government -6 Investment ex-housing Housing -8 Net exports 68,9% 17,5% 12,3% 3,8% -2,6% 0 -2 -4 -10 '00 '03 '06 '09 '12 '15 '00 '02 '04 '06 '08 '10 Source: (Left) BEA, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) BLS, Thomson Reuters Datastream, J.P. Morgan Asset Management. SAAR is seasonally adjusted annual rate. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - Europe. Data as of 31 March 2017. 23 '12 '14 '16 US Federal Reserve outlook GTM – Europe | 24 Federal funds rate expectations % Fed funds rate, FOMC and market expectations Global economy FOMC March 2017 forecasts* Federal funds rate US Fed FOMC forecasts median US Fed FOMC forecasts range Market expectations on 31 Mar 2017 FOMC long-run projection 7 6 2017 2018 2019 Long run Change in real GDP, 4Q to 4Q 2,1 2,1 1,9 1,8 Unemployment rate, 4Q 4,5 4,5 4,5 4,7 PCE inflation, 4Q to 4Q 1,9 2,0 2,0 2,0 5 4 3.0% 3 2 1 0 '99 '03 '07 '11 '15 Source: Bloomberg, Federal Reserve Bank of New York, US Federal Reserve, J.P. Morgan Asset Management. *Forecasts of 17 Federal Open Market Committee (FOMC) participants, midpoints of central tendency except for Federal funds rate, which is a median estimate. Guide to the Markets - Europe. Data as of 31 March 2017. 24 '19 US labour market GTM – Europe | 25 Unemployment rate and wage growth %, wage growth year on year, seasonally adjusted, wages of production and non-supervisory workers Global economy Unemployment 50-yr average: 4,2% Wage growth Feb 2017: 2,5% Productivity and wage growth Employee compensation and profitability % change year on year 6 % of GDP Employee compensation 5 4 Wage growth 3 2 1 0 -1 '98 '00 '02 '04 '06 '08 '10 '12 Productivity '14 '16 Source: (Top) BEA, FactSet, J.P. Morgan Asset Management. (Bottom left) BLS, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) BEA, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 25 Feb 2017: 4,7% 50-yr average: 6,2% Corporate profits US growth monitor GTM – Europe | 26 Corporate profits, business investment and employment growth % change year on year Recession 60 12 Profits Global economy 40 7 20 2 0 -3 -20 Business investment -40 '84 '86 '88 '90 Employment '92 '94 '96 '98 '00 Initial jobless claims vs. consumer confidence 600 500 400 300 200 '94 '04 '04 '06 '08 '10 '14 -8 '16 '14 Index level (LHS); thousands (RHS) 160 140 120 100 80 60 40 20 0 140 130 120 110 100 90 80 70 60 50 Housing starts 3.000 2.000 1.000 Leading indicator '84 '94 0 '04 Source: (All charts) Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns in all charts indicate recessions determined by NBER. Guide to the Markets - Europe. Data as of 31 March 2017. 26 '12 Housing starts and Conference Board Leading Economic Index Jobless claims in thousands (LHS); index level (RHS) Jobless claims Consumer confidence 700 '84 '02 '14 US consumer finances GTM – Europe Household net worth Consumer balance sheet USD billions 1Q17*: $95,576 Q207: $67,705 USD trillions outstanding, not seasonally adjusted, 4Q16 100 Global economy 90 80 70 Total assets: $107,9tn 3Q07 peak: $81,9tn 1Q09 low: $68,7tn Homes: 25% Other tangible: 5% Deposits: 10% % of total US mortgages that are fixed rate** 71% 60 Household debt service ratio and savings rate 50 % of disposable personal income, seasonally adjusted 14 Savings rate Debt service ratio 14 12 13 10 12 8 11 6 2 9 30 20 '85 '90 '95 '00 '05 '10 '15 Other financial assets: 40% Other non-revolving: 2% Revolving***: 7% Auto loans: 7% Other liabilities: 12% Student debt: 9% Total liabilities: $15,1tn 10 Mortgages: 63% 0 '80 Pension funds: 21% 40 4 10 0 Source: (Top left and right) FactSet, US Federal Reserve, J.P. Morgan Asset Management. (Bottom left) US Federal Reserve, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Latest numbers for US household net worth and debt service ratio are J.P. Morgan Asset Management forecasts. **Taken from the Monthly Interest Rate Survey for 15-year and 30-year fixed mortgages. ***Revolving includes credit cards. Guide to the Markets - Europe. Data as of 31 March 2017. 27 | 27 Long-term drivers of US economic growth Growth in US working age population Average year on year % change Forecast* 1,5% Global economy 4,5 1,3% 1,2% 1,0% 1,0 Growth in workers + Growth in real output per worker Growth in real GDP 4,2% 4,0 0,7% 0,5 0,4% 3,3% 3,5 '55-'64 '65-'74 '75-'84 '85-94 '95-'04 '05-'14 1,4% '15-'24 2,5 Non-residential fixed assets, year on year % change 1,3% 2,0 6 1,5% 1,5 4 3,2% 3,1% 3,0% 3,0 0,0 Growth in investment in structures and equipment 2,0% 2016: 1,6% 1,3% 2,1% 0,4% 1,0 2 0,5 0 2,8% 1,0% 1,2% 1,6% 1,9% 0,9% '57-'66 '67-'76 '77-'86 '87-'96 '97-'06 '07-'16 0,0 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 Source: (Top left) Census Bureau, DOD, DOJ, J.P. Morgan Asset Management. *Forecast by J.P. Morgan Asset Management. (Bottom left) BEA, BLS, J.P. Morgan Asset Management. (Right) BEA, BLS, J.P. Morgan Asset Management. GDP drivers are calculated as the average annualised growth between 4Q of the first and last year. Future working age population is calculated as the total estimated number of Americans from the Census Bureau, controlled for military enrollment, growth in institutionalised population and demographic trends. Guide to the Markets - Europe. Data as of 31 March 2017. 28 | 28 Drivers of US GDP growth % increase in civilian non-institutional population ages 16-64 1,9% 2,0 1,5 GTM – Europe US fiscal policy GTM – Europe US budget surplus/deficit | 29 US public investment % of GDP % of GDP Recession 6 7 6 Global economy 4 5 2 4 3 0 2016: -3,2% -2 2 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 US federal net debt -4 Forecast* % of GDP 120 -6 100 2017: 77,5% 80 -8 2027: 88,9% 60 -10 40 20 -12 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '40 '48 '56 '64 '72 '80 '88 '96 Source: (Left) Haver, US Congressional Budget Office, J.P. Morgan Asset Management. Light grey columns in all charts indicate recessions determined by NBER. (Top right) US BEA, J.P. Morgan Asset Management. (Bottom right) US Congressional Budget Office, J.P. Morgan Asset Management. *Forecast is from the US Congressional Budget Office. Guide to the Markets - Europe. Data as of 31 March 2017. 29 '04 '12 '20 US business environment GTM – Europe Difficulty of setting up a business National tax rate on corporate income %, including local government taxes Country rank, higher score indicates more difficult 2006 100 45 2016 80 Global economy | 30 40% 60 41% 37% 40% 40 20 35 UK Russia France US Italy 36% 33% 0 New Canada Australia Zealand Headline rate 39% 40 31% Spain 30% 30% 30 27% Foreign content of domestic sales % 25 100 20% 80 20 60 40 15 20 10 0 Clothing Tech Autos Energy Staples US Japan Italy Germany Source: (Top left) World Bank, J.P. Morgan Asset Management. Economies are ranked on their ease of doing business by aggregating scores across 10 equally weighted topics. The US scores highly in two categories (getting credit and resolving insolvency); however, it scores poorly on other measures such as difficultly of starting a business. (Bottom left) US Department of Commerce, J.P. Morgan Asset Management. (Right) Deutsche Bundesbank, OECD, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 31 March 2017. 30 Canada UK Japan: Abenomics and the economy GTM – Europe | 31 Wage growth Bank lending and job-to-applicant ratio % change year on year, three-month moving average % lending growth year on year (LHS); ratio of number of jobs to applicants (RHS) 8 1,6 Job-to-applicant ratio Core CPI* Nominal wage growth Global economy 1,4 4 1,2 1,0 Japanese yen effective exchange rate Index level Abe elected 0 0,8 US election 0,6 Yield curve targeting -4 0,4 NIRP 0,2 Bank lending (y/y) -8 0,0 '94 '96 '98 '00 '02 '04 '06 '08 '10 Source: (Top left) FactSet, Japan Ministry of Internal Affairs & Communications, Japan Ministry of Health, Labour and Welfare, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. (Bottom left) FactSet, J.P. Morgan Asset Management. NIRP stands for negative interest rate policy. (Right) Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 31 '12 '14 '16 China: GDP, inflation and policy rate Real GDP growth Global economy | 32 GTM – Europe Feb 2017 Inflation % change year on year GDP growth 18 Investment 15 Consumption 10 Net exports 0,8% 1,8% 7,8% 5 2016: 6,7% 12 Headline CPI* Core CPI Headline PPI** % change year on year 0 -5 -10 '06 6 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Policy rate and reserve ratio requirement (RRR)*** % policy rate on one-year renminbi deposits (LHS); % RRR (RHS) RRR 0 -6 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 PBoC policy rate Source: (Left and top right) FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. **PPI is the Producer Price Index. (Bottom right) FactSet, People’s Bank of China (PBoC), J.P. Morgan Asset Management. ***Average RRR for large and small banks. Guide to the Markets - Europe. Data as of 31 March 2017. 32 '17 China economic indicators GTM – Europe China industrial production and retail sales Fixed asset investment (FAI) % change year on year 25 % change year on year Public Overall Private Global economy 20 15 10 Retail sales Industrial production 5 0 '96 '00 '04 '08 '12 '16 Central government fiscal deficit China home prices % of GDP 1 2016 : -4,2% % change year on year 40 0 30 -1 20 -2 10 -3 0 -4 '95 '00 '05 '10 '15 Tier 1 cities Tier 2 cities -10 '11 '12 Tier 3 cities '13 '14 '15 Source: (Top left) Thomson Reuters Datastream, National Bureau of Statistics of China, J.P. Morgan Asset Management. Industrial production is a three-month moving average and retail sales is a six-month moving average (Top right) FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. (Bottom left) CEIC, FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. (Bottom right) BofA/Merrill Lynch, CEIC, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 33 | 33 '16 '17 China financial dynamics Public, household and non-financial corporate debt Chinese renminbi % of GDP, 2Q16 Rebased index level (LHS); price of a dollar in RMB (RHS) 300 Global economy GTM – Europe Trade-weighted RMB Public debt Non-financial corporation debt Household debt 250 200 USD/RMB 150 China foreign exchange reserves and external debt USD trillions External debt as a % of global GDP 100 EM Asia 1998 US 2008 China 2016 1,7% 21,8% 1,9% 50 0 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Source: (Left) BIS, J.P. Morgan Asset Management. Household and NFC debt is market value. Government debt is gross and nominal value. (Top right) BIS, FactSet, J.P. Morgan Asset Management. (Bottom right) FactSet, People’s Bank of China, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 34 | 34 Emerging market adjustments EM currencies vs. US dollar “Fragile Five” current account balance % from fair value, relative to US dollar 10 % of GDP 2 EM currencies expensive relative to USD 5 Global economy GTM – Europe | 35 1 0 -1 +1 std. dev. 0 -2 -3 -5 -4 -5 -10 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Average EM foreign exchange reserves vs. external debt -15 % of GDP 35 -20 35 EM reserves 30 -1 std. dev. 25 -25 EM currencies cheap relative to USD -30 30 20 External debt 15 25 10 -35 20 5 '12 '13 '14 '15 '16 '17 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Source: (Left) J.P. Morgan Asset Management. Based on nominal exchange rates relative to PPP exchange rates and adjusted for GDP per capita. EM currencies used are a weighted average of JPM GBI-EM Global Diversified Index countries. (Top right) Haver Analytics, J.P. Morgan Asset Management. “Fragile Five” are Brazil, India, Indonesia, South Africa and Turkey. (Bottom right) J.P. Economic Research, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 35 Globalisation and trade GTM – Europe Exports of goods | 36 Number of global discriminatory trade measures % of GDP, 2015 800 US US 700 Global economy China Eurozone 600 EM ex-China Eurozone Canada 500 Other 400 300 Brazil 200 '09 India '10 '11 '12 '13 '14 '15 Mean weighted average global tariff China % 20 Russia Mexico 14 8 Japan Korea 2 0 10 20 30 40 50 '88 '90 '92 '94 '96 '98 '00 '02 '04 Source: (Left) IMF World Economic Outlook October 2016, IMF Direction of Trade, J.P. Morgan Asset Management. (Top right) Centre for Economic and Policy Research, J.P. Morgan Asset Management. Discriminatory trade measures are measures taken by governments worldwide that harmed foreign traders, investors, workers, or owners of intellectual property. (Bottom right) TPG, World Bank, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 36 '06 '08 '10 '12 '14 World stock market returns EUR Equities Local GTM – Europe 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1Q17 10-yr ann. 26,7% Asia ex-Jp 38,0% -23,0% TOPIX -40,6% 73,4% MSCI EM 62,8% 35,4% Sm all Cap 24,4% 5,5% US S&P 500 2,1% 20,8% Asia ex-Jp 19,7% 27,2% Sm all Cap 35,8% 29,5% US S&P 500 13,7% 24,4% TOPIX 12,1% 16,6% Sm all Cap 14,5% 11,8% Asia ex-Jp 10,2% 9,4% US S&P 500 6,9% 26,1% MSCI EM 33,6% -33,7% US S&P 500 -37,0% 67,2% Asia ex-Jp 67,2% 28,3% Asia ex-Jp 15,6% 3,5% HDY Equity 1,5% 18,1% Europe 16,4% 26,7% US S&P 500 32,4% 19,7% Asia ex-Jp 7,7% 12,9% US S&P 500 1,4% 15,3% US S&P 500 12,0% 9,9% MSCI EM 7,8% 8,4% Sm all Cap 6,4% 4,6% Portfolio 11,1% -37,9% HDY Equity -34,4% 40,2% Sm all Cap 40,8% 27,5% MSCI EM 14,4% -5,7% Sm all Cap -8,7% 16,8% MSCI EM 17,4% 21,5% TOPIX 54,4% 16,5% Sm all Cap 6,7% 11,5% Sm all Cap 2,8% 14,9% MSCI EM 10,1% 6,5% Portfolio 6,0% 6,3% Asia ex-Jp 5,1% 3,2% Europe 6,5% -38,6% Sm all Cap -40,4% 37,6% Portfolio 35,8% 23,9% TOPIX 1,0% -5,8% Portfolio -7,5% 16,3% Sm all Cap 18,4% 20,5% Europe 22,3% 16,2% HDY Equity 8,7% 8,8% Europe 5,4% 14,3% HDY Equity 13,1% 6,1% Europe 6,2% 6,1% HDY Equity 5,2% -1,0% HDY Equity 4,7% -40,3% Portfolio -40,1% 34,0% HDY Equity 30,2% 23,1% US S&P 500 15,1% -7,5% Europe -8,8% 15,6% Portfolio 17,1% 15,3% Portfolio 23,6% 15,3% Portfolio 8,2% 8,3% Portfolio 1,9% 10,1% Portfolio 9,0% 4,8% HDY Equity 5,0% 6,0% Portfolio 4,9% -4,9% US S&P 500 5,5% -43,3% Europe -38,5% 32,5% Europe 28,6% 20,9% Portfolio 11,1% -9,6% TOPIX -17,0% 14,2% US S&P 500 16,0% 13,9% HDY Equity 20,5% 11,8% MSCI EM 5,6% 6,3% HDY Equity 0,2% 8,9% Asia ex-Jp 6,4% 4,6% US S&P 500 6,1% 4,5% MSCI EM 4,7% -8,8% Sm all Cap -3,8% -49,8% Asia ex-Jp -47,7% 22,5% US S&P 500 26,5% 16,2% HDY Equity 8,0% -14,3% Asia ex-Jp -14,6% 13,6% HDY Equity 14,0% -1,1% Asia ex-Jp 6,2% 10,1% TOPIX 10,3% 1,5% Asia ex-Jp -5,3% 6,6% TOPIX 0,3% 3,9% Sm all Cap 4,3% 3,5% TOPIX 1,0% -14,5% TOPIX -11,1% -50,8% MSCI EM -45,7% 1,5% TOPIX 7,6% 11,7% Europe 7,5% -15,4% MSCI EM -12,5% 5,9% TOPIX 20,9% -6,5% MSCI EM 3,8% 7,4% Europe 5,2% -4,9% MSCI EM -5,4% 3,2% Europe 7,9% 3,8% TOPIX 0,6% 3,2% Europe 3,5% Source: FactSet, MSCI, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. Annualised return covers the period 2007 to 2016. HDY Equity: MSCI AC World High Dividend Yield Index; Small Cap: MSCI The World Small Cap Index. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 30% Europe; 20% S&P 500; 15% EM; 10% Asia ex-Japan; 10% TOPIX; 10% HDY equity and 5% small cap. All indices are total return. Guide to the Markets - Europe. Data as of 31 March 2017. 37 | 37 European sector returns and valuations GTM – Europe | 38 Europe weight 20,4% 12,8% 13,8% 10,8% 12,8% Growth weight 3,7% 20,3% 27,4% 12,2% Value weight 36,7% 5,8% 1,1% 1Q17 5,8 7,8 2016 5,5 Since market peak** Since market low*** Beta to Europe Industrials Materials Energy Telecom Utilities Tech Europe 8,2% 7,8% 4,2% 3,5% 4,2% 100% 15,5% 8,8% 0,8% 2,5% 0,6% 7,7% 100% 9,3% 10,7% 7,8% 13,0% 5,7% 6,4% 1,2% 100% 8,0 5,8 9,0 6,4 -4,1 3,8 6,6 11,5 6,2 -6,0 5,8 4,4 14,9 33,7 46,1 -7,9 0,5 6,5 7,9 -23,7 116,4 133,5 87,5 50,9 17,6 34,1 47,4 0,1 32,3 35,1 224,7 210,6 241,4 314,7 253,9 178,9 84,0 121,4 76,2 234,6 189,7 1,35x 0,65x 0,64x 0,96x 1,12x 1,28x 1,01x 0,81x 0,85x 0,98x 1,00x Forward P/E ratio 12,0x 15,9x 20,1x 13,1x 16,9x 15,0x 14,1x 16,6x 13,8x 20,1x 15,1x 15-year average 10,4x 15,0x 16,2x 13,7x 14,3x 12,6x 11,4x 12,9x 12,7x 18,8x 13.1x Trailing P/E ratio 13,4x 16,7x 22,4x 15,0x 18,3x 17,8x 21,3x 17,5x 13,8x 22,2x 17,0x 15-year average 12,2x 16,3x 17,6x 16,4x 16,5x 14,3x 11,9x 13,3x 13,2x 19,4x 14,7x Dividend yield 4,1% 2,9% 2,7% 2,8% 2,5% 2,3% 6,0% 4,7% 4,9% 1,4% 3,3% 15-year average 3,9% 2,8% 2,8% 2,8% 2,8% 2,8% 4,3% 4,6% 4,9% 1,8% 3,4% Source: FactSet, MSCI, Thomson Reuters Datastream, J.P Morgan Asset Management. All calculations are total return in local currency, not annualised. Technology and Telecomms have 10-year rather than 15-year numbers on forward and trailing P/E due to data availability. *Financials no longer includes real estate, which is now a separate section making up 2,6% of the MSCI Europe Value index and 0,5% of the MSCI Europe growth index. It is not included in the chart due to a lack of historical data for the sector. **“Since market peak” represents period 9 October 2007 to end of latest quarter. ***“Since market low” represents period 9 March 2009 to end of latest quarter. Guide to the Markets - Europe. Data as of 31 March 2017. 38 Weights Weights Cons. disc. Return Return Cons. staples ββ Health care P/E P/E Financials* Div Div Equities MSCI Europe Index Relative equity valuations GTM – Europe Global equities ex-US vs. US equities Global earnings Relative index level, local currency, rebased to 100 in January 2000 EPS, US dollar, rebased to 100 in January 2009 Global ex-US equities outperforming | 39 220 US 200 Japan 180 Equities 160 140 EM 120 100 Europe 80 US equities outperforming 60 40 '09 '10 '11 '12 '13 '14 Source: (Left) FactSet, MSCI, J.P. Morgan Asset Management. Global ex-US index is the MSCI World ex-US (global developed markets) and US equity index is the MSCI USA index. (Right) MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 39 '15 '16 '17 Relative performance of European equities GTM – Europe Europe vs. US: Relative performance and earnings Europe vs. US sector breakdown Rebased to 100 in December 2002 120 % of index Europe index and earnings outperforming US 110 30 MSCI Europe 20 S&P 500 | 40 10 0 Equities 100 MSCI Europe/S&P 500 performance 90 MSCI Europe/S&P 500 earnings MSCI Europe banks relative performance vs. German 10-year yields Rebased to 100 in 2009 (LHS); % (RHS) 80 70 German 10-yr yields US index and earnings outperforming Europe 60 '03 '04 '05 '06 '07 '08 MSCI Europe banks relative to index '09 '10 '11 '12 '13 '14 '15 '16 '17 Source: (Left) FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. (Top right) MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Commodities is materials and energy combined. Consumer is consumer staples and consumer discretionary combined. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 40 MSCI Europe performance and drivers GTM – Europe MSCI Europe earnings and performance Europe yearly earnings trend Index level, next 12 months’ earnings estimates (LHS); index level (RHS) 130 MSCI Europe EPS | 41 EPS, rebased to 100 in January 1.600 MSCI Europe index level 100 2013 2014 2016 2017 2015 1.500 120 95 1.400 90 110 1.300 Equities 85 1.200 100 1.100 90 1.000 Jan Feb Mar Apr May Jun Aug Sep Oct Nov Dec Europe value vs. growth and the US 10-year yield Index level (LHS); % yield (RHS) US 10-yr yields 900 80 Jul 800 70 700 60 600 '08 '09 '10 '11 '12 '13 '14 '15 '16 MSCI Europe value/growth '17 Source: (Left) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. EPS is earnings per share. (Top right) Goldman Sachs, J.P. Morgan Asset Management. Yearly earnings trend is Stoxx 600. Guide to the Markets - Europe. Data as of 31 March 2017. 41 MSCI Europe equity valuations GTM – Europe MSCI Europe forward P/E ratio Dividend yield and 10-year bond yield x, multiple 23 % yield | 42 21 19 31 Mar 2017: 15,1x 17 Dividend yield Average: 13,5x 15 13 11 Equities 9 31 Mar 2017: 3,3% 7 '01 '03 '05 '07 '09 '11 '13 '15 '17 MSCI Europe cyclically adjusted P/E ratio x, adjusted using trailing 10-year average inflation-adjusted earnings 40 10-year German Bund yield 30 31 Mar 2017: 17,0x 20 Average: 17,8x 10 0 '80 '84 '88 '92 '96 '00 '04 '08 '12 '16 Source: (Top left) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. (Bottom left) FactSet, MSCI, J.P. Morgan Asset Management. (Right) FactSet, MSCI, Tullett Prebon, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 42 31 Mar 2017: 0,3% MSCI Europe Index at inflection points GTM – Europe MSCI Europe Index Characteristic 1.800 Index level 1.623 1.641 1.547 P/E ratio (fwd) 22,0x 13,3x 15,1x Dividend yield 1,8% 2,8% 3,3% German 10-year 5,3% 4,6% 0,3% 4 Sep 2000: P/E = 22,0x 1.623 | 43 Sep 2000 Jul 2007 Mar 2017 16 Jul 2007: P/E = 13,3x 1.641 31 Mar 2017: P/E = 15,1x 1.547 Total return: +133% 1.400 Equities -55% +180% -54% +190% 1.000 31 Dec 1996: P/E = 14,6x 714 9 Mar 2009: P/E = 9,2x 714 12 Mar 2003: P/E = 14,4x 676 600 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: FactSet, MSCI, Tullett Prebon, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Return calculations shown in green are based on the total return index. Guide to the Markets - Europe. Data as of 31 March 2017. 43 '14 '15 '16 '17 European small capitalisation equities GTM – Europe | 44 Small cap relative performance and economic performance Risk-adjusted returns by company size and holding period %, relative performance (LHS); change in PMI (RHS) Sharpe ratio level* 20 50 Mid caps MSCI small cap minus large cap performance 40 Small caps 2,0 Large caps 1,5 15 1,0 30 10 0,5 20 Equities 5 0,0 1-year 5-year 10-year 10 0 0 European small cap: Price-to-book ratio x, multiple -5 -10 -10 -20 Average: 1,8x -15 -30 12-month net change in eurozone composite PMI -40 '05 '07 '09 '11 '13 '15 -20 '17 Source: (Left) FactSet, Thomson Reuters Datastream, ZEW, J.P. Morgan Asset Management. (Top right) Bloomberg, MSCI, J.P. Morgan Asset Management. *Risk-adjusted returns are calculated assuming the risk-free rate is equal to zero. (Bottom right) Citibank, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 44 31 Mar 2017: 1,9x UK equities GTM – Europe FTSE All-Share earnings and performance Commodities weights Index level, next 12 months’ earnings estimates (LHS); index level (RHS) 4.500 320 FTSE All-Share FTSE All-Share EPS index level % of index | 45 20 15 300 4.000 10 280 3.500 Equities 5 FTSE All-Share MSCI Europe ex-UK 260 3.000 S&P 500 MSCI Japan Dividend yield and ex-energy dividend yield % yield 240 2.500 UK Eurozone 220 MSCI EM 2.000 200 MSCI World Dividend yield Japan Dividend yield ex-energy US 180 1.500 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0 1 2 3 Source: (Left) FTSE, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. (Top right) FactSet, FTSE, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. UK is MSCI UK, Japan is Topix, Eurozone is Euro Stoxx 50, US is S&P 500. Guide to the Markets - Europe. Data as of 31 March 2017. 45 4 5 US S&P 500 at inflection points GTM – Europe 31 Mar 2017: P/E = 17,7x 2.363 S&P 500 Index 2.400 Characteristic Mar 2000 1.527 Oct 2007 1.565 Mar 2017 2.363 P/E ratio (fwd) 22,6x 14,8x 17,7x Dividend yield 1,1% 1,7% 1,9% US 10-year 6,2% 4,6% 2,4% Index level 2.200 | 46 2.000 Equities 1.800 1.600 1.400 9 Oct 2007: P/E = 14,8x 1.565 24 Mar 2000: P/E = 22,6x 1.527 +314% Total return: +116% +121% -47% -55% 1.200 1.000 9 Oct 2002: P/E = 15,4x 777 31 Dec 1996: P/E = 15,7x 741 800 9 Mar 2009: P/E = 10,8x 677 600 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Source: FactSet, Standard & Poor’s, Tullett Prebon, J.P. Morgan Asset Management. The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Return calculations shown in green are based on the total return index. Guide to the Markets - Europe. Data as of 31 March 2017. 46 '15 '16 '17 US equities GTM – Europe S&P 500 earnings and performance Initial jobless claims vs. S&P 500 performance Index level, next 12 months’ earnings estimates (LHS); index level (RHS) Thousands, four-week moving average (LHS); index level (RHS) 2.400 140 S&P 500 index level Initial jobless claims S&P 500 index level S&P 500 EPS | 47 2.200 130 2.000 120 1.800 Equities 110 1.600 100 S&P 500 earnings per share (EPS) vs. ISM manufacturing 1.400 90 1.200 Index level (LHS); % change year on year (RHS) 65 60 55 80 1.000 50 45 70 800 60 600 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 40 35 ISM manufacturing 30 '98 '00 '02 '04 EPS '06 '08 '10 Source: (Left) Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) BLS, FactSet, Standard & Poor’s, J.P. Morgan Asset Management. (Bottom right) FactSet, ISM, Standard & Poor’s, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. . 47 '12 '14 '16 30 20 10 0 -10 -20 -30 -40 -50 US S&P 500 equity indicators GTM – Europe Leading economic indicator vs. S&P 500 performance Forward P/E ratio Index level x, multiple 26 Leading economic indicator S&P 500 24 | 48 31 Jul 1999: 24,5x 22 31 Mar 2017: 17,7x 20 18 16 14 Equities 12 Average: 15,7x 10 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 S&P 500 Shiller cyclically adjusted P/E x, adjusted using trailing 10-year average inflation-adjusted earnings 31 Mar 2017: 29,0x Average: 16,7x Source: (Left) Conference Board, FactSet, Standard & Poor’s, J.P. Morgan Asset Management. (Top right) Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by consensus estimates for earnings in the next 12 months. (Bottom right) FactSet, Robert Shiller, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 48 Equity markets and reflation GTM – Europe S&P 500 average P/E ratio in various inflation environments US bond yield vs. value/growth performance* 1872-2016 Relative index level (LHS); % (RHS) 18 US 10-year yield 17 16 S&P 500 trailing P/E Equities 15 Value/growth 14 13 US bond yield vs. banks/staples performance** Relative index level (LHS); % (RHS) 12 Banks/staples US 10-year yield 11 10 9 8 -1 to 0 0 to 1 1 to 3 3 to 5 5 to 7 7 to 10 10 to 15 US inflation ranges (% CPI y/y) >15 Source: (Left) Robert Shiller, J.P. Morgan Asset Management. (Top right) FactSet, Russell, Tullett Prebon, J.P. Morgan Asset Management. (Bottom right) FactSet, MSCI, Tullett Prebon, J.P. Morgan Asset Management. *Value index is the Russell 1000 value index. The growth index is the Russell 1000 growth index. **MSCI USA index used for both banks and consumer staples. Guide to the Markets - Europe. Data as of 31 March 2017. 49 | 49 US bear markets | 50 GTM – Europe S&P 500 declines from all-time highs, % 0 -20 7 4 -40 20% market decline 8 5 9 10 6 -60 Recession 3 -80 2 Equities 1 -100 1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2011 2016 Characteristics of past bear and bull markets* Macro environment Bear markets Market corrections 1 Crash of 1929 – excessive leverage, irrational exuberance 2 1937 Fed Tightening – premature policy tightening 3 Post WWII crash – post-war demobilisation, recession fears 4 Flash crash of 1962 – flash crash, Cuban Missile Crisis 5 Tech crash of 1970 – economic overheating, civil unrest 6 Stagflation – OPEC oil embargo 7 Volcker Tightening – campaign against inflation 8 1987 crash – programme trading, overheating markets 9 Tech bubble – extreme valuations, “dot com” boom/bust 10 Global Financial Crisis – leverage/housing, Lehman collapse Current cycle MEDIAN Market peak Sep 1929 Mar 1937 May 1946 Dec 1961 Nov 1968 Jan 1973 Nov 1980 Aug 1987 Mar 2000 Oct 2007 – – Bear return -86% -60 -30 -28 -36 -48 -27 -34 -49 -57 – - 42% Duration (months) 33 63 37 7 18 21 21 3 31 17 – 21 Recession Bull markets Bull start date Jun 1932 Apr 1942 Jun 1949 Jun 1962 May 1970 Oct 1974 Aug 1982 Dec 1987 Oct 2002 Mar 2009 Bull return 324% 158 436 107 74 126 229 582 101 249 158 Return before peak Duration (months) 58 50 152 78 32 75 61 150 61 98 68 Source: FactSet, NBER, Robert Shiller, Standard & Poor’s, J.P. Morgan Asset Management. *A bear market represents a 20% or more decline from the previous market high using a monthly frequency; a bull market represents a 20% increase from a market trough. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. Guide to the Markets - Europe. Data as of 31 March 2017. 50 2006 12 months % 24 months % 27% 27 28 15 16 32 36 19 16 119% 57 23 35 31 48 80 39 31 27 39 Interest rates and equities GTM – Europe | 51 Correlations between weekly equity returns and interest rate movements Rolling two-year correlation of weekly returns of the S&P 500, MSCI Europe Index and the 2-year Treasury yield, 1983-2017 0,8 S&P 500 Positive relationship between yield movements and equity returns 0,4 Correlation '94-'95 '99-'00 '04-'06 '15-'17 Change in Fed funds 3,00% 1,75% 4,25% 0,75% Change in 10-yr yields 1,89% 0,49% 0,51% 0,12% Initial market reaction -10% -7% -8% -8% Subsequent market reaction 7% 18% 20% 22% Total reaction -2% 10% 11% 14% MSCI Europe 0,6 Equities Market reaction when the US Fed raised rates 0,2 0,0 -0,2 Negative relationship between yield movements and equity returns -0,4 -0,6 0 2 4 6 2-year Treasury yield 8 Source: FactSet, MSCI, Standard & Poor’s, Tullett Prebon, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Data for each of the rate hikes: '94-'95 is February 1994 to February 1995, '99-'00 is June 1999 to May 2000, '04-'06 is June 2004 to June 2006, '15-'17 is December 2015 to March 2017. Guide to the Markets - Europe. Data as of 31 March 2017. 51 10 Japanese equities performance and drivers GTM – Europe TOPIX earnings and performance TOPIX vs. JPY/USD Index level, next 12 months’ earnings estimates (LHS); index level (RHS) Index level (LHS); price of US dollar in yen (RHS) TOPIX EPS TOPIX price level | 52 TOPIX Equities JPY/USD Listed companies’ dividend pay-out and share buybacks Yen trillions 20 Share buybacks* 16 Dividends 12 8 4 0 '90 '95 '00 '05 Source: (Left) FactSet, TOPIX, J.P. Morgan Asset Management. EPS is earnings per share. (Top right) FactSet, TOPIX, J.P. Morgan Asset Management. (Bottom right) Nomura, J.P. Morgan Asset Management. *Share buyback data is for repurchases of common stock, excluding repurchases from Resolution and Collection Corp. and repurchases of preferred stock collected by Nomura. Guide to the Markets - Europe. Data as of 31 March 2017. 52 '10 '15 Developed market equity valuations by country Developed markets How to interpret this chart Std dev from global average +5 Std dev Equities +2.5 Std dev Expensive relative to world Current Expensive relative to own history Average Average Cheap relative to own history -2.5 Std dev -5 Std dev Italy Spain UK France Germany Japan ACWI DM Index Switz. Current Cheap relative to world US Average since 2004 Current composite index Forward P/E Forward P/B Italy Spain UK France Germany Japan ACWI DM Switz. -2,6 -1,9 -0,6 -0,4 -0,3 0,1 1,2 1,5 2,1 13,0x 13,9 14,5 15,4 13,8 14,3 16,0 16,6 17,8 1,0x 1,3 1,8 1,5 1,7 1,3 2,0 2,1 2,4 5,0x 5,4 9,1 8,4 8,5 7,9 10,0 10,4 13,8 US 3,4 17,9 2,8 11,8 Forward P/CF Fwd. Div yield Forward P/E Forward P/B 4,2% 3,9 4,3 3,2 3,0 2,2 2,6 2,6 3,3 11,6x 11,7 12,4 12,8 11,9 15,5 13,6 14,0 14,2 1,2x 1,6 1,8 1,5 1,5 1,3 1,9 1,9 2,3 Forward P/CF Fwd. Div yield 4,5x 5,0 7,8 6,8 6,5 7,1 8,6 8,5 11,7 4,5% 4,8 4,0 3,5 3,3 1,8 2,9 2,7 3,0 2,1 14,7 2,3 9,7 2,1 Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (P/E), price to forward book value (P/B), price to forward cash flow (P/CF) and price to forward dividends. Results are then normalised using means and average variability since 2004. The grey bars represent one standard deviation either side of the average relative valuation to the All Country World Index (ACWI) since 2004. DM Index is the MSCI The World Index. Guide to the Markets - Europe. Data as of 31 March 2017. 53 | 53 GTM – Europe Emerging market equity valuations by country | 54 GTM – Europe Emerging markets How to interpret this chart Std dev from global average +6 Std dev Expensive relative to own history +4 Std dev +2 Std dev Expensive relative to world Current Average Cheap relative to own history -2 Std dev -4 Std dev Average Cheap relative to world Equities -6 Std dev Russia Russia Brazil Korea Taiwan EM China ACWI S. Africa Mexico India Brazil Korea Taiwan EM China ACWI S. Africa Mexico Current Current composite index Forward P/E Forward P/B -5,0 -1,9 -1,0 -1,0 -0,4 0,0 1,2 1,2 1,3 4,5 5,6x 11,1 9,7 13,4 12,6 12,5 16,0 15,3 16,8 17,7 0,6x 1,4 1,0 1,7 1,5 1,5 2,0 2,1 2,4 2,7 India Average since 2004 Forward P/CF Fwd. Div yield 3,5x 6,7 5,4 8,6 7,7 7,8 10,0 13,1 8,2 11,9 5,4% 3,8 1,8 4,1 2,4 2,2 2,6 3,1 2,6 1,5 Forward P/E Forward P/B 6,9x 9,6 9,6 13,6 11,5 11,4 13,6 11,9 14,8 15,4 0,9x 1,7 1,2 1,7 1,6 1,7 1,9 2,0 2,6 2,6 Forward P/CF Fwd. Div yield Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (P/E), price to forward book value (P/B), price to forward cash flow (P/CF) and price to forward dividends. Results are then normalised using means and average variability since 2004 (inception of series). The grey bars represent one standard deviation either side of the average relative valuation to the All Country World Index (ACWI) since 2004. Guide to the Markets - Europe. Data as of 31 March 2017. 54 4,6x 7,9 5,9 8,3 7,3 7,5 8,6 8,8 8,7 11,4 2,8% 4,1 1,7 3,9 2,8 3,0 2,9 3,7 2,3 1,8 Emerging markets: Valuations and returns GTM – Europe | 55 MSCI Emerging Markets Index: Price-to-book ratio MSCI Emerging Markets Index: Price-to-book and returns x, multiple 3,00 Price-to-book ratio and next 5-year annualised % price return* 60 Current level 2,75 50 +2,0 std. dev. 2,50 40 2,25 Equities 30 2,00 20 1,75 Average: 1,78x 10 1,50 1,25 31 Mar 2017: 1,61x 1,00 -10 -2,0 std. dev. 0,75 '97 '99 '01 '03 0 '05 '07 '09 '11 '13 '15 '17 -20 0,75 1,25 1,75 Source: (All charts) FactSet, MSCI, J.P. Morgan Asset Management. *Dots represent monthly data points January 1997 through March 2017. Guide to the Markets - Europe. Data as of 31 March 2017. 55 2,25 2,75 3,25 Emerging markets: Investment drivers GTM – Europe EM vs. DM growth and equity performance EM equity relative performance and commodities % next 12 months’ growth estimates (LHS); index level (RHS) 5 170 EM minus DM GDP growth 150 EM growth & equity outperformance 4 MSCI EM relative to MSCI DM 130 Bloomberg Commodity Index 3 Equities 110 90 2 Relative EM / DM equity performance and USD REER Equity performance rebased to 100 at 1993 (LHS); index level (RHS) 70 MSCI EM / MSCI DM 1 EM growth & equity underperformance 50 0 30 MSCI EM relative to MSCI DM -1 USD REER (inverted) 10 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 Source: (Left) Consensus Economics, J.P. Morgan Asset Management. “EM – DM GDP Growth” is consensus estimates for emerging markets growth in the next 12 months minus consensus estimates for developed markets growth in the next 12 months, provided by Consensus Economics. (Top right) Bloomberg, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) BIS, FactSet, MSCI, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 56 | 56 Emerging markets: Flows, earnings and income | 57 Total non-resident flows into EM assets EM earnings expectations by region USD billion Consensus EPS for next 12 months, US dollar, rebased to 100 in 2006 210 EM debt 50 EM equities 190 EM Europe EM Asia 170 40 150 130 30 110 2010-2016 average: $18bn 20 Equities GTM – Europe 90 EM Latin America 70 50 '06 10 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Number of companies yielding greater than 3% by region 0 Constituents of the MSCI All Country World Index 400 340 -10 205 -20 200 123 -30 -40 Aug ‘14 41 0 Feb ‘15 Aug ‘15 Feb ‘16 Aug ‘16 Feb ‘17 Emerging markets Europe Source: (Left) IIF, J.P. Morgan Asset Management. IIF estimates for last two months (Top and bottom right) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. Guide to the Markets - Europe. Data as of 31 March 2017. 57 '17 US Japan Equity income GTM – Europe S&P 500 total return index: Dividends and capital appreciation Capital appreciation %, average annualised returns 20 10 Dividends 13,6% 13,9% 3,0% 4,7% 5,4% 6,0% 12,6% 5,1% 15,3% 4,4% 4,2% 3,3% 2,5% Equities -5,3% 1926-1929 1930s 1940s 1950s 1960s 1970s MSCI Europe indices: Price vs. total return* Rebased to 100 at December 1999 High dividend yield total return 1980s 1990s 2,1% 4,0% 2010-2016 1926-2016 -2,7% 2000s % yield +167% 8 +77% 6 Eurozone average inflation: 0,5% (12 months to Feb 2017) 5,4 5,7 4,2 4 2,4 +2% 2 0 0,0 0,3 Cash Bunds 2,6 3,3 0,9 Euro corp EM equity Converts Source: (Top) Ibbotson, Standard & Poor’s, J.P. Morgan Asset Management. (Bottom left) FactSet, FTSE, J.P. Morgan Asset Management. High dividend yield is the FTSE 350 Higher Yield Index. *Returns in local currency. (Bottom right) Barclays, BofA/Merrill Lynch, FactSet, FTSE, Tullett Prebon, J.P. Morgan Asset Management. Euro corporate: Barclays Euro Aggregate Credit - Corporate; Converts: Barclays Global Convertibles; EM equity: MSCI EM; Global REITs: FTSE NAREIT Index; High yield: BofA/Merrill Lynch Developed Markets High Yield Constrained; EM debt: J.P. Morgan EMBI Global. Yields for the bond indices are yield to worst and dividend yields for the equity indices. Guide to the Markets - Europe. Data as of 31 March 2017. 58 5,8% 1,8% Sources of income Total return Price return 10,5% 1,6% 4,4% 0 -10 | 58 MSCI Europe Global REITS High yield EM debt Correlation and dispersion GTM – Europe | 59 US equity sector dispersion Percentile, inter-sector dispersion per quarter 12-month moving average 100 75 50 25 Equities 0 '01 '03 '05 '07 '09 Number of days where the S&P 500 has moved +/- 1% '11 '13 '15 Average global stock-to-stock correlation 160 %, rolling six-month average pairwise correlations 140 0,3 YTD: 2 days 120 100 Average: 71 days 80 '17 0,2 60 0,1 40 20 0 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 0,0 '00 '02 '04 '06 '08 '10 Source: (Top) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Dispersion is a measure of relative returns of each equity sector in the index, weighted by the size of each sector. The greater the dispersion, the more difference there is between the performance of significant parts of the index. (Bottom left) Standard and Poor’s, FactSet, J.P. Morgan Asset Management. (Bottom right) MSCI, Bernstein Research, J.P. Morgan Asset Management. Correlation is a measure of how similar the price changes of each stock are relative to the other stocks in the index. The lower the correlation, the less similarity between the movements of stocks. Guide to the Markets - Europe. Data as of 31 March 2017. 59 '12 '14 '16 Global fixed income: Yields and returns Characteristics Correlation to: Size YTM Duration 10-year 10-year (%) (EUR bns) (years) Bund UST US HY 6,2 1.232 3,9 -0,1 -0,1 EM Debt 5,8 315 6,8 0,0 0,1 Fixed income Euro HY 60 3,7 239 3,2 -0,1 -0,1 GTM – Europe Fixed income sector returns 2013 2015 2014 €: 2016 1Q17 | 60 10-yr ann. 22,4% US IG 7,5% 13,4% EM Debt 1,8% 21,0% US HY 17,5% 2,3% EM Debt 3,8% 9,9% US HY 7,5% 2,8% US HY 7,4% 20,9% EM Debt 6,2% 12,3% US Treas. 0,8% 12,9% EM Debt 9,6% 1,6% Euro HY 1,6% 9,0% EM Debt 6,6% 2,4% Euro IG 2,4% 19,6% US Treas. 5,1% 10,6% US IG -0,7% 10,1% Euro HY 10,1% 1,3% US HY 2,7% 7,8% US IG 5,5% 16,7% US HY 2,5% 6,5% Portfolio 0,2% 9,3% US IG 6,1% 0,3% Euro IG 0,3% 6,9% Portfolio 5,6% 8,8% Euro HY Lcl: 8,8% US Corporate IG 3,3 4.521 7,3 0,5 0,5 2,2% Euro Gov 2,2% Portfolio 2,7 - 6,4 0,4 0,4 -2,7% Portfolio -0,4% 15,4% Portfolio 7,3% 6,3% US HY -4,6% 8,0% Portfolio 6,3% -0,1% Portfolio 0,7% 6,9% Euro HY 6,9% US Treasury 1,9 6.589 6,1 0,6 0,7 -3,9% Infl Linked -3,9% 13,1% Euro Gov 13,1% 1,6% Euro Gov 1,6% 4,7% Euro IG 4,7% -0,2% US IG 1,2% 6,3% US Treas. 4,0% EU IG 0,9 1.729 5,3 0,4 0,3 -5,8% US IG -1,5% 8,4% Euro IG 8,4% 0,8% Infl Linked 0,8% 4,1% US Treas. 1,0% -0,7% US Treas. 0,7% 5,0% Euro Gov 5,0% Euro Gov 0,7 5.899 7,4 0,5 0,3 -7,0% US Treas. -2,7% 5,5% Euro HY 5,5% 0,5% Euro HY 0,5% 3,8% Infl Linked 3,8% -1,5% Euro Gov -1,5% 4,5% Euro IG 4,5% Infl Linked 0,0 488 7,8 0,3 0,2 -12,3% EM Debt -8,3% 5,3% Infl Linked 5,3% -0,6% Euro IG -0,6% 3,2% Euro Gov 3,2% -2,7% Infl Linked -2,7% 3,0% Infl Linked 3,0% Source: (All charts) Barclays, BofA/Merrill Lynch, FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. YTM = Yield to maturity. Annualised return covers period 2007 to 2016. US HY: BofA/Merrill Lynch US High Yield Constrained; EM Debt: J.P. Morgan EMBI+; Euro HY: BofA/Merrill Lynch Euro NonFinancial High Yield Constrained; US IG: Barclays US Agg. – Corporate – Investment Grade; US Treasuries: Barclays US Agg. Gov. – Treasury; Euro IG: Barclays Euro Agg. – Credit – Corporate; Euro Gov.: Barclays Euro Agg. Government; Infl Linked: Barclays Euro Gov. Inflation-Linked. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 20% Euro Gov.; 15% US Treasuries; 10% Linkers; 15% US IG; 10% Euro IG; 10% US HY; 5% Euro HY; 15% EM Debt. Returns are unhedged in euro and local currencies. 10 years of weekly data is used to calculate the correlation to the UST and bunds. Guide to the Markets - Europe. Data as of 31 March 2017. Fixed income interest rate risk GTM – Europe | 61 Source: (Both charts) Barclays, Bloomberg, FactSet, J.P. Morgan Asset Management. Current and historical yields for selected indices % yield, fluctuations over the last 10 years* How to interpret this chart 25 20 Max *Historical yield range based on the last 10 years of data, with the exception of local currency emerging markets debt, which is based on eight years, due to data availability. 15 10 Average Current 5 Min 0 Fixed income -5 Treasury: 1-3 years Europe 5-7 years 10+ years Floating Investmentrate grade credit High yield Convertibles EMD USD EMD USD EMD LC sovereign corporate sovereign Illustration of the impact a 1% rise in local interest rates may have on selected indices % change, assumes a parallel shift in the yield curve and spreads are maintained 5 0 For illustrative purposes only. Change in bond price is calculated using both duration and convexity, with the exception of Convertibles, which is historical change. -5 -10 Price return Total return -15 -20 61 Fixed income sectors shown are provided by Barclays and are represented by: Treasury Europe: Barclays PanEuropean Aggregate Government – Treasury; Floating rate: Barclays US Floating Rate Notes (BBB); IG credit: Barclays Global Aggregate – Corporates; High yield: Barclays Global High Yield; Convertibles: Bloomberg Barclays Credit/Rate Sensitive; EMD sovereign USD: Barclays Emerging Markets – Sovereigns; EMD corporate ($): Barclays Emerging Markets – Corporates; EMD sovereign (LC): Barclays Emerging Market Local Currency Government. Treasury: Europe 1-3 years 5-7 years 10+ years Floating rate Investmentgrade credit High yield Convertibles EMD USD EMD USD sovereign corporate EMD LC sovereign Guide to the Markets - Europe. Data as of 31 March 2017. Inflation implications for fixed income 10-year break-even inflation GTM – Europe | 62 Breakdown of US Treasury yield increases % Change in yield, % 3 UK 4,5 US 10-year US real Treasury yield change 2 4,0 10-year US break-even inflation change Germany 3,5 1 3,0 0 2,5 -1 2009 reflation Fixed income 2,0 Taper Tantrum 2016 reflation US Treasury and inflation-linked bond returns % total return 1,5 10 US 10-year Treasury return 1,0 5 US 10-year TIPS (inflation-linked) return 0 0,5 -5 0,0 -10 -0,5 '00 '02 '04 '06 '08 '10 '12 '14 '16 -15 2009 reflation Taper Tantrum Source: (Left) Bloomberg, J.P. Morgan Asset Management. Break-even inflation is the difference in yield between nominal and inflation-protected government bonds. (Top and bottom right) Bloomberg, J.P. Morgan Asset Management. The 10-year Treasury return is the return of the Merrill Lynch 10-year U.S. Treasury Futures Total Return index, the 10-year TIPS return is the return of the S&P 10-year US TIPS Total Return Index. 2009 reflation is 1 Jan 2009 to 31 Dec 2009; Taper Tantrum is 14 Apr 2013 to 5 Sep 2013; 2016 Reflation is 8 July 2016 to 31 Dec 2016. Guide to the Markets - Europe. Data as of 31 March 2017. 62 2016 reflation Historical yields of government bonds GTM – Europe | 63 10-year bond yields US % 18 UK Fall of Berlin Wall 1989 Black Friday 1987 Germany Japan Britain leaves European Exchange Rate Mechanism 1992 12 Asian currency crisis 1997 Fixed income 6 US election 2016 Fed QE2 2010 BoE QE 2009 Fed QE3 2012 9/11 attacks 2001 Oil shock 1981 ECB QE 2015 Fed QE 2008 Dot com bubble Feb 2000 Brexit vote 2016 0 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 Source: FactSet, Tullett Prebon, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 63 '04 '06 '08 '10 '12 '14 '16 Government bond yields GTM – Europe Yield to maturity of government bonds US yield curve % yield %, 10-year yield minus 2-year yield 3 3 | 64 Recession 2 US 1 UK 2 Japan 0 Germany -1 1 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 Fixed income Global government bond yields % of BofA/Merrill Lynch Global Government Bond Index 0 Yield below 1% 80 Yield below 0% 60 -1 40 20 -2 3 6 Months 1 2 3 5 7 Years 10 15 20 0 '14 '15 Source: (Left) FactSet, Tullet Prebon, J.P. Morgan Asset Management. (Top right) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Bloomberg, BofA/Merrill Lynch, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 64 '16 '17 '16 Global investment-grade bonds GTM – Europe Investment-grade spreads US IG leverage measures Basis points, option-adjusted spread over local government bond yield 700 x, leverage (LHS); x, interest coverage ratio (RHS) | 65 2,5 16 Net leverage US IG energy 600 14 2,0 12 UK IG US IG 500 10 1,5 Euro IG 8 Interest coverage 1,0 400 6 '00 '02 '04 '06 '08 '10 '12 '14 '16 Fixed income US IG yield and insurance holdings 300 USD trillions (LHS); % yield (RHS) 4 10 Insurance 200 8 3 100 6 4 2 US IG yield 0 '00 '02 '04 '06 '08 '10 '12 '14 '16 1 0 '01 '03 '05 '07 '09 '11 '13 Source: (Left) BofA Merrill Lynch, Bloomberg, J.P. Morgan Asset Management. (Top right) J.P. Morgan Securities, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. (Bottom right) US Federal Reserve, Barclays, J.P. Morgan Asset Management. Yield is Barclays US Investment Grade Corporate Index yield to maturity. Guide to the Markets - Europe. Data as of 31 March 2017. 65 2 '15 Global investment-grade bond market GTM – Europe Market capitalisation by duration bucket Global investment-grade bond market % of total in each currency 60 1-3 years 3-7 years USD billions; % of total 7-10 years +10 years $224, 3% $453, 5% 40 | 66 $237, 3% 20 0 USD EUR $1.855, 22% GBP Fixed income Cumulative number of issuers, as a % of total index issuers %, of total index issuers $5.805, 68% 100 75 USD 50 GBP EUR 25 USD 0 0 200 400 600 Number of issuers 800 EUR 1000 Source: (All charts) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 66 GBP CAD Other US high yield bonds GTM – Europe | 67 US high yield spreads and defaults %, Fed funds rate and defaults (LHS); basis points, spread over 10-year US Treasury (RHS) Asset class 15 Latest 2.500 412 2,8% total index 2.000 Average since 1986 HY spread – bps (RHS) 558 HY defaults (LHS) 4,0% 10,6% energy 10 1.500 Federal funds rate (LHS) 1.000 5 500 0 0 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 Fixed income US high yield leverage measures x, leverage and interest coverage ratio Net leverage 5,0 Interest coverage ratio 4,5 4,0 3,5 3,0 '08 '09 '10 '11 '12 '13 '14 '15 Source: (Top) Credit Suisse, J.P. Morgan Economic Research, US Treasury, J.P. Morgan Asset Management. HY index is the J.P. Morgan Domestic High Yield index. Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. Guide to the Markets - Europe. Data as of 31 March 2017. 67 '16 European high yield bonds GTM – Europe European high yield: Spread to worst and default rates Asset class %, defaults (LHS); basis points, spread (RHS) HY spread - bps (RHS) Default rate 2002: 34% 20 HY defaults (LHS) Average Latest 627 4,6% 351 0,6% 2.500 2.000 15 1.500 10 1.000 5 500 0 '98 '99 '00 '01 '02 '03 '04 '05 Fixed income European high yield issuance by credit rating EUR billions 90 60 | 68 '06 '07 2017 €21,5bn '08 '11 '12 '13 '14 '15 '16 '17 0 European high yield leverage measures 7 CCC 6 B '10 x, leverage and interest coverage ratio Unrated BB '09 Net debt / EBITDA Interest coverage ratio 5 4 30 3 2 0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '05 '06 '07 '08 '09 '10 '11 '12 Source: (Top) BofA/Merrill Lynch, Credit Suisse, FactSet, J.P. Morgan Asset Management. Spread to worst is BofA/Merrill Lynch Euro Non-Financial High Yield Constrained. Default rates are reported by JPMAM’s Quant Team. The calculation universe is based on par value percentage of the BofA ML Global High Yield Index (HW00) that is covered by Moody’s and filtered for EUR Developed Markets Ex-Financial. (Bottom left) FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. EBITDA is earnings before interest, tax, depreciation and amortisation. Guide to the Markets - Europe. Data as of 31 March 2017. 68 '13 '14 '15 Emerging market debt GTM – Europe Emerging market debt yields Real 10-year government bond yields % yield % yield, local currency 6 25 Developed markets 4 20 Current 2 10-year range 0 10-year average | 69 Emerging markets -2 15 Fixed income Cumulative emerging markets debt flows USD millions 10 7,3 6,8 5 5,7 4,1 6,6 4,8 24.000 Hard currency government 19.000 Hard currency corporate Local currency government 14.000 5,4 4,2 9.000 Blend Total 4.000 -1.000 0 USD USD Asia USD Latin Sovereigns Sov. America Sov. USD USD EM Local Europe Corporates Sov. US HY Euro HY -6.000 Jan ‘16 Apr ‘16 Aug ‘16 Source: (Left) J.P. Morgan Dataquery, J.P. Morgan Asset Management. All indices are J.P. Morgan regional debt indices, yield to maturity. (Top right) FactSet, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. EM sovereign (local currency) is the J.P. Morgan GBIEM; EM sovereign (USD) is the J.P. Morgan EMBI+; EM corporate (USD) is the J.P. Morgan CEMBI. Blend is flows into funds with all three EMD sub-types. Guide to the Markets - Europe. Data as of 31 March 2017. 69 Dec ‘16 Mar ‘17 Commodities GTM – Europe Commodity prices | 70 China’s imports of key commodities Index level, rebased to 100 at Dec 2012 Millions of metric tonnes 120 6 Iron ore (LHS) Crude oil (LHS) 80 4 Copper (RHS) 40 2 0 0 2000 2005 2010 2015 Commodity prices and US inflation % change year on year Other assets Headline CPI Bloomberg Commodity Index weights Livestock 6% Industrial metals Energy 29% Precious metals Crops 31% 18% 16% Source: (Left) Bloomberg, FactSet, J.P. Morgan Asset Management. (Top right) Thomson Reuters Datastream, China Customs, J.P. Morgan Asset Management. (Bottom right) Bloomberg, BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 70 Bloomberg Commodity Index Oil market drivers GTM – Europe Crude oil prices | 71 US rig count vs. oil inventories* USD per barrel YTD change Brent crude -7.2% Thousands of barrels (LHS); rigs (RHS) 600 1.800 Inventories 160 1.200 140 400 600 120 Rigs 0 200 100 '01 '03 '05 '07 '09 '11 '13 '15 Global oil supply and demand 80 Millions of barrels per day 102 60 Other assets Forecast 100 Average: $42 40 98 Supply 96 Demand 94 20 92 90 0 '80 '84 '88 '92 '96 '00 '04 '08 '12 '16 88 '12 '13 '14 Source: (Left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Baker Hughes, Bloomberg, US Department of Energy, J.P. Morgan Asset Management. *Excluding US strategic petroleum reserve. (Bottom right) Bloomberg, EIA, J.P. Morgan Asset Management. Forecast from EIA, 6-month moving average. Guide to the Markets - Europe. Data as of 31 March 2017. 71 '17 '15 '16 '17 '18 Gold market dynamics GTM – Europe Gold vs. US 10-year Treasury real yields | 72 Gold price $ per Troy ounce $ per Troy ounce (LHS), % inverted (RHS) 1.900 Change since 2001 low -1,0 2.500 Real yields (inverted) Gold -0,5 Change since YTD 2011 peak change +372,7% -31,7% +7,8% 1.600 0,0 2.000 Gold 1.300 Inflation-adjusted gold price 0,5 Gold price 1.000 1,0 '12 '13 '14 '15 '16 '17 1.500 Breakdown of world gold demand by sector Tonnes 2.500 1.000 2015 2.000 2016 Other assets 1.500 1.000 500 500 0 -500 Jewellery Technology Bar & coin demand ETFs & similar products Central banks & other inst. 0 '69 '73 '77 '81 '85 '89 Source: (Top left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) World Gold Council, J.P. Morgan Asset Management. (Right) Thomson Reuters, J.P. Morgan Asset Management. Inflation-adjusted gold price is the historic gold price in today’s money, converted using the US Consumer Price Index. The 2001 low is defined as April 2001, and the 2011 peak is defined as August 2011. Guide to the Markets - Europe. Data as of 31 March 2017. 72 '93 '97 '01 '05 '09 '13 '17 Risk-adjusted returns and downside protection GTM – Europe Risk-adjusted returns of a 50/50 portfolio Six-month stock and bond correlations Sharpe ratio of a portfolio of 50% global equities and 50% global bonds* Of total return on US equities (S&P 500) and US Treasuries (10-yr) 1 3,5 | 73 3-year Sharpe ratio 3,0 5-year Sharpe ratio 2,5 0 2,0 1,5 -1 '91 1,0 '01 '06 '11 %, average total return in up and down months, 2001-2016 4 0,0 2 -0,5 3,0 1,3 0,5 1,0 0,4 0 -1,0 -2 -1,5 S&P 500 US bonds*** -1,1 -2,0 '01 '03 '05 '07 '09 '11 '13 '15 '17 -0,8 HFRI FW** HFRI FW** -4 '99 -3,8 S&P 500 up S&P 500 down Bond up Source: (Left) MSCI, J.P. Morgan Asset Management. *The equity index is the MSCI World (EUR hedged) and the bond index is the JP Morgan Global Bond index (EUR hedged). The portfolio is rebalanced monthly. Sharpe ratio is calculated as (Return - Risk free rate) / Volatility. (Top right) Bloomberg, J.P. Morgan Asset Management. (Bottom right) Barclays, Thomson Reuters Datastream, Hedge Fund Research, Standard & Poor’s, J.P. Morgan Asset Management. **HFRI FW is Hedge Fund Research Index Fund Weighted. ***US bonds is the Barclays US Aggregate Bond Index. Downside protection refers to attempting to minimise the impact of any falls in the underlying investments. Guide to the Markets - Europe. Data as of 31 March 2017. 73 '16 Hedge fund returns in different market environments 0,5 Other assets '96 Bond down Alternative strategies GTM – Europe | 74 Manager dispersion: Public and private markets* Public vs. private equity returns %, annual returns %, MSCI AC World total return vs. Global Buyout & Growth Equity Index** 16 MSCI ACWI 30 75th percentile Median 25th percentile 25 Global Buyout & Growth Equity Index 13.4% 12 12.7% 12.6% 10.5% 8 9.0% 20 6.9% 4 6.5% 4.6% 15 0 15 years 10 years 5 years 10 20 years Infrastructure returns %, OECD allowed RoE over cost of debt 16 5 Other assets 0 -5 Public Private 12 Electric 4 10-yr US Treasury Recession 0 '70 '80 '90 Source: (Left) Lipper, Cambridge Associates, J.P. Morgan Asset Management. *Manager dispersion is based on the time period from 31 December 2009 through 31 December 2014, except for private equity, which is based on the five-year period ending 31 March 2014 due to returns being reported with a lag. (Top right) National Venture Capital Association, MSCI, Cambridge Associates, Deutsche Bank, FactSet, J.P. Morgan Asset Management. **Data as of 4Q16. (Bottom right) Bloomberg, Regulatory Research Associates, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 74 Natural gas Utility bond 8 '00 '10 Correlation of returns (EUR) GTM – Europe | 75 Other assets 10-year correlations MSCI Europe S&P 500 MSCI EM MSCI Japan MSCI Europe 1,00 0,81 0,85 0,66 0,83 -0,12 S&P 500 0,82 1,00 0,69 0,72 0,70 MSCI EM 0,84 0,69 1,00 0,56 MSCI Japan 0,95 0,85 0,79 MSCI Asia ex-Japan 0,87 0,76 Pan Europe bonds 0,18 EM debt MSCI Asia Pan Europe EM debt ex-Japan bonds High yield bonds Global bonds Cmdty Hedge funds Real estate 0,28 0,75 -0,21 0,46 0,80 0,14 -0,07 0,48 0,48 0,08 0,44 0,58 0,24 0,97 -0,11 0,39 0,80 -0,12 0,57 0,81 -0,04 1,00 0,60 -0,02 0,43 0,30 0,17 0,33 0,40 0,15 0,97 0,85 1,00 -0,02 0,44 0,71 -0,02 0,44 0,72 -0,04 0,32 0,23 0,23 0,30 1,00 0,47 -0,15 0,66 -0,30 -0,27 -0,11 0,77 0,77 0,73 0,81 0,76 0,67 1,00 0,16 0,76 0,28 0,12 -0,11 High yield bonds 0,16 -0,12 0,49 0,05 0,33 -0,15 0,08 1,00 -0,39 0,51 0,85 -0,16 Global bonds 0,52 0,61 0,47 0,57 0,54 0,86 0,92 -0,12 1,00 -0,06 -0,43 0,00 Cmdty 0,43 0,37 0,47 0,41 0,33 -0,09 0,48 0,48 0,28 1,00 0,58 0,18 Hedge funds 0,78 0,65 0,69 0,78 0,77 0,34 0,72 0,08 0,56 0,26 1,00 0,06 Real estate 0,11 0,11 -0,18 0,21 0,01 0,15 0,08 -0,79 0,20 -0,39 0,15 1,00 3-year correlations 75 Source: Barclays, Bloomberg, Citigroup, J.P. Morgan Economic Research, MSCI, NCREIF, Standard & Poor’s, US Federal Reserve, J.P. Morgan Asset Management. Pan Europe bonds: Citigroup Europe Government Bond; EM debt: JP Morgan EMBI Global; High yield bonds: JP Morgan Domestic High Yield; Global bonds: Barclays Global Aggregate; Cmdty: Bloomberg Commodity; Hedge Funds: CS/Tremont Multi-Strategy; Real estate: blended index, which includes NCREIF Property Index data and Federal Reserve estimates of changes in capital value. All indices are total returns based on quarterly return data in euros; real estate correlations are lagged by one quarter. Guide to the Markets - Europe. Data as of 31 March 2017. Asset markets in coming decades GTM – Europe | 76 Past and expected returns % per year EM equity Private equity UK large cap Eurozone large cap Return in past decade EM local currency debt Expected return in next decade Global direct infrastructure equity US large cap US high yield bonds hedged US direct real estate European high yield bonds Diversified hedge funds hedged Other assets Commodities Euro government bonds Euro cash World government bonds -6 -4 -2 0 2 4 6 8 Source: 2017 Long-term capital market assumptions, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management, October 2016. Returns are in euros. Guide to the Markets - Europe. Data as of 31 March 2017. 76 10 Life expectancy GTM – Europe Probability of reaching ages 80 and 90 % probability, persons aged 65, by gender and combined couple 100 Men 92 80 Women Couple – at least one lives to specified age 76 66 60 50 40 35 23 Investing principles 20 77 0 80 years Source: ONS 2012-2014 Life Tables, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 31 March 2017. 90 years | 77 Cash investments GTM – Europe Income generated by €100.000 in a three-month bank deposit EUR (LHS); % change year on year (RHS) 5.000 Income | 78 Total return of $1 in real terms USD, log scale, total returns 2007: €4.650 Inflation (y/y) 4.000 5 4 2017: Mar €0 3.000 2.000 10.000 1.000 Annualised real returns 1899–2016 2000–2016 Equities 6,5% 3,1% Bonds 2,1% 4,4% Cash 0,6% -0,6% Equities: $1.691 3 100 Bonds: $12 2 10 1.000 1 0 0 Cash: $2 Investing principles 1 78 -1.000 -1 '00 '02 '04 '06 '08 '10 '12 '14 '16 0 1899 1919 1939 1959 Source: (Left) Bloomberg, Eurostat, J.P. Morgan Asset Management. (Right) Barclays, FactSet, Shiller, Siegel, Standard & Poor’s, J.P. Morgan Asset Management. Pre 2010 returns: Shiller, Siegel; from 2010: Equities: S&P 500; Bonds: Barclays US Treasury 20+ year Total Return Index; Cash: Barclays US Treasury Bills Total Return Index. Guide to the Markets - Europe. Data as of 31 March 2017. 1979 1999 The power of compounding GTM – Europe €5.000 invested annually with 5% growth per year €5.000 investment with/without income reinvested EUR 700.000 EUR, MSCI Europe returns €639,199 600.000 | 79 80.000 Starting at age 25 With dividends reinvested Starting at age 35 Without dividends reinvested €67.768 60.000 500.000 400.000 €353,803 40.000 300.000 €26.776 200.000 20.000 Investing principles 100.000 79 0 25 30 35 40 45 Age 50 55 60 65 0 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Source: (Left) J.P. Morgan Asset Management. For illustrative purposes only, assumes all income reinvested, actual investments may incur higher or lower growth rates and charges. (Right) Bloomberg, MSCI, J.P. Morgan Asset Management. Based on MSCI Europe index and assumes no charges. Guide to the Markets - Europe. Data as of 31 March 2017. Annual returns and intra-year declines GTM – Europe | 80 MSCI Europe Index intra-year declines vs. calendar-year returns Despite average intra-year drops of 15,6% (median 12,0%), annual returns are positive in 29 of 37 years % 39 40 28 30 20 17 13 YTD 23 22 20 20 16 15 13 28 22 21 Intra-year decline 35 34 34 Calendar-year return 18 16 12 12 9 10 6 4 3 2 2 2 4 5 0 -10 -7 -11 -3 -4 -11 -10 -15 -20 -8 -11 -18 -4 -4 -6 -6 -6 -8 -9 -11 -19 -2 -5 -18 -16 Investing principles 80 -15 -17 -22 -25 -26 -31 -31 -35 -40 -12 -12 -15 -15 -18 -24 -30 -12 -12 -12 -12 -12 -35 -37 -41 -50 -48 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 Source: FactSet, MSCI, J.P Morgan Asset Management. Returns are based on local price only and do not include dividends. Intra-year decline refers to the largest market fall from peak to trough within a short time period during the calendar year. Returns shown are calendar years from 1980 to 2016. Guide to the Markets - Europe. Data as of 31 March 2017. '12 '14 '16 Impact of being out of the market GTM – Europe Returns of MSCI Europe EUR, value of a €10.000 investment between 2001 and 2016 with annualised return (%) 18.000 3,4% 16.000 14.000 12.000 Initial investment 10.000 -0,8% 8.000 6.000 -5,7% 4.000 -9,5% Investing principles 2.000 81 0 Fully invested Missed 10 best days Missed 30 best days Missed 50 best days Source: FactSet, MSCI, J.P. Morgan Asset Management. For illustrative purposes only. Assumes all income is reinvested; returns calculated daily over the time period assuming no return on each of the specified number of best days. Guide to the Markets - Europe. Data as of 31 March 2017. | 81 US asset returns by holding period GTM – Europe Range of equity and bond total returns %, annualised total returns, 1950-2016 75 Large cap equity Bonds 61% 50/50 portfolio 50 48% 49% 30% 25 24% 24% 21% 17% 17% 1% 0 -7% -3% -1% -3% 18% 13% 4% 1% 0% -18% -24% Investing principles -25 82 -43% -50 1-yr rolling 5-yr rolling 10-yr rolling 20-yr rolling Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Large cap equity represents the S&P 500 Composite and Bonds represents the Strategas/Ibbotson US Government Bond Index and US Long-term Corporate Bond Index. Returns shown are per annum and are calculated based on monthly returns from 1950 to November 2016 and include dividends. Guide to the Markets - Europe. Data as of 31 March 2017. 15% 4% | 82 Asset class returns (EUR) Investing principles 2007 83 2008 GTM – Europe 2009 2010 2011 2012 2013 2014 2015 2016 1Q17 10-yr ann. | 83 Vol. EM E 26,1% Govt bonds 15,9% EM E 73,4% REITS 36,4% EM D 12,9% REITS 18,3% DM Equitie s 21,9% REITS 44,8% REITS 13,9% HY bonds 17,7% EM E 9,9% HY bonds 9,8% EM E 29,4% He dge Funds 10,6% Cas h 5,7% HY bonds 54,4% EM E 27,5% REITS 10,9% HY bonds 17,8% He dge Funds 9,1% EM D 20,9% EM D 13,4% Cm dty 15,2% DM Equitie s 5,1% EM D 9,0% REITS 22,6% Cm dty 5,1% IG bonds -3,9% DM Equitie s 26,7% Cm dty 24,9% Govt bonds 9,9% EM E 16,8% Portfolio 3,6% DM Equitie s 20,1% DM Equitie s 11,0% EM E 14,9% Portfolio 2,9% REITS 7,1% HY bonds 18,6% Cas h 4,4% EM D -5,0% Portfolio 25,8% HY bonds 22,8% IG bonds 7,8% EM D 16,2% HY bonds 2,7% IG bonds 17,5% HY bonds 8,4% EM D 12,9% EM D 2,3% DM Equitie s 6,8% DM Equitie s 16,9% Portfolio 0,7% He dge Funds -19,0% REITS 23,5% DM Equitie s 20,1% HY bonds 6,6% DM Equitie s 14,7% Cas h 0,2% Portfolio 15,7% Govt bonds 7,7% REITS 12,6% He dge Funds 2,3% Portfolio 6,5% Cm dty 15,8% Govt bonds -0,3% Portfolio -20,8% EM D 22,0% EM D 19,6% Cas h 1,7% Portfolio 10,9% REITS -1,3% HY bonds 13,9% IG bonds 7,4% DM Equitie s 11,4% HY bonds 1,7% IG bonds 6,4% Portfolio 11,5% DM Equities -1,2% HY bonds -23,1% He dge Funds 18,6% Portfolio 18,7% Portfolio 1,4% IG bonds 9,5% IG bonds -4,0% Govt bonds 13,0% Portfolio 6,0% Portfolio 9,9% REITS 1,5% Govt bonds 5,3% EM D 11,2% IG bonds -3,7% Cm dty -32,7% Cm dty 15,8% Govt bonds 13,3% DM Equitie s -1,8% He dge Funds 7,3% EM E -6,5% EM E 11,8% Cas h 0,1% IG bonds 7,4% Govt bonds 0,7% EM E 4,5% He dge Funds 9,3% EM D -4,0% REITS -34,1% IG bonds 15,5% IG bonds 13,2% He dge Funds -2,4% Cas h 1,2% Govt bonds -8,4% Hedge Funds 3,7% He dge Funds -1,1% Govt bonds 4,7% IG bonds 0,2% He dge Funds 3,0% IG bonds 7,5% HY bonds -7,0% DM Equitie s -37,2% Cas h 2,3% He dge Funds 10,2% Cm dty -10,4% Govt bonds 0,3% EM D -12,3% Cas h 0,3% EM E -4,9% Cas h -0,2% Cas h -0,1% Cas h 1,7% Govt bonds 7,2% REITS -25,9% EM E -50,8% Govt bonds -0,6% Cas h 1,1% EM E -15,4% Cm dty -2,6% Cm dty -13,4% Cm dty -5,5% Cm dty -16,1% He dge Funds -1,7% Cm dty -3,6% Cm dty -3,4% Cas h 1,8% Source: Barclays, Bloomberg, FactSet, FTSE, MSCI, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Annualised return covers the period from 2007 to 2016. Vol. is the standard deviation of annual returns. Govt bonds: Barclays Global Aggregate Government Treasuries; HY bonds: Barclays Global High Yield; EMD: J.P. Morgan EMBI+; IG bonds: Barclays Global Aggregate – Corporates; Cmdty: Bloomberg UBS Commodity; REITS: FTSE NAREIT All REITS; DM Equities: MSCI World; EME: MSCI EM; Hedge funds: Credit Suisse/Tremont Hedge Fund; Cash: JP Morgan Cash Index ECU (3M). Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 30% DM equities; 10% EM equities; 15% IG bonds; 12,5% government bonds; 7,5% HY bonds; 5% EMD; 5% commodities; 5% cash; 5% REITS and 5% hedge funds. Returns are unhedged, total return, in EUR. Guide to the Markets - Europe. Data as of 31 March 2017. J.P. Morgan Asset Management: Index definitions All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. The S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market, representing all major industries. The Russell 3000 Index® measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell 1000 Index ® measures the performance of the 1,000 largest companies in the Russell 3000. The Russell 1000 Growth Index ® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index ® measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap Index ® measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell Midcap Growth Index ® measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The Russell Midcap Value Index ® measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index. The Russell 2000 Index ® measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 2000 Growth Index ® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Value Index ® measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell Top 200 Index ® measures the performance of the largest cap segment of the U.S. equity universe. It includes approximately 200 of the largest securities based on a combination of their market cap and current index membership and represents approximately 68% of the U.S. market. The MSCI® EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America. The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWI consisted of 45 country indices comprising 23 developed and 22 emerging market country indices. The MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group, within each country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of USD200-1,500 million. The MSCI All Country Asia Pacific ex-Japan Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The MSCI All Country Asia Pacific ex-Japan Index consists of the following 11 developed and emerging market countries: Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, and Thailand. The MSCI China Index is an unmanaged index considered representative of stocks of China. The MSCI KOKUSAI Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets excluding Japan. The MSCI KOKUSAI Index consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States*. The Nikkei 225 Index is a price-weighted average of the 225 top-rated Japanese companies listed in the first section of the Tokyo Stock Exchange. The Tokyo Price Index (TOPIX) is a capitalization-weighted index lists all firms that are considered to be under the 'first section' on the TSE, which groups all of the large firms on the exchange into one pool. The second section groups all of the remaining smaller firms. The FTSE 100 Index is an index of the 100 largest companies (by market capitalization) in the United Kingdom. The FTSE All Share Index is an index of the 630 largest companies (by market capitalization) in the United Kingdom. The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes - three for value and five for growth including forward-looking variables. The objective of the index design is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each targeting 50% of the free float adjusted market capitalization of the underlying country index. Country Value/Growth indices are then aggregated into regional Value/Growth indices. Prior to May 30, 2003, the indices used Price/Book Value (P/BV) ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either "value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index. The following MSCI Total Return IndicesSM are calculated with gross dividends: This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to individuals resident in the country of the company, but does not include tax credits. The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Pacific IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of June 2007, the MSCI Pacific Index consisted of the following 5 Developed Market countries: Australia, Hong Kong, Japan, New Zealand, and Singapore. Credit Suisse/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index, LLC. It is an asset-weighted hedge fund index and includes only funds, as opposed to separate accounts. The Index uses the Credit Suisse/Tremont database, which tracks over 4500 funds, and consists only of funds with a minimum of US$50 million under management, a 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC. The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment. The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance, and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List. J.P. Morgan Asset Management: Index definitions The Dow Jones Industrial Average measures the stock performance of 30 leading blue-chip U.S. companies The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents twenty two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc. West Texas Intermediate (WTI) is underlying commodity in the New York Mercantile Exchange's oil futures contracts. The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. The Barclays U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. This U.S. Treasury Index is a component of the U.S. Government index. The Barclays High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. The Barclays 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. The Barclays Euro-Aggregate Index consists of bond issued in the euro or the legacy currencies of the sovereign countries participating the European Monetary Union (EMU). The Global Bond Index Emerging Market Broad Diversified Index (GBI-EM) is a comprehensive global local emerging markets index, and consists of liquid, fixed-rate, domestic currency government bonds. The Barclays Global Aggregate Corporate Index consists of corporate issues in Europe, the US and Asia-pacific regions. The Barclays Global High Yield Index is an unmanaged index considered representative of fixed rate, noninvestmentgrade debt of companies in the U.S., developed markets and emerging markets. The Barclays Emerging Markets Index includes USD-denominated debt from emerging markets in the following regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability. The Barclays MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. Aggregate components must have a weighted average maturity of at least one year, must have $250 million par amount outstanding, and must be fixed rate mortgages. The Barclays Corporate Bond Index is the Corporate component of the U.S. Credit index. The Barclays TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury. The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities. The Li Keqiang Index is a composite measure composed of China’s electricity production, financial institution loans and railway freight. The Euro Stoxx 600 Index represents large, mid and small capitalisation companies across 18 European countries. The JPMorgan GBI-EM Global Diversified consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index. The JPMorgan Corporate Emerging Markets Bond Index (CEMBI): The CEMBI tracks total returns of US dollardenominated debt instruments issued by corporate entities in Emerging Markets countries, and consists of an investable universe of corporate bonds. Both indices are also available in Diversified version. The JPMorgan CEMBI Index is a USD denominated external debt index tracking bond issued by sovereigns and quasisovereigns in the developing nations. The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market. The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing exposure to the systematic risk of the market (i.e. a beta of zero).* The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among several hedge fund strategies. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage. The Barclays U.S. Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate note market. *Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy, and are based on a December 8, 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data). Presumed to be excluded from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate representation of returns in the category. CS/Tremont later published a finalized November return of -40.56% for the month, reflecting this mark-down. CS/Tremont assumes no responsibility for these estimates. The Office of National Statistics (ONS) Index is a mix-adjusted average housing price index. The index is calculated monthly using mortgage financed transactions from the Regulated Mortgage Survey by the Council of Mortgage Lenders. The Nationwide House Price Index is a mix adjusted index constructed from Nationwide lending data across the UK. The Halifax House Price Index is constructed from mortgage data derived from Halifax lending data across the UK. The MSCI AC World High Dividend Yield Index is composed of those securities that have higher-than-average dividend yield within its parent index, a track record of consistent dividend payments and the capacity to sustain future dividend payments. J.P. Morgan Asset Management: Risks and disclosures The Market Insights programme provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the programme explores the implications of current economic data and changing market conditions. This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results. J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority; in other EEA jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E); in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Korea by JPMorgan Asset Management (Korea) Company Limited; in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in the United States by JPMorgan Distribution Services Inc. and J.P. Morgan Institutional Investments, Inc., both members of FINRA/SIPC.; and J.P. Morgan Investment Management Inc. In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other countries in APAC, to intended recipients only. Copyright 2017 JPMorgan Chase & Co. All rights reserved 9165a6c0-154e-11e7-91e9-005056960c8a Prepared by: Stephanie Flanders, Tilmann Galler, Vincent Juvyns, Dr. David Stubbs, Maria Paola Toschi, Michael Bell, Alexander Dryden and Nandini Ramakrishnan. Unless otherwise stated, all data as of 31 March 2017 or most recently available. Guide to the Markets - Europe JP-LITTLEBOOK
