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Guide to the Markets
Europe | |
MARKET INSIGHTS
4Q 2015 As of 30 September 2015
2
Global Market Insights Strategy Team
For China, Australia, Vietnam and Canada distribution: Please note this communication is for intended recipients only. In Australia for wholesale clients’ use only and in Canada for institutional clients’ use only. For further details, please refer to the full disclaimer. Unless otherwise stated, all data is as of 30 September 2015 or most recently available.
Americas Europe Asia
Dr. David P. Kelly, CFA New York
Stephanie H. Flanders London
Tai Hui Hong Kong
Andrew D. Goldberg New York
Manuel Arroyo Ozores, CFA Madrid
Yoshinori Shigemi Tokyo
Anastasia V. Amoroso, CFA Houston
Tilmann Galler, CFA Frankfurt
Kerry Craig, CFA Melbourne
Julio C. Callegari São Paulo
Lucia Gutierrez-Mellado Madrid
Dr. Jasslyn Yeo, CFA Singapore
James C. Liu, CFA New York
Vincent Juvyns Luxembourg
Ian Hui Hong Kong
Samantha M. Azzarello New York
Dr. David Stubbs London
Akira Kunikyo Tokyo
David M. Lebovitz New York
Maria Paola Toschi Milan
Ben Luk Hong Kong
Gabriela D. Santos New York
Michael J. Bell, CFA London
Anthony Tsoi, CFA Hong Kong
Hannah J. Anderson New York
Alexander W. Dryden London
Abigail B. Dwyer New York
Nandini L. Ramakrishnan London
Ainsley E. Woolridge New York
3
Page reference
Europe economy 4. Europe: GDP and inflation 5. Eurozone cyclical indicators 6. Eurozone recovery monitor 7. Eurozone credit conditions 8. European Central Bank (ECB) policies 9. Europe cash accounts 10. UK economic indicators
Global economy 11. World economic data 12. Global Purchasing Managers’ Index (PMI) for manufacturing 13. Global inflation dynamics 14. Central bank policy 15. Global currency trends 16. US Federal Reserve outlook 17. US: GDP and inflation 18. US employment 19. US cyclical indicators 20. US consumer finances 21. Japan: GDP and inflation 22. Japan: Abenomics and the economy 23. China: GDP, inflation and policy rate 24. China economic indicators 25. China financial dynamics 26. Emerging market and developed market divergences 27. Emerging markets challenges 28. Emerging markets trade connections with developed markets
Equities 29. World stock market returns 30. European sector returns 31. MSCI Europe Index at inflection points 32. MSCI Europe Index equity valuations 33. MSCI Europe earnings and profit margins 34. European small capitalisation equities 35. US S&P 500 at inflection points 36. US S&P 500 equity valuations
37. US S&P 500 earnings and profit margins 38. Bear markets 39. Interest rates and equities 40. Japanese equities 41. Chinese equities 42. Developed markets equity valuations by country 43. Emerging markets equity valuations by country 44. Emerging markets: Valuations and returns 45. Emerging markets: Dividends and valuations 46. Equity income 47. Annual returns and intra-year declines Fixed income 48. Fixed income sector returns 49. Government interest rates 50. Fixed income interest rate risk 51. Liquidity risks 52. Government bonds 53. Investment-grade bonds 54. US high yield bonds 55. European high yield bonds 56. Emerging market debt 57. Emerging market debt composition Other assets and investor behaviour 58. Asset class returns 59. Correlation of returns (EUR) 60. Asset volatility 61. Commodity returns 62. Commodities 63. Oil consumption and production 64. Life expectancy and pension shortfall 65. Consumer confidence and the stock market 66. Industry fund flows 67. US asset returns by holding period 68. Alternative asset class returns 69. Risk/return characteristics of alternatives 70. Alternative strategies
4
| GTM – Europe
'99 '01 '03 '05 '07 '09 '11 '13-1
0
1
2
3
4
5
'99 '01 '03 '05 '07 '09 '11 '13-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
Europe: GDP and inflation
Real GDP Inflation EU28, change quarter on quarter EU28, change year on year
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 30 September 2015.
4
Average since 1999 2Q15
Real GDP 0,4% 0,4%
Average
% %
Eu
rope
eco
nom
y
4
Average since 1999 Aug 15
Headline CPI* 2,2% 0,0% Core CPI 1,8% 0,8%
5
| GTM – Europe
-12
-2
8
18
-6
-2
2
6
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14
0,6
0,8
1,0
1,2
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Eurozone cyclical indicators
Source: (Top left and bottom left, top right) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Bottom right) BEA, Eurostat, FactSet, J.P. Morgan Asset Management. *M1 is defined as the sum of currency held by the public and transaction deposits at depository institutions. Guide to the Markets - Europe. Data as of 30 September 2015.
New auto registrations EU19, millions of new passenger cars, seasonally adjusted
Retail sales growth EU19, excluding motor vehicles, change year on year
GDP growth and money supply EU19, change year on year
Non-residential gross fixed capital formation % of GDP
5
'01 '03 '05 '07 '09 '11 '13-6
-4
-2
0
2
4%
Average: 0,89
Aug 2015: 0,81
Jul 2015: 2,6%
Eu
rope
eco
nom
y
% % GDP (y/y) M1* advanced by 12 months
(y/y)
10
11
12
13
14
14
15
16
17
'99 '01 '03 '05 '07 '09 '11 '13 '15
US
Eurozone
% %
6
| GTM – Europe
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
-1,5
-0,8
0,0
0,8
1,5
'10 '11 '12 '14 '15
10,1 6,0 5,3 4,1
-16,3 -18
-12
-6
0
6
12
'10 '11 '12 '13 '1485
90
95
100
105
Spain
'11 '12 '13 '14-2
-1
0
1
2
3
Eurozone recovery monitor
Source: (Top left) Bloomberg, Eurostat, Markit, J.P. Morgan Asset Management. (Top right) European Commission, FactSet, J.P. Morgan Asset Management. (Bottom left) Eurostat, FactSet, INE, J.P. Morgan Asset Management. (Bottom right) Eurostat, FactSet, J.P. Morgan Asset Management. *Purchasing Managers Indices and national measures of economic sentiment, standard deviations from mean. Core is Germany and France. Periphery is Italy and Spain. **Economic sentiment is a composite indicator made up of five sectoral confidence indicators produced monthly by the European Commission. Guide to the Markets - Europe. Data as of 30 September 2015.
Eurozone core vs. periphery Economic sentiment** Change from one year ago
Employment change
Eurozone domestic demand Change year on year
6
Eu
rope
eco
nom
y
6
Business surveys* (rhs) GDP growth q/q (lhs)
Indexed to 2010, current unemployment rate
%
Domestic demand
Eurozone GDP
%
Italy Ireland 22,4%
12,4% 9,8% Germany 6,4%
France 10,0% Eurozone 11,0%
Core driving eurozone
growth
Periphery driving eurozone growth
Italy France Spain Germany Greece
%
Current unemployment rate
7
GTM – Europe |
2
3
4
5
6
7
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
-30
-20
-10
0
10
20
30
'09 '10 '11 '12 '13 '14 '15
-8
-6
-4
-2
0
2
4
6
-200
-150
-100
-50
0
50
100
150
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Eurozone credit conditions
Credit demand and eurozone GDP growth Net % of banks reporting positive loan demand, GDP growth
Bank loans to households and non-financial corporations € billions, net lending flow, three-month moving average
Corporate lending rates to smaller companies Non-financial corporations, new business lending up to €1 million, 1-5 years
Source: (Left) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Top and bottom right) ECB, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
7
Eu
rope
eco
nom
y
Italy Spain
%
€ Stronger loan demand
Consumer credit (lhs) Eurozone GDP growth y/y (rhs)
Housing loans (lhs) Overall corporate (lhs)
Weaker loan demand
% %
Germany France
8
GTM – Europe |
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '11 '12 '13 '14 '1590
95
100
105
110
1,0
1,1
1,2
1,3
1,4
1,5
1,6
European Central Bank (ECB) policies
ECB balance sheet: Assets € trillions
Central bank quantitative easing purchases
The trade-weighted euro and EURUSD Nominal broad effective exchange rate, price of euro in dollars
Source: (Left) ECB, FactSet, J.P. Morgan Asset Management. (Top right) Bank of England (BoE), Bank of Japan (BoJ), Deutsche Bank, European Central Bank (ECB), US Federal Reserve, J.P. Morgan Asset Management. (Bottom right) BIS, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
8
0
50
100
150
200
250
0
5
10
15
20
25
30
Fed BoE BoJ ECB
% % % of debt outstanding % of net issuance over QE period
Jan 2005 – Jul 2012: 249%
Aug 2012 – Sep 2014: -35%
€
EURUSD
Trade-weighted euro
Balance sheet expansion since Nov 2014 +27%
Balance sheet expansion still to come up to Sep 2016 +28%
$
Eu
rope
eco
nom
y
9
| GTM – Europe
-1
0
1
2
3
4
5
-1.000
0
1.000
2.000
3.000
4.000
5.000
'00 '02 '04 '06 '08 '10 '12 '140,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Europe cash accounts
Euro area deposits Income generated by €100.000 investment in a one-year bank deposit € trillions
Source: (Left) ECB, J.P. Morgan Asset Management. (Right) Bloomberg, Eurostat, J.P. Morgan Asset Management. Blue marker points represent year on year inflation and illustrate how the value of income would have been eroded due to inflation. Guide to the Markets - Europe. Data as of 30 September 2015.
9
Inflation (y/y) Income
% € €
Aug 2012: €3,3tn
Aug 2015: €2,2tn
2007: €4.580
Sep 2015: €100
Eu
rope
eco
nom
y
10
GTM – Europe |
90
94
98
102
106
110
'08 '09 '10 '11 '12 '13 '14 '15
-8
-6
-4
-2
0
2
4
'05 '07 '09 '11 '13 '15'05 '06 '07 '08 '09 '10 '11 '12 '13 '14
-4
-2
0
2
4
6
'05 '06 '07 '08 '09 '10 '11 '12 '13 '144,0
5,0
6,0
7,0
8,0
9,0
-50
-40
-30
-20
-10
0
10Unemployment rate and consumer confidence Real GDP growth
Wage growth Current account
UK economic indicators
% of GDP Change year on year
Rebased to 100 at 1Q08
US
UK Germany
France Japan
Source: (Top left) OECD, J.P. Morgan Asset Management. (Bottom left) FactSet, ONS, 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 30 September 2015.
Headline CPI Real wage growth
Nominal wage growth*
Current account balance Trade balance
Investment income
Consumer confidence Unemployment rate
% %
%
10
Eu
rope
eco
nom
y
11
Selected countries
Gross domestic product (GDP)
Real GDP %
Inflation %
Policy rate %
Unemployment %
€ per capita € billions 2015* 2016* 2015* 2016*
Switzerland 75.746 612 0,8 1,2 -1,1 -0,2 -0,75 3,2 United States 50.235 16.078 2,5 2,7 0,3 2,0 0,25 5,1 Sweden 47.270 452 2,7 2,8 0,2 1,4 -0,35 6,4 United Kingdom 40.879 2.581 2,6 2,4 0,2 1,5 0,50 5,5 Netherlands 40.160 673 2,1 1,8 0,4 1,3 0,05 7,2 Finland 37.682 204 0,2 1,0 0,1 1,2 0,05 8,3 Germany 36.201 2.995 1,6 1,9 0,3 1,5 0,05 6,4 France 33.573 2.158 1,1 1,4 0,2 1,1 0,05 10,0 Japan 29.064 3.695 0,7 1,2 0,8 1,0 0,10 3,3 Eurozone 27.760 10.906 1,4 1,6 0,1 1,2 0,05 11,0 Italy 26.533 1.618 0,7 1,2 0,2 1,0 0,05 12,4 Spain 23.191 1.088 3,1 2,6 -0,3 1,1 0,05 22,4 Greece 15.916 177 -1,4 -0,4 -1,4 0,1 0,05 24,6 Russia 8.332 1.190 -3,8 0,3 15,3 7,7 11,00 5,6 Brazil 8.327 1.668 -2,5 -0,6 8,8 6,3 14,25 7,6 China 6.942 9.618 6,8 6,5 1,6 2,0 4,60 4,0 India 1.465 1.835 7,4 7,5 6,2 5,0 6,75 8,6
World economic data
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 30 September 2015.
11 GTM – Europe |
Gl
obal
eco
nom
y
12
Global Purchasing Managers’ Index (PMI) for manufacturing
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. Global PMI is a GDP-weighted calculation. Guide to the Markets - Europe. Data as of 30 September 2015.
GTM – Europe | 12
Lowest relative to 50 PMI Highest relative to 50 PMI 50
Korea
Japan
Ireland
Eurozone
France Germany
Italy
Spain
UK
US
Brazil
Russia
India
China
Taiwan
Global
Euro
zone
D
evel
oped
Em
ergi
ng
Gl
obal
eco
nom
y
2015 2014 2013
12
51,9 52,8 52,9 52,9 53,1 52,4 51,9 52,1 52,6 52,4 52,5 52,2 52,2 51,8 51,5 51,7 51,9 51,7 51,0 51,3 51,0 51,1 50,7 50,6
51,3 51,6 52,7 54,0 53,2 53,0 53,4 52,2 51,8 51,8 50,7 50,3 50,6 50,1 50,6 51,0 51,0 52,2 52,0 52,2 52,5 52,4 52,3 52,0
49,1 48,4 47,0 49,3 49,7 52,1 51,2 49,6 48,2 47,8 46,9 48,8 48,5 48,4 47,5 49,2 47,6 48,8 48,0 49,4 50,7 49,6 48,3 50,6
51,7 52,7 54,3 56,5 54,8 53,7 54,1 52,3 52,0 52,4 51,4 49,9 51,4 49,5 51,2 50,9 51,1 52,8 52,1 51,1 51,9 51,8 53,3 52,3
50,7 51,4 53,3 53,1 52,3 52,4 54,0 53,2 52,6 51,9 49,8 50,7 49,0 49,0 48,4 49,9 51,9 53,3 53,8 54,8 54,1 55,3 53,8 52,7
50,9 48,6 50,8 52,2 52,5 52,8 52,7 52,9 54,6 53,9 52,8 52,6 52,6 54,7 53,8 54,7 54,2 54,3 54,2 55,8 54,5 53,6 53,2 51,7
54,9 52,4 53,5 52,8 52,9 55,5 56,1 55,0 55,3 55,4 57,3 55,7 56,6 56,2 56,9 55,1 57,5 56,8 55,8 57,1 54,6 56,7 53,6 53,8
56,4 57,8 57,3 56,6 55,9 55,2 57,2 56,6 56,8 54,8 53,0 51,5 53,4 53,4 52,8 52,9 53,9 54,1 51,7 51,9 51,4 51,9 51,5 51,5
51,8 54,7 55,0 53,7 57,1 55,5 55,4 56,4 57,3 55,8 57,9 57,5 55,9 54,8 53,9 53,9 55,1 55,7 54,1 54,0 53,6 53,8 53,0 53,1
54,2 55,1 55,2 56,6 55,5 53,9 49,4 49,9 51,5 50,5 52,2 51,7 52,4 52,0 52,0 52,2 51,6 50,3 49,9 50,9 50,1 51,2 51,7 51,0
50,2 49,7 50,5 50,8 50,4 50,6 49,3 48,8 48,7 49,1 50,2 49,3 49,1 48,7 50,2 50,7 49,6 46,2 46,0 45,9 46,5 47,2 45,8 47,0
51,8 49,4 48,8 48,0 48,5 48,3 48,5 48,9 49,1 51,0 51,0 50,4 50,3 51,7 48,9 47,6 49,7 48,1 48,9 47,6 48,7 48,3 47,9 49,1
49,6 51,3 50,7 51,4 52,5 51,3 51,3 51,4 51,5 53,0 52,4 51,0 51,6 53,3 54,5 52,9 51,2 52,1 51,3 52,6 51,3 52,7 52,3 51,2
50,9 50,8 50,5 49,5 48,5 48,0 48,1 49,4 50,7 51,7 50,2 50,2 50,4 50,0 49,6 49,7 50,7 49,6 48,9 49,2 49,4 47,8 47,3 47,2
50,2 50,4 50,8 50,9 49,8 50,4 50,2 49,5 48,4 49,3 50,3 48,8 48,7 49,0 49,9 51,1 51,1 49,2 48,8 47,8 46,1 47,6 47,9 49,2
53,0 53,4 55,2 55,5 54,7 52,7 52,3 52,4 54,0 55,8 56,1 53,3 52,0 51,4 50,0 51,7 52,1 51,0 49,2 49,3 46,3 47,1 46,1 46,9
Apr
Jul
Apr
Nov
Jan
Oct
Aug
Jul
Dec
Feb
Mar
May
Jun
Sep
Oct
Nov
Dec
Feb
Jan
Mar
May
Jun
Aug
Sep
13
GTM – Europe |
1,5
2,0
2,5
3,0
3,5
4,0
-1
0
1
2
3
4
5
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
-10
-5
0
5
10
15
70
110
150
190
230
270
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Global inflation dynamics
Developed economies inflation
Long-term inflation expectations
CPI* change year on year
5-year/5-year inflation** Commodities and China producer prices (PPI)
Source: (Top) J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom left and right) Bloomberg, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. **5-year/5-year inflation expectations is the market expectation for average inflation over 5 years beginning in 5 years’ time, derived from inflation swaps. Guide to the Markets - Europe. Data as of 30 September 2015.
13
Gl
obal
eco
nom
y
%
Average Jan 1990 to Dec 2008: 2,3% Average Jan 2009 to Sep 2015: 1,5%
%
UK
Eurozone US
Mar 14 Sep 14 Mar 15 Sep 15
China PPI (y/y) lagged 3 months
Bloomberg commodity index %
14
| GTM – Europe
-0,2
0,3
0,8
1,3
1,8
2,3
2,8
0
20
40
60
80
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15
US Fed FOMC Sep 2015 median forecast
Central bank policy
Market expectations for policy rate Central bank balance sheets
Source: (Left) Bloomberg, US Federal Reserve, J.P. Morgan Asset Management. (Right) Bank of England, Bank of Japan, ECB, US Federal Reserve, J.P. Morgan Economic Research, J.P. Morgan Asset Management. *Central bank assets as percentage of nominal GDP is forecasted from 3Q15 to 1Q16 using J.P. Morgan Global Economics Research nominal GDP forecasts and assumptions for central bank balance sheet size based on statements released by each respective central bank and its governors. Guide to the Markets - Europe. Data as of 30 September 2015.
14
Gl
obal
eco
nom
y
US
% of nominal GDP
UK
US
Japan Eurozone
UK
Eurozone
%
‘15 ‘16 ‘17
Projections*
%
15
GTM – Europe |
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '1460
80
100
120
140
160Real effective exchange rate, indexed 2010 = 100 US dollar
Euro
Chinese yuan
Japanese yen -2,2 -3,4 -5,9 -6,6 -8,4 -11,6 -14,1
-16,6 -19,7 -20,8
-38,5 -40
-30
-20
-10
0
70
80
90
100
110
120
130
'73 '77 '81 '85 '89 '93 '97 '01 '05 '09 '13
Average since 1973 Aug 2015
US dollar index 95,7 97,3
Global currency trends
US dollar index
Exchange rates
Broad real effective exchange rate (REER)
Currency performance against US dollar Last 12 months
Source: (Top) US Federal Reserve, J.P. Morgan Asset Management. (Bottom left) BIS, FactSet, J.P. Morgan Asset Management. (Bottom right) FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
15
1978-1985: +52,7%
1985-1988: -29,5%
2002-2011: -28,6%
1995-2002: +34,2%
1973-1978: -21,8% 2011-2015:
+20,8%
1985: Plaza Accord
1987: Louvre Accord
1988-1995: -7,1%
Gl
obal
eco
nom
y
%
Chinese renminbi
Indian rupee
British pound
Euro Swed. krona
Japanese yen
Swiss franc
Can. dollar
Aus. dollar
Mex. peso
Brazilian real
16
GTM – Europe |
0,210%
0,645%
1,125%
0,375%
1,375%
2,625%
3,50%
0
1
2
3
4
5
6
7
'99 '03 '07 '11 '15
US Federal Reserve outlook
Federal funds rate expectations FOMC and market expectations for the Fed funds rate
Source: Bloomberg, US Federal Reserve, New York 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 30 September 2015.
Gl
obal
eco
nom
y
16
FOMC September 2015 forecasts*
2015 2016 2017 Long run
Change in real GDP, 4Q to 4Q 2,1% 2,3 2,2 2,0
Unemployment rate, 4Q 5,0% 4,8 4,8 4,9
PCE inflation, 4Q to 4Q 0,4% 1,7 1,9 2,0
Federal funds rate
FOMC long-run projection Market expectations on 30 September 2015
% US Fed FOMC forecasts median US Fed FOMC forecasts range
17
| GTM – Europe
'64 '69 '74 '79 '84 '89 '94 '99 '04 '09 '14-3
0
3
6
9
12
15
'99 '01 '03 '05 '07 '09 '11 '13-10
-8
-6
-4
-2
0
2
4
6
8
10
US: GDP and inflation
Real GDP
Inflation Change quarter on quarter, SAAR Change year on year
Source: (Left) BEA, FactSet, J.P. Morgan Asset Management. (Right) BLS, FactSet, 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 30 September 2015.
17
Average since 1999 2Q15
Real GDP 2,0% 3,9% %
Average
Components of nominal GDP 2Q15 Consumption 68,3% Government 17,7% Investment ex- housing 13,5% Housing 3,3% Net exports -2,9%
Average since 1964
Average since 1999
Aug 2015
Headline CPI* 4,1% 2,3% 0,2%
Core CPI 4,1% 2,0% 1,8% %
Gl
obal
eco
nom
y
17
18
GTM – Europe |
62
63
64
65
66
67
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
'70 '80 '90 '00 '100
2
4
6
8
10
12
45
50
55
60
65
70
'00 '02 '04 '06 '08 '10 '12 '14
Aug 2015: 55,3%
US employment
Unemployment rate and wage growth
Labour force participation rate
Seasonally adjusted, wages of production and non-supervisory workers year on year
% of population aged 16+ working or looking for work Income expectations % of respondents expecting household income to rise in the next year
Source: (Top) BEA, FactSet, J.P. Morgan Asset Management. (Bottom left) “Constructing the Reason-for-Nonparticipation Variable Using the Monthly CPS”, 6 February 2014, Shigeru Fujita, Federal Reserve Bank of Philadelphia, J.P. Morgan Asset Management. (Bottom right) University of Michigan, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
Unemployment
50-yr average: 4,3%
50-yr average: 6,1% Sep 2015:
5,1%
Sep 2015: 1,9% Wage growth
Sep 2015: 62,4%
% %
%
Gl
obal
eco
nom
y
18
Disabled
Retired
Other
19
| GTM – Europe
40
45
50
55
60
65
70
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15'96 '98 '00 '02 '04 '06 '08 '10 '12 '140
400
800
1.200
1.600
2.000
2.400
'96 '98 '00 '02 '04 '06 '08 '10 '12 '148
10
12
14
16
18
20
22
24
Average: 15,4
Sep 2015: 18,1
'96 '98 '00 '02 '04 '06 '08 '10 '12 '1436
38
40
42
44
46
48
Jul 2015: 41,4
US cyclical indicators
Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top and bottom right and bottom left) FactSet, US Census Bureau, J.P. Morgan Asset Management. *Capital goods orders deflated using the producer price index for capital goods. SAAR is seasonally adjusted annual rate. Guide to the Markets - Europe. Data as of 30 September 2015.
Light vehicle sales Millions, SAAR
Manufacturing and trade inventories Days of sales, seasonally adjusted
Housing starts Thousands, SAAR
Real capital goods orders* Non-defence capital goods orders ex-aircraft, $ billions, seasonally adjusted
19
Average: 1.334
Aug 2015: 1.126
$
Average: 55,9 Aug 2015: 58,5
Gl
obal
eco
nom
y
19
20
| GTM – Europe
8
10
12
14
'80 '85 '90 '95 '00 '05 '10 '15
US consumer finances
Home sales, prices and housing starts Rebased to 100 at December 1999
Household net worth $ billions, SAAR
Household debt service ratio Debt payments as % of disposable personal income, seasonally adjusted
Source: (Top and bottom left) FactSet, US Federal Reserve, J.P. Morgan Asset Management. (Right) FactSet, National Association of Realtors, US Census Bureau, J.P. Morgan Asset Management. Price index is the mean existing home sale price. SAAR is seasonally adjusted annual rate. *2Q15 numbers for US household net worth and debt service ratio are J.P. Morgan Asset Management forecasts. Guide to the Markets - Europe. Data as of 30 September 2015.
20
% 4Q07: 13,2%
3Q15*: 9,8%
'99 '01 '03 '05 '07 '09 '11 '1325
50
75
100
125
150
175
Price index
Existing home sales
Housing starts
+25,3%
+53,9%
+135,5%
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
20.000
40.000
60.000
80.000
3Q15*: $84.335 2Q07:
$67.965
$
Gl
obal
eco
nom
y
21
| GTM – Europe
-3
-2
-1
0
1
2
3
4
5
'99 '01 '03 '05 '07 '09 '11 '13-5
-4
-3
-2
-1
0
1
2
3
4
'99 '01 '03 '05 '07 '09 '11 '13
Japan: GDP and inflation
Real GDP growth
Inflation Change quarter on quarter Change year on year
Source: (Left) FactSet, Japan Statistics Bureau & Statistics Centre, J.P. Morgan Asset Management. (Right) Bloomberg, FactSet, Japan Ministry of Internal Affairs & Communications, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - Europe. Data as of 30 September 2015.
21
Average since 1999 2Q15
Real GDP 0,2% -0,3% %
Average
Average since 1999
Aug 2015
Headline CPI* 0,0% 0,2% Core CPI -0,3% 0,8% CPI less food & consumption tax
-0,1% -0,1% %
Gl
obal
eco
nom
y
21
22
| GTM – Europe
0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
-8
-4
0
4
8
'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
'03 '05 '07 '09 '11 '13
-2
-1
0
1
2
3
Japan: Abenomics and the economy
Bank lending and job-to-applicant ratio Lending growth year on year, number of jobs to applicants
Wage growth Change year on year, three-month moving average
New job offers by company size Three-month moving average, thousands
Source: (Top left) ) FactSet, Japan Ministry of Internal Affairs & Communications, Japan Ministry of Health, Labour and Welfare, J.P. Morgan Asset Management. (Bottom left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) Bloomberg, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - Europe. Data as of 30 September 2015.
22
% Wage growth Core CPI*
Gl
obal
eco
nom
y
%
200
300
400
500
600
'00 '02 '04 '06 '08 '10 '12 '14
Companies with 29 employees or fewer
Companies with 30 employees or more
Job-to-applicant ratio
Bank lending (y/y)
x
23
GTM – Europe |
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140
1
2
3
4
5
0
5
10
15
20
25
-6
-3
0
3
6
9
12
15
18
21
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
'00 '02 '04 '06 '08 '10 '12 '14
-6
0
6
12
18
24
China: GDP, inflation and policy rate
Real GDP growth Change year on year
Inflation Change year on year
Policy rate and reserve ratio requirement (RRR)** Policy rate on one-year renminbi deposits
Source: (Left and top right) FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. (Bottom right) FactSet, People’s Bank of China (PBoC), J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. **Average RRR for large and small banks. Guide to the Markets - Europe. Data as of 30 September 2015.
23
Gl
obal
eco
nom
y
Consumption
GDP growth Investment
Net exports
%
2Q15: 7,0%
Aug 2015 Food CPI 3,7% Headline CPI* 2,0% Core CPI 1,7% %
% %
PBoC policy rate
RRR
24
| GTM – Europe
-1
0
1
2
'11 '12 '13 '14 '15
-40
-20
0
20
40
60
80
100
-40
-20
0
20
40
60
80
100
'04 '06 '08 '10 '12 '14
Imports y/y (lhs) Exports y/y (lhs)
Trade balance (rhs)
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
40
45
50
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140
5
10
15
20
25
30
0
10
20
30
40
50
60
70
China economic indicators
Source: (Top and bottom left, top right) FactSet, National Bureau of Statistics of China, J.P Morgan Asset Management. (Bottom right) Soufun, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
China industrial production, retail and auto sales
Manufacturing and services components of GDP 12-month moving average, % of nominal GDP
External account Top 100 cities property prices Month on month change
24
%
Gl
obal
eco
nom
y
Services
Manufacturing
%
% %
%
Year on year change, 3-month moving average
Auto sales (rhs)
Retail sales (lhs) Industrial production (lhs)
$ bn
25
| GTM – Europe
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140
1
2
3
4
5
'11 '12 '13 '14 '1595
100
105
110
115
120
125
130 6,0
6,1
6,2
6,3
6,4
6,5
6,6
6,7
China financial dynamics
Source: (Top left) BIS, CEIC, Lombard Street Research, J.P. Morgan Asset Management. (Bottom left) FactSet, World Bank, J.P. Morgan Asset Management. (Top right) BIS, IMF World Economic Outlook April 2015, Lombard Street Research, J.P. Morgan Asset Management. (Bottom right) People’s Bank of China, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
Chinese renminbi 2014 public, household and non-financial corporate debt % of GDP
Credit to private sector % of GDP
0
50
100
150
200
250
300
350 Non-financial corporate debt Public debt
Household debt %
Japan UK US Eurozone China Korea
Gl
obal
eco
nom
y
25
RMB Trade-weighted RMB
China foreign exchange reserves and external debt Trillions USD
$
'77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '1340
60
80
100
120
140
160 2014: 141% % External debt as a % of global GDP
EM Asia 1998
US 2008
China 2014
1,7% 21,8% 1,2%
USDRMB
26
GTM – Europe |
-10
-5
0
5
10
15
-10
-5
0
5
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Emerging market and developed market divergences
Domestic demand growth rate by region Change year on year
Global trade % of global GDP
Change in commodity prices* Year to date
Source: (Left) J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Top right) Worldbank, J.P. Morgan Asset Management. (Bottom right) Bloomberg, J.P. Morgan Asset Management. *Change in generic first future price (USD). Guide to the Markets - Europe. Data as of 30 September 2015.
Gl
obal
eco
nom
y
Emerging markets
Developed markets
26
% %
'64 '69 '74 '79 '84 '89 '94 '99 '04 '09 '1420
30
40
50
60%
%
-40
-30
-20
-10
0
27
GTM – Europe |
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
Emerging markets challenges
Consensus growth forecasts Estimates for next 12 months
EM equity performance and US rate hikes MSCI EM Index in USD, rebased to 100 on the date of first rate hike
Relative EM / DM equity performance and USD REER* Equity performance rebased to 100 at 1993
Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Top right) MSCI, US Federal Reserve, J.P. Morgan Asset Management. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. *REER is real effective exchange rate. Guide to the Markets - Europe. Data as of 30 September 2015.
50
75
100
125
150
-250 -125 0 125 250
4 Apr 1994 30 Jun 1999 30 Jun 2004
'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '130
50
100
150
200
250 90
100
110
120
130
USD REER (inverted)
MSCI EM / MSCI DM
%
Thailand
China
Russia
Turkey
Brazil
India
Indonesia Gl
obal
eco
nom
y
27
Days
Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Apr 15 Jul 15 Jan 15
28
| GTM – Europe Emerging markets trade connections with developed markets
EM exports breakdown EM GDP growth: Sensitivity to DM growth* Estimated increase in real GDP growth from a 1% increase in DM growth
Source: (Left) IMF, World Trade Organisation, J.P. Morgan Asset Management. (Right) FactSet, IMF, J.P. Morgan Asset Management. *Assumes a 1% increase in GDP growth from Japan, Europe and the US, and estimates a reaction function through a multistage regression measuring emerging market economies’ sensitivity to export volumes. Developed market imports are used as a proxy for developed demand and estimated from a 1% pick up in domestic GDP. The sample period tested ranges between 1993 and 2014 reflecting quarterly data. Guide to the Markets - Europe. Data as of 30 September 2015.
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80 90 100
Asian countries
EMEA countries
Commodity exports as % of merchandise exports - 2013
Man
ufac
turin
g ex
port
s as
% o
f mer
chan
dise
exp
orts
- 20
13
LatAm countries
Czech Republic
Korea Hungary
Poland Mexico Thailand
India Ukraine
Malaysia
Philippines Turkey
Taiwan
Vietnam
S. Africa Indonesia Brazil
Argentina
Russia Colombia
Chile Peru
Venezuela
0,0 0,2 0,4 0,6 0,8 1,0 1,2
Europe
US
Japan
Com
mod
ity e
xpor
ters
M
anuf
actu
rers
If the US economy expands by 1%, then the Mexican economy is estimated to grow by an additional 0,3%, other things equal.
Chile
S. Africa
Russia
Colombia
Brazil
Mexico
Taiwan
Turkey
Korea
Thailand
%
Gl
obal
eco
nom
y
28
China
Nigeria
29
55,0% MSCI EM
35,8%
20,2% Europe 19,6%
26,7% Asia ex-Jp
38,0%
-23,0% TOPIX -40,6%
73,4% MSCI EM
62,8%
35,4% Small Cap
24,4%
5,5% US S&P 500
2,1%
20,8% Asia ex-Jp
19,7%
27,2% Small Cap
35,8%
29,5% US S&P 500
13,7%
10,7% TOPIX 2,0%
-6,6% US S&P 500
-6,4%
11,0% Asia ex-Jp
10,0%
45,3% TOPIX 45,2%
19,6% Asia ex-Jp
28,6%
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%
4,0% Small Cap
-2,0%
-8,7% HDY Equity
-6,4%
10,1% MSCI EM
10,3%
41,9% Asia ex-Jp
24,1%
18,6% MSCI EM
28,8%
4,6% Portfolio
11,1%
-37,9% HDY Equity
-34,4%
40,2% Small Cap
40,8%
27,5% MSCI EM
14,4%
-5,7% Small Cap
-8,7%
16,8% MSCI EM
17,4%
21,5% TOPIX 54,4%
16,5% Small Cap
6,7%
3,3% Europe 0,2%
-8,8% Europe -7,0%
9,3% Small Cap
8,2%
33,8% Small Cap
23,3%
16,0% HDY Equity
21,6%
3,2% Europe 6,5%
-38,6% Small Cap
-40,4%
37,6% Portfolio
35,8%
23,9% TOPIX 1,0%
-5,8% Portfolio
-7,5%
16,3% Small Cap
18,4%
20,5% Europe 22,3%
16,2% HDY Equity
8,7%
2,7% US S&P 500
-5,3%
-9,8% Small Cap
-9,0%
8,9% US S&P 500
7,7%
33,6% Portfolio
23,9%
12,5% Portfolio
19,4%
-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%
1,0% Portfolio
-3,3%
-10,8% Portfolio
-8,9%
8,5% Portfolio
8,0%
27,0% HDY Equity
17,7%
5,2% Small Cap
13,6%
-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%
-0,8% HDY Equity
-4,9%
-11,1% TOPIX -12,8%
8,2% HDY Equity
7,7%
26,7% Europe 25,5%
3,6% US S&P 500
15,8%
-8,8% Small 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%
-4,9% Asia ex-Jp
-8,4%
-17,1% Asia ex-Jp
-13,8%
6,4% Europe 6,4%
20,9% US S&P 500
4,9%
-8,7% TOPIX 3,0%
-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%
-8,1% MSCI EM
-6,9%
-17,9% MSCI EM
-12,0%
3,5% TOPIX 3,9%
World stock market returns
Source: FactSet, MSCI, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. Annualised return covers the period 2005 to 2014. HDY Equity: MSCI AC World High Dividend Yield Index; Small Cap: MSCI Europe 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 30 September 2015.
GTM – Europe | 29
€
Local
2010 2005 2007 2006 2012 2008 2011 3Q15 2009 2013 2014 YTD Ten-yr Ann.
Eq
uitie
s
30
European sector returns
Source: FactSet, MSCI, J.P Morgan Asset Management. All calculations are total return in local currency, not annualised. *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. **Correlation to interest rates is calculated using daily sector returns and daily 10-year German Bund yield over the last 10 years. Guide to the Markets - Europe. Data as of 30 September 2015.
GTM – Europe |
MSCI Europe Index
Europe weight
3Q15
YTD
Since market peak*
Since market low*
Forward P/E ratio
15-year average
Trailing P/E ratio
15-year average
Dividend yield
15-year average
Growth weight
Value weight
Beta to Europe
Correl to int. rates**
Financials Health care
Cons. staples
Cons. disc. Industrials Materials Energy Telecom Utilities Tech Europe
30
Eq
uitie
s
22,9% 14,1% 14,7% 11,5% 11,0% 6,6% 6,5% 5,0% 4,0% 3,6% 100%
11,6% 18,3% 21,7% 17,2% 13,3% 6,2% 1,5% 3,3% 0,1% 6,7% 100%
35,4% 10,0% 6,8% 5,3% 8,6% 6,9% 11,8% 7,0% 8,2% 0,1% 100%
-8,2 -2,6 2,0 -9,2 -7,7 -18,4 -13,4 -6,4 -4,3 -6,0 -7,0
0,2 5,2 7,9 3,7 0,3 -13,2 -13,3 4,1 -5,9 1,5 0,2
-33,8 104,1 91,2 59,5 13,1 -19,1 -7,1 45,5 -11,4 -1,6 12,1
181,6 192,8 179,6 252,7 165,3 91,8 27,5 118,6 56,1 148,9 140,3
1,33x 0,63x 0,64x 0,95x 1,13x 1,31x 1,00x 0,79x 0,86x 0,99x 1,00x β
0,25 0,16 0,16 0,22 0,22 0,21 0,20 0,22 0,18 0,20 0,24 ρ
10,3x 16,7x 18,7x 12,7x 14,1x 13,9x 12,9x 18,0x 13,3x 16,3x 13,7x
11,0x 16,0x 15,9x 14,5x 14,1x 12,4x 11,8x 18,0x 13,6x 21,1x 13,4x
11,9x 18,4x 20,1x 15,1x 16,2x 15,7x 12,7x 20,0x 13,9x 19,7x 15,2x
12,8x 17,3x 17,2x 17,1x 16,3x 14,1x 11,9x 20,2x 14,4x 37,1x 14,9x
3,8% 2,7% 2,9% 2,6% 2,9% 3,6% 6,2% 4,1% 5,0% 1,8% 3,4%
3,8% 2,7% 2,7% 2,8% 2,7% 2,9% 4,0% 4,4% 4,8% 1,8% 3,3%
Wei
ghts
Ret
urn
P/E
Div
31
GTM – Europe |
600
1.000
1.400
1.800
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
MSCI Europe Index at inflection points
MSCI Europe Index
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. *Represented by the German Bund Yield. Guide to the Markets - Europe. Data as of 30 September 2015.
31
Characteristic Sep 2000 Jul 2007 Sep 2015 Index level 1.623 1.641 1.347 P/E ratio (fwd) 21,8x 13,0x 13,7x Dividend yield 1,8% 2,8% 3,4% Euro 10 year* 5,2% 4,6% 0,6%
16 Jul 2007: P/E = 13,0x
1.641
12 Mar 2003: P/E = 11,9x
676
4 Sep 2000: P/E = 21,8x
1.623
9 Mar 2009: P/E = 8,3x
714
-55% +180%
-54%
Total return: +133%
31 Dec 1996: P/E = 16,3x
714
30 Sep 2015: P/E = 13,7x
1.347
+144%
Eq
uitie
s
31
32
| GTM – Europe
0
2
4
6
8
10
12
'00 '02 '04 '06 '08 '10 '12 '14
MSCI Europe Index equity valuations
Earnings yield and 10-year bond yield Forward P/E ratio
MSCI Europe cyclically adjusted P/E ratio Adjusted using trailing 10-year average inflation-adjusted earnings
Source: (Top left) FactSet, J.P. Morgan Asset Management. (Bottom left) FactSet, MSCI, J.P. Morgan Asset Management. (Right) FactSet, MSCI, Tullett Prebon, 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. Earnings yield is calculated as the inverse of the forward P/E ratio. *Represented by the German Bund Yield. Guide to the Markets - Europe. Data as of 30 September 2015.
32
Eq
uitie
s '01 '03 '05 '07 '09 '11 '138
12
16
20
24
30 Sep 2015: 14,0x
Average: 13,9x
x
Earnings yield (inverse of forward P/E)
30 Sep 2015: 0,6%
10-year European bond yield*
%
30 Sep 2015: 7,3%
0
10
20
30
40
'80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13
Average: 17,8x
31 Jul 2015: 15,8x
x
33
GTM – Europe |
-0,5
0,0
0,5
1,0
1,5
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '146
7
8
9
10
11
MSCI Europe earnings and profit margins
MSCI Europe earnings and performance Index level, analyst estimates of the next 12 month of earnings
US and European operating profit margins Earnings per share/sales per share for MSCI Europe and S&P 500*
Source: (Left) FactSet, MSCI, J.P. Morgan Asset Management. (Top right) FactSet, MSCI, J.P. Morgan Asset Management. (Bottom right) FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. *Data is last 12 months. Guide to the Markets - Europe. Data as of 30 September 2015.
33
'07 '08 '09 '10 '11 '12 '13 '145,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
9,5
10,0
10,5
700
800
900
1.000
1.100
1.200
1.300
1.400
1.500
1.600€
MSCI Europe index level MSCI Europe profits
Europe
Eq
uitie
s
US
Margin expansion over the last 12 months Earnings per share/sales per share
%
Spain Portugal Italy Germany Europe France Ireland Switz. UK
%
34
GTM – Europe |
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140,5
1,0
1,5
2,0
2,5
3,0
European small capitalisation equities
Small cap relative performance and economic performance Relative performance indexed to Nov 2012
Risk-adjusted return ratios* By company market capitalisation and holding period
European small cap: Price-to-book value
Source: (Left) Bloomberg, ZEW, J.P. Morgan Asset Management. (Top right) Bloomberg, MSCI, J.P. Morgan Asset Management. (Bottom right) Citibank, J.P. Morgan Asset Management. *Risk free rate assumed to be equal to zero. Guide to the Markets - Europe. Data as of 30 September 2015.
0,0
0,4
0,8
1,2MSCI small cap minus large cap performance
12-month net change in Eurozone composite PMI
Eq
uitie
s
34
% Small caps Mid caps Large caps
x
Average: 1,8x
30 Sep 2015: 2,1x
x
1 year 5 year 10 year
-20
-15
-10
-5
0
5
10
15
20
-40
-30
-20
-10
0
10
20
30
40
50
'05 '07 '09 '11 '13 '15
35
GTM – Europe |
600
800
1.000
1.200
1.400
1.600
1.800
2.000
2.200
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
US S&P 500 at inflection points
S&P 500 Index
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 30 September 2015.
35
24 Mar 2000: P/E = 27,2x
1.527
9 Oct 2002: P/E = 14,1x
777
9 Oct 2007: P/E = 15,7x
1.565
9 Mar 2009: P/E = 10,3x
677
31 Dec 1996: P/E = 16,0x
741
-47% -55% +121% Total return:
+116%
Characteristic Mar 2000 Oct 2007 Sep 2015 Index level 1.527 1.565 1.920 P/E ratio (fwd) 27,2x 15,7x 15,1x Dividend yield 1,1% 1,8% 2,5% US 10 year 6,2% 4,7% 2,1%
+226%
30 Sep 2015: P/E = 15,1x
1.920
Eq
uitie
s
36
GTM – Europe | US S&P 500 equity valuations
Earnings yield and Baa corporate bond yield Forward P/E ratio
S&P 500 Shiller cyclically adjusted P/E Adjusting using trailing 10-year average inflation-adjusted earnings
Source: (Left) FactSet, IBES, Moody’s, Standard & Poor’s, J.P. Morgan Asset Management. (Top right) FactSet, Standard & Poor’s, 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 right) FactSet, Robert Shiller, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
36
'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '133
4
5
6
7
8
9
10
11
'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
12
16
20
24
28
'00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '100
10
20
30
40
50
%
Average: 16,5x
31 Dec 1999: 26,9x
30 Sep 2015: 15,1x
30 Sep 2015: 24,3x
Average: 16,6x
x
x
Baa corporate bond yield
Earnings yield (inverse of forward P/E)
30 Sep 2015: 6,8%
30 Sep 2015: 5,4%
Eq
uitie
s
37
GTM – Europe |
'95 '97 '99 '01 '03 '05 '07 '09 '11 '136
7
8
9
10
11
1
2
3
4
5
US S&P 500 earnings and profit margins
S&P 500 earnings and performance Index level, analyst estimates of the next 12 months of earnings
Source: (Left and top right) FactSet, Standard & Poor’s, J.P. Morgan Asset Management. (Bottom right) BEA, FactSet, J.P. Morgan Asset Management. USD sensitivity is determined by calculating the proportion of each stock’s historical variation in returns that is explained by variation in the US dollar. Guide to the Markets - Europe. Data as of 30 September 2015.
37
'07 '08 '09 '10 '11 '12 '13 '1460
70
80
90
100
110
120
130
600
800
1.000
1.200
1.400
1.600
1.800
2.000S&P 500 index level S&P 500 profits $
Eq
uitie
s
Operating margins
Wage growth % %
S&P 500 operating margins and US wage growth Change year on year
S&P 500 earnings per share growth Change year on year, 2Q15
%
-10,9
1,7
-6,0
0,0
10,0
-18
-9
0
9
18
Total index Index
ex-energy
Average USD sensitivity
Least USD sensitivity
Most USD sensitivity
Index ex-energy
38
| GTM – Europe
-100
-80
-60
-40
-20
0
1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
7
9
8
6
5 4
3
2
1
Market corrections Bear markets Macro environment Bull markets
Market Bear Duration Recession
Commodity Aggressive Extreme Bull Bull Duration peak Return (months) spike Fed tightening valuations start date Return (months)
1 Crash of 1929 – excessive leverage, irrational exuberance Sep 1929 -86% 33 Jul 1926 152% 38 2 1937 Fed Tightening – premature policy tightening Mar 1937 -60 63 Mar 1935 129 24 3 Post WWII Crash – post-war demobilisation, recession fears May 1946 -30 37 Apr 1942 158 50 4 Flash crash of 1962 – flash crash, Cuban Missile Crisis Dec 1961 -28 7 Oct 1960 39 14 5 Tech crash of 1970 – economic overheating, civil unrest Nov 1968 -36 18 Oct 1962 103 74 6 Stagflation – OPEC oil embargo Jan 1973 -48 21 May1970 74 32 7 Volcker Tightening – campaign against inflation Nov 1980 -27 21 Mar 1978 62 33 8 1987 crash – Programme trading, overheating markets Aug 1987 -34 3 Aug 1982 229 61 9 Tech bubble – extreme valuations, “dot com” boom/bust Mar 2000 -49 31 Oct 1990 417 115 10 Global Financial Crisis – Leverage/housing, Lehman collapse Oct 2007 -57 17 Oct 2002 101 61
Current cycle – – – Mar 2009 184 80 Average – -45% 25 – 150% 53
Bear markets
S&P 500 declines from all-time highs
Characteristics of past bear and bull markets*
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. “Commodity spike” is defined as significant rapid upward moves in oil prices. Periods of “extreme valuations” are those where S&P 500 last 12 months P/E levels were approximately two standard deviations above long-run averages. “Aggressive Fed tightening” is defined as US Federal Reserve monetary tightening that was unexpected and significant in magnitude. Guide to the Markets - Europe. Data as of 30 September 2015.
%
Recession
20% market decline
Eq
uitie
s
38
10
39
GTM – Europe |
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
0 2 4 6 8 10
Interest rates and equities
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, 1980 - 2015
Source: FactSet, MSCI, Standard & Poor’s, US Treasury, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. The “initial reaction” represents the period during which, in our judgment, markets began pricing the first rate hike through the date of the second rate hike. The “subsequent market reaction” is the period from the second rate hike to a point determined to be the end of the rate hiking cycle. The “total reaction” is the market movement across the full rate hiking cycle. Guide to the Markets - Europe. Data as of 30 September 2015.
39
S&P 500
MSCI Europe
Cor
rela
tion
Market reaction when the US Fed raised rates
S&P 500 price return ’87 ’87-’89 ’94-’95 ’99-’00 ’04-’06
Initial reaction -5% -7% -10% -7% -8%
Subsequent market reaction
32% 24% 7% 18% 20%
Total reaction 26% 17% -2% 10% 11%
%
2-year Treasury yield
Eq
uitie
s
Positive relationship between yield movements and equity returns
Negative relationship between yield movements and equity returns
40
GTM – Europe |
44
27 2521 20 18
15
0
10
20
30
40
50
Japanese equities
TOPIX earnings and performance Listed companies’ cash and cash equivalents holdings* % of market capitalisation, average between 2004 and 2012
Listed companies’ dividend pay-out and share buybacks JPY trillions
Source: (Left) FactSet, TOPIX, J.P. Morgan Asset Management. (Top right) IMF, J.P. Morgan Asset Management. (Bottom right) Nomura, J.P. Morgan Asset Management. *Cash and cash equivalent holdings derived from “Unstash the Cash! Corporate Governance Reform in Japan,” Chie Aoyagi and Giovanni Ganelli, IMF, August 2014. **Share buyback data are 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 30 September 2015.
Index level, analyst estimates of the next 12 months of earnings
'07 '08 '09 '10 '11 '12 '13 '1420
30
40
50
60
70
80
90
100
110
120
200
400
600
800
1,000
1,200
1,400
1,600
1,800
TOPIX profits
TOPIX price level
Eq
uitie
s
40
0
4
8
12
16
'90 '95 '00 '05 '10 '15
Share buybacks** Dividends
¥
%
Germany Italy France UK US Japan Canada
¥
41
GTM – Europe | Chinese equities
Stock market performance and margin debt Index level, % of GDP
Chinese household financial asset allocation
Price to earnings ratio
Source: (Left) CEIC, FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. (Top right) Central Bank of the Republic of China, J.P. Morgan Asset Management. (Bottom right) Bloomberg, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
Onshore equity index (CSI 300)
41
Eq
uitie
s
%
Cash 72%
Equities 7%
Mutual funds 2%
Other 11%
Insurance & Pensions
7%
Margin debt % of GDP
0
10
20
30
40
50
'06 '08 '10 '12 '14
Hang Seng: 79% Institutional, 21% Individual Shanghai Composite: 79% Institutional, 21% Individual Shenzhen Composite : 81% Individual, 19% Institutional
x
0,0
0,5
1,0
1,5
2,0
2,5
1.000
2.000
3.000
4.000
5.000
6.000
Dec 13 Apr 14 Aug 14 Dec 14 Apr 15 Aug 15
42
| GTM – Europe Developed markets equity valuations by country
Developed markets
Source: FactSet, MSCI, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (forward P/E), price to current book (P/B), price to last 12 months’ cash flow (P/CF) and price to last 12 months’ dividends. Results are then normalised using means and average variability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). DM Index is the MSCI The World Index. Guide to the Markets - Europe. Data as of 30 September 2015.
42
Eq
uitie
s
Expensive relative to
own history
Expensive relative to
world
Cheap relative to own history
Cheap relative to
world
How to interpret this chart
Average
Current
Std
dev
from
glo
bal a
vera
ge
Spain Italy Germany France UK Japan ACWI US Switz. DM Index
Current composite index
Current 10-year average
Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield Spain -2,01 12,7x 1,2x 6,8x 4,8% 11,3 1,5x 4,4x 5,1% Italy -1,83 14,2 1,0 5,0 3,3 11,4 1,1 3,5 3,5 Germany -1,21 11,9 1,5 7,6 3,2 11,7 1,7 5,5 2,9 France -0,92 13,8 1,4 8,3 3,6 11,9 1,5 6,0 3,3 UK -0,79 14,2 1,7 8,9 4,4 11,8 1,9 7,1 3,8 Japan -0,43 13,0 1,2 7,4 2,0 16,3 1,4 6,5 1,8 ACWI 0,13 14,2 1,9 9,4 2,8 13,4 2,1 7,3 2,5 DM Index 0,41 14,7 2,0 9,8 2,7 13,7 2,1 7,5 2,5 Switz. 1,36 15,9 2,4 13,4 3,3 14,1 2,6 10,3 3,1 US 1,64 15,4 2,6 10,8 2,2 14,3 2,7 8,7 2,0
+2.5 Std dev
Average
-2.5 Std dev
+5 Std dev
-5 Std dev
43
| GTM – Europe Emerging markets equity valuations by country
Emerging markets
Source: FactSet, MSCI, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (forward P/E), price to current book (P/B), price to last 12 months’ cash flow (P/CF) and price to last 12 months’ dividends. Results are then normalised using means and average variability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Guide to the Markets - Europe. Data as of 30 September 2015.
43
Russia Brazil China EM Index Taiwan S. Korea ACWI S. Africa India Mexico
Expensive relative to
own history
Cheap relative to own history
Average
Current
Expensive relative to
world
Cheap relative to
world
How to interpret this chart
Std
dev
from
glo
bal a
vera
ge
+2 Std dev
Average
-2 Std dev
+4 Std dev
-4 Std dev
+6 Std dev
-6 Std dev
Eq
uitie
s
Current composite index
Current 10-year average Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield
Russia -5,05 4,9x 0,5x 2,7x 5,6% 7,1x 1,2x 6,1x 3,0% Brazil -2,84 10,4 1,0 5,2 4,4 10,4 1,8 6,0 3,4 China -2,35 8,7 1,2 6,6 3,4 11,7 2,1 4,6 2,8 EM Index -1,80 10,7 1,4 6,6 3,1 11,3 1,8 6,1 2,7 Taiwan -1,72 11,5 1,5 7,0 4,0 14,2 1,8 6,4 3,7 S. Korea -1,24 9,8 1,0 4,9 1,7 9,7 1,4 5,4 1,6 ACWI 0,13 14,2 1,9 9,4 2,8 13,4 2,1 7,3 2,5 S. Africa 0,80 15,1 2,3 11,2 3,2 12,4 2,6 8,9 3,2 Mexico 1,97 18,0 2,5 9,5 2,0 15,4 2,9 6,5 1,9 India 3,59 17,5 3,0 12,0 1,5 16,1 3,2 12,6 1,3
44
| GTM – Europe
0,75
1,00
1,25
1,50
1,75
2,00
2,25
2,50
2,75
3,00
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15-60
-40
-20
0
20
40
60
80
0,75 1,00 1,25 1,50 1,75 2,00 2,25 2,50 2,75 3,00 3,25
Emerging markets: Valuations and returns
MSCI Emerging Markets Index: Price to book ratio MSCI Emerging Markets Index: Price to book and returns Price to book ratio and next 12 months’ price return
Source: (All charts) FactSet, MSCI, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
Average: 1,80x
-2,0 std. dev.
+2,0 std. dev.
x Current level %
44
Eq
uitie
s
30 Sep 2015: 1,40x
x
45
GTM – Europe | Emerging markets: Dividends and valuations
MSCI EM Index: Long-term growth in dividends per share (DPS) and earnings per share (EPS) Rebased to 100 at December 1995
Relative valuation of high dividend yielding equities Valuation vs. long-term average, three-month moving average
Number of companies yielding greater than 2% by region Constituents of the MSCI All Country World Index
Source: (Left) FactSet, IBES, MSCI, J.P. Morgan Asset Management. (Top and bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
45
EM EPS (fwd)
DM EPS (fwd) DM DPS
EM DPS
Europe US
Emerging markets
Eq
uitie
s
485
314 303
86
0
200
400
600
Emergingmarkets
US Europe Japan
80
90
100
110
120
130
'00 '02 '04 '06 '08 '10 '12 '14
0
50
100
150
200
250
300
350
400
450
500
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13
46
GTM – Europe |
0,1 0,6
1,6
3,0 3,0 3,6
4,1
6,7 7,5
0
2
4
6
8
Equity income
S&P 500 total return index: Dividends and capital appreciation
MSCI Europe indices: Price vs. total return*
Average annualised returns
Rebased to 100 at December 1999 Sources of income
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. (Bottom right) Barclays, BofA/Merrill Lynch, FactSet, FTSE, Tullett Prebon, J.P. Morgan Asset Management. Euro corporate: Barclays Euro Aggregate Credit - Corporate; EM debt: J.P. Morgan EMBI Global; High yield: BofA/Merrill Lynch Developed Markets High Yield Constrained; Global REITs: FTSE NAREIT Index; Converts: Barclays Global Convertibles; EM equity; MSCI EM. Yields for the bond indices are yield to worst and dividend yields for the equity indices. *Returns in local currency. Guide to the Markets - Europe. Data as of 30 September 2015.
% Eurozone average inflation: 0,1% (12 months to Aug 2015)
4,7% 5,4% 6,0% 5,1% 3,3% 4,2% 4,4% 2,5% 1,8%
2,7% 4,0%
13,9%
-5,3%
3,0% 13,6%
4,4% 1,6%
12,6% 15,3%
-2,7%
16,6% 5,9%
-10
-5
0
5
10
15
20
25
1926-1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010-2014 1926-2014
% Dividends Capital appreciation
46
Eq
uitie
s
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
50
100
150
200
250 High dividend yield total return Total return Price return
+117%
+47%
-11%
Bunds Euro corp
EME MSCI Europe
Global REITS
Converts Cash EM debt
High yield
47
GTM – Europe |
13
2
15
34
16
39
21
-18
22
28
-19
13
6
34
-8
12
20
35
20
28
-4
-18
-31
17
9
22
16
3
-41
23
4
-12
12
18
2
-2
-11 -15
-7 -4
-11
-3
-10
-35
-6
-11
-24
-11
-18
-4
-16
-6 -5
-12
-31
-9 -12
-35 -37
-22
-8 -6
-12 -12
-48
-26
-15
-25
-15 -12 -12
-17
-50
-40
-30
-20
-10
0
10
20
30
40
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Annual returns and intra-year declines
MSCI Europe Index intra-year declines vs. calendar-year returns Despite average intra-year drops of 15,6% (median 11,9%), annual returns are positive in 27 of 35 years
Source: FactSet, MSCI, J.P Morgan Asset Management. Returns are based on 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 year to date. Guide to the Markets - Europe. Data as of 30 September 2015.
47
Intra-year decline
Calendar-year return
%
Eq
uitie
s
YTD
48
28,9% EM Debt 11,9%
9,0% Euro HY
9,0%
3,7% Linkers
3,7%
19,6% US Treas.
13,7%
66,1% Euro HY 66,1%
23,1% US HY 15,1%
13,5% US Treas.
9,8%
23,3% Euro HY 23,3%
8,8% Euro HY
8,8%
22,4% US IG 7,5%
10,3% US Treas.
1,8%
2,6% Euro Gov
2,6%
9,0% EM Debt
7,7%
18,5% US Treas.
2,8%
0,5% Euro IG 0,5%
1,7% Euro Gov
1,7%
9,3% Euro Gov
9,3%
53,2% US HY 58,1%
19,6% EM Debt 11,8%
12,9% EM Debt
9,2%
16,2% EM Debt 18,0%
2,8% US HY 7,4%
20,9% EM Debt
6,2%
8,5% EM Debt
0,1%
1,6% US Treas.
1,8%
8,9% US HY 7,6%
18,4% US HY 2,8%
-0,2% Euro Gov
-0,2%
0,0% Euro IG 0,0%
5,3% Linkers
5,3%
22,0% EM Debt 25,9%
16,6% US IG 9,0%
11,8% US IG 8,1%
13,8% US HY 15,5%
2,4% Euro IG 2,4%
19,6% US Treas.
5,1%
8,3% US IG -0,1%
0,6% US IG 0,8%
7,4% Euro HY
7,4%
17,2% US IG 1,7%
-0,5% Linkers -0,5%
-1,6% Euro HY -1,6%
0,3% Portfolio
-2,4%
16,3% Portfolio
18,4%
14,3% Euro HY 14,3%
7,9% US HY 4,4%
13,6% Euro IG 13,6%
2,2% Euro Gov
2,2%
16,7% US HY 2,5%
5,7% US HY -2,5%
-0,1% Portfolio
0,0%
6,8% US IG 5,5%
13,7% Portfolio
4,9%
-0,9% US HY 10,7%
-1,7% US Treas.
9,0%
-0,0% US IG -4,9%
15,7% Euro IG 15,7%
13,2% US Treas.
5,9%
7,4% Portfolio
5,4%
11,0% Euro Gov
11,0%
-2,7% Portfolio
-0,3%
15,1% Portfolio
7,0%
4,7% Portfolio
0,0%
-0,3% Euro IG -0,3%
6,6% Portfolio
5,5%
6,8% Euro HY
6,8%
-1,2% EM Debt 10,5%
-1,8% Portfolio
3,9%
-3,8% Euro IG -3,8%
15,0% US IG 18,7%
11,3% Portfolio
7,1%
3,4% Euro Gov
3,4%
10,7% Portfolio
11,6%
-3,0% Linkers -3,0%
13,1% Euro Gov
13,1%
1,2% Euro Gov
1,2%
-0,4% Linkers -0,4%
5,6% US Treas.
4,4%
5,4% Euro Gov
5,4%
-2,0% Portfolio
4,2%
-4,0% EM Debt
6,5%
-5,0% EM Debt
-9,7%
7,0% Linkers
7,0%
4,7% Euro IG 4,7%
1,5% Euro IG 1,5%
8,4% Linkers
8,4%
-5,8% US IG -1,5%
8,4% Euro IG 8,4%
0,3% Linkers
0,3%
-1,1% EM Debt
-0,9%
5,0% Euro Gov
5,0%
4,0% Euro IG 4,0%
-6,7% US IG 4,3%
-5,7% US IG 4,6%
-22,3% US HY -26,1%
4,3% Euro Gov
4,3%
2,1% Linkers
2,1%
1,3% Linkers
1,3%
8,1% US IG 9,8%
-7,0% US Treas.
-2,7%
5,5% Euro HY
5,5%
-1,1% Euro HY -1,1%
-3,3% Euro HY -3,3%
4,5% Euro IG 4,5%
3,7% Linkers
3,7%
-7,8% US Treas.
3,1%
-7,5% US HY 2,6%
-32,8% Euro HY -32,8%
-6,6% US Treas.
-3,6%
1,1% Euro Gov
1,1%
-1,1% Euro HY -1,1%
0,4% US Treas.
2,0%
-12,3% EM Debt
-8,3%
2,2% Linkers
2,2%
-1,8% Euro IG -1,8%
-5,1% US HY -4,9%
3,0% Linkers
3,0%
Fixed income sector returns
Source: Barclays, BofA/Merrill Lynch, FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Annualised return covers period 2005 to 2014. Euro Gov.: Barclays Euro Agg. Government; US Treasuries: Barclays US Agg. Gov. – Treasury; Linkers: Barclays Euro Gov. Inflation-Linked; US IG: Barclays US Agg. – Corporate – Investment Grade; Euro IG: Barclays Euro Agg. – Credit – Corporate; US HY: BofA/Merrill Lynch US High Yield Constrained; Euro HY: BofA/Merrill Lynch Euro Non-Financial High Yield Constrained; EM Debt: J.P. Morgan EMBI+. 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. Guide to the Markets - Europe. Data as of 30 September 2015.
GTM – Europe | 48
€
Local
2010 2005 2007 2006 2012 2008 2011 3Q15 2009 2013 2014 YTD Ten-yr Ann.
48
Fi
xed
inco
me
49
GTM – Europe |
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
'10 '11 '12 '13 '14 '15
Government interest rates
Sovereign funding costs 10-year benchmark bond yield
Correlation between government bonds Correlation* between US Treasury and German Bund yields
Source: (All charts) FactSet, Tullett Prebon, J.P. Morgan Asset Management. *Rolling six-month correlation of weekly change in yield. Guide to the Markets - Europe. Data as of 30 September 2015.
Yield (%) Change (bps) Country Current 3Q15 From Dec 2013 Greece 8,19% -679bps -7bps Portugal 2,43 -51 -369 US 2,04 -31 -100 Italy 1,72 -59 -239 Spain 1,89 -38 -229 UK 1,66 -38 -136 Ireland 1,22 -39 -221 France 0,89 -30 -148 Netherlands 0,78 -26 -146 Germany 0,59 -18 -136 Switzerland -0,13 -23 -140
49
2-yr bonds
10-yr bonds
%
Ireland
Portugal
Spain
US
UK
France
Germany
Japan
'14 '150
1
2
3
4
5
6
7
8
9
Fi
xed
inco
me
50
| GTM – Europe
-15
-10
-5
0
0
5
10
15
20
25
Fixed income interest rate risk
Current and historical yields for selected indices
Illustration of the impact a 1% rise in local interest rates may have on selected indices
Last 10 years*
Assumes a parallel shift in the yield curve and spreads are maintained
Source: (Both charts) Barclays, FactSet, J.P. Morgan Asset Management. *Historical spread analysis is based on the last 10 years of data, with the exception of local currency emerging markets debt, which are based on six years of data, due to data availability. Fixed income sectors shown are provided by Barclays Capital and are represented by: Treasury Europe: Barclays Pan-European Aggregate Government – Treasury; Floating rate: Barclays US Floating Rate Notes (BBB); IG credit: Barclays Global Aggregate – Corporates; High yield: Barclays Global High Yield; EMD sovereign USD: Barclays Emerging Markets – Sovereigns; EMD corporate ($): Barclays Emerging Markets – Corporates; EMD sovereign (LC): Barclays Emerging Market Local Currency Government. For illustrative purposes only. Change in bond price is calculated using both duration and convexity. Guide to the Markets - Europe. Data as of 30 September 2015.
50
Treasury: Europe
1-3 years 5-7 years 10+ years Investment- grade credit
High yield
EMD USD sovereign
EMD USD corporate
EMD LC sovereign
Floating rate
How to interpret this chart
Average
Current
Max
Min
Treasury: Europe 1-3 years 5-7 years 10+ years
Investment- grade credit
High yield
EMD USD sovereign
EMD USD corporate
EMD LC sovereign
Floating rate
Price return
Total return
%
%
Fi
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51
GTM – Europe |
0
50
100
150
200
250
1,0
1,5
2,0
2,5
3,0
3,5
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Liquidity risks
US corporate debt market liquidity $ billions
US Treasury trading volume Daily volume % of market size, 12-month moving average
US investment grade corporate bond trades Average size of trades greater than $100.000, number of trades
0
2.000
4.000
6.000
8.000
10.000
12.000
0
100
200
300
400
500
600
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
$ Dealer inventories US corporate debt outstanding*
$
Average trade size (millions)
Average daily number (hundreds)
51 |
Source: (Left) Barclays, Federal Reserve Bank of New York, J.P. Morgan Asset Management. (Top right) SIFMA, J.P. Morgan Asset Management. (Bottom right) TRACE, J.P. Morgan Asset Management. *US corporate debt outstanding is the Barclays US Corporate Investment Grade. Guide to the Markets - Europe. Data as of 30 September 2015.
%
$
2
4
6
8
10
12
14
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Fi
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inco
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52
GTM – Europe |
0
10
20
30
40
50
Government bonds
10-year bond yields
European government bonds by maturity Euro area government bonds with a negative yield BofA/ML euro area bond index
Source: (Top and bottom left) FactSet, Tullett Prebon, J.P. Morgan Asset Management. (Bottom right) BofA/Merrill Lynch, Bloomberg, J.P. Morgan Asset Management. *The lowest yield reached for each country during April 2015. Guide to the Markets - Europe. Data as of 30 September 2015.
52
'79 '84 '89 '94 '99 '04 '09 '140
4
8
12
16%
Fed QE3 2012
Fed QE2 2010
BoE QE 2009
Fed QE 2008
Oil shock 1981
Black Friday 1987
Britain leaves ERM
1992
Asian currency crisis 1997
9/11 attacks 2001
Dot com bubble Feb 2000
ECB QE 2015
Fall of Berlin Wall 1989
UK Eurozone
US
Positive yields Negative yields Negative in April 2015 and now positive*
Years
Germany
Finland
France
Sweden
Ireland
Italy
Spain
2 3 4 5 6 7 8 9 10 15 20 30 0
%
Euro area bonds with <1% yields Sep 2015
Total value €3,1tn % of total outstanding 64%
30 September 2015:
20%
BoJ QE 2013
Aug 14 Apr 15 Dec 14 Jul 15 Oct 14 Feb 15 Jun 15 Sep 15
Fi
xed
inco
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53
GTM – Europe | Investment-grade bonds
US corporate bond spreads by sector Option-adjusted spreads*
European corporate issuance € billions
US corporate bond issuance $ billions
Source: (Top) Barclays, FactSet, J.P. Morgan Asset Management. (Bottom right and left) J.P. Morgan Securities, J.P. Morgan Asset Management. *Option-adjusted spread is the spread of a fixed income security rate over the risk-free rate, adjusted to take into account any embedded options. Guide to the Markets - Europe. Data as of 30 September 2015.
50
150
250
350
'10 '11 '12 '13 '14 '150
400
800
1.200
'10 '11 '12 '13 '14 '15
Net issuance Gross issuance
$ YTD: $885bn
-250
0
250
500
750
'08 '09 '10 '11 '12 '13 '14 '15
€ Net issuance Gross issuance
YTD: €324bn
53
Financials
Energy Utilities
Fi
xed
inco
me
54
GTM – Europe |
0
100
200
300
400
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
0
500
1.000
1.500
2.000
0
5
10
15
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
0
10
20
30
40
50
60
70
'86 '89 '92 '95 '98 '01 '04 '07 '10 '13
US high yield bonds
US high yield spreads and defaults
US historical high yield recovery rates High yield bonds, cents on the dollar
High yield issuance $ billions
Source: (Top) Credit Suisse, J.P. Morgan Economic Research, US Treasury, J.P. Morgan Asset Management. 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. Leveraged loan spread is the discount margin to maturity. (Bottom left and right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. *General issuance includes issuance for the purpose of paying dividends. Guide to the Markets - Europe. Data as of 30 September 2015.
54
% bps
Average: 41,1 cents General*
Acquisition/LBO
Refinancing $
54
YTD: $244,9bn
Federal funds rate (lhs)
Fi
xed
inco
me
Asset class Average since 1986 Latest HY spread – bps (rhs) 576 706 HY defaults (lhs) 4,0% 2,3%
55
GTM – Europe |
0
500
1.000
1.500
2.000
2.500
0
30
60
90
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
0
5
10
15
20
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
0
20
40
60
80
100
European high yield bonds
European high yield: Spread to worst and default rates
European high yield issuance by credit rating € billions
High yield sector weights % of index
Source: (Top) BofA/Merrill Lynch, Credit Suisse, FactSet, J.P. Morgan Asset Management. (Bottom left) FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom right) Barclays, FactSet, J.P. Morgan Asset Management. Spread to worst is BofA/Merrill Lynch Euro Non-Financial High Yield Constrained. US HY is the J.P. Morgan Domestic HY index and Euro HY is the J.P. Morgan Euro HY index. Guide to the Markets - Europe. Data as of 30 September 2015.
55
Default rate 2002: 34% % bps
Asset class Average Latest HY spread – bps (rhs) 646 525 HY defaults (lhs) 5,0% 0,9%
B BB
CCC € Unrated
YTD: €63,7bn
% Other 18%
Energy 15%
Industrial 18%
Telecom 12% Financial 7%
Consumer 30%
Other 7%
Energy 4% Industrial 26%
Telecom 16%
Financial 14%
Consumer 33%
US HY Euro HY
55
Fi
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56
GTM – Europe |
4
5
6
7
8
9
10
11
12
13
14
'01 '03 '05 '07 '09 '11 '13
-6
-4
-2
0
2
4
6
Emerging market debt
Emerging markets debt yields Real 10-year government bond yields, local currency
EM sovereign debt and US corporate Baa bond yields
Source: (Left and top right) FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom right) Moody’s, J.P. Morgan Economic Research, FactSet, J.P. Morgan Asset Management. EM sovereign (local currency) is the J.P. Morgan GBI-EM; EM sovereign (USD) is the J.P. Morgan EMBI+; EM corporate (USD) is the J.P. Morgan CEMBI. The J.P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. Guide to the Markets - Europe. Data as of 30 September 2015.
56
% Developed markets
Emerging markets %
'09 '10 '11 '12 '13 '144,0
4,5
5,0
5,5
6,0
6,5
7,0% EM sovereign (USD)
EM sovereign (USD)
EM sovereign (local currency)
EM corporate (USD)
Fi
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US corporate Baa bond (USD)
57
GTM – Europe | Emerging market debt composition
Emerging markets investable debt universe $ trillions
Sovereign local currency index breakdown GBI-EM by region
Sovereign USD credit rating breakdown % of EMBI Global Index
Source: (All charts) J.P. Morgan Economic Research, J.P. Morgan Asset Management. The J.P. Morgan EMBI Global (EMBIG) index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. EM corporate (USD) is the CEMBI; EM sovereign (USD) is the J.P. Morgan EMBI Global; EM sovereign (local currency) is the Global Bond Index Emerging Market Broad Diversified Index (GBI-EM). Guide to the Markets - Europe. Data as of 30 September 2015.
57
Unrated
B
BB
IG
EM corporate (USD)
EM sovereign (USD)
EM sovereign (local currency)
$
Other
Europe
Asia
Latin America
22%
31% 39%
9%
Fi
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%
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '150
20
40
60
80
100
1994-97 1998-01 2002-05 2006-09 2010-13 2014-15
58
Asset class returns
Source: Barclays, Bloomberg, FactSet, FTSE, MSCI, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Annualised return covers the period from 2005 to 2014. Govt bonds: Barclays Global Aggregate Government Treasuries; HY bonds: Barclays Global High Yield; EMD: Barclays Emerging Markets (USD); IG bonds: Barclays Global Aggregate – Corporates; Cmdty: Bloomberg UBS Commodity; REITS: FTSE NAREIT All REITS; DM Equities: MSCI World; 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. Guide to the Markets - Europe. Data as of 30 September 2015.
GTM – Europe | 58
2010 2005 2007 2006 2012 2008 2011 3Q15 2009 2013 2014 YTD Ten-yr Ann.
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58
EME 35,8%
REITS 34,4%
EME 33,6%
Govt bonds 10,2%
EME 62,8%
REITS 27,6%
EMD 9,2%
REITS 20,1%
DM Equities 29,6%
REITS 27,1%
Hedge Funds 0,8%
Govt bonds 1,5%
EME 10,3%
Cmdty 21,4%
EME 28,8%
Cmdty 16,2%
Cash 5,7%
HY bonds 59,4%
Cmdty 16,8%
REITS 7,3%
HY bonds 19,6%
Hedge Funds 9,7%
DM Equities 10,4%
Cash 0,1%
REITS 0,8%
HY bonds 8,0%
DM Equities 16,3%
DM Equities 16,1%
Hedge Funds 12,6%
IG bonds -8,6%
REITS 27,4%
HY bonds 14,8%
Govt bonds 6,3%
EMD 18,0%
Portfolio 9,1%
EMD 6,2%
EMD 0,1%
Cash 0,0%
EMD 7,7%
EMD 11,9%
Hedge Funds 13,9%
Govt bonds 10,6%
EMD -9,7%
Portfolio 26,5%
EME 14,4%
IG bonds 4,3%
EME 17,4%
HY bonds 7,3%
EME 5,6%
HY bonds -1,9%
IG bonds -0,1%
REITS 7,5%
Portfolio 10,0%
Portfolio 13,8%
Portfolio 8,6%
Hedge Funds
-19,1%
DM Equities 26,5%
EMD 11,8%
HY bonds 3,1%
DM Equities 16,4%
EME 3,8%
Portfolio 5,1%
Govt bonds -2,3%
EMD -0,9%
DM Equities 6,9%
REITS 8,3%
HY bonds 13,7%
IG bonds 6,7%
Portfolio -22,9%
EMD 25,9%
Hedge Funds 10,9%
Cash 1,7%
Portfolio 12,3%
REITS 3,2%
Hedge Funds 4,1%
IG bonds -2,8%
Hedge Funds -1,1%
Portfolio 6,5%
Hedge Funds 7,6%
EMD 10,5%
EMD 6,5%
HY bonds -26,9%
IG bonds 19,2%
Portfolio 10,8%
Portfolio -0,9%
IG bonds 11,2%
IG bonds 0,3%
IG bonds 3,1%
DM Equities -3,5%
HY bonds -3,7%
Hedge Funds 5,8%
HY bonds 3,6%
IG bonds 7,2%
DM Equities 5,2%
Cmdty -35,6%
Cmdty 18,9%
DM Equities 10,6%
Hedge Funds -2,5%
Hedge Funds 7,7%
Cash 0,2%
Cash 0,3%
Portfolio -3,5%
Portfolio -4,4%
IG bonds 4,3%
Cash 2,2%
Govt bonds 6,4%
Cash 4,4%
REITS -37,3%
Hedge Funds 18,6%
Govt bonds 5,9%
DM Equities -5,0%
Govt bonds 1,8%
Govt bonds -4,3%
HY bonds 0,0%
REITS -4,5%
DM Equities -7,6%
Govt bonds 3,1%
IG bonds -3,6%
Cash 3,0%
HY bonds 3,2%
DM Equities -38,3%
Govt bonds 2,6%
IG bonds 5,8%
EME -12,5%
Cash 1,2%
EMD -8,3%
Govt bonds -0,8%
EME -6,9%
EME -12,0%
Cash 2,2%
Govt bonds -6,7%
Cmdty 2,1%
REITS -17,8%
EME -45,7%
Cash 2,3%
Cash 1,1%
Cmdty -13,3%
Cmdty -1,1%
Cmdty -9,5%
Cmdty -17,0%
Cmdty -15,8%
Cmdty -14,5%
Cmdty -1,9%
59
Correlation of returns (EUR)
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 except Real Assets are total return based on quarterly return data in euros; real asset correlations are based on quarterly data and are as of 30 June 2015. Guide to the Markets - Europe. Data as of 30 September 2015.
GTM – Europe | 59 10-year correlations
Three-year correlations
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MSCI Europe S&P 500 MSCI EM MSCI Asia
ex-Japan Pan Europe
bonds EM debt High yield bonds
Global bonds Cmdty Hedge
funds Real
estate MSCI Japan
1,00 0,79 0,86 0,63 0,84 -0,08 0,64 0,79 -0,21 0,47 0,80 -0,28
0,63 1,00 0,70 0,70 0,72 0,04 0,36 0,51 0,12 0,43 0,57 -0,23
0,86 0,67 1,00 0,59 0,97 -0,10 0,69 0,79 -0,12 0,58 0,80 -0,38
0,80 0,78 0,80 1,00 0,61 0,04 0,19 0,32 0,19 0,34 0,40 -0,24
0,84 0,75 0,98 0,84 1,00 0,01 0,63 0,72 -0,01 0,47 0,72 -0,37
0,43 0,42 0,48 0,27 0,52 1,00 0,18 -0,17 0,70 -0,31 -0,32 -0,14
0,45 0,00 0,58 0,12 0,47 0,43 1,00 0,82 -0,09 0,43 0,62 -0,40
0,54 0,03 0,40 0,15 0,29 -0,09 0,61 1,00 -0,39 0,54 0,85 -0,49
0,49 0,63 0,60 0,56 0,65 0,83 0,28 -0,30 1,00 -0,11 -0,46 -0,18
0,64 0,47 0,69 0,50 0,62 0,16 0,54 0,47 0,41 1,00 0,60 -0,14
0,73 0,54 0,51 0,44 0,49 0,32 0,28 0,55 0,20 0,36 1,00 -0,22
0,01 -0,02 -0,04 -0,26 -0,07 0,09 0,43 0,18 0,12 0,35 0,19 1,00
MSCI Europe
S&P 500
MSCI EM
MSCI Asia ex-Japan
Pan Europe bonds
EM debt
High yield bonds Global bonds
Cmdty
Hedge funds Real estate
MSCI Japan
60
GTM – Europe |
20
60
100
140
'11 '12 '13 '14 '15
-1,0
-0,5
0,0
0,5
1,0
'10 '11 '12 '13 '14 '15 '10 '11 '12 '13 '1410
20
30
40
50
Asset volatility
Relative volatility of key assets
Three-month and six-month stock and bond correlations
Rebased to 100 at September 2011
US equities and US Treasuries* Volatility of US and European equities
Source: (Top) CBOE, BofA/Merrill Lynch, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) Bloomberg, J.P. Morgan Asset Management. (Bottom right) CBOE, FactSet, STOXX, J.P. Morgan Asset Management. *Weekly total return of the S&P 500 and BofA/Merrill Lynch 10-year US Treasury index. Guide to the Markets - Europe. Data as of 30 September 2015.
60
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Volatility measures (index level) Average Latest Crude oil (OVX) 31 46 US Treasuries (MOVE) 73 82 S&P 500 (VIX) 17 25
Stoxx 50 (VSTOXX) S&P 500 (VIX)
Six-months Three-months
61
Copper 56,1%
Nickel 167,2%
Wheat 52,1%
Gold 2,4%
Copper 129,6%
Silver 81,6%
Gold 9,6%
Corn 18,9%
Crude Oil 6,8%
Coffee 37,7%
Gold -6,2%
Gold -5,0%
Gold 8,0%
Nat. gas 52,8%
Copper 45,1%
Crude Oil 40,1%
Corn -23,1%
Nickel 54,6%
Coffee 66,8%
Corn 1,1%
Wheat 9,7%
Nat. gas 5,0%
Nickel 7,3%
Silver -8,0%
Silver -7,1%
Copper 6,9%
Silver 25,0%
Corn 40,0%
Gold 24,2%
Silver -26,6%
Silver 47,4%
Nickel 32,0%
Crude Oil -3,7%
Silver 7,0%
Copper -8,8%
Gold -1,8%
Corn -10,7%
Aluminium -8,3%
Silver 6,0%
Crude Oil 21,9%
Silver 37,8%
Silver 9,1%
Coffee -27,3%
Aluminium 33,6%
Corn 30,5%
Silver -10,2%
Gold 6,0%
Nickel -20,1%
Aluminium -3,1%
Wheat -14,6%
Coffee -10,5%
Nickel 0,4%
Aluminium 15,5%
Wheat 20,0%
Copper 4,1%
Nat. gas -38,0%
Gold 22,7%
Copper 29,4%
Coffee -11,2%
Copper 4,9%
Aluminium -20,8%
Wheat -9,5%
Copper -17,6%
Copper -10,7%
Corn -3,1%
Gold 13,8%
Aluminium 19,4%
Corn -2,3%
Wheat -39,4%
Coffee 10,1%
Gold 28,5%
Aluminium -21,7%
Aluminium -4,1%
Wheat -27,2%
Corn -13,3%
Aluminium -18,5%
Corn -10,8%
Coffee -5,8%
Nickel -8,1%
Gold 16,0%
Coffee -6,4%
Aluminium -41,0%
Crude Oil 4,2%
Wheat 21,0%
Copper -24,5%
Nickel -10,3%
Gold -28,7%
Copper -16,6%
Nat. gas -23,0%
Nickel -13,5%
Aluminium -6,1%
Wheat -8,8%
Coffee 1,0%
Nickel -16,9%
Copper -53,8%
Corn -10,3%
Aluminium 5,2%
Nickel -24,7%
Crude Oil -11,8%
Corn -30,3%
Silver -20,5%
Crude Oil -27,4%
Nat. gas -15,1%
Wheat -8,1%
Coffee -11,7%
Crude Oil -16,7%
Aluminium -18,9%
Crude Oil -53,9%
Wheat -26,1%
Crude Oil 3,7%
Wheat -34,0%
Nat. gas -30,7%
Coffee -30,6%
Nat. gas -30,8%
Nickel -32,1%
Wheat -17,5%
Crude Oil -9,4%
Corn -18,4%
Nat. gas -72,1%
Nat. gas -22,9%
Nickel -56,8%
Nat. gas -51,6%
Nat. gas -40,7%
Nat. gas -47,1%
Coffee -41,6%
Silver -36,7%
Crude Oil -41,7%
Coffee -32,5%
Crude Oil -27,4%
Nat. gas -34,1%
Commodity returns
Source: Bloomberg, FactSet, J.P. Morgan Asset Management. Returns are in base currency of the index. Annualised period covers 2005 to 2014. Guide to the Markets - Europe. Data as of 30 September 2015.
GTM – Europe | 61
2010 2005 2007 2006 2012 2008 2011 3Q15 2009 2013 2014 YTD Ten-yr Ann.
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62
GTM – Europe | Commodities
Commodity prices Rebased to 100 at December 2012
China’s consumption of commodities % of world total, 2014 average
Commodity prices and US inflation Change year on year
Source: (Left) Bloomberg, FactSet, J.P. Morgan Asset Management. (Top right) Bloomberg, IEA, World Bureau of Metal Statistics, J.P. Morgan Asset Management. (Bottom right) Bloomberg, FactSet, MSCI, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Guide to the Markets - Europe. Data as of 30 September 2015.
'12 '13 '1440
50
60
70
80
90
100
110
120
130
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13-4
-2
0
2
4
6
-50
-25
0
25
50% %
Bloomberg Commodity Index Headline CPI*
12
45 47 48 50 60
0
20
40
60
80%
62
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Crude oil Nickel Aluminium Copper Iron ore Zinc
Bloomberg Commodity Index weights Livestock 5% Industrial metals 17% Energy 32% Precious metals 16% Grains 31%
63
| GTM – Europe
-3,5
-1,1
0,9
1,6
2,1
2,4
2,4
3,5
-13,8
0,5
2,4
3,2
4,9
5,3
-8 -6 -4 -2 0 2 4 6
Oil consumption and production
Oil importers and exporters Net imports as % of GDP, 2013
Oil production by country Millions of barrels per day
Crude oil prices $ per barrel
Source: (Top left) EIA, J.P. Morgan Asset Management. (Bottom left) FactSet, J.P. Morgan Asset Management. (Right) EIA, IMF, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
63
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%
Canada
UK
US
Italy
France
Germany
Japan
Russia
Brazil
China
South Africa
India
-14
Norway
Turkey
'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '130
25
50
75
100
125
150
YTD change Brent Crude -17,0% WTI -15,6%
$
US Saudi Arabia Russia
6
8
10
12
14
16
'01 '03 '05 '07 '09 '11 '13 '15
64
| GTM – Europe Life expectancy and pension shortfall
If you are 65 today, the probability of living to a specific age
Perceived retirement shortfall by country
Source: (Left) ONS 2010-2012 Life Tables, J.P. Morgan Asset Management. (Right) “The Future of Retirement: A new reality” study by HSBC, J.P. Morgan Asset Management. Figures represent the expected portion of retirement that will not be covered by retirement savings based on survey data. Guide to the Markets - Europe. Data as of 30 September 2015.
64
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Expected savings shortfall (years) Savings expected to last (years)
10 8
14
9 11 11
9 12
10 10 9 9
8 10
7
10 8
10
8
11
10
5 8 6
0
5
10
15
20
25
Aver
age
US
Fran
ce
Chi
na
Can
ada
Aust
ralia
UK
Braz
il
Sing
apor
e
Indi
a
UAE
Mex
ico
yrs
70
36
78
47
94
66
0
20
40
60
80
100Men
Women
Couple – at least one lives to specified age
%
80 years 90 years
65
GTM – Europe | Consumer confidence and the stock market
Eurozone consumer confidence
Source: European Commission, FactSet, J.P. Morgan Asset Management. Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs. Subsequent 12-month MSCI Europe Index returns are price returns only, which excludes dividends. Total period return is the average 12-month rolling return. Guide to the Markets - Europe. Data as of 30 September 2015.
65
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ass
ets
and
in
vest
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iour
'85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13-35
-30
-25
-20
-15
-10
-5
0
5
Jul 1989: +4,4% May 1986:
+12,1% Jun 1995:
+17,7%
Aug 2000: -23,8%
Jun 2007: -22,5%
Nov 2010: -8,3%
Sep 2015
Average 12-month MSCI Europe Index return: After a peak: -3,4% After a trough: +27,4% Total period: +8,1%
Feb 1988: +19,6%
Mar 1993: +19,4%
Nov 1996: +30,1%
Mar 2003: +32,5%
Mar 2009: +44,7%
Dec 2012: +18,1%
66
GTM – Europe | Industry fund flows
Cumulative mutual fund flows US-domiciled funds, $ billions
Cumulative flows into US equity funds Includes both mutual funds and ETFs, $ billions
Monthly mutual fund flows Net new cash flow to US mutual funds, $ billions
Source: (Left) FactSet, Strategic Insight, J.P. Morgan Asset Management. (Top and bottom right) FactSet, Investment Company Institute, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2015.
66
O
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iour
$
'10 '11 '12 '13 '14-80
-40
0
40
80Bond funds
Equity funds
$
$837 bn
$107 bn $64 bn
$1.175 bn
0
200
400
600
800
1.000
1.200
1997-2000 2009-2012
Equity funds
Bond funds $
-800
-400
0
400
800
'07 '08 '09 '10 '11 '12 '13 '14 '15
Retail -$763 billion
Institutional +$669 billion
67
GTM – Europe |
48% 49%
30% 24% 24% 21%
17% 17% 18% 13% 15%
-18% -24%
-7% -3% -1% -3% 0% 1%
4% 1%
4%
-50
-25
0
25
50
75
61%
-43%
US asset returns by holding period
Range of equity and bond total returns Annualised total returns, 1950-2015
Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Returns shown are per annum and are calculated based on monthly returns from 1950 to May 2015 and include dividends. Guide to the Markets - Europe. Data as of 30 September 2015.
67
1-yr rolling 5-yr rolling 10-yr rolling 20-yr rolling
% Large cap equity Bonds 50/50 portfolio
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68
Alternative asset class returns GTM – Europe | 68
Source: FactSet, HFRI, NCREIF, The Burgiss Group, J.P. Morgan Asset Management. Hedge fund indices include distressed and restructuring (Distressed), relative value (Rel. Val.), global macro (Glbl. Macro), merger arbitrage (Mrgr. Arb.), equity market neutral (Eq. Mkt. Ntrl.) and the aggregate (HF Agg.). Annualised volatility and returns cover the period from 2005 to 2014. *YTD Real Estate returns are 2Q15 returns as no further data is available for 2015 yet. Private Equity 2015 returns are also unavailable due to a lag in data. Returns may fluctuate as hedge fund reporting occurs on a lag. Guide to the Markets - Europe. Data as of 30 September 2015.
2010 2005 2007 2006 2012 2008 2011 3Q15 2009 2013 2014 YTD Ten-yr Ann.
Return
Ten-yr Ann.
Volatility Real Estate
21,4%
Private Equity 29,9%
Private Equity 22,9%
Glbl. Macro 4,7%
Rel. Val. 23,0%
Private Equity 18,2%
Real Estate 16,0%
Private Equity 13,1%
Private Equity 19,8%
Real Estate 12,5%
Real Estate 7,3%
Eq. Mkt. Ntrl.
0,3%
Private Equity 11,8%
Private Equity 10,2%
Private Equity 21,3%
Real Estate 16,3%
Real Estate 16,0%
Eq. Mkt. Ntrl.
-3,0%
Distressed 20,2%
Real Estate 16,4%
Private Equity 7,4%
Real Estate 10,9%
Distressed 15,1%
Private Equity 7,3%
Mrgr. Arb. 2,9%
Mrgr. Arb. -1,1%
Real Estate 7,1%
Distressed 9,2%
Distressed 10,4%
Distressed 15,3%
Glbl. Macro 11,4%
Mrgr. Arb. -6,7%
HF Agg. 18,6%
Rel. Val. 12,5%
Mrgr. Arb. 2,3%
Rel. Val. 9,7%
Real Estate 13,9%
Glbl. Macro 5,8%
Eq. Mkt. Ntrl.
2,6%*
Rel. Val. -2,1%
Rel. Val. 6,4%
Real Estate 8,8%
HF Agg. 9,1%
Mrgr. Arb. 14,6%
HF Agg. 11,0%
Real Estate -10,0%
Private Equity 15,3%
Distressed 12,2%
Rel. Val. 0,8%
Distressed 8,5%
HF Agg. 9,6%
Rel. Val. 5,3%
Rel. Val. 0,6%
Glbl. Macro -2,7%
Distressed 6,0%
HF Agg. 8,0%
Eq. Mkt. Ntrl.
6,1%
HF Agg. 13,3%
Rel. Val. 10,0%
Rel. Val. -17,3%
Mrgr. Arb. 11,9%
HF Agg. 8,5%
Distressed -0,0%
HF Agg. 4,4%
Rel. Val. 7,5%
HF Agg. 4,3%
HF Agg. -0,3%
HF Agg. -3,8%
HF Agg. 5,3%
Rel. Val. 7,1%
Glbl. Macro 6,1%
Rel. Val. 12,2%
Mrgr. Arb. 8,9%
HF Agg. -18,7%
Glbl. Macro 6,9%
Mrgr. Arb. 4,6%
Glbl. Macro -0,7%
Eq. Mkt. Ntrl.
3,1%
Eq. Mkt. Ntrl.
6,4%
Eq. Mkt. Ntrl.
3,2%
Glbl. Macro -0,5%
Distressed -3,8%
Mrgr. Arb. 4,9%
Glbl. Macro 4,7%
Mrgr. Arb. 5,5%
Glbl. Macro 8,2%
Distressed 6,8%
Distressed -22,3%
Eq. Mkt. Ntrl.
-1,7%
Glbl. Macro 3,2%
Eq. Mkt. Ntrl.
-1,5%
Mrgr. Arb. 1,8%
Mrgr. Arb. 5,3%
Mrgr. Arb. 1,9%
Distressed -3,0%
Real Estate* Glbl. Macro 4,4%
Mrgr. Arb. 3,9%
Rel. Val. 5,3%
Eq. Mkt. Ntrl.
7,0%
Eq. Mkt. Ntrl.
5,7%
Private Equity -25,8%
Real Estate -29,8%
Eq. Mkt. Ntrl.
2,5%
HF Agg. -2,0%
Glbl. Macro -1,3%
Glbl. Macro 0,1%
Distressed 1,2%
Private Equity*
Private Equity* N/A
Eq. Mkt. Ntrl.
2,7%
Eq. Mkt. Ntrl.
3,0% N/A
N/A
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iour
69
GTM – Europe |
6
7
8
9
10
3 5 7 9 11 13 15 17 19
Risk/return characteristics of alternatives
The effects of adding alternatives to a portfolio, 1990 - 2014
Source: Barclays, Bloomberg, Hedge Fund Research, NCREIF, S&P, The Burgiss Group, Towers Watson, J.P. Morgan Asset Management. Data period from January 1990 to December 2014, utilising annual rebalancing. “Stocks” represents the S&P 500 Index, and “Bonds” represents the Barclays U.S. Aggregate Bond Index. *“Alternatives” represents a hypothetical sub-portfolio chosen to replicate investors’ preferred exposure from “Global Alternatives Survey 2015” by Towers Watson. All portfolios and indices are for illustrative purposes only and should not be taken as a recommendation. Past performance may not be indicative of future results. Guide to the Markets - Europe. Data as of 30 September 2015.
69
Annualised volatility %
Annu
alis
ed r
etur
n %
Alternatives sub-portfolio*
20% Stocks 60% Bonds 20% Alternatives
30% Stocks 70% Bonds
40% Stocks 40% Bonds 20% Alternatives
50% Stocks 50% Bonds
60% Stocks 20% Bonds 20% Alternatives
70% Stocks 30% Bonds
100% Stocks 0% Bonds
0% Stocks 100% Bonds
Hedge funds
Real estate
Private equity
O
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ass
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and
in
vest
or b
ehav
iour
70
GTM – Europe |
0
2
4
6
8
10
12
14
16
'70 '80 '90 '00 '10
Alternative strategies
Allowed return on equity over cost of debt OECD Infrastructure
Hedge fund returns in different stock market environments Average return based on total return performance 1995-2014
Hedge fund returns in different bond market environments Average return based on bond market performance 1995-2014
Source: (Left) Bloomberg, Regulatory Research Associates, J.P. Morgan Asset Management. (Top right) FactSet, Hedge Fund Research, Standard and Poor’s, J.P. Morgan Asset Management. (Bottom right) Barclays Capital, FactSet, Hedge Fund Research, J.P. Morgan Asset Management. S&P 500 is total return performance. HFRI FW is Hedge Fund Research Index Fund Weighted. US bonds is the Barclays Capital US Aggregate Bond Index. Guide to the Markets - Europe. Data as of 30 September 2015.
70
1,0
-0,7
0,60,3
-1
0
1
2
3,1
-3,9
1,4
-1,0
-4
-2
0
2
4
% US bonds
HFRI FW
S&P 500
HFRI FW %
Electric
Natural gas
10 yr US Treasury
Utility bond S&P up months S&P down months
Bond up months Bond down months
% Recession
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and
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iour
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 Capital 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 Capital 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 Capital 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 Capital Global High Yield Index is an unmanaged index considered representative of fixed rate, noninvestment-grade debt of companies in the U.S., developed markets and emerging markets. The Barclays Capital 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 Capital 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 Capital Corporate Bond Index is the Corporate component of the U.S. Credit index. The Barclays Capital 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 dollar-denominated 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 quasi-sovereigns 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. The Hedge Fund Research Distressed /Restructuring Index is composed of funds whose investment process focus on corporate fixed income instruments, primarily on corporate credit instruments of companies trading at significant discounts to their value at issuance or obliged (par value) at maturity as a result of either formal bankruptcy proceeding or financial market perception of near term proceedings. The Hedge Fund Research Macro Index is composed of funds which employ an investment process that analyses underlying economic variables and the impact these have on a range of asset markets. The Hedge Fund Research Equity Market Neutral Index is composed of funds which employ sophisticated quantitative techniques for analysing price data to ascertain information about future price movements and relationships between securities. The Hedge Fund Research Merger Arbitrage Index is composed of funds which employ an investment process primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction The Hedge Fund Research Relative Value Index is composed of funds which look for valuation discrepancies in the relationship between different securities. The HFRI Fund Weighted Composite Index is a global, equal-weighted index of over 2,000 single-manager funds that report to HFR Database The Burgiss Pooled Return Index is an index of private equity fund level cash flows that includes buyout funds and venture capital funds. The Merrill Lynch Option Volatility Estimate (MOVE) Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options which are weighted on the 2, 5, 10, and 30 year contracts. The VDAX volatility index is an indication of the expected volatility (i.e. range) of the DAX stock index for the next thirty days.
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. The views contained herein are not to be taken as an advice or recommendation to buy or sell any investment in any jurisdiction, nor is it commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. 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 writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, the Investor should make an independent assessment of the legal, regulatory, tax, credit, and accounting and determine, together with their own professional advisers if any of the investments mentioned herein are suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that 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 may not be a reliable guide to future performance. Exchange rate variations may cause the value of investments to increase or decrease. Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to market movements. Investments in emerging markets may be more volatile and therefore the risk to your capital could be greater. Further, the economic and political situations in emerging markets may be more volatile than in established economies and these may adversely influence the value of investments made. It shall be the recipient’s sole responsibility to verify his / her eligibility and to comply with all requirements under applicable legal and regulatory regimes in receiving this communication and in making any investment. All case studies shown are for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. Results shown are not meant to be representative of actual investment 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 Brazil by Banco J.P. Morgan S.A. (Brazil) which is regulated by The Brazilian Securities and Exchange Commission (CVM) and Brazilian Central Bank (Bacen ); in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority (FCA); in other EU jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Switzerland by J.P. Morgan (Suisse) SA, which is regulated by the Swiss Financial Market Supervisory Authority FINMA; in Hong Kong by JF Asset Management Limited, JPMorgan Funds (Asia) Limited or JPMorgan Asset Management Real Assets (Asia) Limited, all of which are regulated by the Securities and Futures Commission; in India by JPMorgan Asset Management India Private Limited which is regulated by the Securities & Exchange Board of India; in Singapore by JPMorgan Asset Management (Singapore) Limited or JPMorgan Asset Management Real Assets (Singapore) Pte. Ltd., both are regulated by the Monetary Authority of Singapore; in Taiwan by JPMorgan Asset Management (Taiwan) Limited which is regulated by the Financial Supervisory Commission; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers 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 which is regulated by the Financial Services Commission (without insurance by Korea Deposit Insurance Corporation) and 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) which is regulated by the Australian Securities and Investments Commission; in Canada by JPMorgan Asset Management (Canada) Inc.; and in the United States by J.P. Morgan Investment Management Inc., or J.P. Morgan Distribution Services , Inc., member FINRA SIPC. EMEA Recipients: You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website http://www.jpmorgan.com/pages/privacy. Past performance is no guarantee of comparable future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss 0903c02a80a12b1c
Brazilian recipients:
Prepared by: Stephanie Flanders, Vincent Juvyns, Dr. David Stubbs, Maria Paola Toschi, Michael Bell, Alexander Dryden, Nandini Ramakrishnan. Unless otherwise stated, all data as of 30 September 2015 or most recently available. Guide to the Markets – EUROPE JP-LITTLEBOOK
