4Q | 2013 4Q | 2013

boliviahonorableManagement

Nov 18, 2013 (5 years and 1 month ago)

626 views

4Q
|
2013
4Q
|
2013
As at 30 September 2013
EUROPE
Guide to the Markets
Table of Contents
EUROPE ECONOMY
GLOBAL ECONOMY
EQUITIES
FIXED INCOME
3
10
30
52
OTHER ASSETS AND INVESTOR BEHAVIOUR
61
Global Market Strategy Team Andrew Goldbergandrew.d.goldberg@jpmorgan.com
Maria Paola Toschimaria.p.toschi@jpmorgan.com
Vincent
Juvyns
vincent.juvyns@jpmorgan.com
Vincent

Juvyns
vincent.juvyns@jpmorgan.com
Kerry Craigkerry.craig@jpmorgan.com
David Lebovitzdavid.m.lebovitz@jpmorgan.com
Alex Drydenalexander.w.dryden@jpmorgan.com
1
Past performance is no guarantee of comparable future results. For China and Australia distribution, please note this
communication is for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the full
disclaimer at the end. Unless otherwise stated, all data is as of 30 September 2013 or most recently available.
Page Reference
EuropeEconomy
3.Europe: GDP and Inflation
4.Europe: Unemployment and Labour Costs
5.Euro
p
eTrade
37.US S&P500 at Inflection Points
38.US S&P500 Equity Valuations
39.Interest Rates and Equities
40.Developed MarketEquity Valuations by Country
41.Emerging Market Equity Valuations by Country
p
6.Europe RecoveryMonitor
7.Europe Government Interest Rates
8.Europe Cash Accounts
9.Europe Corporate Finances
Global Economy
10.World EconomicData
11.GlobalPurchasing Managers’ Index for Manufacturing
12.SovereignDebt Stresses
13.Europe:Austerity and GDP Growth
14.Deficit and GrossDebt by Country
15.GlobalTrade: The Importance of Exports
16.The US Federal Reserve: Balance Sheet, QEand Tapering
17.US Economic Growth andthe Com
p
osition of GDP
42.Emerging Markets:Valuation and Profitabilit
y
43.Emerging MarketEquity Composition
44.Emerging Markets: Dividends, Earnings Growthand Volatility
45.Composition of GlobalGDP and Equity Markets
46.EquityIncome
47.Equity Dividendsand Valuation
48.MSCI Europe Index: Defensives and Cyclicals
49.Equity Correlations and Volatility
50.Annual Returns and Intra-year Declines
51.EquityMarket Indices: Distance from 2007 Peak
Fixed Income
52.FixedIncome Sector Returns
53.Fixed IncomeMarket Data
p
18.US: Inflation and Unemployment
19.US CyclicalIndicators
20.US Consumer Finances
21.US Federal Finances
22.JapanEconomic Snapshot
23.Japan:Yen, Markets and Trade
24.EmergingMarkets: GDP Growth and Inflation
25.Emerging Markets and the ‘FragileFive’
26.China Economic Growth
27.ChinaEconomic Indicators
28.Emerging MarketsAuto Consumption
29.Contributionto Global Growth
Equities
54.Policy and Real Rates
55.Credit Conditions and the European Central Bank
56.Fixed Income Interest Rate Risk
57.Government Bond Yields and Inflation Expectations
58.High Yield Bonds
59.EmergingMarket Debt
60.EmergingMarket Debt Composition
Other Assetsand Investor Behaviour
61.Asset Class Returns
62.Correlationof Returns
63.Commodities
64.Oil Consumption and Production
65.USNatural Gas
2
30.World Stock Market Returns
31.WorldSector Returns
32.Bond and Equity Relative Valuations
33.MSCI Europe Index at Inflection Points
34.MSCI Europe Index Equity Valuations
35.Europe AnnualEarnings Estimates
36.Sources of Earnings per ShareGrowth
66.US Federal Reserve’s UnemploymentTarget
67.Life Expectancyand Pension Shortfall
68.CumulativeReturns of US Asset Classes
69.Consumer Confidenceand the Stock Market
70.Industry Fund Flows
71.USAsset Returns by Holding Period
72.Returns inDifferent Inflation Environments –40 Years
6
5
Europe: GDP and Inflation
Real GDP EU27, change year on year
Inflation EU27, change year on year
Avgsince
1999
Aug 2013
Headline CPI2,5%1,5%
Avgsince
1999
2Q13
Real GDP1,5%0,0%
o
nomy
2
4
3
4
%
%
CoreCPI2,0%1,4%
Europe Ec
o
Average: 1,5%
4
-2
0
1
2
'00'02'04'06'08'10'12
-6
-
4
'99'00'01'02'03'04'05'06'07'08'09'10'11'12'13
0
3
Source: (Both charts) Eurostat, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. Data as at 30 September 2013.
26
150
Europe: Unemployment and LabourCosts
Unemployment rate
GreeceIrelandPortugalandSpain
Unit labourcosts Relative to Germany, rebased to 100 at 4Q98
o
nomy
18
22
130
140
%
Greece
,
Ireland
,
Portugal

and

Spain
Italy
US
Germany
Euro area
Euro
launch
Italy
Ireland
Greece
Spain
Europe Ec
o
6
10
14
100
110
120
2
6
'00'02'04'06'08'10'12
'90'95'00'05'10
90
100
4
Source: (Left) Eurostat, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. (Right) ECB, FactSet, J.P. Morgan Asset Management “Guide to the
Markets –Europe”. Greece, Ireland, Portugal and Spain unemployment rate is weighted average of each country’s harmonised unemployment rate based on population size.
Data as at 30 September 2013.
Europe Trade
Gross exports
Indexed to 100 at December 2007, two quarter moving average
o
nomy
7,5
Trade balances with the eurozoneSix month moving average, €billions
110
120
130
Europe Ec
o
3,0
4,5
6,0
Spain
Italy
Greece
Germany

Italy
Portugal
Spain
Germany
France
90
100
-1,5
0,0
1,5
'08'09'10'11'12'13
80
Source: (Both charts) Eurostat, ECB, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Data as at 30 September 2013.
5
'00'02'04'06'08'10'12
-4,5
-3,0
120
Europe Recovery Monitor
Global PMIs for manufacturingIndex level
Economic sentimentIndex level
o
nomy
60
65
'07
'08
'09
'10
'11
'12
'13
60
70
80
90
100
110
Europe Ec
o
France
Germany
Greece
Spain
Italy
France
Germany
Greece
Spain
Italy
25
30
35
40
45
50
55
60
'07
'08
'09
'10
'11
'12
'13
0
2
4
6
8
0
5
10
15
'07
'08
'09
'10
'11
'12
'13
Number of employed Millions
Eurozone narrow money growthNarrow money is real M1, shifted forward by 11 months
Real GDP (y/y)
%
146
148
150
152
1Q08:
150,45m
2Q13:
145,0m
'07
'08
'09
'10
'11
'12
'13
-6
-4
-2
-10
-5
0
'92'94'96'98'00'02'04'06'08'10'12'14
6
Source: (Top left) Markit, J.P. Morgan Asset Management “Guide to the Markets -Europe”. (Bottom left) Eurostat, J.P. Morgan Asset Management “Guide to the Markets –
Europe”. (Top right) European Commission, FactSet, J.P. Morgan Asset Management “Guide to the Markets –Europe”. (Bottom right) Eurostat, Thomson Reuters
Datastream, J.P. Morgan Asset Management “Guide to the Markets –Europe”. Data as at 30 September 2013.
Eurozone real M1
140
142
144
'05'06'07'08'09'10'11'12'13
35
Europe Government Interest Rates
Europe sovereign funding costsTen-year benchmark bond yield
o
nomy
20
25
30
30 Sep 2013
Greece9,2%
Portugal6,9%
Italy4,4%
Spain4,3%
Ireland3,9%
UK2,5%
Germany1,8%
Euro launch
%
Europe Ec
o
10
15
20
LTRO
OMT
'93'94'95'96'97'98'99'00'01'02'03'04'05'06'07'08'09'10'11'12
0
5
Source: Tullett Prebon, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.The ECB announced the second round of Long Term Refinancing
Operations (LTRO) in February 2012. The Outright Monetary Transaction (OMT) programme was formally outlined in September 2012.Data as at 30 September 2013.
7
55.000
Europe Cash Accounts
Euro area deposits€trillions
Income generated by €100.000 investment in a one-year bank
deposit
2007:

4580
Inflation(y/y)
Income
o
nomy
3,5
Aug 2012: €3,31tn
3
4
3.000
4.000
2007:


4
.
580
%

Inflation

(y/y)
Income
Europe Ec
o
20
2,5
3,0
Aug 2013:
€2,12tn

1
2
1.000
2.000
Sep 2013:
€455
1,0
1,5
2
,
0
00
'00'02'04'06'08'10'12
8
Source: (Left) ECB, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Right) Bloomberg, Eurostat, J.P. Morgan Asset Management “Guide to the Markets
–Europe”. Orange marker points represent year on year inflation and illustrates how the value of income would have been erodeddue to inflation. Inflation is realised
inflation from 2000-2006, expected annual inflation thereafter.Data as at 30 September 2013.
0,0
0,5
'06'07'08'09'10'11'12'13
Europe Corporate Finances
MSCI Europe Index: Geographical source of revenues
Total leverageMSCI Europe, ratio of total debt to total equity, quarterly
o
nomy
340
RoW
*
Europe Ec
o
280
300
320
%
Europe
53%
Americas
23%
Asia
8%
RoW
16%
Interest coverage ratio (EBIT / net interest)MSCI Europe, quarterly
4
5
6
7
8
240
260
280
2Q13:
5,6x
x
2Q13:
218%
Average: 4,1x
Average: 267%
9
Source: (Top left) MSCI, Thomson Reuters Datastream, Worldscope, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Bottom left) FactSet, MSCI, J.P.
Morgan Asset Management “Guide to the Markets -Europe”. (Right) FactSet, MSCI, J.P. Morgan Asset Management “Guide to the Markets -Europe”. *RoWdenotes revenues
coming from the world excluding Europe, Asia and the Americas.Data as at 30 September 2013.
'95'97'99'01'03'05'07'09'11
1
2
3
4
'95'97'99'01'03'05'07'09'11
200
220
218%
Gross domestic productRealGDP estimate
y/y%
Inflation
y/y%
Policy rate
%
Unemployment
%
World Economic Data
Selected countries
€per capita€billions20132014
Switzerland61.4124911,61,7-0,10,003,0
Sweden47.1954301,42,40,11,007,3
United States40.47612.8181,62,71,50,257,3
Finland36.917194-0,41,41,20,507,1
Netherlands35.879603-1,10,52,80,508,6
German
y
33.4982.7520
,
51
,
81
,
40
,
506
,
8
Global Economy
y
,
,
,
,
,
France32.8872.0760,10,90,90,5010,5
United Kingdom29.8851.8951,32,02,70,507,7
Eurozone29.88513.0600,11,41,50,5011,0
Japan29.4133.7451,91,60,90,103,8
Italy25.4031.562-1,70,51,20,5012,1
Spain21.6571.026-1,40,60,30,5026,3
Greece
17252
186
43
01
13
050
271
Greece
17
.
252
186
-
4
,
3
-
0
,
1
-
1
,
3
0
,
50
27
,
1
Brazil8.8981.7892,42,56,19,005,3
China4.7856.4577,67,42,66,004,1
India1.1301.3805,75,26,17,509,9
Source: Bloomberg, FactSet, national statistical agencies, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Table ordered by GDP per capita. GDP figure
is latest quarter annualised. Data as at 30 September 2013.
10
Global Purchasing Managers’ Index for Manufacturing
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
2013
May
Jun
Jul
Aug
2012
May
Jun
Jul
Aug
Sep
Global PMIs for manufacturingUS, Europe and China
60
Eurozone
France
Germany
Italy
Spain
UK
Global Economy
Europe
US
China
30
35
40
45
50
55
'
07
'
08
'
09
'
10
'
11
'
12
'
13
45,145,144,045,146,145,446,246,147,947,946,846,748,348,850,351,451,1
44,745,243,446,042,743,744,544,642,943,944,044,446,448,449,749,749,8
45,245,043,044,747,446,046,846,049,850,349,048,149,448,650,751,851,1
44,844,644,343,645,745,545,146,747,845,844,545,547,349,150,451,350,8
42,041,142,344,044,543,545,344,646,146,844,244,748,150,049,851,150,7
46,748,845,649,148,347,448,750,851,048,349,350,652,153,054,857,156,7
US
Brazil
Russia
India
China
Japan
Europe periphery PMIs for manufacturingSpain, Italy and Ireland
Ireland
07
08
09
10
11
12
13
40
45
50
55
60
52,550,250,550,751,651,749,950,253,154,251,350,749,050,955,455,756,2
50,749,947,947,748,046,946,545,047,748,550,451,151,552,350,752,252,5
49,348,548,749,349,850,252,251,153,252,551,850,850,450,448,549,449,9
53,251,052,051,052,452,952,250,052,052,050,850,650,451,749,249,449,4
54,855,052,952,852,852,953,754,753,254,252,051,050,150,350,148,549,6
48,448,249,347,647,949,550,551,552,350,451,650,449,248,247,750,150,2
Lowest relative to 50 PMI
Highest relative to 50 PMI
Source: (All charts) Markit, ISM, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Heatmapcoloursare based on PMI relative to 50, which indicates expansion
or contraction of the sector, for the time period shown. US is the ISM manufacturing index. Data as at 30 September 2013.
Taiwan
Korea
50
11
Italy
Ireland
Spain
25
30
35
'07'08'09'10'11'12'13
51,049,447,247,545,747,448,250,149,950,952,052,651,149,447,247,549,7
50,549,247,546,145,647,847,450,651,550,251,250,747,149,548,650,052,0
C
10
GDP growth, debt-to-GDP and borrowing costs
Bubble size = Ten-year
g
overnment bond
y
ield
Sovereign Debt Stresses
%
Brazil
SouthAfrica
Mexico
US
Turkey
Korea
C
hina
India
Indonesia
Japan
Malaysia
Russia
Singapore
10%
5%
Australia
2
4
6
8
2
012 –2014F)
gy
Global Economy
South

Africa
France
Germany
Greece*
Italy
Spain
Portugal
EU
UK
-4
-2
0
Real GDP growth (
2
Emergingmarkets
-8
-6
020406080100120140160180200
Source: IMF World Economic Outlook April 2013, FactSet, Barclays, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Borrowing costs based on local currency
debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 Year Treasury Index. South Africa’s borrowing costs are based on seven-year government bond
yield due to data availability. *Greece will be reclassified as an emerging market in November 2013.Data as at 30 September 2013.
Gross debt-to-GDP ratio (2013F)
240
Emerging

markets
Developed markets
12
%
62%
Europe: Austerity and GDP Growth
Fiscal consolidation vsGDP growth
Government deficit reduction % of GDP
Th
a
il
a
n
d
Indonesia
%
0,3%
3,6%
4,0%
3,4%
3,8%
4,4%
6
,
2%
France
Germany
Portugal
Greece
Global Economy
Germany
Japan
Norway
Switzerland
UK
USA
Australia
Canada
Russia
Mexico
aad
Indonesia
0
2
4
6
Emerging markets
Developed markets
2010-2013F
2013
2016F
rowth (2012)
04%
2,8%
1,1%
1,9%
3,1%
3,1%
3,3%
Spain
UK
Eurozone
France
France
Greece
Italy
Portugal
Spain
-
6
-4
-2
0
2013
-
2016F
Real GDP g
0,8%
0
,
4%
1,8%
02468
Italy
Source: (Both charts) IMF World Economic Outlook April 2013, J.P. Morgan Asset Management “Guide to the Markets -Europe”.The structural budget balance refers to the
general government balance adjusted for non-structural elements beyond the economic cycle. These include temporary financial sector and asset price movements as well as
one-off, or temporary, revenue or expenditure items. Data as at 30 September 2013.
13
-8
6
-7-5-3-12468101214
%
%
Change in structural balance (2008-2013F)
10
Deficit and Gross Debt by Country
Change in deficit and debt, % of GDP
Spain
Greece
Japan
6
8
D
P ratio
Ireland
US
Portugal
UK
India
Iceland
Global Economy
%
2
4
Peakgross debt
2015 (estimated)
Deficit-to-G
D
Portugal
Mtiht
Italy
China
Brazil
Germany
France
Mexico
Iceland
0
020406080100120140160180200220
Source: IMF World Economic Outlook April 2013, ECB, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Gross debt-to-GDP ratio and deficit-to-GDP
ratio are two of the key criteria stipulated in the Maastricht Treaty. Peak year is the year between 2006 and 2012 with the highest gross debt-to-GDP ratio. The corresponding
deficit-to-GDP ratio is taken for the same year. The peak year for each country is: France, Ireland, Italy, Portugal, Spain, UK,US, Japan and Brazil -2012; Iceland and Greece -
2011; Germany and China -2010; Mexico -2009; India -2006.Data as at 30 September 2013.
Gross debt-to-GDP ratio
M
aas
t
r
i
c
ht

treaty
criteria
220
240
260
14
%
Exports as % of GDPLatest 12 months, goods exports only
Bil
US
Eurozone
BRIC
Other
100%
Global Trade: The Importance of Exports
1,0
1,9
4,3
2,0
1,7
2,0
2,7
7,7
2,1
1,4
1,6
0,6
5,2
11,5
17,6
21,6
B
raz
il
India
China
Russia
US
Eurozone
BRIC
Other
Global Economy
10
,
0%
16,8%
26,2%
31,9%
1,8
2,5
2,7
2,1
1,2
0,9
8,8
10,0
1,2
2,2
2,9
1,6
1,1
7,6
9,0
7,4
6,6
8,5
Eurozone
Japan
UK
France
10,0%
13,1%
19,7%
21,7%
US
13,8%
1,7
3,3
12,9
15,4
1,8
4,7
8,5
18,0
051015202530354045
Source: IMF, MDIC, Indian Ministry of Commerce & Industry, China Customs, Bank of Russia, BEA, Japan Customs, ONS, French Ministry of Economy, Finance &
Industry, ISTAT, German Federal Statistics Office, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Numbers represent goods exports only and
would be higher if services were included. Values may not sum to total exports due to rounding. Data as at 30 September 2013.
15
Italy
Germany
24,8%
41,4%
%
5
120
QE 1
+59%
QE 2
+14%
Twist* & QE 3
+32%
S&P 500 and earnings per share
QE off
-
13%
QE off
-
14%
US Federal Reserve: Balance sheet & tapering scenarios$ trillions
The US Federal Reserve: Balance Sheet, QE and Tapering
Forecast
3
4
Monthly purchase
scenarios ($bnper month)
Ending
balance
$85bn per month for 12 months$4,83tn
$50bn per month for 12 months$4,37tn
$50bn/month for 6mo, $20bn/month for 6mo$4,18tn
100
110
1.400
1.600
+59%
+14%
+32%
Earnings per share
-
13%
-
14%
$
Global Economy
$
1
2
Other
US Treasuries
80
90
1.000
1.200
0
'07'08'09'10'11'12'13'14
16
Source: (Left) US Federal Reserve, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Right) Standard & Poor’s, FactSet, J.P. Morgan Asset
Management “Guide to the Markets -Europe”.*Twist refers to Operation Twist, where the US Federal Reserve simultaneously sold short term bonds and bought long term
bonds. Data as at 30 September 2013.
Agency MBS
'07'08'09'10'11'12
60
70
800
S&P 500
18
10
Avgsince
1999
2Q13
Real GDP1,8%2,5%
US Economic Growth and the Composition of GDP
Real GDPChange quarter on quarter, SAAR
%
Components of GDP2Q13 nominal GDP, $ trillions
31%
Housing
10
12
14
16
2
4
6
8
%
12,7% Investment ex-housing
18,7%
Government spending
3
,
1%

Housing
$
Global Economy
2
4
6
8
-6
-4
-2
0
$1.324bn of
output
recovered
68,6%
Consumption
-2
0
'99'01'03'05'07'09'11
-10
-8
17
Source: (Both charts) BEA, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.SAAR is seasonally adjusted annual rate. Percentages may not sum
to 100% due to rounding. Data as at 30 September 2013.
$639bn of
output lost
-3,1% Net exports
US: Inflation and Unemployment
Unemployment rate Seasonally adjusted
Inflation Change year on year
15
Avg
since
1964
Avg
since
1999
A
ug 2013
12
Avg
since
1964
Avg
since
1999
Aug 2013
9
12
Headline CPI4,3%2,5%1,5%
CoreCPI4,2%2,0%1,8%
8
9
10
11
Unemployment6,1%6,2%7,3%
Global Economy
%
%
0
3
6
5
6
7
8
18
Source: (Both charts) BLS, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Data as at 30 September 2013.
'64'69'74'79'84'89'94'99'04'09
-3
0
'64'69'74'79'84'89'94'99'04'09
3
4
US Cyclical Indicators
Light vehicle sales Millions, SAAR
Manufacturing and trade inventoriesDays of sales, seasonally adjusted
24
48
8
10
12
14
16
18
20
22
Average: 15,2
Sep 2013:
15,3
'93
'95
'97
'99
'01
'03
'05
'07
'09
'11
36
38
40
42
44
46
July 2013:
38,9
Global Economy
Housing starts Thousands, SAAR
Real capital goods ordersNon-defensive capital goods orders ex. aircraft, $ billions, seasonally adjusted
'93'95'97'99'01'03'05'07'09'11
'93
'95
'97
'99
'01
'03
'05
'07
'09
'11
1.200
1.600
2.000
2.400
Aug 2013:
891
Average: 1.368
55
60
65
70
75
Average: 57,1
Aug 2013:
59,6
$
19
'95'00'05'10
0
400
800
'99'01'03'05'07'09'11
45
50
55
Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Top right, bottom right & bottom left) Census Bureau, FactSet, J.P. Morgan
Asset Management “Guide to the Markets -Europe”.Capital goods orders deflated using the producer price index for capital goods. SAAR is seasonally adjusted annual rate.
Data as at 30 September 2013.
175
US Consumer Finances
US home sales, prices, and housing starts
Household net worth$ billions, SAAR
80.000
3Q13:
$76.441*
3Q07:
$68.057
$
125
150
Global Economy
10.000
20.000
30.000
40.000
50.000
60.000
70.000
+19,3%
$
50
75
100
12
13
14
15
US household debt service ratioDebt payments as % of disposable personal income, seasonally adjusted
%
Priceindex
Existinghome sales
Hitt
'90'92'94'96'98'00'02'04'06'08'10'12
+58,8%
3Q07: 14,0%
'99'01'03'05'07'09'11
25
50
'80'85'90'95'00'05'10
10
11
12
20
Source: (Top and bottom left) Federal Reserve, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Right) National Association of Realtors, US Census
Bureau, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Indices rebased to 100 at December 1999. Price index is the mean existing home sale price.
SAAR is seasonally adjusted annual rate. *3Q13 number for US household net worth and debt service ratio is a J.P. Morgan Asset Management forecast. Data as at 30
September 2013.
3Q13*: 10,4%
H
ous
i
ng s
t
ar
t
s
+86,4%
80
4
US Federal Finances
Federal budget surplus/deficit% of GDP, 1990 -2023
Federal net debt (accumulated deficits)% of GDP, 1990 -2023
Forecast
Forecast
60
70
-2
0
2
Forecast
%
Forecast
Global Economy
%
2012 actual: 70,1%
2023:
71,1%
30
40
50
-8
-6
-4
20
30
'90'94'98'02'06'10'14'18'22
-12
-10
'90'94'98'02'06'10'14'18'22
21
Source: (Both charts) US Treasury, BEA, CBO, J.P. Morgan Asset Management “Guide to the Markets -Europe”.2012 numbers are actuals. Years shown are fiscal years
(1 October through 30 September). Chart on the left displays federal surplus/deficit (revenues –outlays). Federal net debt comprises all financial liabilities of the Federal
government (gross debt) minus all intra-government holdings as assets. Deficit and debt scenarios are based on CBO budget forecasts May 2013.Data as at 30 September
2013.
3
Japan Economic Snapshot
InflationChange year on year
Real GDP growthChange year on year
%
Headline CPI
6
%
Average:08%
2Q13:
1
,
3%
'95
'97
'99
'01
'03
'05
'07
'09
'11
-3
-2
-1
0
1
2
Global Economy
%
Aug 2013:
0,0%
Aug 2013:
0,9%
Core CPI
'
95
'
97
'
99
'
01
'
03
'
05
'
07
'
09
'
11
-9
-6
-3
0
3
%
Average:

0
,
8%
,
0
5
10
15
-2
0
2
'95
'97
'99
'01
'03
'05
'07
'09
'11
Wage growth Change year on year, three month moving average
Department store salesChange year on year, three month moving average
95
97
99
01
03
05
07
09
11
%
Tokyo area
1997 consumption tax increase
%
Nominal
Core CPI
-15
-10
-5
'95'98'01'04'07'10'13
'99'01'03'05'07'09'11
-4
22
Source: (Top) Japan Statistics Bureau & Statistics Centre, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Bottom left) Ministry of Health,
Labour and Welfare, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Bottom right) Japan Department Stores Association, J.P. Morgan Asset
Management “Guide to the Markets -Europe”. Core CPI is defined as CPI excluding food and energy.Data as at 30 September 2013.
National
Japan: Yen, Markets and Trade
Japan key trading competitors% of total exports, 2012
Motor vehicles
Japanese Yen and the stock market
20.000
130
¥per$
Nikkei 225 Index
42%
36%
3%
20%
Machinery &
electrical equipment
Global Economy
Japan
China
14000
16.000
18.000
110
120
¥

per

$
Change since 31 Oct 2013
Yen-22,8%
Nikkei 225+61,9%
32%
42%
12%
Korea
10.000
12.000
14
.
000
80
90
100
27%
17%
01020304050
23
Source: (Left) FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Right) UN Comtrade, FactSet, J.P. Morgan Asset Management “Guide to the
Markets -Europe”.Data as at 30 September 2013.
%
Germany
'04'05'06'07'08'09'10'11'12'13
6.000
8.000
70
80
12
15
15
18
Emerging Markets: GDP Growth and Inflation
Brazil
12
15
15
18
Russia
Inflation %
GDP %
Inflation %
GDP %
%
%
%
%
'99
'01
'03
'0
'0
'09
'11
-3
0
3
6
9
12
-3
0
3
6
9
12
-3
0
3
6
9
12
-3
0
3
6
9
12
Global Economy
3
6
9
12
15
3
6
9
12
15
18
'99
'01
'03
'0
5
'0
7
'09
'11
'99'01'03'05'07'09'11
IndiaChina
Inflation %
GDP %
Inflation %
GDP %
3
6
9
12
15
6
9
12
15
18
%
%
%
%
'99'01'03'05'07'09'11
-3
0
3
-3
0
3
Source: (Top left) IBGE, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. (Bottom left) India Central Statistics Organisation, Press Information
Bureau of India, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. (Top right) Federal Service of State Statistics, FactSet, J.P. Morgan Asset
Management “Guide to the Markets -Europe”. (Bottom right) National Bureau of Statistics, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. Real
GDP growth and inflation are year-on-year change. Russian GDP and inflation truncated to preserve scale. Data as at 30 September 2013.
24
'99'01'03'05'07'09'11
-3
0
3
-3
0
3
Emerging Markets and the ‘Fragile Five’
S
outhKorea
6
BubbleSize = Inflation Rate
International reserves% of GDP
Current account, inflation and currency depreciation
173%
47,4%
Thailand
Global Economy
S
outh

Korea
China
Russia
T
hild
Malaysia
Philippines
10%
5%
0
2
4
%
3
,
8%
20,8%
28,7%
8,0%
17
,
3%
27,3%
45,8%
50,0%
29,9%
Korea
Malaysia
Mexico
Philippines
Thailand
rplus/deficit (% GDP)
India
Indonesia
Brazil
Mexico
T
h
a
il
an
d
-
6
-4
-2
Emerging markets
15,0%
7,7%
3,2%
7,3%
,
40,5%
12,6%
10,6%
12,6%
China
Indonesia
South Africa
Turkey
2012*
1997
Current account su
Source: (Left) IMF World Economic Outlook April 2013, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. (Right) IMF World Economic Outlook April
2013, J.P. Morgan Asset Management “Guide to the Markets -Europe”. *All data is as at 2012 except India which uses 2008 data.Data as at 30 September 2013.
25
Turkey
South Africa
-8
6
-238131823
%
‘Fragile five’
5,8%
6,2%
15,4%
16,4%
01020304050
Brazil
India
%
Currency depreciation (May ‘13 -Aug ‘13)
16030
21
China Economic Growth
China GDP growth and contribution Change year on year
Li KeqiangIndex* and MSCI China
MSCI China Index
Li Keqiang index*
Investment
GDP growth
80
120
15
20
25
9
12
15
18
Global Economy
%
%
%
Includes:
•Electricity production
•Loan growth
•Railway freight
Investment
Net exports
Consumption
-
40
0
40
5
10
0
3
6
9
-80
40
-5
0
'00'02'04'06'08'10'12
-6
-3
'90'92'94'96'98'00'02'04'06'08'10'12
26
Source: (Left) National Bureau of Statistics of China, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Right) MSCI, FactSet, J.P. Morgan Asset
Management “Guide to the Markets -Europe”.*Li Keqiangindex refers to an unofficial economic index used to gauge economic activity in China. Popularized by Chinese
Premier Li Keqiang, such an index may include a variety of economic indicators. MSCI China returns shown as two month moving average of year-over-year percent
change. Data as at 30 September 2013.
China Economic Indicators
Trade growthChange year on year, three month moving average
Retail sales
Change year on year, three month moving average
80
Im
p
orts
%
24
%
Global Economy
'
99
'
01
'
03
'
05
'
07
'
09
'
11
-20
0
20
40
60
p
Exports
%
'
05
'
06
'
07
'
08
'
09
'
10
'
11
'
12
12
14
16
18
20
22
Aug 2013:
13,3%
3.000
4.000
5.000
6.000
7.000
3
6
9
InflationChange year on year
%
Credit growth*RMB billions, new for the quarter
RMB bank loans
Other
99
01
03
05
07
09
11
Headline CPI
Aug 2013:
2,6%
05
06
07
08
09
10
11
12
-1.000
0
1.000
2.000
'07'08'09'10'11'12'13
'99'01'03'05'07'09'11
-3
0
27
Source: (All charts) National Bureau of Statistics of China, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.*As defined by Total Social Financing.
Data as at 30 September 2013.
Core CPI
Aug 2013:
1,5%
Emerging Markets Auto Consumption
Auto sales
Millions of units, SAAR
United States
China
25
China
Global Economy
0
5
10
15
20
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
363
519
572
580
591
593
797
450
600
750
900
Passenger cars per 1.000 peopleIn 2010*
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
58
209
0
150
300
28
Source: (Top) BEA, China Automotive Information Network, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Bottom) World Bank, J.P. Morgan Asset
Management “Guide to the Markets -Europe”.*Brazil is as at 2009. SAAR is seasonally adjusted annual rate. Data as at 30 September 2013.
ChinaBrazil*South KoreaUKGermanyJapanSpainFranceUS
40
Contribution to Global Growth
Contribution to global GDP growth
Share of global consumption
%
2011:36%
Developed
Emerging
100
15
20
25
30
35
'90
'94
'98
'02
'06
'10
EMconsumption % of global
US consumption % of global
2011:26%
Global Economy
68%
64%
52%
45%
60
70
80
90
100
%
30
40
50
'90
'94
'98
'02
'06
'10
Share of global investment
EMinvestment % of global
US investment % of global
2011:51%
%
32%
36
%
48%
55%
20
30
40
50
10
20
'90'94'98'02'06'10
29
Source: (Left) IMF, J.P. Morgan Asset Management “Guide to the Markets -Europe”.IMF forecasts from 2012. (Right) United Nations, J.P. Morgan Asset Management
“Guide to the Markets -Europe”.Data as at 30 September 2013.
2011:14%
32%
%
0
10
1980s1990s2000s2010-2018
30
,
0% 16
,
9% 55
,
0%
20,2%
MSCI
26,7%
MSCIAC
-23,0%
J
73
,
4%
28,3%
MSCIAC
5
,
5%
20,8%
MSCIAC
21,3%
J
9,1%
MSCI
13
,
5%
World Stock Market Returns (EUR and Local Currency)

2008
200320042005
2006
YTD
2007
2009201220102011
Ten-yr
Ann.
3Q13
,
MSCI EM
46,7%
,
MSCI EM
16,4%
,
MSCI EM
35,8%
MSCI

Europe
19,6%
MSCI

AC

Asia ex
Japan
38
,
0
%
J
apan
TOPIX
-40,6%
,
MSCI EM
62,8%
MSCI

AC

Asia ex
Japan
15
,
6
%
,
US S&P 500
2,1%
MSCI

AC

Asia ex
Japan
19
,
7
%
J
apan
TOPIX
41,4%
MSCI

Europe
8,2%
,
MSCI EM
15,4%
22,3%
MSCI AC
Asia ex
Japan
45
,
0
%
12,6%
MSCI
Europe
12,7%
45,3%
Japan
TOPIX
45,2%
19,6%
MSCI AC
Asia ex
Japan
28
,
6
%
26,1%
MSCI EM
33,5%
-33,7%
US S&P 500
-37,0%
67,2%
MSCI AC
Asia ex
Japan
67
,
2
%
27,5%
MSCI EM
14,4%
3,5%
HDY Equity
1,5%
18,1%
MSCI
Europe
16,4%
16,7%
US S&P 500
19,8%
4,1%
Portfolio
6,3%
12,1%
MSCI AC
Asia ex
Japan
14
,
3
%
17,0%
Portfolio
30,4%
11,8%
HDY Equity
15,6%
41,9%
MSCI AC
Asia ex
Japan
24
,
1
%
18,6%
MSCI EM
28,9%
6,3%
Portfolio
12,9%
-37,9%
HDY Equity
-34,4%
39,2%
Portfolio
36,9%
23,9%
Japan
TOPIX
1,0%
-6,3%
Portfolio
-7,7%
16,8%
MSCI EM
17,4%
13,7%
MSCI
Europe
15,3%
3,2%
HDY Equity
4,9%
9,4%
Portfolio
10,8%

Local
ties
15,8%
MSCI
Europe
20,3%
10,7%
Portfolio
13,2%
34,6%
Portfolio
24,5%
16,0%
HDY Equity
21,6%
3,2%
MSCI
Europe
6,5%
-41,0%
Portfolio
-40,4%
34,0%
HDY Equity
30,2%
23,1%
US S&P 500
15,1%
-7,5%
MSCI
Europe
-8,8%
15,7%
Portfolio
17,0%
9,6%
HDY Equity
14,0%
3,1%
Japan
TOPIX
6,1%
8,4%
HDY Equity
9,9%
15,3%
Japan
TOPIX
25,2%
9,2%
MSCI AC
Asia ex
Japan
11,9
%
27,0%
HDY Equity
17,7%
13,2%
Portfolio
20,1%
-1,0%
HDY Equity
4,7%
-43,3%
MSCI
Europe
-38,5%
32,5%
MSCI
Europe
28,6%
20,5%
Portfolio
10,6%
-9,6%
Japan
TOPIX
-17,0%
14,2%
US S&P 500
16,0%
8,9%
Portfolio
14,5%
1,7%
MSCI EM
5,8%
7,9%
MSCI
Europe
8,5%
10,6%
HDY Equity
222%
8,1%
Japan
TOPIX
26,7%
MSCI
Europe
3,6%
US S&P 500
158%
-4,9%
US S&P 500
55%
-49,8%
MSCI AC
Asia ex
Japan
22,5%
US S&P 500
265%
16,2%
HDY Equity
80%
-14,3%
MSCI AC
Asia ex
Japan
13,6%
HDY Equity
140%
-2,7%
MSCI AC
Asia ex
Japan
1,7%
MSCI AC
Asia ex
Japan
6,3%
US S&P 500
91%
Equi

22
,
2%
11,3
%
25,5
%

15
,
8%

5
,
5%
Japan
-47
,
7
%
26
,
5%
8
,
0%
Japan
-14
,
6
%
14
,
0%
Japan
2
,
7
%
Japan
5
,
5
%
9
,
1%
7,1%
US S&P 500
28,7%
2,9%
US S&P 500
10,9%
20,9%
US S&P 500
4,9%
-8,7%
Japan
TOPIX
3,0%
-14,5%
Japan
TOPIX
-11,1%
-50,8%
MSCI EM
-45,7%
1,5%
Japan
TOPIX
7,6%
11,7%
MSCI
Europe
7,5%
-15,4%
MSCI EM
-12,5%
5,9%
Japan
TOPIX
20,9%
-6,6%
MSCI EM
0,8%
1,1%
US S&P 500
5,2%
4,8%
Japan
TOPIX
5,4%
30
Source: MSCI, TOPIX, Standard & Poor’s, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Local return is analogous to the return from a hedged
position. Annualised return covers the period 2003 to 2012. HDY Equity is the MSCI AC World High Dividend Yield Index. Portfolio: 20% EM Equity, 10% Asia ex Japan, 30%
Europe, 10% Japan, 10% HDY Equity, 20% S&P 500. All indices are total return. Data as at 30 September 2013.
World Sector Returns
MSCI AC World Index
FinancialsTech.
Cons.
Disc.
Industrials
Health
Care
Cons.
Staples
EnergyMaterialsTelecomUtilitiesACWI
ACWIWiht
216%
121%
119%
108%
101%
100%
99%
63%
42%
33%
100%
ties
ACWI

W
e
i
g
ht
3Q13
2013 YTD
Since market
p
eak*
Growth Weight
Value Weight
21
,
6%
12
,
1%
11
,
9%
10
,
8%
10
,
1%
10
,
0%
9
,
9%
6
,
3%
4
,
2%
3
,
3%
100%
13,3%17,2%17,7%11,2%11,8%14,1%6,2%5,5%2,0%0,9%100%
29,9%6,9%6,0%10,4%8,4%5,8%13,6%7,0%6,4%5,6%100%
5,98,08,99,35,01,46,39,45,82,56,4
17,715,329,221,826,114,49,6-1,517,510,116,9
-26,815,939,23,053,762,26,0-17,217,5-9,57,1
Weights Return
Equi
p
Since market low*
Forward P/E ratio
15-year avg
Trailing P/E ratio
Beta to ACWI
169,9149,1221,4165,7136,3135,380,183,497,149,3132,5
1,24x1,02x0,99x1,06x0,69x0,62x1,21x1,15x0,77x0,73x1,00x
β
11,7x13,6x15,2x14,7x15,7x16,9x10,9x13,8x13,5x13,9x13,6x
12,8x22,1x17,8x15,8x18,2x17,0x13,3x13,3x20,1x14,1x15,7x
12,4x15,2x17,4x16,1x16,1x18,1x11,5x15,8x14,1x15,6x14,6x
P/E
Source: IBES, FactSet, MSCI J.P. Morgan Asset Management “Guide to the Markets -Europe”.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 endoflatest quarter. Beta calculation based
on ten years of daily returns.Data as at 30 September 2013.
31
15-year avg
Dividend yield
15-year avg
13,1x18,5x18,0x15,3x14,6x16,8x11,5x14,4x13,6x15,0x16,7x
2,9%1,7%1,7%2,2%2,2%2,8%3,1%2,7%4,2%4,4%2,6%
2,9%0,9%1,6%2,1%1,9%2,4%2,6%2,5%3,4%3,8%2,2%
Div
100100
8
Bond and Equity Relative Valuations
Asset class valuationsEquity risk premium
Less attractive
50
75
50
75
4
6
Bonds
Equities
ties
%
Equities relatively less
expensive
0
25
0
25
'85'90'95'00'05'10
-
2
0
2
One year forward returns by valuation bucket (monthly average)
More attractive
Equi
Equities relativel
y
expensive
Average: 1,9%
'90'92'94'96'98'00'02'04'06'08'10'12
-4
2
32
Source (Left): Barclays, Standard & Poor’s, IBES, Oxford Economics, Bloomberg, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Bonds is the US Treasury ten-year yield less expected
core CPI inflation. Equities is the forward P/E for S&P 500.’More attractive’ and ‘Less attractive’ are defined as the valuation stochastic falling in the bottom or top quartile of observations, respectively. The
bottom table shows the monthly average of the realised one-year forward total returns for the respective underlying index based on the valuation stochastic. (Right) TullettPrebon, FactSet, J.P. Morgan
Asset Management “Guide to the Markets -Europe”.The equity risk premium is the S&P 500 forward earnings yield less the US Treasury ten-year yield. Data as at 30 September 2013.
ValuationBondsEquity
More attractive11,8%16,9%
Average6,2%11,2%
Less attractive2,1%-5,1%
y
more
1.800
16 Jul 2007:
P/E133
4 Sep 2000:
/218
MSCI Europe Index
CharacteristicSep 2000Jul 2007Sep 2013
Index level1.6231.6411.283
MSCI Europe Index at Inflection Points
1.400
1.600
P/E
=
13
,
3
x
1.641
P
/
E =
21
,
8
x
1.623
-55%
30 Sep 2013:
P/E = 12,8x
1.283
P/E ratio (fwd)21,8x13,3x12,8x
Dividend yield1,9%2,9%3,4%
Euro govbond yld5,4%4,5%2,7%
Total return
+133%
ties
800
1.000
1.200
+180%
-54%
+115%
Equi
'96'97'98'99'00'01'02'03'04'05'06'07'08'09'10'11'12
Source: MSCI, IBES, FactSet, BoA/Merrill Lynch, J.P. Morgan Asset Management “Guide to the Markets -Europe”.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 IBES. Euro govtbond is the BoA/Merrill Lynch Euro Government (7-10Y) Index. Return calculations shown in green are based on the total return index.Data as at 30
September 2013.
12 Mar 2003:
P/E = 14,2x
676
9 Mar 2009:
P/E = 9,0x
714
31 Dec 1996:
P/E = 15,0x
714
33
40
21
24
MSCI Europe Index Equity Valuations
X
Forward P/E ratio
Sector valuation
Howtointerpretthischart
X
20
25
30
35
6
9
12
15
18
21
Average: 13,9
30 Sep 2013:
12,8x
ties
Expensive
relative to
own history
Cheap relative
to own history
Average
Current
How

to

interpret

this

chart
0
5
10
15
4
5
6
'99'01'03'05'07'09'11
Equi
Dividend yield
%
0
'99'01'03'05'07'09'11
2
3
34
Source: (All charts) MSCI, FactSet, IBES, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Data as at 30 September 2013.
30 Sep 2013:
3,4%
MSCI Europe
Industrials
Materials
Cons. Staples
Energy
Utilities
Financials
Health Care
Cons. Disc.
Telecoms.
Technology
35
Europe Annual Earnings Estimates
Euro Stoxx600 annual earnings estimatesWeekly earnings per share consensus estimate
Initialestimate
'07
'08
'09
'10
'11
'12
'13
25
30
ties
Initial

estimate

'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
10
15
20
Equi
Final estimate
5
10
'95'97'99'01'03'05'07'09'11'13
35
Source: Stoxx, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Data as at 30 September 2013.
50
Sources of Earnings per Share Growth
MSCI Europe year over year EPS growth
Growth broken into revenue and margin expansion, quarterly
10
20
30
40
Marginexpansion
Revenue growth
ties
%
-30
-20
-10
0
Equi
'02'03'04'05'06'07'08'09'10'11'12'13
-50
-40
36
Source: MSCI, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Margin growth is calculated as the year-over-year change in the ratio of Earnings
before Interest and Taxes (EBIT) to Revenue.Data as at 30 September 2013.
S&P 500 Index
US S&P 500 at Inflection Points
24 Mar 2000:
9 Oct 2007:
P/E = 14,9x
1565
30 Sep 2013:
P/E = 14,5x
1682
CharacteristicMar 2000Oct 2007Sep 2013
Index level1.5271.5651.682
P/Eratio(fwd)
227x
149x
145x
1.200
1.400
1.600
P/E = 22,7x
1.527
1
.
565
-47%
1
.
682
+121%
P/E

ratio

(fwd)
22
,
7x
14
,
9x
14
,
5x
Dividend yield1,1%1,8%2,2%
Ten-year Treasury6,2%4,7%2,6%
Total return
+116%
ties
800
1.000
1.200
+174%
-55%
Equi
'96'97'98'99'00'01'02'03'04'05'06'07'08'09'10'11'12
Source: Standard & Poor’s, IBES, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.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 12months and is provided by IBES. Return
calculations shown in green are based on the total return index. Data as at 30 September 2013.
37
9 Oct 2002:
P/E = 15,6x
777
9 Mar 2009:
P/E = 12,2x
677
31 Dec 1996:
P/E = 14,2x
616
11
US S&P 500 Equity Valuations
25
Forward P/E ratio
31 Jan 2000:
24,4x
Earnings yield and ten-year bond yield
%
8
9
10
20
x
30 Sep 2013:
6,7%
ties
Baa corporate
bond yield
6
7
15
Average since 1989:
15,6x
30 Sep 2013:
5,4%
30 Sep 2013:
14,5x
Equi
'90'92'94'96'98'00'02'04'06'08'10'12
4
5
38
'89'91'93'95'97'99'01'03'05'07'09'11
10
Source: (Left) IBES, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Right) Moody’s, IBES, FactSet, J.P. Morgan Asset Management “Guide to the
Markets -Europe”.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 IBES. Earnings yield is calculated as the inverse of the forward P/E ratio. Data as at 30 September 2013.
Earnings yield
(inverse of forward P/E)
0,8
Interest Rates and Equities
Correlations between weekly equity returns and interest rate movementsRolling two-year correlation of weekly returns of the S&P 500, MSCI Europe Index and the ten-year US Treasury yield, 1980 –2013
0,2
0,4
0,6
ties
Positive
relationship
between yield
movements and
equity returns
o
efficient
S&P 500
MSCI Europe
06
-0,4
-0,2
0,0
Equi
Negative
relationship
between yield
movements and
equity returns
Correlation c
o
-0,8
-
0
,
6
0246810121416
39
Source: Standard & Poor’s, US Treasury, MSCI, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Returns are based on price index only and do
not include dividends. Data as at 30 September 2013.
%
Ten-year US Treasury yield
Developed Market Equity Valuations by Country
Developed markets
g
e
Expensive
ltit
How to interpret this chart
+5 Std Dev
4StdD
+6 Std Dev
Std dev from global avera
g
Expensive
relative to
own history
re
l
a
ti
ve
t
o
world
Cheap relative
to own history
Cheap
relative to
world
Average
Current
ties
France
Germany
UK
Canada
Australia
ACWI
Japan
US
Switzerland
+3 Std Dev
+2 Std Dev
+1 Std Dev
Average
-1 Std Dev
-2 Std Dev
-3 Std Dev
+
4

Std

D
ev
-4 Std Dev
-5 Std Dev
Currentcomposite
index
CurrentTen-year average
Forward P/EP/BP/CFDividend yieldForward P/EP/BP/CFDividend yield
France-1,5212,5x1,4x6,2x3,5%11,6x1,5x5,7x3,9%
Germany-1,4711,81,56,23,111,71,54,83,4
UK-0,6312,21,88,33,812,01,97,13,9
Canada-0,5414,01,87,03,013,62,07,42,6
Australia-0
,
0714
,
52
,
010
,
54
,
513
,
32
,
18
,
34
,
6
Equi
France
Germany
UK
Canada
Australia
ACWI
Japan
US
Switzerland
40
Source: MSCI, IBES, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.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 ten years.The grey bars represent valuation index variabilityrelative to that of the All Country World Index (ACWI).Data as at 30
September 2013.
,
,
,
,
,
,
,
,
,
ACWI0,0613,61,98,32,613,22,17,02,5
Japan0,2914,01,36,81,816,21,36,02,0
Switzerland0,7114,72,510,03,113,52,39,73,0
US1,5614,82,59,12,014,12,38,42,1
Emerging Market Equity Valuations by Country
Emerging markets
Expensive
relativeto
g
e
How to interpret this chart
+5 Std Dev
+6 Std Dev
Expensive
relative to
own history
relative

to

world
Cheap
relative to
own history
Cheap
relative to
world
Average
Current
Std dev from global avera
g
ties
Russia
China
Brazil
EMIndex
Taiwan
ACWI
Korea
India
SAfrica
Mexico
+3 Std Dev
+2 Std Dev
+1 Std Dev
Average
-1 Std Dev
-2 Std Dev
-3 Std Dev
+4 Std Dev
-4 Std Dev
-
5
StdDev
Currentcomposite
index
CurrentTen-year average
Forward P/EP/BP/CFDividend yieldForward P/EP/BP/CFDividend yield
Russia-4,025,0x0,7x3,4x4,0%7,7x1,3x4,8x2,4%
China-2,099,11,45,43,411,92,14,42,8
Brazil-2,0910,61,45,73,79,01,95,63,3
EM Index-1,5210,51,56,12,810,81,95,92,7
Taiwan-0,6014,01,76,93,113,91,96,43,7
Equi
Russia
China
Brazil
EM

Index
Taiwan
ACWI
Korea
India
S
.
Africa
Mexico
-
5

Std

Dev
41
Source: MSCI, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Each valuation index shows an equally weighted composite of four metrics: price to
forward earnings (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 ten years. The grey bars represent valuation index variability relative to that of the AllCountry World Index (ACWI).Data as at 30 September
2013.
ACWI-0,0613,61,98,32,613,22,17,02,5
Korea0,158,71,24,61,19,51,55,11,7
S. Africa0,5413,82,411,03,210,82,48,23,3
India1,9214,02,411,41,614,93,212,41,4
Mexico2,4717,52,79,11,613,62,86,12,0
110
3,00
Emerging Markets: Valuation and Profitability
MSCI Emerging Markets Index: Price to bookEmerging markets ex-China: Sales and profitability
Relative to US, indexed to 100 on 31 Dec 2010, 12-month moving average
x
50
60
70
80
90
100
200
2,25
2,50
2,75
ties
+2,0 Std Dev
Profits
Sales
'06'07'08'09'10'11'12'13
1,25
1,50
1,75
2
,
00
Relative valuation: Emerging vsdeveloped marketsForward P/E of MSCI EM divided by forward P/E of MSCI USA
Equi
Average: 1,80
Sep 2013: 1,53
0
,
8
0,9
1,0
1,1
1,2
1,3
Average: 0,78
'96'98'00'02'04'06'08'10'12
0,75
1,00
42
Source: (All charts) MSCI, FactSet, J.P. Morgan Asset Management “Guide to the Markets –Europe”.Data as at 30 September 2013.
-2,0 Std Dev
'94'96'98'00'02'04'06'08'10'12
0,4
0,5
0,6
0,7
,
Emerging Market Equity Composition
MSCI Emerging Markets Index by regionMSCI Emerging Markets Index by sector
12%
EMEA
Asia
Latin America
ties
Defensive
Ind. & Mat.
Financials
Tech
Consumer
Energy
18%
62%
20%
12%
12%
16%
27%
15%
18%
36%
30%
23%
39%
17%
14%
16%
58%
12%
15%
2%
22%
7%
10%
9%
27%
22%
9%
11%
14%
16%
19%
3%
40
60
80
100
MSCI Emerging Market indices: Country index by sector
Equi
%
Defensive
Ind. & Mat.
Financials
Tech
Energy
21%
7%
19%
11%
37%
23%
3%
21%
9%
30%
17%
0
20
40
43
Source: (All charts) MSCI, J.P. Morgan Asset Management “Guide to the Markets -Europe”.‘Defensive’ is comprised of health care, telecommunication services and utility
sectors. ‘Ind. & Mat.’ is materials and industrial sectors. Percentages may not sum to 100% due to rounding. Data as at 30 September 2013.
Consumer
BrazilRussiaIndiaChinaMexicoSouth Korea
20
500
Emerging Markets: Dividends, Earnings Growth and Volatility
MSCI EM Index: Long term growth in DPS and EPSIndexed to 100 at December 1995
Annualised equity market volatility% per year
Developed markets
Emerging markets
15
300
350
400
450
EM EPS (fwd)
DM EPS (fwd)
DM DPS
EM DPS
%
ties
By decadeSince 2000
5
10
100
150
200
250
Equi
0
'95'97'99'01'03'05'07'09'11
0
50
44
Source: (Left) MSCI, IBES, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. Regular dividends only in local currency. (Right) IFC, MSCI, J.P.
Morgan Asset Management “Guide to the Markets -Europe”.Monthly frequency in USD terms until 1987, daily frequency in local currency terms subsequently. Data as at
30 September 2013.
Late
’70s
’80s
’90s
’00s’01 -‘03
’04 -‘09
’10 -‘13
40
Composition of Global GDP and Equity Markets
Share of global GDPBased on nominal GDP, 2011
Emerging market share global GDPBased on nominal GDP
0
10
20
30
ties
Emerging
markets
39%
United States
22%
Europe
ex UK
22%
UK 3%
Otherdeveloped6%
%
6
8
10
12
14'88'90'92'94'96'98'00'02'04'06'08'10
Equi
Weight in MSCI All Country World Index% of global market capitalisation, float adjusted
Europe
ex UK
16%
Emerging markets
11%
Japan 8%
Pacific ex Japan 5%
UK
8%
Japan 8%
Other

developed

6%
%
Emerging market weight in MSCI All Country World Index% of global market capitalisation, float adjusted
'88'90'92'94'96'98'00'02'04'06'08'10'12
0
2
4
6
45
Source: (Top) UN, FactSet, J.P. Morgan Asset Management “Guide to the Markets –Europe”. (Bottom) MSCI, FactSet, J.P. Morgan Asset Management “Guide to the
Markets –Europe”. (Top) Share of global GDP based on nominal GDP as calculated by the UN for 2011. (Bottom) Share of global market capitalisationis based on float
adjusted MSCI data. Percentages may not sum to 100% due to rounding.Data as at 30 September 2013.
United States
48%
Canada 4%
Equity Income
Total returns: Dividends and capital appreciationAverage annualised returns
%
Capital appreciation
Dividends
25
ties
4,7%
5,4%
6,0%
5,1%
3,3%
4,8%
4,2%
2,6%
3,0%
3,8%
4,3%
13,9%
-5,3%
3,0%
13,6%
4,4%
0,2%
16,0%
12,9%
-2,9%
0,7%
5,1%
-10
-5
0
5
10
15
20
1926
29
1930
1940
1950
1960
1970
1980
1990
2000
2010
12
1926
2012
18
2,2
2,7
3,4
4,2
6,0
6,2
3
4
5
6
7
120
140
160
180
200
MSCI Europe indices: Price versus total returnRebased to 100 at December 1999
Sources of income
Eurozone average CPI inflation
(12 months to Aug ‘13)
Equi
%
1926
-
29
1930
s
1940
s
1950
s
1960
s
1970
s
1980
s
1990
s
2000
s
2010
-
12
1926
-
2012
High dividend
yield total return
Total return
Price return
+86%
+32%
0,5
1
,
8
0
1
2
'99'00'01'02'03'04'05'06'07'08'09'10'11'12
40
60
80
100
Source: (Top) Standard & Poor’s, Ibbotson, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Bottom left) MSCI, FactSet, J.P. Morgan Asset Management “Guide to the Markets -
Europe”.(Bottom right) Eurostat, Tullett Prebon, Barclays, J.P. Morgan, MSCI, BoA/Merrill Lynch, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Total return index is S&P 500
until 1960s then the MSCI Europe Index. Returns shown for period 1926-2012 are blended returns from indices used. Index for European corporate is BarCapEuropean Aggregate Credit –Corporate
Index, emerging market debt is the JP Morgan EMBI+, high yield is the BofA/Merrill Lynch High Yield Master II, EME is the MSCI Emerging Markets Index. Yields for the bond indices are yield-to-worst and
dividend yields for the equity indices. Data as at 30 September 2013.
CashBundsMSCI
Europe
Euro
corp
EM
debt
High
yield
Global
REITS
46
EM
equity
-15%
125
26
Equity Dividends and Valuation
S&P 500 valuations by dividend quartileValuation based on forward P/E
Relative valuation of high dividend yielding equitiesValuation versus long term average, three month moving average
105
110
115
120
18
20
22
24
No or low dividend yield
High dividend yield
Average dividend yield
x
ties
Europe
US
Emerging markets
90
95
100
105
12
14
16
18
Equi
80
85
'00'02'04'06'08'10'12
8
10
'94'96'98'00'02'04'06'08'10'12
Source: (Left) IBES, Compustat, FactSet, J.P. Morgan Asset Management “Guide to the Markets –Europe”. (Right) MSCI, IBES, FactSet, J.P. Morgan Asset Management
“Guide to the Markets –Europe.” Regular dividends only.Data as at 30 September 2013.
47
1,5
MSCI Europe Index: Defensives and Cyclicals
Returns by sectorTotal return
Cyclical vs. defensive sector valuationsNext 12-month P/E ratio for cyclicals / next 12-month P/E ratio for defensives
275%
30
11
1,2
1,3
1,4
Cyclical sectors
premium valuation
ties
%
x
15,3%
17,8%
19,9%
21,4%
24,3%
105%
12,0%
20,4%
27
,
5%
15
20
25
0,8
0,9
1,0
1
,
1
Average: 0,95
Defensivesectors
Equi
e
c
.
e
s
y
s
m
s
h
.
s
r
e
s
-1,0%
5,4%
10
,
5%
-
5
0
5
10
0,6
0,7
'98'00'02'04'06'08'10'12
48
Defensive

sectors

premium valuation
Source: (Both charts) MSCI, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Data as at 30 September 2013.
Cyclicals
Defensives
MSCI Europ
e
Cons. Dis
c
Cons. Stapl
e
Energ
y
Financial
s
Teleco
m
Industrial
Tec
h
Material
Health Ca
r
Utilitie
s
5
70
Equity Correlations and Volatility
Global large cap stocksCorrelations among stocks
Sovereign Debt
Crisis
Lehman
GreatDepression/
%
0
10
20
30
40
50
60
Bankruptcy
Tech Bust & 9/11
1987 Crash
Great

Depression

/
World War II
OPEC Oil
Crisis
Cuban Missile Crisis
Sep 2013:
36,7%
ties
Average: 26,9%
'26'32'38'44'50'56'62'68'74'80'86'92'98'04'10
Stock market volatility
1,5
2,0
2,5
3,0
3,5
45
60
75
90
DJIA volatility shown
in three-month
moving average
%
VolatilityMeasures2008peakAverageLatest
DJIA (left)3,30%0,72%0,40%
VIX (right)80,9%20,3%16,6%
VDAX74,0%22,8%15,6%
Equi
49
'30'35'40'45'50'55'60'65'70'75'80'85'90'95'00'05'10
0,0
0,5
1,0
0
15
30
Source: (Top) Empirical Research Partners LLC, Standard & Poor’s, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Bottom) CBOE, Deutsche Boerse, Dow
Jones, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Capitalisationweighted correlation of top 750 stocks by market capitalisation, daily returns,
1926 –2013. DJIA volatility is represented as three-month moving average of the daily absolute percentage change in the Dow Jones IndustrialAverage. Data as at 30
September 2013.
39
34
35
40
Annual Returns and Intra-year Declines
MSCI Europe Index intra-year declines vscalendar year returns
Despite average intra-year drops of 15,8% (median 12,1%), annual returns are positive in 25 of 33 years
Intra-year decline
Calendar year return
13
2
15
34
16
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
0
10
20
30
%
ties
-11
-15
-7
-4
-11
-3
-10
-6
-11
-24
-11
-18
-4
-16
-6
-5
-12
-31
-9
-12
-22
-8
-6
-12
-12
-26
-15
-25
-15
-30
-20
-10
0
Equi
-35
-35
-37
-48
-50
-40
'80'82'84'86'88'90'92'94'96'98'00'02'04'06'08'10'12
50
Source: MSCI, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Returns are based on price only and do not include dividends. Intra-year decline
refers to the largest market fall from peak to trough during the calendar year. Returns shown are calendar years from 1980 to2012. Data as at 30 September 2013.
6,4%
8,8%
2
1
Equity Market Indices: Distance from 2007 Peak
MSCI Europe
Years
United Kingdom
8,8%
13
,
2%
4,5%
4,9%
5,2%
5,6%
0246810
10
5
4
3
12,4%
21,6%
2
1
10,4%
12,6%
17,2%
32,2%
4
3
2
1
ties
Germany
%
42,9%
48,6%
32,2%
37,4%
27,3%
54,9%
17,7%
22,4%
,
21,6%
26,4%
If the index were to regain its
2007 peak five years from 30
5,6%
7,3%
8,1%
9,5%
0510152025
10
5
4
3
35,5%
77,0%
2
1
7,2%
7,6%
8,2%
9,1%
8
7
6
5
Equi
Spain
%
Ilid
lid
ttlt
67,1%
73,8%
54,5%
60,7%
42,2%
73,0%
31,4%
36,7%
77,0%
83,7%
September 2013, implied
mathematical return: 54,5%;
9,1% average annualised
9,6%
15,6%
18,7%
24,0%
01020304050607080
10
5
4
3
6,5%
6,8%
01020304050
10
9
51
Source: (All charts) MSCI, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Based on MSCI country indices. Implied values reflect the geometric
total returns required for each index to return to its peak in 2007 over each stated time period. Assumes an annualised dividend yield of 4% and market values as at 30
September 2013. Past performance does not guarantee future results.Data as at 30 September 2013.
%
%
I
mp
li
e
d
avg. annua
li
se
d

t
o
t
a
l
re
t
urn
Implied cumulative total return
X%
X%
80,7%
87,9%
106,3%
150,9%
90,9%
98,4%
Fixed Income Sector Returns
Ten-yr
Ann.
20032004200520072006201120082010201220093Q13YTD
EMSov
US
US
US
EMSov
Global HY
29,3%
Global HY
12,0%
EM

Sov

Debt (USD)
11,9%
Global HY
12,2%
US

Treasury
9,0%
US

Treasury
13,7%
Global H
Y
57,7%
Global HY
15,1%
US

Treasury
9,8%
Global HY
19,2%
Global H
Y
2,9%
Global HY
2,5%
EM

Sov

Debt (USD)
12,0%
EM Sov
Debt (USD)
28,8%
EM Sov
Debt (USD)
11,8%
EM Sov
Debt (LC)
10,7%
EM Sov
Debt (USD)
10,5%
EM Sov
Debt (USD)
6,5%
EM Sov
Debt (LC)
10,9%
EM Sov
Debt (USD)
25,9%
EM Sov
Debt (USD)
11,8%
EM Sov
Debt (LC)
9,7%
EM Sov
Debt (USD)
18,0%
Govt.
(ex-US)
0,8%
Global
Corp (IG)
1,1%
Global HY
11,4%
Portfolio
8,0%
EM Sov
Debt (LC)
10,5%
Global HY
5,6%
EM Sov
Debt (LC)
8,6%
EM Sov
Debt (LC)
6,4%
Govt.
(ex-US)
8,1%
Global
Corp (IG)
16,6%
EM Sov
Debt (LC)
11,1%
EM Sov
Debt (USD)
9,2%
EM Sov
Debt (LC)
14,4%
Portfolio
-0,6%
Portfolio
1,0%
EM Sov
Debt (LC)
9,8%
Fixed Income
EM Sov
Debt (LC)
7,5%
Portfolio
6,6%
Govt.
(ex-US)
5,5%
Portfolio
5,2%
Portfolio
4,9%
Portfolio
1,0%
Portfolio
13,1%
Global
Corp (IG)
7,2%
Portfolio
6,0%
Global
Corp (IG)
10,9%
EM Sov
Debt (LC)
-0,6%
Govt.
(ex-US)
1,0%
Portfolio
6,6%
Global
Corp (IG)
6,5%
Global
Corp (IG)
5,5%
Portfolio
5,4%
Global
Corp (IG)
3,6%
Govt.
(ex-US)
4,9%
Global
Corp (IG)
-5,1%
EM Sov
Debt (LC)
8,6%
Portfolio
7,1%
Global
Corp (IG)
4,8%
Portfolio
9,5%
Global
Corp (IG)
-0,9%
EM Sov
Debt (LC)
0,9%
Global
Corp (IG)
5,5%
US
Treasury
2
,
2
%
Govt.
(ex-US)
5
,
2
%
Global
Corp (IG)
3
,
5
%
Govt.
(ex-US)
3
,
4
%
Global
Corp (IG)
3
,
2
%
EM Sov
Debt (USD)
-9
,
7
%
Govt.
(ex-US)
2
,
3
%
US
Treasury
5
,
9
%
Govt.
(ex-US)
4
,
2
%
Govt.
(ex-US)
5
,
4
%
US
Treasury
-2
,
0
%
EM Sov
Debt (USD)
0
,
5
%
US
Treasury
4
,
7
%
Source: Barclays Capital, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Returns are calculated in the currency of the underlying asset class if it is a single
currency index otherwise they are hedged (‘local currency’) if the index contains assets in denominated in different currencies.Annualisedreturn covers the period from 2002 to 2012. Global
HY: Barclays Global High Yield; US Treasury: Barclays US Aggregate Government –Treasury; Govt. (ex-US): Barclays Global Treasury x US; EM SovDebt (USD): JP Morgan EMBI+; Global
Corp (IG): Barclays Global Aggregate –Corporates; EM SovDebt (LC): JPMorgan GBI-EM. Portfolio:15% US Treasury; 30% Treasury (ex-US); 5% EM Debt (USD); 10% Global HY;10% EM
SovDebt (LC); 30% Global Corp (IG). Data as at 30 September 2013.
52
,%
,%
,%
,%
,%
,%
,%
,%
,%
,%
,%
,%
,%
Govt.
(ex-US)
1,9%
US
Treasury
3,5%
US
Treasury
2,8%
US
Treasury
3,1%
Global HY
2,0%
Global HY
-25,2%
US
Treasury
-3,6%
Govt.
(ex-US)
2,9%
Global HY
3,6%
US
Treasury
2,0%
EM Sov
Debt (USD)
-8,9%
US
Treasury
0,1%
Govt.
(ex-US)
4,3%
YieldReturnCorrelation
Europe Treasuries# of issuesMkt. ValueAvg. Maturity30/09/201330/06/2013YTD3Q13
Ten year
Bund
Ten year
Treasury
Fixed Income Market Data
Treasury: Europe4136.4859,5 years2,18%2,19%-0,01%0,77%0,870,64
1-3 years941.4492,00,890,960,890,530,480,21
5-7 years529376,02,052,182,821,090,830,59
10+ years1201.87421,03,433,41-0,080,610,860,66
US Treasuries
2-years77332,0 years0,33%0,36%0,22%0,22%0,550,67
5-years60575,01,391,39-1,580,690,550,92
10-years20459,92,622,48-5,50-0,660,781,00
30-years182929,93,693,50-11,89-3,160,640,92
Sector
MBS7793.6387,4 years3,07%3,12%-1,00%1,03%0,640,81
IG credit8.0375.2558,252,973,07-0,901,130,120,28
High yield3.0421.4526,56,476,922,952,54-0,26-0,17
Floating Rate1921791,70,680,734,084,58-0,23-0,28
Fixed Income
Convertibles 8012700,01,241,1313,757,20-0,47-0,54
EMD USD sovereign28935911,75,435,42-6,931,090,080,22
EMD USD corporate4702666,95,725,93-3,511,40-0,040,11
EMD LC sovereign4561.2466,95,575,55-2,230,04-0,160,05
53
Source: Barclays Capital, FactSet, J.P. Morgan, J.P. Morgan Asset Management “Guide to the Markets -Europe”. Fixed income sectors shown are represented by the following indices:
Europe Treasuries –Barclays Pan-Euro Aggregate Government-Treasury indices, US Treasuries –Barclays US Bellwether indices, MBS–Barclays US Aggregate Securitized-MBS, IG
Credit –Barclays Global Aggregate-Corporates, High yield –Barclays Global High Yield, Floating rate –Barclays Euro Floating Rate Notes, Convertibles –Barclays Global Convertibles
Composite, EMD USD sovereign –Barclays Emerging Markets USD Aggregate –Sovereign, EMD USD corporate –Barclays Emerging Markets USD Aggregate –Corporate, EMD LC
sovereign –Barclays Emerging Market Local Currency Government. Data as at 30 September 2013.
Policy and Real Rates
6
8
6
US Federal Reserve
%
Bank of England
%
'99
'01
'03
'05
'07
'09
'11
-2
0
2
4
6
'99
'01
'03
'05
'07
'09
'11
-2
0
2
4
Real interest rate
Aug 2013
-1,52%
Fed Funds
30 Sep 2013:
0,25%
Real interest rate
Aug 2013:
-1,48%
Base rate
30 Sep 2013:
0,50%
'99
'01
'03
'05
'07
'09
'11
'99
'01
'03
'05
'07
'09
'11
2
4
European Central Bank
Repo rate
30 Sep 2013:
0,50%
%
Bank of Japan
1,0
1,5
2,0
Real interest rate
Aug 2013:
0,07%
Call rate
30 Sep 2013:
0,10%
%
Fixed Income
54
Source: (Top left) Bank of England, ONS, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. (Top right) US Federal Reserve, BLS, FactSet, J.P.
Morgan Asset Management “Guide to the Markets -Europe”. (Bottom left) ECB, Eurostat, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. (Bottom
right) Bank of Japan, Japanese Statistics Bureau & Statistics Centre, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.Real interest rate is policy rate
less core CPI inflation. Data as at 30 September 2013.
'99'01'03'05'07'09'11
0
Real interest rate
Aug 2013:
-0,50%
'99'01'03'05'07'09'11
0,0
0,5
3,5
30
Credit Conditions and the European Central Bank
ECB balance sheet: assets€trillions
Corporate loan demandNet % of banks reporting positive loan demand
Small&
medium

%
0,5
1,0
1,5
2,0
2,5
3,0
'05
'06
'07
'08
'09
'10
'11
'12
'13
-50
-40
-30
-20
-10
0
10
20
Large
firms
Small

&

medium

firms
Jan 2005 –Jun 2012:
310%

3
4
5
6
7
1,0
1,5
2,0
25
130
140
'05
'06
'07
'08
'09
'10
'11
'12
'13
'03'04'05'06'07'08'09'10'11'12'13
Fixed Income
ECB balance sheet and the euro€trillions, real broad effective exchange rate (REER*)
ECB Balance Sheet
(RHS, inverted)
European lending ratesNon-financial corporations, new business lending up to €1 million
%
0
1
2
3
'03'04'05'06'07'08'09'10'11'12'13
2
,
5
3,0
3,5110
120
'08'09'10'11'12'13
55
Source: (Top left and right) ECB, J.P. Morgan Asset Management “Guide to the Markets -Europe”. (Bottom left) ECB, J.P. Morgan Economics, J.P. Morgan Asset Management
“Guide to the Markets -Europe”. (Bottom right) ECB, J.P. Morgan Asset Management “Guide to the Markets -Europe”.*Real effective exchange rate is defined as the weighted
average of a country's currency relative to a basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade
balances, in terms of one country's currency with each other country within the index. Latest lending rate data is July 2013.Data as at 30 September 2013.
Euro REER*
(LHS)
SpainGermany
FranceItaly
ECB
policy rate
Fixed Income Interest Rate Risk
Source: (Top chart) US
Treasury, TullettPrebon,
FactSetJ.P. Morgan Asset
Management “Guide to the
Markets -Europe”. (Bottom
chart
)
Barcla
y
s
,
FactSetJ.P.
Interest rate volatility*
Three month moving average of daily absolute change
016
0,18
VolatilityMeasures2008peakAverageLatest
%
)
y,
Morgan Asset Management
“Guide to the Markets -
Europe”.*Interest rate
volatility is the three month
moving average of the
absolute value of the daily
change in the 10 year US
Treasury yield and the 10
year German Bund yield.
Fixed income sectors shown
are provided by Barclays
Capital and are represented
by –Treasury Europe:
Barclays Pan-Euro
A
gg
re
g
ate Government -
0,02
0,04
0,06
0,08
0,10
0,12
0,14
0
,
16
10y US Treasury
10yGermanBund
10y US Treasur
y
0,093%0,050%0,040%
10y German Bund0,078%0,024%0,030%
ggg
Treasury Index; IG credit:
Barclays Global Aggregate –
CorporatesIndex; High
yield: Barclays Global High
Yield Index; EMD sovereign
($): Barclays Emerging
Markets –Sovereigns index;
EMD corporate ($): Barclays
Emerging Markets –
CorporatesIndex; EMD
sovereign (LC): Barclays
Emerging Market Local
Currency Government
Index. Change in bond price
is calculated usin
g
both
Estimated price impact of a 1% rise in local interest rates on selected indices
%
Fixed Income
'76'78'80'82'84'86'88'90'92'94'96'98'00'02'04'06'08'10'12
0,00
10y

German

Bund
-5
0
g
duration and convexity.
Data as at 30 September
2013.
Price return
Total return
Treasury:
Europe
1-3 years5-7 years10+ years
Investment
grade credit
High yield
EMD USD
sovereign
EMD USD
corporate
EMD LC
sovereign
56
-15
-10
24
Government Bond Yields and Inflation Expectations
6,0
Ten-year bond yields
%
Expected average inflation rates over next ten years
%
%
-3
-2
-1
0
1
1
2
3
'07
'08
'09
'10
'11
'12
'13
4,0
4,5
5,0
5,5
%
UK
Germany
US
%
UK (lhs)
US (lhs)
Eurozone(lhs)
Japan (rhs)
'07
'08
'09
'10
'11
'12
'13
10
1,5
2,0
2,5
3,0
3,5
2,0
2,5
3,0
3,5
Yield curve steepness10-year government bond yield less 2-year government bond yield
Fixed Income
%
UK
Germany
US
'07'08'09'10'11'12'13
-1,0
-0,5
0,0
0,5
1
,
0
57
'06'07'08'09'10'11'12
1,5
Source: (Left) Tullett Prebon, FactSet, J.P. Morgan Asset Management “Guide to the Markets –Europe”. (Top Right) Bloomberg, J.P. Morgan Asset Management “Guide to the
Markets -Europe”. (Bottom Right) TullettPrebon, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”. Data as at 30 September 2013.
20
High Yield Bonds
US high yield spreads and defaults
Asset classAverageLatest
HY spreads5,8%5,1%
LevLoanspreads
43%
53%
%
0
5
10
15
'
86
'
88
'
90
'
92
'
94
'
96
'
98
'
00
'
02
'
04
'
06
'
08
'
10
'
12
Lev
.
Loan

spreads
4
,
3%
5
,
3%
HY defaults4,2%1,1%
86
88
90
92
94
96
98
00
02
04
06
08
10
12
30
45
60
10
225
300
375
US historical high yield recovery ratesHigh yield bonds, cents on the dollar
Average: 40,8 cents
Fixed Income
High yield issuance$ billions
2013 YTD:
$307,2bn
General
Acquisition/LBO
Refinancing
$
0
15
'88'90'92'94'96'98'00'02'04'06'08'10'12
0
75
1
5
0
'05'06'07'08'09'10'11'12'13
58
Source: (Top) US Treasury, J.P. Morgan, Credit Suisse, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Bottom left) J.P Morgan, Fitch, J.P. Morgan Asset
Management “Guide to the Markets -Europe”. (Bottom right) J.P. Morgan Credit Research, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Top) 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.Leverage loan spread is the discount margin to maturity. Data as at 30 September 2013.
0
200
14
Emerging Market Debt
Emerging market debt yields
Emerging market debt credit rating and spreadsEMBIG average monthly credit rating, spread (basis points)
BBB-
Credit rating
200
400
600
800
1.000
1.200
1.400
1.600
1.800
10
12
%
BB+
BB
BB-
B-
B
B+
Spread (inverted)
'93'95'97'99'01'03'05'07'09'11
6
8
5,5
6,0
6,5
7,0
EM sovereign debt and Baa corporate bonds yields
EMD sovereigns
Fixed Income
%
4
'01'03'05'07'09'11
59
Source: (Left) J.P. Morgan, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.(Top right) J.P. Morgan, FactSet, J.P. Morgan Asset Management “Guide
to the Markets -Europe”.(Bottom right) Moody’s, J.P. Morgan, FactSet, J.P. Morgan Asset Management “Guide to the Markets -Europe”.EM sovereign (USD) is the JP Morgan
EMBI+. The local currency is the JP Morgan GBI-EM Global. EM corporate (USD) is the JP Morgan CEMBI Index. The JP Morgan EMBI Global (EMBIG) Index is a USD
denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations.Data as at 30 September 2013.
EM sovereign (local currency)
EMsovereign (USD)
EMcorporate (USD)
'10'11'12'13
4,0
4,5
5,0
Baa corporate
bond ($)
3,0
100
Emerging Market Debt Composition
Emerging market debt by region and sector$ denominated debt
Emerging market debt outstanding$ trillions
Corporate
CorporateSovereign
2,0
2,5
60
80
Consumer 7%
Energy &
materials
20%
%
Latin
America
33%
EM corporate(USD)
EM sovereign (USD)
EM sovereign (localcurrency)
Technology
12%
Latin
America
42%
$
0,5
1,0
1,5
20
40
Fixed Income
Financials
39%
Europe 20%
Asia 38%
Europe 33%
Asia 17%
0,0
200120032005200720092011Sep 2013
0
60
Source: (Both charts) J.P. Morgan, J.P. Morgan Asset Management “Guide to the Markets –Europe”. ‘Other’ is industrial, infrastructure, paper, real estate, transport, and utility sectors. The JP Morgan
EMBI Global (EMBIG) is a USD denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The JP Morgan Corporate Emerging Bonds (CEMBI) is
a USD denominated external debt index tracking bonds issued by corporations in developing nations. EM Sovereign in USD is theJPMorgan EMBI Global Index, and the EM Sovereign in local currency is
the Global Bond Index Emerging Market Broad Diversified Index (GBI-EM). EM corporate is the CEMBI. Figures may not sum due to rounding.Data as at 30 September 2013.
Africa / Middle
East 9%
Other 21%
CEMBI by sectorEMBIG by region
Africa / Middle
East 8%
CEMBI by region
Asset Class Returns
Ten-yr
Ann.
20032004200520072006201120082010201220093Q13YTD
EMEREITSEMEREITSEMEGovt bondsEMEREITSREITSREITS
World
equities
World
equities
EME
46,7% 30,4% 35,8% 34,4% 33,5%9,1%62,8%27,6%7,3% 20,1%
equities
19,4%
equities
6,5%
15,3%
REITS
38,5%
EME
16,4%
Cmdty
21,4%
EME
28,9%
Cmdty
16,2%
Cash
5,7%
HY bonds
57,7%
Cmdty
16,8%
EMD
7,0%
HY bonds
19,2%
Portfolio
6,1%
EME
5,8%
EMD
11,6%
HY bonds
29,3%
HY bonds
12,0%
World
equities
16,3%
World
equities
16,1%
Hedge
funds
14,1%
IG bonds
-5,1%
EMD
34,2%
HY bonds
15,1%
Govt bonds
5,5%
EMD
17,9%
Hedge
funds
5,6%
Portfolio
2,9%
HY bonds
11,4%
EMD
26,9%
EMD
11,9%
EMD
12,3%
Hedge
funds
13,6%
Portfolio
6,7%
EMD
-14,7%
REITS
27,4%
EME
14,4%
IG bonds
4,8%
EME
17,4%
HY bonds
2,9%
HY bonds
2,5%
REITS
11,0%
World
equities
255%
World
equities
118%
Portfolio
12,1%
HY bonds
12,2%
Govt bonds
5,6%
Hedge
funds
187%
World
equities
265%
EMD
12,8%
HY bonds
3,6%
World
equities
164%
REITS
2,9%
Cmdty
2,1%
Portfolio
7,8%
s
sets and
Behaviour

25
,
5%

11
,
8%
-
18
,
7%
26
,
5%

16
,
4%
Cmdty
23,9%
Portfolio
10,4%
REITS
8,3%
Portfolio
12,2%
World
equities
5,2%
Portfolio
-21,6%
Portfolio
23,9%
World
equities
10,6%
Cash
1,7%
Portfolio
12,1%
EME
0,8%
EMD
1,4%
Hedge
funds
6,9%
Portfolio
19,9%
Hedge
funds
10,0%
Hedge
funds
7,6%
EMD
10,0%
EMD
5,2%
HY bonds
-25,2%
Cmdty
18,9%
Portfolio
10,3%
Hedge
funds
0,5%
IG bonds
10,9%
Cash
0,2%
IG bonds
1,1%
World
equities
6,7%
Hedge
funds
14,4%
Cmdty
9,1%
HY bonds
5,6%
IG bonds
3,6%
Cash
4,4%
Cmdty
-35,6%
Hedge
funds
17,5%
Hedge
funds
8,8%
Portfolio
-0,7%
Hedge
funds
5,9%
Govt bonds
0,0%
Govt bonds
0,7%
IG bonds
5,5%
IG bonds
6,5%
IG bonds
5,5%
Govt bonds
5,0%
Govt bonds
3,3%
IG bonds
3,2%
REITS
-37,3%
IG bonds
16,6%
IG bonds
7,2%
World
equities
-5,0%
Govt bonds
4,5%
IG bonds
-0,9%
Cash
0,1%
Govt bonds
4,4%
61
Source: MSCI, Barclays Capital, Dow Jones/UBS, NAREIT, J