Post on 04-Apr-2018
7/30/2019 Guide to the Markets Quarterly Europe Q1 2013
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Global Market Strategy Team
Dan Morris daniel.m.morris@jpmorgan.com
Paola Toschi maria.p.toschi@jpmorgan.com
Tom Elliott tom.cb.elliott@jpmorgan.com
Kerry Craig kerry.craig@jpmorgan.com
Andrew Goldberg andrew.d.goldberg@jpmorgan.com
1
www.jpmorganassetmanagement.com/insight
http://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insight7/30/2019 Guide to the Markets Quarterly Europe Q1 2013
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Europe Economy
3. Eurozone GDP and Inflation
4. European Manufacturing PMIs
5. European Unemployment6. European Structural Imbalances
7. European Bank Lending and Credit Growth
8. European Government Interest Rates
9. European Bank Exposure
10. Euro Exchange Rate
11. Cash Accounts
12. Sentiment Indicators
13. European Economic Indicators
Global Economy
14. Global Debt and Deficits
15. Central Bank Monetary Stimulus and Inflation Expectations16. Global Trade: The Importance of Exports
17. US GDP and Inflation
18. US Cyclical Indicators
19. US Consumer Finances
20. US Housing and Labour Markets
21. Federal Finances
22. Japan GDP and Inflation
23. Japan Indicators
24. Emerging Market GDP Growth and Inflation
25. China Economic Growth
26. China Cyclical and Monetary Indicators
27. Emerging Markets: China Auto Consumption
28. Global Monetary Policy
29. World Consumption and Growth
30. Oil and the Economy
Equities
31. World Stock Market Returns
32. MSCI Europe Index at Inflection Points
33. European Indices
34. US S&P 500 at Inflection Points
35. Earnings and Valuations by Style
36. Emerging Market Returns
37. Income: Equities, REITS, and Fixed Income
38. World Sector Returns
39. Equity Dividends and Valuation40. Equity Correlations and Volatility
41. Earnings Revisions
42. Developed Market Equity Valuations by Country
43. Emerging Market Equity Valuations by Country
44. Europe Equity Valuations
45. Sources of Earnings per Share Growth
46. US Equity Valuations
47. Japan TOPIX and Exchange Rate
48. Emerging Market Equity Performance
49. Emerging Market Dividends, Earnings Growth and Volatili ty
50. Emerging Market Equity and Debt Composition
Fixed Income
51. Fixed Income Returns
52. Fixed Income Yields
53. Investment Grade and High Yield Bond Spreads
54. Convertible Bonds and Leveraged Loans
55. Fixed Income Market Data
56. Government Bond Yields
57. Yield Curves and Real Interest Rates
58. Credit and Money Supply Growth
Other Assets and Investor Behaviour
59. Asset Class Returns
60. Correlation of Returns
61. Global Commodities
62. Commodities and Inflation
63. Property
64. Consumer Confidence and the Stock Market
65. Industry Fund Flows
66. Asset Returns by Holding Period
67. Returns in Different Inflation Environments
68. GDP Growth and Equity Returns
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-4
-2
0
2
4
6
3
Source: Eurostat, FactSet, J.P. Morgan Asset Management.
Eurozone real GDPChange year on year Avg since 1999 3Q 2012
Real GDP 1,4% -0,6%
%
Eurozone inflationChange year on year
EuropeEco
nomy
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
0
1
2
3
4
5
Avg since 1999 Nov 2012
Headline CPI 2,2% 2,2%
Core CPI 1,6% 1,4%%
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EuropeEco
nomy
Lowest relative to 50 PMI Highest relative to 50 PMI
Note: Heatmap colours are based on PMI relative to the 50 level, which indicates expansion or contraction of the sector, for the time period shown. Source: Markit,
J.P. Morgan Asset Management.
Switzerland
Sweden
Germany
Austria
France
UK
Denmark
Netherlands
Italy
Spain
Ireland
Norway
Greece
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
2010
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2011 2012
Sep
Oct
Nov
61,9 60,6 59,9 62,2 59,5 58,5 58,1 54,2 53,8 52,0 49,3 47,7 45,6 49,1 47,3 49,0 51,1 46,9 45,4 48,1 48,6 46,7 43,6 46,1 48,5
61,3 60,2 61,5 60,9 58,6 59,8 56,1 52,9 50,1 48,7 48,1 49,8 47,6 48,9 51,4 50,3 50,2 50,2 49,0 48,4 50,6 45,1 44,7 43,1 43,2
58,1 60,7 60,5 62,7 60,9 62,0 57,7 54,6 52,0 50,9 50,3 49,1 47,9 48,4 51,0 50,2 48,4 46,2 45,2 45,0 43,0 44,7 47,4 46,0 46,8
55,2 57,7 60,3 61,9 60,6 57,0 55,6 53,0 50,8 50,1 48,7 48,0 47,6 49,0 51,8 52,0 51,5 51,2 50,2 50,1 47,4 46,7 45,1 44,8 49,3
57,9 57,2 54,9 55,7 55,4 57,5 54,9 52,5 50,5 49,1 48,2 48,5 47,3 48,9 48,5 50,0 46,7 46,9 44,7 45,2 43,4 46,0 42,7 43,7 44,5
59,4 58,2 59,1 58,8 55,1 54,0 52,5 51,7 49,9 49,7 51,1 48,6 48,1 49,9 51,6 50,8 51,5 50,0 46,1 48,4 45,1 49,6 48,8 47,3 49,1
55,5 63,1 58,0 61,2 62,4 62,8 59,0 58,2 58,2 54,6 63,0 42,9 47,5 59,3 53,1 54,8 51,0 63,4 52,4 52,1 47,0 50,6 50,0 55,6 56,7
56,5 57,5 57,5 60,7 58,1 59,2 55,1 52,1 51,4 50,7 48,9 48,0 46,0 46,2 49,0 50,3 49,6 49,0 47,6 48,9 48,9 49,7 50,7 48,9 48,2
51,2 52,2 55,8 56,7 55,7 56,0 51,8 49,8 48,2 49,7 47,3 50,1 48,5 48,6 48,3 49,7 51,5 50,1 51,2 53,1 53,9 50,9 51,8 52,1 52,4
50,0 51,5 52,0 52,1 51,6 50,6 48,2 47,3 45,6 45,3 43,7 43,9 43,8 43,7 45,1 45,0 44,5 43,5 42,0 41,1 42,3 44,0 44,5 43,5 45,3
51,2 52,2 55,8 56,7 55,7 56,0 51,8 49,8 48,2 49,7 47,3 50,1 48,5 48,6 48,3 49,7 51,5 50,1 51,2 53,1 53,9 50,9 51,8 52,1 52,4
55,7 54,4 55,2 57,9 57,2 55,6 56,9 56,1 56,5 54,9 53,8 50,2 49,1 46,8 54,6 56,1 59,1 52,8 54,0 46,3 50,0 48,8 49,2 49,0 50,1
43,9 43,1 42,8 42,8 45,4 46,8 44,5 45,5 45,2 43,3 43,2 40,5 40,9 42,0 41,0 37,7 41,3 40,7 43,1 40,1 41,9 42,1 42,2 41,0 41,8
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 112
4
6
8
10
12
14
16
18
20
22
(Left) Note: Greece, Ireland, and Spain unemployment rate is average of each countrys harmonised unemployment rate. Source: Eurostat, FactSet, J.P. Morgan AssetManagement. (Right) Note: *2010 figure. Effective retirement age is the male average retirement age over the period 2006 2011. Official retirement age listed inparenthesis, subject to variations between public and private sectors, length of service etc. Youth unemployment is those aged less than 25 years. Source: OECD,Eurostat J.P. Morgan Asset Management.5
International
EuropeEco
nomy
Country
Effective
retirementage
Employment
rate of 55-64
Female
employmentrate
Youth un-
employmentrate
Austria 60 years 42%* 67% 8%
Denmark 64 60 70 14
France 59 41 60 22
Germany 62 60 68 9
Greece 62 39 45 44
Ireland 63 50 55 29
Italy 61 38 47 29
Japan 69 65 60 8
Netherlands 64 56 70 8
Portugal 66 48 60 30
Spain 62 45 52 46
Sweden 66 72 72 23
UK 64 57 65 21
US 65 60* 62 17
Unemployment rate
% Greece, Ireland, Spain
US
Italy
Germany
Euro area
European labour market inclusion rates
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85
90
95
100
105
110
115
120
125
130
135
140
Dec 90 Dec 95 Dec 00 Dec 05 Dec 10-6
-3
0
3
6
9
12
Dec 90 Dec 00 Dec 10
(Left) Note: Latest data August 2012. Source: IMF, J.P. Morgan Asset Management. (Right) Note: Latest data 3Q 2012. Data rebased to 100 at 4Q 1998. Unit labour cos tmeasures the average cost of labour per unit of output and is calculated as the ratio of total labour cost to real output. Source: ECB, J.P. Morgan Asset Management.
6
EuropeEconomy
Unit labour costsRelative to Germany
Euro
launch
Ireland
Greece
Spain
Italy
Trade balances with the eurozoneSix month moving average, USD Billion
Eurolaunch
Germany
Greece
Spain
Italy
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0
100
200
300
400
Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
7
Source: ECB, Federal Reserve, J.P. Morgan Asset Management.
EuropeEconomy
ECB lending to domestic banksEUR Billions
Italy
Spain
EUR USD
Bank reservesTrillions
ECB current account (lhs)
US bank excess reserves (rhs)
ECB deposit facility (lhs)
0,0
0,4
0,8
1,2
1,6
0,0
0,2
0,4
0,6
0,8
1,0
Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
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Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 110
5
10
15
20
25
30
35
Note: The ECB announced the second round of Long Term Refinancing Operations (LTRO) in February 2012. The Outright Monetary T ransaction (OMT) programme wasannounced in September 2012. Source: Tullett Prebon, FactSet, J.P. Morgan Asset Management.
8
International
EuropeEconomy
European sovereign funding costsTen-year benchmark bond yield
31 Dec 2012
Greece 10,2%
Portugal 6,9%
Spain 5,2%
Ireland 5,2%
Italy 4,4%
Germany 1,3%
Euro launch
%
LTRO
OMT
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0
50
100
150
200
250
Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 120 100 200 300 400 500 600 700 800 900 1000
US now
US oya
UK now
UK oya
Ge now
Ge oya
Fr now
Fr oya
Location of banks
(Left) Source: BIS, J.P. Morgan Asset Management. (Right) Note: The price of a credit default swap (CDS) measures the cost of insuring a bond against default. Forexample, for a five year CDS a price of 100 basis points means it costs the insurer of the bond EUR 10.000 per year to insure EUR 1.000.000 for five years. Source:Markit, Bloomberg, J.P. Morgan Asset Management.
9
31 Dec 2012:117
EuropeEconomy
European bank credit default swapsFive-year iTraxx Europe Index, basis points
Bank exposure to European debtUSD Billions
bps
Italy
Spain
Portugal
Ireland
Greece
Country of issuance
Germany
UK
France
US
2Q 2008
2Q 2012
2Q 2008
2Q 2012
2Q 2008
2Q 2012
2Q 2008
2Q 2012
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80
90
100
110
120
130
Dec 80 Dec 84 Dec 88 Dec 92 Dec 96 Dec 00 Dec 04 Dec 08 Dec 12Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
0,8
0,9
1,0
1,1
1,2
1,3
1,4
1,5
1,6
1,7
Source: FactSet, J.P. Morgan Asset Management.
10
31 Dec 2012:USD 1,32E
uropeEconomy
Euro exchange rate
31 Dec 2012:
CHF 1,21
Swiss Franc per Euro
US Dollar per Euro
EUR REER
10 year moving average
EUR Trade Weighted Index
-1,5 std dev
+1,5 std devEuro
launch
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0
1
2
3
4
5
0
1.000
2.000
3.000
4.000
5.000
2000 2002 2004 2006 2008 2010 2012Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
42
44
46
48
50
52
54
56
58
60
62
11
Cash on the sidelinesPercent of nominal eurozone GDP
3Q 2012:49,0%
EuropeEconomy
(Left) Note: Excess means the amount above the December 2006 value. Source : European Central Bank, Eurostat, J.P. Morgan Asset Management. (Right) *Bluemarker points represent year on year inflation for that year and illus trates how the value of income that would have been eroded due to inflation in that year. Inflation isrealised inflation from 2000-2006, expected annual inflation thereafter. Source: Bloomberg, Eurostat, J.P. Morgan Asset Management.
%
EUR 262 billion
excess euro onthe sidelines
Income generated by EUR 100,000 investment in a one-yearbank deposit
Dec 2012:EUR 425
2007: EUR 4.580
%EUR Inflation (y/y)Income
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-40
-30
-20
-10
0
10
20
30
40
Dec 91 Dec 95 Dec 99 Dec 03 Dec 07 Dec 11
75
80
85
90
95
100
105
110
115
120
125
(Left) Note: Exponential moving average. Source: CESIfo Group, FactSet, J.P. Morgan Asset Management. (Right) Last data November 2012. Source: Eurostat, FactSet,
J.P. Morgan Asset Management.
German business climate indicesSurvey of ca. 7.000 companies
12
European confidence indicators
EuropeEconomy
Current situation
Business expectations
Business climate
Industrial confidence
Consumer confidence
Service sector confidence
EuropeEconomy
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0
2
4
6
8
10
0 20 40 60 80 100 120 140 160 180 200 220
-8
-6
-4
-2
0
2
4
6
8
10
20 40 60 80 100 120 140 160 180
GDP growth, debt to GDP and borrowing costs
14
GlobalEconomy
Government deficit and debt by country% of GDP
Peak gross debt
2015 (estimated)
Deficit(%o
fGDP)
Gross debt (% of GDP)
MaastrichtTreaty
criteria
Note: The chart on the left uses gross debt (% of GDP) as this is one of the three criteria stipulated in the Maastrict Treaty. The chart on the right uses the 2012estimate of net debt (% GDP). Net debt is calculated as gross debt minus financial assets corresponding to debt instruments. The peak is taken as the highest grossdebt as % of GDP in the period 2006 to 2012 with the corresponding deficit (% of GDP) figure for that year. Peak is 2012 unless otherwise stated. Ice. is Iceland withpeak debt to GDP ratio in 2011. Source: IMF WEO October 2012 edition, Tullet Prebon, FactSet, J .P. Morgan Asset Management.
Ireland
Spain
US
Portugal
UK
Greece
Italy
Japan
China
(2010)
India
(2006)
Brazil
(2009)
Germany
France
Mexico(2009)
AveragerealGDPg
rowth(20112
013)
Net debt (% GDP)
Bubble size = Ten-yeargovernment bond yield
= 5%
= 10%
Japan
GreecePortugal
Italy
Spain
France
US
Germany
EU
Singapore
India
China
TaiwanKorea
Indonesia
Philippines
Malaysia
Thailand
220 240 260
Ireland
Ice.
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1,0
1,5
2,0
2,5
3,0
3,5
4,0
May 07 May 08 May 09 May 10 May 11 May 121
2
3
4
5
Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
Increase since
Dec 2007
UK GBP 260 billion
USA USD 1,8 trillion
Eurozone EUR 830 billion
Japan JPY 37 trillion
15
Monetary base (M0)*Indexed
(Left) *This is M0, or the total amount of a currency that is either circulated in the hands of the public or in commercial bank deposits held in the central bank's reserves.
Source: US Federal Reserve, Bank of England, ECB, J.P. Morgan Asset Management. (Right) Note: Ten-year zero-coupon inflation swaps. Source: Bloomberg, J.P.
Morgan Asset Management.
Expected average inflation rates over next ten years
UK
US
Eurozone
GlobalEconomy x
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1,1
1,4
4,8
2,4
2,4
2,1
1,6
5,3
3,3
1,7
1,7
3,2
7,1
1,0
3,4
10,2
12,9
12,9
16,0
2,0
1,2
1,7
1,0
3,0
1,6
1,2
1,7
2,1
4,9
5,0
9,5
18,1
20,2
7,3
9,4
8,6
8,5
12,2
18,3
0 10 20 30 40
Brazil
India
China
Russia
Japan
USA
France
Italy
UK
Germany
9,8%
13,7%
27,8%
30,6%
13,7%
14,4%
24,7%
32,5%
(Left) Source: IMF, MDIC, Indian Ministry of Commerce & Industry, China Customs, Bank of Russia, BEA, Japan Customs, ONS, French Minis try of Economy, Finance &
Industry, ISTAT, German Federal Statistics Office, FactSet, J.P. Morgan Asset Management. (Top Right): Source: WTO, J.P. Morgan Asset Management. (Bottom Right)
Note: The Baltic Dry Index measures changes in the cos t of transporting raw materials by sea for different geographical routes and ship sizes. The index may be used as
an indicator of demand for raw materials and leading indictor of economic growth. Source: Bloomberg, J.P. Morgan Asset Management.
Baltic Dry IndexLog scale
World trade valueUSD trillions, log scale
16
GlobalEconomy
Exports as % of GDPLatest 12 months, goods and services exports
Brazil
India
China
Russia
Japan
US
France
Italy
UK
Germany
US Eurozone BRIC Other
42,6%
22,2%
3
12
48
1984 1989 1994 1999 2004 2009
500
2.000
8.000
Dec 84 Dec 89 Dec 94 Dec 99 Dec 04 Dec 09
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20-yr avg Q3 2012
Real GDP 2,5% 3,1%
Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11-10
-8
-6
-4
-2
0
2
4
6
8
10
17
Note: SAAR is seasonally adjusted annual rate. Source: BEA, J.P. Morgan Asset Management.
Real GDPChange quarter on quarter, SAAR
InflationChange year on year
1964 1969 1974 1979 1984 1989 1994 1999 2004 2009-3
0
3
6
9
12
15
50-yr avg Nov 2012
Headline CPI 4,3% 1,8%
Core CPI 4,2% 1,9%%
GlobalEconomy
USD 951 bn
of outputrecovered
%
USD 625 bn ofoutput lost
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Light vehicle salesMillions, seasonally adjusted annualised rate
Housing startsThousands, seasonally adjusted annualised rate
Manufacturing and trade inventoriesDays of sales, seasonally adjusted
Real capital goods ordersNon-defensive capital goods orders ex. aircraft, USD bn, seasonally adjusted
Dec 94 Dec 99 Dec 04 Dec 098
10
12
14
16
18
20
22
24
Average: 15,1
Nov 2012:15,5
Dec 93 Dec 97 Dec 01 Dec 05 Dec 0936
38
40
42
44
46
48
Oct 2012:
39,2
Dec 74 Dec 79 Dec 84 Dec 89 Dec 94 Dec 99 Dec 04 Dec 090
400
800
1.200
1.600
2.000
2.400
Nov 2012: 861
Average: 1.433
Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
45
50
55
60
65
70
75
Average: 57,3
Nov 2012: 55,8
(Top left) Source: BEA, J.P. Morgan Asset Management. (Top right) Source: Census Bureau, J.P. Morgan Asset Management. (Bottom left) Source: Census
Bureau, J.P. Morgan Asset Management. (Bottom right) Note: Capital goods orders deflated using the producer price index for capital goods. Source: Census
Bureau, J.P. Morgan Asset Management.
GlobalEconomy
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-25
-20
-15
-10
-5
0
5
10
10
11
12
13
14
15
Dec 79 Dec 89 Dec 99 Dec 09 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 1130
45
60
75
90
19
(Left) Note: Latest DSR data September 2012 Source: US Federal Reserve, J.P. Morgan Asset Management. (Top right) Note: Personal savings rate i s calculated as
personal savings (after tax income personal outlays) divided by after tax income. Employer and employee contributions to retirement funds as included in after tax
income but not in personal outlays, and thus are implicitly included in personal savings. Source: BEA, J.P. Morgan Asset Management. (Bottom Right) Source: FRB,
FactSet, J.P. Morgan Asset Management.
GlobalEconomy
Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted
x
3Q07:
14,1%
3Q12:10,7%
Dec 59 Dec 69 Dec 79 Dec 89 Dec 99 Dec 09
0
2
4
6
8
10
12
Personal Savings RateAnnual, % of disposable income
Nov 2012:3,6%
Household AssetsUSD trillions
Total assets excluding housing:3% above 2007 peak
Total assets:
4% below 2007 peak
Consumer real credit growthHousehold DSR
%Oct 2012:1,8%
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92
94
96
98
100
0 12 24 36 48 60
Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
3,0
3,5
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
90
100
110
120
130
140
150
160
20
(Left) Note: Latest data October 2012 for Case-Shiller price index and November 2012 for existing home sales. Case-Shiller price index and median sales price rebased to
100 at December 1999. Source: Robert Shiller, J.P. Morgan Asset Management. (Right) Note: *US Non-Farm Private Payrolls. Latest data November 2012. Source: BEA,
J.P. Morgan Asset Management.
US home sales and prices Indexed US employment levels* from beginning of recessionDates refer to different recession periods
Months into recession
EmploymentlevelG
lobalEconomy
2008
200119991957Case-Shiller home
price index
Existing homesales, millions
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-12
-10
-8
-6
-4
-2
0
2
4
1990 1994 1998 2002 2006 2010 2014 2018 2022
21
(Left) Note: 2012 numbers are actuals. Years shown are fiscal years (1 October through 30 September). Source: CBO, J.P. Morgan Asset Management. (Right) Source:
US Treasury, CBO, J.P. Morgan Asset Management.
Federal budget surplus/deficit% of GDP, 1990 - 2022
Federal expenditure and receipts% of GDP, 1960 - 2012
Forecast
%
Average: 20,5%
Average: 17,9%
Receipts
Expenditure
2012:22,8%
2012:15,8%
Fiscal cliff scenario
New Years compromise
14
16
18
20
22
24
26
1960 1970 1980 1990 2000 2010
GlobalEconomy
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22
Source: Ministry of Internal Affairs and Communications, Economic & Social Research Institute , FactSet, J.P. Morgan Asset Management.
Real GDPChange year on year
InflationChange year on year
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-8
-6
-4
-2
0
2
4
6
Avg since 1999 Q3 2012
Real GDP 0,9% 0,5%
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-2
-1
0
1
2
3
%
Avg since 1999 Nov 2012
Headline CPI -0,1% -0,2%
Core CPI -0,6% -0,5%%
GlobalEconomy
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75
100
125
150
Dec 87 Dec 92 Dec 97 Dec 02 Dec 07 Dec 12
23
GlobalEconomy
(Top Left) Note: *IMF estimate. Source: IMF WEO October 2012 edition, FactSet, J.P. Morgan Asset Management. (Bottom Left) Source: TOPIX, FactSet, J.P. MorganAsset Management. (Bottom Right): Note: REER is the real effective exchange rate of a currency against a basket of its main trading partners currencies. Source:FactSet, J.P. Morgan Asset Management.
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 20120
1
2
3
4
5
Current account balance% of GDP
2012*:
1,6%
Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
7
89
10
11
12
13
14
15
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Japanese currency and stock performance Japan nominal and real effective exchange rate (REER)
TOPIX IndexYen per WonYen per USD
Average REER
Yen REER
StrongerYen
Reuters Tankan Business Confidence SurveyIndex
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-45
-30
-15
0
15
30Manufacturing
Index
Non-manufacturing
index
Sep 2012: 8
Sep 2012: -3
WeakerYen
Forecast
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11-3
0
3
6
9
12
15
-3
0
3
6
9
12
15
18
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-3
0
3
6
9
12
15
-3
0
3
6
9
12
15
18
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-3
0
3
6
9
12
15
-3
0
3
6
9
12
15
18
Brazil
Note: Real GDP growth and inflation are year on year change. Source: IBGE, India Central Statistics Organisation, Press Information Bureau of India, National Bureau of
Statistics, Federal Service of State Statistics , FacSet, J.P. Morgan Asset Management.
Average:5,4%
Average:9,5%
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-3
0
3
6
9
12
15
-3
0
3
6
9
12
15
18
Average:3,5%
Average:7,2%
Russia
India China
Inflation %GDP % Inflation %GDP %
Inflation %GDP % Inflation %GDP %
24
GlobalEconomy
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10,0%
9,1%
10,4%10,0%
7,0%
6,1%
8,2%
9,1%
4
5
6
7
8
9
10
11
4q10 2q11 4q11 2q12
-4
-2
0
2
4
6
8
10
12
14
2009 2010 2011 2012*
25
Note: Latest data September 2012. *2012 is year to date GDP through Q3 2012. Source: National Bureau of S tatistics of China, J.P. Morgan Asset Management.
Real GDPChange year on year
China GDP contribution
GlobalEconomy
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
3
6
9
12
15
Avg since 1999 Q3 2012
Real GDP 9,6% 7,4%
Gross capital formation
Consumption
Net exports
3,9%
4,2%
-0,4%
7,7%%
%
4,9%
4,7%
-0,4%
9,2%
5,5%
4,5%
0,4%
10,4%
4,4%
8,4%
-3,6%
9,2%
China Real GDP growthChange quarter on quarter, seasonally adjusted annualised rate
%
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45
50
55
60
Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12-60
-30
0
30
60
90
Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
26
Imports
ExportsNov 2012:
8,0%
Nov 2012:
1,5%
NBS Mfg PMI
Markit Mfg PMI
Nov 2012: 50,6
Dec 2012: 51,5
Manufacturing PMIsIndex level, level above 50 indicates expansion
Merchandise trade growthYear on year % change of three-month sum
GlobalEconomy
Chinese inflation indicesChange year on year
Note: NBS Mfg PMI covers approximately 800 companies with a bias toward state-owned and large enterprises, while the Markit Mfg PMI includes 400 companies with a
bias toward small and medium-sized companies. Source: National Bureau of Statisti cs of China, Markit, The Peoples Bank of China, China Economic Information Network,
FactSet, J.P. Morgan Asset Management.
Monetary policy rates
%
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
10
15
20
25
5,5
6,0
6,5
7,0
7,5
8,0
Reserve requirement ratio1-year working
capital rate%%
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-2
0
2
4
6
8
10
%
Avg since 1999 Nov 2012
Headline CPI 2,3% 2,0%
Ex Food CPI 0,8% 1,6%
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27
Source: BEA, China Automotive Information Net, World Bank, J.P. Morgan Asset Management.
Auto SalesMillions of units, seasonally adjusted annualised rate
Passenger Cars per 1.000 PeopleIn 2010
United States
China
GlobalEconomy
0
5
10
15
20
25
Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10
34
178
267
439 454496 510
0
100
200
300
400
500
China Brazil South Korea US Japan France Germany
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-3,0
-1,5
0,0
1,5
3,0
4,5
6,0
7,5
9,0
28
Emerging market inflation
GlobalEconomy
Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 Dec 12
2
3
4
5
6
7
8
Inflation rate
Policy rate
Monetary policy and inflationSelected countries
%Inflation Rate
Real Policy Rate
Target Policy Rate
UK
US
Eurozone
Japan
S.
Africa
India
Mexico
S.
Korea
Russia
Brazil
China
(Left) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shown year on year change in CPI inflation for latest month. Real policy
rates are short-term target interest rates less the year on year change in inflation. Source: BOE, Federal Reserve, ECB, BOJ, Central Bank of Mexico, Banco Central do
Brasil, South African Reserve Bank, Reserve Bank of India, Bank of Korea, Bank of Russia, Peoples Bank of China, FactSet, J.P. Morgan Asset Management. (Right)
Source: FactSet, J.P. Morgan Asset Management.
Developed Emerging
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15
20
25
30
35
40
45
50
1990 1994 1998 2002 2006 2010
%
29
Emerging markets share of global consumption and
investment
EM Investment % of GlobalEM Consumption % of Global
US Consumption % of Global
Contribution to global GDP growth
DevelopedEmerging
GlobalEconomy
(Left) Source: IMF, United Nations, J.P. Morgan Asset Management. (Right) Note: Share of global consumption based on household consumption and does not include
government consumption. Source: IMF, United Nations, Factset, J.P. Morgan Asset Management.
32%36%
48%55%
68%64%
52%45%
0
10
20
30
40
50
60
70
80
90
100
1980's 1990's 2000's 2010-2017
%
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Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
0
20
40
60
80
100
120
140
160
0
2
4
6
8
10
12
14
0 100 200 300
30
Libya0,6%
Egypt0,8%
Sudan0,5%
Saudi Arabia12,8%
Iran4,9%
Iraq3,0%
Kuwait3,1%
UAE3,6%
Syria0,5%
Strait ofHormuz
17,0%
Suez Canal2,2%
Bab el-Mandeb3,4%
Saudi Arabia 13% China 5% US 22% India 4%
Russia 12% Iran 5% China 10% Russia 3%
US 12% Canada 4% Japan 5% Saudi Arabia 3%
Selected producers Selected consumers
% of global total, 2011 % of global total, 2011
Middle East energy production & chokepoints% of global liquid fuel production, 2011
(Top Left) Source: World Bank, J.P. Morgan Asset Management. (Bottom Left) Note: Brent is the European crude oil benchmark. H enry Hub is the standard US
domestic benchmark, measured in millions of British thermal units. (Right) Note: Forecast from the September EIA Short-Term Energy Outlook. Source: EIA, IMF,
J.P. Morgan Asset Management.
GlobalEconomy
Energy efficiency improvement by countryHow many kilos of oil to produce USD 1.000 of output
kg of oil/GDP
Latest
1980
China
Canada
India
US
Japan
Germany
UK
Crude oil and Henry Hub natural gas pricesUSD/bbl USD/MMBtu
31 Dec 2012:
USD 111
31 Dec 2012:USD 3.4
Brent Natural gas
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30,0%
MSCI EM
46,7%
16,9%
MSCI EM
16,4%
55,0%
MSCI EM
35,8%
20,2%MSCI
Europe
19,6%
26,7%MSCI Asia
ex Japan
38,0%
-23,0%Japan
TOPIX
-40,6%
73,4%
MSCI EM
62,8%
28,3%MSCI Asia
ex Japan
15,6%
5,5%US S&P
500
2,1%
20,8%MSCI Asia
ex Japan
19,7%
4,5%MSCI
Europe
5,2%
14,2%
MSCI EM
15,3%
22,3%
MSCI Asia
ex Japan
45,0%
12,6%
MSCI
Europe
12,7%
45,3%
Japan
TOPIX
45,2%
19,6%
MSCI Asia
ex Japan
28,6%
26,1%
MSCI EM
33,5%
-33,7%
US S&P
500
-37,0%
67,2%
MSCI Asia
ex Japan
67,2%
27,5%
MSCI EM
14,4%
-7,5%
MSCI
Europe
-8,8%
18,1%
MSCI
Europe
16,4%
3,1%
MSCI Asia
ex Japan
5,1%
12,4%
MSCI Asia
ex Japan
14,0%
15,8%
MSCI
Europe
20,3%
9,2%
MSCI Asia
ex Japan
11,9%
41,9%
MSCI Asia
ex Japan
24,1%
18,6%
MSCI EM28,9%
3,2%
MSCI
Europe
6,5%
-43,3%
MSCI
Europe
-38,5%
32,5%
MSCI
Europe
28,6%
23,9%
Japan
TOPIX
1,0%
-9,6%
Japan
TOPIX
-17,0%
16,8%
MSCI EM17,4%
3,1%
MSCI EM5,4%
6,5%
MSCI
Europe
6,9%
15,3%
Japan
TOPIX
25,2%
8,1%
Japan
TOPIX
11,3%
26,7%
MSCI
Europe
25,5%
3,6%
US S&P
500
15,8%
-4,9%
US S&P
500
5,5%
-49,8%
MSCI Asia
ex Japan
-47,7%
22,5%
US S&P
500
26,5%
23,1%
US S&P
500
15,1%
-14,3%
MSCI Asia
ex Japan
-14,6%
14,2%
US S&P
500
16,0%
2,5%
Japan
TOPIX
16,7%
4,7%
US S&P
500
7,1%
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%
-2,8%
US S&P
500
-0,4%
2,7%
Japan
TOPIX
1,8%
31
Note: Annualised return covers the period 2003 to 2012. Total return indices . Source: MSCI, TOPIX, Standard & Poors, FactSet, J.P. Morgan Asset Management.
EUR
Local
Equities
20082003 2004 2005 2006 4Q 20122007 2009 20122010 2011Ten-yrAnn.
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
600
800
1.000
1.200
1.400
1.600
1.800
32
Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings inthe next 12 months and is provided by I/B/E/S. Ten-year treasury is the BoA/Merrill Lynch Euro Government (7-10Y) Index. Source: BoA/Merrill Lynch, I/B /E/S, FactSet,J.P. Morgan Asset Management.
16 Jul 2007:
P/E = 13,3x1.641
12 Mar 2003:
P/E = 14,2x676
4 Sep 2000:
P/E = 21,8x
1.623
9 Mar 2009:
P/E = 9,0x
714
1.147
-58% +143% -56%
31 Dec 2012:P/E = 11,4x
MSCI Europe Index
Eq
uities
+61%
Characteristic Sep 2000 Jul 2007 Dec 2012
Index level 1.623 1.641 1.147
P/E ratio (fwd) 21,8x 13,4x 11,4xDividend yield 1,9% 2,9% 3,7%
Ten-year treasury 5,4% 4,5% 2,5%
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 1120
40
60
80
100
120
140
160
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 1120
40
60
80
100
120
140
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 110
100
200
300
400
Note: All indices rebased to 100 at 31 December 1999. Source: FactSet, J.P. Morgan Asset Management.
Finland, France and GermanyAustria and Norway
Spain, Sweden and SwitzerlandBelgium, Netherlands, and Italy
33
Eq
uities
Norway: OBX
Austria: ATX
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 1120
40
60
80
100
120
140
German: DAX
Finland: OMX
France: CAC
Belgium: BEL 20
Italy: FTSE MIB
Netherlands: AEX
Switzerland: Market Index Spain: IBEX 35
Sweden: OMX Stockholm 30
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Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
600
800
1.000
1.200
1.400
1.600
Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in
the next 12 months and is provided by I/B/E/S. Source: Standard & Poors, I/B/E/S, FactSet, J.P. Morgan Asset Management.
S&P 500 Index
34
24 Mar 2000:
P/E = 22,7x1.527
9 Oct 2002:
P/E = 15.6x777
9 Oct 2007:P/E = 14,9x
1.565
+111%
9 Mar 2009:
P/E = 12,2x677
-49% -57%
31 Dec 2012:P/E = 12,8x
1.426
+101%
Eq
uities
Characteristic Mar 2000 Oct 2007 Dec 2012
Index level 1.527 1.565 1.426
P/E ratio (fwd) 25,6x 15,2x 12,8x
Dividend yield 1,1% 1,8% 2,2%
10-year Treasury 6,2% 4,7% 1,8%
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0
1
2
3
4
5
6
7
8
2001 2003 2005 2007 2009 2011
0
5
10
15
20
25
2001 2003 2005 2007 2009 2011
35
Eq
uities
(Left) Note: EPS levels are based on operating earnings per share. Most recently available data is 3Q 2012. Source: Standard & Poors, FactSet, J.P. Morgan Asset
Management. (Right) Source: Standard & Poors, Russell Investment Group, I/B/E/S, FactSet, J.P Morgan Asset Management.
Current P/E vs 20-year average P/E
Current P/E as % of 20-year average P/E
Value Blend Growth
Small
Mid
Large
Value Blend Growth
Small
Mid
Large
Eg: Large cap blendstocks are 23,1%
cheaper than their
historical average.
S&P 500 earnings per shareOperating basis, quarterly
3Q12:USD 25,64
3Q07: USD 24,26
USD
Euro Stoxx 600 earnings per shareOperating basis, quarterly
3Q12:
EUR 5,37
2Q07: EUR 7,70
EUR
11,8 12,5 15,2
14,0 16,2 20,9
12,7 14,4 16,7
14,0 16,3 21,8
13,2 14,6 16,3
14,2 17,1 21,3
84,8% 76,9% 72,7%
91,0% 88,3% 76,6%
92,9% 85,7% 76,6%
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44,5%
EM Latin
America
60,8%
29,6%
EM Latin
America
32,2%
74,2%
EM Europe59,2%
28,3%
EM Latin
America
37,6%
35,9%
EM Latin
America
35,6%
-37,2%
World-38,3%
97,8%
EM Latin
America
63,2%
32,4%
EM EMEA19,2%
-1,8%
World-5,0%
23,2%
EM Europe18,6%
3,9%
EM Europe4,5%
20,2%
EM Latin
America
20,0%
41,5%
EM Europe
62,1%
29,3%
EM EMEA
24,5%
73,3%
EM Latin
America
38,0%
22,2%
EM Europe
32,8%
27,7%
EM Asia
39,1%
-48,8%
EM Latin
America
-37,7%
80,4%
EM Europe
73,6%
27,6%
EM Asia
14,9%
-14,4%
EM Asia
-14,2%
20,6%
EM EMEA
21,5%
3,4%
EM EMEA
6,2%
14,2%
Emerging
Markets
15,3%
30,0%
EM EMEA
34,5%
26,6%
EM Europe
25,8%
59,9%
EM EMEA
50,4%
19,2%
EM Asia
27,7%
26,1%
Emerging
Markets
33,5%
-50,3%
EM Asia
-47,1%
73,4%
Emerging
Markets
62,8%
27,5%
Emerging
Markets
14,4%
-15,4%
Emerging
Markets
-12,5%
19,4%
EM Asia
18,2%
3,4%
EM Asia
5,2%
13,3%
EM EMEA
14,7%
30,0%
Emerging
Markets
46,7%
16,9%
Emerging
Markets
16,4%
55,0%
Emerging
Markets
35,8%
18,6%
Emerging
Markets
28,9%
17,6%
EM Europe
22,3%
-50,8%
Emerging
Markets
-45,7%
68,8%
EM Asia
68,1%
25,2%
EM Europe
18,9%
-16,4%
EM Latin
America
-9,8%
16,8%
Emerging
Markets
17,4%
3,1%
Emerging
Markets
5,4%
12,8%
EM Europe
14,5%
25,6%
EM Asia
48,8%
7,0%
EM Asia
8,0%
46,9%
EM Asia
28,5%
11,1%
EM EMEA
25,8%
16,1%
EM EMEA
21,9%
-53,3%
EM EMEA
-48,6%
62,9%
EM EMEA
50,3%
22,9%
EM Latin
America
9,2%
-17,5%
EM EMEA
-9,1%
14,7%
World
16,4%
1,8%
EM Latin
America
5,1%
12,6%
EM Asia
14,3%
11,3%
World
25,5%
6,9%
World
11,8%
26,8%
World
16,3%
7,9%
World
16,1%
-1,2%
World
5,2%
-66,3%
EM Europe
-64,0%
26,7%
World
26,5%
20,1%
World
10,6%
-20,8%
EM Europe
-16,4%
7,2%
EM Latin
America
12,5%
0,1%
World
3,1%
5,6%
World
6,7%
36
Note: Total return MSCI indices. EM EMEA is EM Europe plus Egypt, Morocco and South Africa. World is MSCI The World Index covering developed markets. Annualised
return covers the period 2003 to 2012. Source: MSCI, FactSet, J.P. Morgan Asset Management.
Eq
uities
EUR
Local
20082003 2004 2005 2006 4Q 20122007 2009 20122010 2011Ten-yrAnn.
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0,75%
1,3%
2,0%
3,7%4,2%
4,5%
6,7%
0
2
4
6
8
4,7% 5,4% 6,0% 5,1% 3,3% 4,8% 4,2% 2,6% 3,0% 3,8% 4,1%
13,9%
-5,3%
3,0%
13,6%
4,4%0,2%
16,0%
12,9%
-2,9%
0,7% 5,6%
-10
-5
0
5
10
15
20
25
1926 - 1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010 - 12 1926 - 2012
5,45,1 5,0
4,54,2
3,8 3,7
4,6
2,9
3,7
2,2
2,7
3,7
2,2
0
1
2
3
4
5
6
37
(Top chart) Note: Total return index is S&P 500 until 1960s then the MSCI Europe Index. Source: Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left)
Note: Government bond is benchmark government bond yield. Yields shown are that of the appropriate FTSE NARIET REIT index, which excludes property development
companies. Source: Tullett Prebon, NARIET, J.P. Morgan Asset Management. (Bottom right) Note: European corporate is BarCap European Aggregate Credit Corporate
Index, emerging market debt is the EMBI+, high yield is the BofA/Merrill Lynch High Yield Master II, MSCI Europe is the dividend yield. Inflation is year on year change in the
eurozone CPI. Source: Eurostat, Tullett Prebon, Merrill Lynch, FactSet, J.P. Morgan Asset Management.
REIT and equity dividend yields Sources of income
Total returns: Dividends and capital appreciationAverage annualised returns
%
Capital appreciation
Dividends
Ten-year bond yield
%
Austlia Canada France Japan Global UK US
%
Eq
uities
REIT yield
Equity yield
Eurozone
CPI inflation(Nov 2012)
Cash Bunds MSCI
Europe
Euro
corpEM
debt
High
yield
Global
REITS
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MSCI AC World Index
38
Eq
uities
ACWI Weight
4Q 2012
2012
Since market peak
Since market low
Forward P/E ratio
15-year avg
Trailing P/E ratio
15-year avg
Dividend yield
15-year avg
Financials Tech.Healthcare
Industrials EnergyCons.Desc.
Cons.Staples
Telecom Utilities Materials ACWI
Note: All calculations are cumulative total return in local currency, not annualised, including dividends for the stated period. 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. Source: I/B/E/S , FactSet, MSCI J.P Morgan Asset Management.
21,1% 12,1% 9,3% 10,4% 10,6% 10,7% 10,4% 4,3% 3,5% 7,6% 100,0%
9,1 -1,7 0,8 7,1 -1,8 7,3 1,3 -3,1 -0,2 5,5 3,4
28,9 15,8 18,3 17,4 2,0 25,0 14,7 8,4 3,2 10,8 16,5
-37,8 0,5 21,9 -15,4 -3,3 7,8 41,8 0,0 -17,8 -16,0 -8,4
129,4 116,1 87,4 118,1 64,3 148,8 105,7 67,8 35,6 86,2 98,9
10,8x 12,4x 13,1x 12,8x 10,1x 13,5x 15,6x 12,0x 14,1x 12,3x 12,2x
12,8x 22,5x 18,3x 15,9x 13,4x 17,9x 17,1x 20,5x 14,1x 13,3x 15,8x
12,1x 14,3x 13,4x 14,3x 10,5x 15,8x 17,0x 13,0x 15,6x 15,7x 13,6x
13,9x 18,9x 15,1x 15,7x 11,7x 18,5x 17,0x 13,8x 16,3x 14,4x 16,0x
3,0% 1,6% 2,6% 2,5% 3,1% 1,9% 2,7% 5,3% 4,8% 2,6% 2,7%
3,4% 0,8% 1,8% 2,2% 2,6% 1,8% 2,4% 3,5% 4,2% 8,2% 2,7%
Return
Div
P/E
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90
110
130
150
170
190
210
230
250
270
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
39
(Left) Source: I/B/E/S, Compustat, FactSet, J.P. Morgan Asset Management. (Right) Regular dividends only. Source: MSCI, FactSet, J.P. Morgan Asset Management.
Eq
uities
S&P 500 valuations by dividend quartileValuation based on forward P/E
No-low dividend yield
High dividend yield
Average dividend yield
MSCI indices dividend growthLocal currency
Japan
US
Europe ex UK
Asia ex Japan
8
10
12
14
16
18
20
22
24
26
Dec 94 Dec 97 Dec 00 Dec 03 Dec 06 Dec 09 Dec 12
x
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0
10
20
30
40
50
60
70
1926 1932 1938 1944 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010
40
Stock market volatility
Large cap stocksCorrelations Among Stocks
1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 20100,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
0
15
30
45
60
75
90
DJIA volatility shownin three-month
moving average
(Top) Note: Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 2012. Source: Empirical Research Partners LLC, Standard
& Poors, J.P. Morgan Asset Management. (Bottom) Note: DJIA volatility are represented as three-month moving averages of the daily absolute percentage change in the
Dow Jones Industrial Average. Source: CBOE, Dow Jones, FactSet, J.P. Morgan Asset Management..
%
Eq
uities
Volatility Measures 2008 peak Average Latest
DJIA (left) 3,30% 0,72% 0,52%
VIX (right) 80,9 20,4 18,0
Sovereign DebtCrisis
LehmanBankruptcy
Tech Bust & 9/11
1987 Crash
Great Depression /World War II
OPEC OilCrisis
Cuban Missile Crisis
Dec 2012: 34.4%
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70
75
80
85
90
95
100
105
Dec 11 Mar 12 Jun 12 Sep 12 Dec 12
90
95
100
105
Dec 11 Mar 12 Jun 12 Sep 12 Dec 12
92
94
96
98
100
102
104
106
108
Dec 11 Mar 12 Jun 12 Sep 12 Dec 12
41
Note: Revisions for next 12 month earnings estimates. Source: MSCI, I/B/E/S, J.P. Morgan Asset Management.
Brazil
EMEA
Latin Americaex Brazil
Netherlands
Italy
Spain
France
Germany
Europe
Eq
uities
Emerging markets
Earnings revisions
Japan
MSCI EMU
FTSE 100
S&P 500
EM Asia
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42
Eq
uities
+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
Developed markets
Expensive
relative to own
history
Expensive
relative to
world
Cheap relative
to own historyCheap
relative to
world
Example
Average
Current
Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd 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 normalized using means and average variability over the last ten years. The grey bars represent
valuation index variability relative to that of the MSCI World Index of developed markets. Source: MSCI, I/B/E/S, FactSet, J.P. Morgan Asset Management.
Current compositeindex
Current 10 year average
Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield
France -1,95 11,0x 1,2x 5,5x 3,8% 11,8x 1,6x 5,8x 3,8%
Germany -1,60 11,0 1,4 5,7 3,4 11,9 1,5 4,6 3,3
UK -1,45 10,9 1,7 6,4 3,9 12,5 2,0 7,0 3,9
Japan -1,28 12,8 1,1 4,1 2,3 16,5 1,4 6,2 1,9
Australia -1,03 13,2 1,8 6,9 4,7 13,3 2,2 8,2 4,5
World (Avg) -0,66 12,5 1,7 6,7 2,7 13,7 2,0 7,2 2,7
Canada -0,56 12,8 1,8 5,7 2,9 13,7 2,1 7,3 2,4
US 0,37 13,0 2,1 8,2 2,1 14,3 2,4 8,4 2,1
Switzerland 0,54 13,5 2,1 11,4 3,4 13,5 2,4 9,8 2,9
France Germany UK Japan Australia World Canada US Switzerland
Stddev
from
globa
lav
erage
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Eq
uities
+3 Std Dev
+2 Std Dev
+1 Std Dev
Average
-1 Std Dev
-2 Std Dev
-3 Std Dev
+5 Std Dev
+4 Std Dev
-4 Std Dev
+6 Std Dev
-5 Std Dev
Emerging markets
Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd 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 normalized using means and average variability over the last ten years. The grey bars represent
valuation index variability relative to that of the All Country World Index (ACWI). Source: MSCI, FactSet, J.P. Morgan Asset Management.
Current compositeindex
Current 10 year average
Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield
Russia -3,68 5,0x 0,8x 3,3x 3,8% 7,9x 1,3x 4,8x 2,2%
Brazil -1,87 10,7 1,4 5,2 3,6 8,6 1,9 5,6 3,4
China -1,59 9,9 1,6 5,0 2,9 12,0 2,1 4,2 2,8
EM Index -1,09 10,5 1,6 6,2 2,7 10,7 1,9 5,7 2,7
ACWI (Avg) -0,67 12,2 1,7 6,8 2,7 13,4 2,1 7,0 2,5
Taiwan -0,59 14,3 1,8 6,3 3,0 13,9 1,9 6,4 3,6
S. Africa 0,42 12,0 2,4 10,4 3,2 10,4 2,3 7,6 3,3Korea 0,69 8,7 1,2 5,8 1,1 9,4 1,5 4,9 1,8
Mexico 2,39 17,5 3,0 7,4 1,5 13,1 2,6 5,7 2,0
India 3,31 14,2 2,6 13,6 1,5 14,6 3,3 12,2 1,5
Expensive
relative to
own history
Expensive
relative to
world
Cheap
relative to
own history
Cheap
relative to
world
Example
Average
Current
Russia Brazil China EM Index ACWI Taiwan S. Africa Korea Mexico India
Stddev
from
globa
lav
erage
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0,6
0,7
0,8
0,9
1,0
1,1
1,2
1,3
1,4
Dec 87 Dec 92 Dec 97 Dec 02 Dec 07 Dec 12Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
2
3
4
5
6
7
44
Note: The ten-year EMU bond yield is represented by the BofA Merrill Lynch Euro Government (7-10Y) index. 75% of the value of the index is comprised of bonds from
France, Germany, Italy, Spain, Netherlands, and Belgium, Source: BofA Merrill Lynch, I/B/E/S, J.P. Morgan Asset Management.
31 Dec 2012:
Dividend yield
Ten-year EMU bond yield
%
2,5%
3,7%
MSCI Europe Index dividend yield and Ten-Year EMU bond
Eq
uities
Eurozone and US relative valuations
Eurozone/US forward P/E
Since euro launch(since Jan 1999)
Euro
launch
31 Dec 2012:
x
Eurozonerelatively
cheaper
Eurozonerelativelymore
expensive
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-40
-30
-20
-10
0
10
20
30
40
-40
-30
-20
-10
0
10
20
30
40
Dec 93 Dec 97 Dec 01 Dec 05 Dec 09 Dec 13
45
S&P 500 year over year EPS growthGrowth broken into revenue and margin expansion, quarterly
Equities
Note: Grey shaded areas represent recession periods. EPS levels are based on operating earnings per share. Most recently available data is 2Q 2012. 4Q2008, 1Q2010
and 2Q2010 reflect -101%, 91%, and 51% growth in operating earnings, and are adjusted on the chart. Source: Standard & Poors, Bloomberg, J.P. Morgan Asset
Management.
Margins
Revenue Forecast
0
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Dec 89 Dec 94 Dec 99 Dec 04 Dec 09
2
4
6
8
10
Dec 89 Dec 94 Dec 99 Dec 04 Dec 09
8
10
12
14
16
18
20
22
24
26
31 Dec 2012:
46
Source: I/B/E/S, Tullett Prebon, FactSet, J.P. Morgan Asset Management.
Forward P/E ratio, S&P 500 Index
31 Jan 2000:
24,4x
Average since 1989:15,7x
Dividend yield and ten-year US Treasury yield
Ten-year US Treasury yield
Dividend yield
1,8%
2,2%
%
Equities
31 Dec 2012:
12,8x
x
31 Dec 2012:
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Dec 99 Dec 03 Dec 07 Dec 11600
800
1.000
1.200
1.400
1.600
1.800
2.000
70
80
90
100
110
120
130
140
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
800
1.000
1.200
1.400
1.600
1.800
2.00026 Feb 2007:P/E = 18,0x
1.817
Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in
the next 12 months and is provided by I/B/E/S. Source: I/B/E/S, FactSet, J.P. Morgan Asset Management.
TOPIXLog scale
28 Apr 2003:P/E = 16,4x
773 13 Mar 2009:P/E = 23,7x
724
-60%+135%
31 Dec 2012:
P/E = 12,6x860
+19%
47
Equities
TOPIX and the JPY per USD Exchange Rate
StrongerYen
WeakerYen
JPY per USDTOPIX
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0,5
1,0
1,5
2,0
2,5
3,0
Dec 85 Dec 90 Dec 95 Dec 00 Dec 05 Dec 10Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
20.000
30.000
40.000
50.000
60.000
Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in
the next 12 months and is provided by I/B/E/S. Source: MSCI, FactSet, J.P. Morgan Asset Management.
48
29 Sep 2001:P/E = 9,3x
12.460
29 Oct 2007:
P/E = 13,1x54.872
MSCI EM IndexLog scale
27 Oct 2008:
P/E = 7,5x22.525
31 Dec 2012:P/E = 10,5
46,731
+340% +107%-59%
Equities
MSCI Emerging Markets Index: Price to book
Average: 1,81
Dec 2012:1,65
-1,5 St dev
+1,5 St dev
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0
5
10
15
20
49
MSCI EM Index: Long term growth in DPS and EPSIndex, 100 = December 1995
(Left) Note: Regular dividends only in local currency. Source: MSCI, I/B/E/S, FactSet, J.P . Morgan Asset Management. (Right) Note: Monthly frequency in USD terms until
1987, daily frequency in local currency terms subsequently. Source: IFC, MSCI, J.P. Morgan Asset Management.
EM EPS (fwd)
DM EPS (fwd)
DM DPS
EM DPS
Annualised equity market volatility% per year
Developed markets
Emerging markets%
Equities
Late
70s80s 90s 00s 01 - 03 04 - 09 10 - 12
0
100
200
300
400
500
Dec 95 Dec 99 Dec 03 Dec 07 Dec 11
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0
20
40
60
80
100
50
MSCI Emerging Markets Index by region MSCI Emerging Markets Index by sector
MSCI emerging market indices: country index by sector
Note: Other is comprised of healthcare, industrials, telecom and util ity sectors. Values may not sum to 100 due to rounding. Source: MSCI, J.P. Morgan Asset
Management. Source: MSCI, FactSet, J.P. Morgan Asset Management. (Bottom Right) note: The EMBIG is the J.P. Morgan EMBI Globa l Index, a USD-dominated
external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The CEMBI is the J.P. Morgan Corporate Emerging Bond Index is a
USD-denominated external debt index tracking bonds issued by corporations. Source: J.P. Morgan Asset Management.
Equities
10%
61%
8%
21%
19%
24%
26%
14%
17%
Africa / Middle East
Asia
Europe
Latin America
OtherEnergy &Materials
Financials
Tech
Consumer
Other
Energy &Materials
Financials
Tech
Consumer
20%
5%
18%11%
38%
22%
2% 14%
6%
37%27%
31%
39%
12%
13%37%
81%
20%
22%
21%
13%
15% 14% 17%22%
29%
15%
0
20
40
60
80
100
%
Emerging market debt by region and sectorUSD denominated debt
Africa / Middle East 7% Other 18%
LatinAmerica
43%
Europe 33%
Asia 17% Tech 10%
Financial 36%
Energy &Materials 29%
%
Brazil Russia India China Mexico S. Korea EMBIG CEMBI
Consumer 7%
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FixedIncome
(Left) Note: Annualised return covers the period from 2002 to 2011. Infl. Link is Barclays Euro Govt All Markets Inflation-linked Index, EM debt is the Barclays Emerging
Markets (USD) Index, US HY is the BoA/ML Developed Market High Yield Constrained Index, Euro corp is the Barclays Euro Aggregate Credit Corporate Index, Global
agg is the Barclays Global Aggregate Index, US, Italy and Germany are JPM government bond indices. The FI allocation assumes the following weights; 15% in US, 15%
in Germany, 10% in Italy, 5% in index linked, 15% in EM debt, 15% in high yield, 15% in euro corporates, and 10% in global bonds. Source: Barclays Capital, Bank of
America Merrill Lynch, J.P. Morgan Asset Management.
51
2003 2004 2005 20072006 20112008 2010 20122009 4Q 2012Ten-yrAnn.
US HY
28,2%
EM de bt
11,9%
EM de bt
12,3%
US HY
10,6%
Global agg
9,5%
US
14,3%
US HY
60,9%
US HY
14,9%
US
9,9%
Italy
21,3%
Italy
5,2%
EM de bt
11,6%
EM de bt
26,9%
US HY
11,4%
Infl. Link
6,0%
EM de bt
10,0%
US
9,2%
Germany
12,4%
EM de bt
34,2%
EM de bt
12,8%
Germany
9,8%
US HY
18,0%
US HY
3,9%
US HY
10,7%
Global agg
12,5%
Infl. Link
11,0%
Italy
5,8%
Global agg
6,6%
EM de bt
5,2%
Italy
5,8%
Portfolio
18,3%
Portfolio
7,2%
EM de bt
7,0%
EM de bt
17,9%
Infl. Link
3,5%
Portfolio
7,3%
Portfolio
12,3%
Global agg
9,3%
Germany
5,2%
Portfolio
4,1%
Portfolio
3,9%
Global agg
4,8%
Euro corp
15,7%
Germany
6,4%
Global agg
5,6%
Infl. Link
17,1%
EM de bt
3,3%
Global agg
6,0%
Infl. Link8,3%
Portfolio8,6%
Portfolio4,5%
US3,1%
Germany2,0%
Infl. Link3,8%
Italy8,3%
US6,1%
Portfolio4,7%
Euro corp13,6%
Euro corp3,0%
Germany5,3%
Euro corp
6,8%
Italy
8,6%
Euro corp
4,0%
Euro corp
0,5%
US HY
1,9%
Portfolio
-1,5%
Infl. Link
8,1%
Global agg
5,5%
US HY
3,8%
Portfolio
11,8%
Portfolio
2,3%
Infl. Link
5,0%
Italy
3,9%
Euro corp
7,5%
US
2,9%
Germany
-0,2%
Infl. Link
1,9%
Euro corp
-3,8%
Global agg
6,9%
Euro corp
4,7%
Euro corp
1,5%
Germany
4,5%
Germany
1,1%
Euro corp
4,9%
Germany
3,9%
Germany
7,4%
US HY
2,9%
Italy
-0,5%
Italy
1,5%
EM de bt
-14,7%
Germany
1,8%
Infl. Link
-0,4%
Infl. Link
-2,3%
Global agg
4,3%
US
-0,1%
US
4,9%
US
2,4%
US
3,7%
Global agg
-4,5%
Infl. Link
-1,7%
Euro corp
0,0%
US HY
-26,4%
US
-3,8%
Italy
-0,6%
Italy
-5,9%
US
2,2%
Global agg
-0,5%
Italy
4,6%
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4
8
12
16
20
4
8
12
16
20
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 119
10
11
12
13
14
100
300
500
700
900
1.100
1.300
1.500
1.700
Dec 93 Dec 96 Dec 99 Dec 02 Dec 05 Dec 08 Dec 11
52
(Left) Source: J.P. Morgan Asset Management. (Right) Source: Moodys, Standard & Poors, J.P. Morgan Asset Management.
Fixed income yields
FixedIncome
Emerging market debt spreads and ratings
Credit rating (inverted)Bps over Treasuries
% %
B+
BB-
BB
BB+
BBB-
BBB
High yield
EM local currency sovereign
EM USD sovereign
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0
100
200
300
400
500
600
700
Dec 99 Dec 02 Dec 05 Dec 08 Dec 11
0
5
10
15
20
25
30
0
300
600
900
1200
Dec 99 Dec 02 Dec 05 Dec 08 Dec 11
53
(Left) Source: Barclays, J.P. Morgan Asset Management. (Right) Note: US corporate high yield debt peaks at 1.978 bps in October 2008, but is not shown in the chart.
Source: Merrill Lynch, J.P. Morgan Asset Management.
High yield bond spreadsInvestment grade bond spreadsUSD debt
FixedIncome
bps
bpsEM investment grade corporate
debt
DM investment gradecorporate debt
EM investment gradesovereign debt
%
High yield default
rate (rhs)
US corporate high
yield debt (lhs)
EM sovereign highyield debt (lhs)
Data truncated
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100
400
700
1000
1300
1600
1900
Dec 85 Dec 90 Dec 95 Dec 00 Dec 05 Dec 10
100
150
200
250
300
350
Dec 93 Dec 96 Dec 99 Dec 02 Dec 05 Dec 08 Dec 11
54
Loan and fixed income spreads and yields
FixedIncome
(Upper Left) Source: J.P. Morgan Asset Management. (Lower Left) Total return indices in US dollars. All figures in table annualised. Convertible bonds represented by
UBS Global Convertible Bond Index, equities by MSCI World Index, and fixed income by Barclays Global Aggregate Index. Source: UBS, Barclays, J.P . Morgan Asset
Management. (Right) Note: *Global high yield from 1994, US prior. DMM = discount margin to maturity. Source: Barclays, Credit Suisse, J.P. Morgan Asset Management.
bpsHigh yield OAS
Leverage Loan DMM
Annual*
Asset class Return Volatility
High yield 8,8% 6,5%
Leverage loans 6,0% 3,4%
Behaves like
a bond
Behaves like
a stock
Stock price
Convertibleprice
Balanced
Mechanics of a convertible bond
The protection that
buying a convertiblebond gives as the
underlying stock price
falls
Asset class Return Vol.
Convertibles 7,0% 11,9%
Equities 6,6% 15,8%
Fixed Income 6,1% 5,5%
The potential upside
that the convertible
bond gives when the
underlying stock price
rises
Parity
Index returns
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55
Note: Fixed income
sectors shown are
provided by Barclays
Capital and are
represented by Global
Agg: Barclays Global
Aggregate; Euro Agg:
Barclays Euro Agg;Corporate: Euro
Corporates; Treasuries:
Euro Treasuries;
Emerging Debt: JPM
EMBI+; High Yield: ML HY
Master II.
Government treasuries
securities data for number
of issues and market
value based on Euro-
Aggregate Treasury
benchmarks from Barclays
Capital.
Change in bond price is
calculated using both
duration and convexity
according to the following
formula.
New Price = (Price +
(Price * -Duration *
Change in Interest
Rates))+(0,5 * Price *
Convexity * (Change in
Interest Rates)^2).
Source: Barclays,
BoA/Merrill Lynch, J.P.
Morgan AssetManagement.
FixedIncome
Yield Return
Euro Treasuries Num. of issues Market value Avg maturity 31 Dec 2012 31 Dec 2011 2012 Q4 2012
2 Year 2 years 0,94% 2,01% 4,07% 0,80%
5 Year 5 1,94 3,14 11,66 2,91
10 Year 10 2,46 3,83 14,20 3,62
Long Term +15 3,25 4,18 17,30 5,89
Sector
Global Agg 14.449 EUR 32.787 7,7 years 1,70% 2,33% 2,72% -2,89%
Euro Agg 3.030 8268,2 7,1 1,91 3,44 11,19 2,82
Corporates 1.316 1309,9 4,9 2,00 4,61 13,59 3,02
Euro Treasuries 289 4731,2 8,5 2,01 3,17 11,00 2,98
Emerging Debt 137 258,5 13,3 4,45 5,72 16,22 0,74
High Yield 2.112 1164,0 6,5 6,08 8,36 13,81 0,73
Estimated price impact of a 1% rise/fall in interest rates on selected indices
%
+1%
-1%
Num. of issues: 205
Total value: USD 3.433 tn
2 year 5 year 10 year Long Term Euro Corp High Yield Euro Agg Global Agg Euro Treas EM Debt
-1,9%-5,2%
-7,1%
-14,3%
-4,1% -5,0% -5,5% -6,0% -6,3%-8,4%
1,9%
5,3%7,1%
14,4%
4,1% 5,0%5.5% 6,0% 6,4%
8,4%
-20
-10
0
10
20
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Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
5,5
6,0
0
3
6
9
12
15
1800 1850 1900 1950 2000
56
(Left) Note: Weekly frequency. Source: Tullett Prebon, J.P. Morgan Asset Management. (Right) Latest data December 2011. *High-grade municipal bond yields used for
certain years between 1800 and 1920. Source: Jeremy Siegel, The real rate of interest from 1800-1990, Homer & Sylla, A History of Interest Rates, Ibbotson SIBI,
Federal Reserve, J.P. Morgan Asset Management.
US high quality bond yields*
Ten-year bond yields US government bond yields
%
60 years
FixedIncome
UK
Germany
US
%
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-0,50
0,50
1,50
2,50
3,50
4,50
5,50
6,50
-0,50
0,50
1,50
2,50
3,50
4,50
5,50
6,50
0 5 10 15 20 25 30 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-1
0
1
2
3
4
5
(Left) Source: Bloomberg, J.P. Morgan Asset Management. (Right) Note: Real interest rate is calculated using core CPI. Source: Eurostat, ECB,
J.P. Morgan Asset Management.
Yield curves ECB refinancing rate and real interest rates
Spain
France
US
Germany
Japan
% %Main refinancing
rate
Real interest rate
57
FixedIncome
%
Years
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-2
26
10
14
18
Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
-2
2
6
10
14
Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
58
(Left) Latest data is November 2012 for the US, and October 2012 for the UK and eurozone. Note: UK broad money supply is M4 until July 2010 then M4 adjusted (M4
excluding other intermediate financial corporations) onwards. Source: Federal Reserve, OECD, Bank of England, J.P. Morgan Ass et Management. (Right) Note: Eurozone
bank lending to households for consumption excluding mortgages. Latest data October 2012. Source: ECB, FactSet, J.P. Morgan A sset Management.
US (M2)
UK (M4 adjusted)
Eurozone (M3)
Broad money supply growthChange year on year
Eurozone bank lendingChange year on year
FixedIncome
%
%
%
0
4
8
12
Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
-8
0
8
16
24
Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
%
Germany
Spain
Eurozone
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59
Note: EME is the MSCI EM Emerging Market Index, Europe is the MSCI Europe Index. Govt bonds is Barclays Global Aggregate Government Treasur ies, HY bonds is Barclays Global High Yield Index,
EMD is Barclays Emerging Markets (USD) Index, IG bonds is Barclays Global Aggregate Corporates, Cmdty is the DJ UBS Commodity Index, REITS is FTSE EPRA/NAREIT Developed Index
(comprised of both investment trusts and operating companies), World ex EU is the MSCI World ex Europe Index, and cash is the JP Morgan Cash Index ECU (3M). The asset allocation portfolio
assumes the following weights; 10% in government bonds, 10% in HY bonds, 15% in IG bonds, 5% in EMD, 5% commodities, 5% in cash, 5% in REITS, 15% in EM equities, 10% in World ex Europe,
20% in the MSCI Europe. Source: FTSE, Barclays Capital, Dow Jones/UBS, J.P. Morgan Asset Management.
2003 2004 2005 20072006 20112008 2010 20122009 4Q 2012
Oth
erAssetsand
InvestorBehaviour
EME
30,0%
REITS
28,0%
EME
55,0%
REITS
27,3%
EME
26,1%
Govt bonds
15,9%
EME
73,4%
REITS
28,8%
EMD
10,5%
REITS
26,7%
Europe
4,5%
EME
14,2%
REITS17,1%
EME16,9%
Cmdty39,9%
Europe20,2%
Cmdty4,8%
Cash5,7%
HY bonds54,4%
EME27,5%
Govt bonds9,9%
Europe18,1%
REITS3,2%
REITS9,5%
Europe
15,8%
Europe
12,6%
REITS
32,9%
EME
18,6%
Cash
4,4%
IG bonds
-3,9%
REITS
34,0%
Cmdty
24,9%
IG bonds
7,8%
HY bonds
17,8%
EME
3,1%
HY bonds
9,1%
Portfolio
10,5%
Portfolio
8,3%
EMD
29,4%
Portfolio
7,2%
Europe
3,2%
EMD
-10,3%
Europe
32,5%
World ex EU
24,0%
HY bonds
6,6%
EME
16,8%
HY bonds
2,1%
EMD
9,1%
HY bonds
10,2%
HY bonds
5,0%
World ex EU
26,8%
Cash
3,0%
Portfolio
2,3%
HY bonds
-23,1%
Portfolio
31,7%
HY bonds
22,8%
Cash
1,7%
EMD
16,1%
EMD
0,8%
Portfolio
7,9%
World ex EU9,5%
World ex EU4,6%
Europe26,7%
World ex EU2,7%
Govt bonds-0,3%
Portfolio-25,1%
EMD30,0%
EMD20,7%
World ex EU0,4%
World ex EU13,5%
Portfolio0,7%
Europe6,5%
EMD
5,6%
EMD
3,8%
Portfolio
25,9%
HY bonds
1,7%
World ex EU
-3,3%
Cmdty
-32,3%
World ex EU
24,2%
Portfolio
17,2%
Portfolio
-1,0%
Portfolio
12,8%
Cash
0,1%
World ex EU
5,2%
Cmdty
3,1%
Govt bonds
2,4%
HY bonds
19,4%
EMD
-1,6%
IG bonds
-3,7%
World ex EU
-34,2%
IG bonds
15,5%
Govt bonds
13,3%
REITS
-2,7%
IG bonds
9,5%
IG bonds
-0,6%
Govt bonds
4,4%
Cash
2,5%
Cash
2,2%
IG bonds
11,1%
IG bonds
-4,1%
EMD
-5,2%
Europe
-43,3%
Cmdty
15,2%
Europe
11,7%
Europe
-7,5%
Cash
1,2%
World ex EU
-1,4%
IG bonds
3,3%
Govt bonds
2,4%
IG bonds
1,6%
Govt bonds
7,6%
Govt bonds
-4,8%
HY bonds
-6,9%
REITS
-45,0%
Cash
2,3%
IG bonds
6,3%
Cmdty
-10,4%
Govt bonds
0,3%
Govt bonds
-4,2%
Cash
2,6%
IG bonds
-4,9%
Cmdty
1,3%
Cash
2,2%
Cmdty
-8,7%
REITS
-16,1%
EME
-50,8%
Govt bonds
-0,6%
Cash
1,1%
EME
-15,4%
Cmdty
-2,6%
Cmdty
-8,6%
Cmdty
1,7%
Ten-yr
Ann.
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Note: Pan Europe bonds is the Citigroup Europe Government Bond Index (WGBI). Emerging market debt is the JPMorgan EMBI Global. High yield bonds is the JPMorgan
Domestic High Yield. Global bonds is the Barclays Global Aggregate. Lev. Loans is the Credit Suisse Leveraged Loans Index. Cmdty is the DJ/UBS Commodity Index.
Hedge Funds is the CS/Tremont Multi-Strategy Index. Ten year correlation values are calculated for period December 2002 to November 2012. Correlation measures the
direction and degree of linear association between two variables. Al l indices are total return based on weekly return data in euros. Source: Citigroup, Barclays, Credit
Suisse, J.P. Morgan Asset Management.
60
MSCIEurope
S&P 500MSCIEM
MSCIAsia ex
Japan
PanEurope
Bonds
EM DebtHighYield
Bonds
GlobalBonds
CmdtyHedgeFunds
Lev.Loans
MSCI
Europe
1,00 0,80 0,82 0,77 -0,23 0,44 0,66 -0,25 0,33 0,64 -0,06
S&P 500 1,00 0,69 0,69 -0,16 0,21 0,47 0,15 0,32 0,39 0,49
MSCI EM 1,00 0,96 -0,16 0,49 0,63 -0,16 0,48 0,66 0,58
MSCI Asia exJapan
1,00 -0,11 0,41 0,58 -0,07 0,42 0,59 0,53
Pan EuropeBonds
1,00 0,18 -0,15 0,52 -0,12 -0,27 -0,21
EM Debt 1,00 0,74 -0,28 0,18 0,54 0,52
High YieldBonds
1,00 -0,34 0,28 0,79 0,87
Global Bonds 1,00 0,00 -0,44 -0,26
Cmdty 1,00 0,46 0,37
Hedge Funds 1,00 0,81
Lev. Loans 1,00
Correlation of monthly returns
over previous ten years
Oth
erAssetsand
Inve
storBehaviour
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95
100
105
110
115
120
125
Dec 01 Dec 04 Dec 07 Dec 10
(Left) Note: Commodity prices represented by the appropriate DJ/UBS Commodity sub-index. Source: Dow Jones/UBS, J.P. Morgan Asset Management. (Right) Note:
data rebased to 100 at December 1992. Source: MSCI, Standard & Poors, MSCI, FactSet, J.P. Morgan Asset Management.
Commodity pricesWeekly index prices rebased to 100
China and industrial metal pricesRebased
61
Dec 03 Dec 05 Dec 07 Dec 09 Dec 110
50
100
150
200
250
300
350
400
450
500Precious metals
Industrial metals
Energy
Livestock
Grains
S&P GSCIIndustrial Materials
MSCI China
Oth
erAssetsand
Inve
storBehaviour
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-4
-2
0
2
4
6
8
10
12
14
16
200
400
800
1.600
Jun 68 Jun 78 Jun 88 Jun 98 Jun 08
62
Dec 93 Dec 97 Dec 01 Dec 05 Dec 09-6
-4
-2
0
2
4
6
-60
-40
-20
0
20
40
60
Commodity prices and US inflationChange year on year
Headline CPI (%) Dow Jones/UBS Commodity Index
(Left) Note: CPI adjusted gold values are calculated using average monthly price of gold divided by the CPI value for that month. Source: Bloomberg, BLS, J.P. Morgan
Asset Management. (Right) BLS, Dow Jones/UBS, J.P. Morgan Asset Management.
Oth
erAssetsand
Inve
storBehaviour
Gold priceLog scale
31 Dec 2012:
USD 1.675
Inflation adjusted gold price (lhs)
Inflation (rhs)
US monetary base (indexed)%USD/oz.
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Residential property values to GDPRatio
US mortgages in negative equity and delinquency rates
0
5
10
15
20
25
30
0
3
6
9
12
Jun 98 Jun 02 Jun 06 Jun 10
% %
Homeowners innegative equity
Seriously delinquentloans
0
1
2
3
4
5
6
1977 1987 1997 2007 2017 2027
Spain
Japan
UK
Ireland
US
-30 -20 -10 0 10 20
(Left) Note: Japan: Land Underlying Buildings and Structures; US: Household Real Estate Assets; UK: Residential Buildings; Spain: Residential Household Wealth; Ireland:
Dwellings. Source: OECD, Japan Land and Water Bureau, Ministry of Land, Infrastructure and Transport, Cabinet Office (Government of Japan), US Federal Reserve,
S&P/Case-Shiller, OFHEO, UK Office for National Statistics, Bank of Spain, Ireland Central Statistics Office, Permanent TSB/ESRI, J.P. Morgan Asset Management. (Right)
Latest negative equity data Q2 2012. Latest delinquency data September 2012. Source: Mark Zandi and Robert Shiller, Mortgage Bankers Association, CoreLogic, J.P. Morgan
Asset Management.
x
Oth
erAssetsand
Inve
storBehaviour
Years relative to peak in ratio
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64
Eurozone consumer confidence
Dec 85 Dec 87 Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11-40
-35
-30
-25
-20
-15
-10
-5
0
5
Average: -12,5
Feb 1988:
+19,6%
May 1986:+12,1%
Mar 1993:+19,4%
Nov 1996:
+30,1%Mar 2003:
+32,5%
Mar 2009:+44,7%
Jul 1989:+4,4% Jun 1995:
+17,7%
Aug 2000:
-23,8%
Jun 2007:-22,5%
Nov 2010:
-8,3%
Note: 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. Source:
European Commission, FactSet, J.P. Morgan Asset Management.
Average 12 month MSCI Europe Index return:
After a peak: -3,4% After a trough: +29,3% Total period: 7,8%
Oth
erAssetsand
Inve
storBehaviour
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-220
-170
-120
-70
-20
30
80
2009 2010 2011 2012
(Left) Source: ICI, FactSet, J.P. Morgan Asset Management. (Right) Note: *Intermediate and long term government bonds. Monthly data, latest available November 2012.
Source: EPFR, J.P. Morgan Asset Management.
Mutual fund flowsAll domiciles, excluding ETFs, USD billions
65
Cumulative mutual fund flowsUS domiciled funds excluding ETFs, USD billions
EMD and high yield debt
EM equity
DM equity
Government bonds*
-400
-200
0
200
400
600
800
1.000
1.200
1997-2000 2009-2012
Equity funds
Bond funds
Oth
erAssetsand
Inve
storBehaviour
Tech bubble Credit crisis
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-37%
-8%
-15%
-2% -2%
1%
-1%
1% 2%
6%
1%5%
51%
43%
32%
28%
23% 21%19%
16% 17%
18%
12%
14%
-40
-30
-20
-10
0
10
20
30
40
50
60
1 year 5 yrrolling
10 yrrolling
20 yrrolling
66
Range of equity, bond and blended total returnsAnnual total returns, 1950 - 2012
Note: Returns shown are based on calendar year returns from 1950 to 2012. Source: Barclays Capital, Shiller, Strategas/Ibbotson, US Federal Reserve, J.P. MorganAsset Management.
Equities
Bonds50/50 Portfolio
Annual Avgtotal return
Growth of USD100,000 over 20 years
Equities 10,8% 782.751
Bonds 6,2% 335.627
50/50 Portfolio 8,9% 554.754
%
Oth
erAssetsand
Inve
storBehaviour
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High and rising inflationOccurred 14 times since 1972
Note: High or low inflation distinction is relative to median CPI inflation for the period s1971-2011. * High yield returns based on the period 1984 2011. Rising of fallinginflation distinction is relative to the previous year CPI inflation rate. Commodities returns are based on GSCI, equities on the S&P 500 total return index, govt bonds arethe Barclays Aggregate US Treasury Index, and high yield is the Barclays US Corporate High Yield Index. Source: BLS, Barclays Capital, Robert Shiller, Federal Reserve,Strategas/Ibbotson, J.P. Morgan Asset Management.
Low and rising inflationOccurred 7 times since 1972
High and falling inflationOccurred 6 times since 1972
Low and falling inflationOccurred 13 times since 1972
2%
7%
13%
7%
-1%
-20
-10
0
10
20
30
40
Equities Cash Commodities Govt Bonds High Yield*