Guide to the Markets - J.P. Morgan Asset Management ... to the Markets...7 Brexit: Outcomes for the...
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Guide to the Markets UK | | MARKET INSIGHTS Q3 2017 As of 30 June 2017
Transcript of Guide to the Markets - J.P. Morgan Asset Management ... to the Markets...7 Brexit: Outcomes for the...
Guide to the MarketsUK | |
MARKET INSIGHTS
Q3 2017 As of 30 June 2017
2
Global Market Insights Strategy Team
Americas Europe Asia
Dr. David P. Kelly, CFANew York
Stephanie H. FlandersLondon
Tai HuiHong Kong
Julio C. CallegariSão Paulo
Manuel Arroyo Ozores, CFAMadrid
Kerry Craig, CFAMelbourne
Samantha M. AzzarelloNew York
Tilmann Galler, CFAFrankfurt
Yoshinori ShigemiTokyo
David M. LebovitzNew York
Lucia Gutierrez-MelladoMadrid
Marcella ChowHong Kong
Gabriela D. SantosNew York
Vincent JuvynsLuxembourg
Akira KunikyoTokyo
Alexander W. Dryden, CFANew York
Dr. David StubbsLondon
Dr. Jasslyn Yeo, CFASingapore
Abigail B. Dwyer, CFANew York
Maria Paola ToschiMilan
Hannah J. AndersonHong Kong
John C. ManleyNew York
Michael J. Bell, CFALondon
Ian HuiHong Kong
Jordan K. JacksonNew York
Nandini L. RamakrishnanLondon
Shogo MaekawaTokyo
Tyler J. VoigtNew York
Jai MalhiLondon
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Page reference
UK economy4. UK: GDP and inflation5. UK labour market dynamics6. UK growth monitor7. Brexit: Outcomes for the UK8. Brexit: UK Trade9. Brexit: Current account and financial services
Global economy10. Global Purchasing Managers’ Index (PMI) for manufacturing11. Global growth12. Global inflation dynamics13. Global central bank policy14. Developed market fiscal policy15. Global currency trends16. Eurozone: GDP and inflation17. Eurozone growth monitor18. Eurozone credit conditions19. European Central Bank (ECB) policies20. Eurozone debt21. European politics22. US: GDP and inflation23. US Federal Reserve outlook24. US labour market25. US growth monitor26. Long-term drivers of US economic growth27. US business environment28. Japan: Abenomics and the economy29. China economic indicators30. China monetary conditions and housing31. China financial dynamics32. China economic and financial linkages33. Emerging market adjustments34. Globalisation and trade
Equities35. World stock market returns36. European sector returns and valuations37. Relative equity valuations38. Relative performance of European equities39. MSCI Europe ex-UK performance and drivers40. MSCI Europe ex-UK equity valuations41. UK FTSE All-Share at inflection points 42. UK equities43. UK equities post-referendum44. UK FTSE All-Share equity valuations
45. US S&P 500 at inflection points46. US equities47. US S&P 500 equity indicators48. Equity markets and reflation49. US bear markets50. Interest rates and equities51. Japanese equities performance and drivers52. Japanese equities: Corporate governance53. Developed market equity valuations by country54. Emerging market equity valuations by country55. Emerging markets: Valuations and returns56. Emerging markets: Investment drivers57. Emerging markets: Flows, earnings and income58. Equity income59. Correlation and dispersion
Fixed income60. Global fixed income: Yields and returns61. Fixed income interest rate risk62. Inflation implications for fixed income63. Historical impact of Fed tightening64. Historical yields of government bonds65. Government bonds66. Global investment-grade bonds67. Global investment-grade bond market68. US high yield bonds69. European high yield bonds70. Emerging market debt
Other assets 71. Commodities72. Oil market drivers73. Gold market dynamics74. Risk-adjusted returns and downside protection75. Alternative strategies76. Correlation of returns (GBP)77. Asset markets in coming decades
Investing principles78. Life expectancy 79. Cash investments80. The power of compounding81. Annual returns and intra-year declines82. Impact of being out of the market83. US asset returns by holding period84. Asset class returns (GBP)
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GTM – UK |
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
'00 '03 '06 '09 '12 '15
Average since 1999 Q117
Real GDP 0.5% 0.2%
Average since 1999
May2017
Headline CPI* 2.0% 2.9%Core CPI 1.6% 2.6%
UK: GDP and inflation
Real GDP Inflation% change quarter on quarter % change year on year
Source: (Left) Bloomberg, ONS, Thomson Reuters, J.P. Morgan Asset Management. Consensus forecasts are the Bloomberg contributor composite. *Latest is May 2017. (Right) ONS, Thomson Reuters, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - UK. Data as of 30 June 2017.
4
Official inflation
target
UK
econ
omy
UK consensus forecast
2017 2018
May 2016 2.1% 2.2%
Latest* 1.6% 1.3%
% change -0.5% -0.9%
-1
0
1
2
3
4
5
6
'00 '04 '08 '12 '16
5
GTM – UK |
Wage growth
UK labour market dynamics
Productivity since the pre-crisis peak Index level, productivity per worker rebased to 100 as of Q4 2007 % change year on year
UK unemployment rate and consumer confidence Index level (LHS); % (RHS)
Source: (Left) BEA, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Bloomberg, ONS, J.P. Morgan Asset Management. *Nominal wages include bonuses. (Bottom right) GFK, ONS, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Headline CPINominal wage growth*
Real wage growth
Consumer confidence
Unemployment rate
UK
econ
omy
5
UK
US
UK productivity, had pre-2008 trend continued
94
100
106
112
118
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17
-6
-3
0
3
6
'02 '04 '06 '08 '10 '12 '14 '16
4
5
6
7
8
9
-50
-40
-30
-20
-10
0
10
'07 '09 '11 '13 '15 '17
6
GTM – UK |
Retail sales vs. consumer confidence
UK growth monitor
Source: (Top left) GFK, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. Retail sales data is a six-month moving average and consumer confidence data is a six-month moving average z score (indicates how many standard deviations the data point is away from its mean). (Bottom left) CBI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Bank of England, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns in all charts indicate recession. Guide to the Markets - UK. Data as of 30 June 2017.
Standard deviations from average (LHS); % change year on year (RHS)Manufacturing and services investment intentionsIndex level
CBI Business optimismIndex level
Industrial productionIndex level, three-month moving average, 1990=100
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ServicesManufacturing
Recession
Consumer confidence
Retail sales
UK
econ
omy
-4
-2
0
2
4
'01 '03 '05 '07 '09 '11 '13 '15 '17
85
95
105
115
'87 '92 '97 '02 '07 '12 '17-80-60-40-20
0204060
'86 '91 '96 '01 '06 '11 '16
-10
-5
0
5
10
-3
-2
-1
0
1
2
3
'86 '91 '96 '01 '06 '11 '16
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GTM – UK |Brexit: Outcomes for the UK
Trade-offs for the UK post EU exit
Source: J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
MARKET ACCESS TO THE EU
Participation in EU legislation process
Full market access
Market access by negotiation
Goods market access butnot services
Free movement of labour
No financial contribution EU member
Some financial contribution
SHARING OF SOVEREIGNTY
UK
econ
omy
7
WTOACCESS
Canada
Turkey
SwitzerlandNorway
EU
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GTM – UK |Brexit: UK trade
Goods and services exports and imports% of UK GDP
Source: UK ONS Pink Book, JP. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
0 2 4 6 8 10 12 14 16 18
ExportsImports
UK export share EU27 44%US 20%Asia 13%Middle East 5%
EU27
US
Australia
Japan
Singapore
Hong Kong
Canada
Saudi Arabia
India
China
Switzerland
8
UK
econ
omy
9
GTM – UK |
11%5%
29%
3%13%
25%
14%
-10
-8
-6
-4
-2
0
2
4
6
8
'90 '95 '00 '05 '10 '15
Brexit: Current account and financial services
Current account balance% of GDP
Annual gross value added, GBP billionUK financial services industry revenues
GBP billionUK financial services
Source: (Left) ONS,Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top and bottom right) Oliver Wyman, J.P. Morgan Asset Management. International business revenues include wholesale revenues. Guide to the Markets - UK. Data as of 30 June 2017.
Services balance
Goods balanceNet current accountFinancial services balance
Sales & trading
Investment banking
Market infrastructure & other
Retail & business banking
Insurance & reinsurance
Private wealth management
Asset management
Domestic business with UK clients
Non-EU international business
EU related international business
0
50
100
150
200
UK
econ
omy
9
10
Global Purchasing Managers’ Index (PMI) for manufacturing
Source: FactSet, Markit, J.P. Morgan Asset Management. The Global Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions. The Global Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions. The results are rebased such that a score of 50 means that economic conditions are neither accelerating nor deteriorating. Guide to the Markets - UK. Data as of 30 June 2017.
GTM – UK |
Lowest relative to 50 PMI Highest relative to 50 PMI50
Glo
bal e
cono
my
Korea
Japan
Switzerland
EurozoneFrance
GermanyItaly
Spain
UKUS
BrazilRussia
IndiaChina
Taiwan
Global
Euro
zone
Dev
elop
edEm
ergi
ng
Developed
Emerging
10
50.8 50.5 50.4 51.0 51.0 50.7 50.9 50.0 50.7 50.2 50.1 50.4 51.0 50.7 51.0 51.9 52.0 52.7 52.7 53.0 53.0 52.7 52.6 52.6
52.1 51.9 51.7 52.6 52.3 52.0 52.1 50.8 50.9 50.5 50.3 51.1 51.4 51.2 51.5 52.6 52.9 53.7 54.2 54.1 53.9 54.1 54.1 53.9
49.1 48.6 48.4 49.0 49.2 49.0 49.4 48.9 50.2 49.6 49.5 49.3 50.3 50.1 50.3 51.0 50.8 51.1 50.8 51.3 51.6 50.8 50.5 50.8
52.4 52.3 52.0 52.3 52.8 53.2 52.3 51.2 51.6 51.7 51.5 52.8 52.0 51.7 52.6 53.5 53.7 54.9 55.2 55.4 56.2 56.7 57.0 57.4
49.6 48.3 50.6 50.6 50.6 51.4 50.0 50.2 49.6 48.0 48.4 48.3 48.6 48.3 49.7 51.8 51.7 53.5 53.6 52.2 53.3 55.1 53.8 54.8
51.8 53.3 52.3 52.1 52.9 53.2 52.3 50.5 50.7 51.8 52.1 54.5 53.8 53.6 54.3 55.0 54.3 55.6 56.4 56.8 58.3 58.2 59.5 59.6
55.3 53.8 52.7 54.1 54.9 55.6 53.2 52.2 53.5 53.9 52.4 53.5 51.2 49.8 51.0 50.9 52.2 53.2 53.0 55.0 55.7 56.2 55.1 55.2
53.6 53.2 51.7 51.3 53.1 53.0 55.4 54.1 53.4 53.5 51.8 52.2 51.0 51.0 52.3 53.3 54.5 55.3 55.6 54.8 53.9 54.5 55.4 54.7
50.0 51.3 48.0 49.6 49.0 49.9 50.2 51.1 53.0 53.1 55.3 51.5 51.5 51.6 54.4 55.2 55.9 56.2 54.6 57.8 58.6 57.4 55.6 60.1
52.3 51.8 51.5 54.5 52.5 51.2 52.5 50.9 51.1 49.5 50.4 53.1 48.3 53.5 55.3 54.2 53.5 55.9 55.6 54.6 54.0 57.0 56.3 54.3
53.8 53.0 53.1 54.1 52.8 51.2 52.4 51.3 51.5 50.8 50.7 51.3 52.9 52.0 51.5 53.4 54.1 54.3 55.0 54.2 53.3 52.8 52.7 52.1
51.2 51.7 51.0 52.4 52.6 52.6 52.3 50.1 49.1 48.2 47.7 48.1 49.3 49.5 50.4 51.4 51.3 52.4 52.7 53.3 52.4 52.7 53.1 52.4
47.2 45.8 47.0 44.1 43.8 45.6 47.4 44.5 46.0 42.6 41.6 43.2 46.0 45.7 46.0 46.3 46.2 45.2 44.0 46.9 49.6 50.1 52.0 51.5
48.3 47.9 49.1 50.2 50.1 48.7 49.8 49.3 48.3 48.0 49.6 51.5 49.5 50.8 51.1 52.4 53.6 53.7 54.7 52.5 52.4 50.8 52.4 50.3
52.7 52.3 51.2 50.7 50.3 49.1 51.1 51.1 52.4 50.5 50.7 51.7 51.8 52.6 52.1 54.4 52.3 49.6 50.4 50.7 52.5 52.5 51.6 50.9
47.8 47.3 47.2 48.3 48.6 48.2 48.4 48.0 49.7 49.4 49.2 48.6 50.6 50.0 50.1 51.2 50.9 51.9 51.0 51.7 51.2 50.3 49.6 50.4
47.6 47.9 49.2 49.1 49.1 50.7 49.5 48.7 49.5 50.0 50.1 50.5 50.1 48.6 47.6 48.0 48.0 49.4 49.0 49.2 48.4 49.4 49.2 50.1
47.1 46.1 46.9 47.8 49.5 51.7 50.6 49.4 51.1 49.7 48.5 50.5 51.0 51.8 52.2 52.7 54.7 56.2 55.6 54.5 56.2 54.4 53.1 56.2
Jan
Mar
Sep
Nov
Dec May
Jul
Aug
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
2015 2016
Jun
Jul
Aug
Sep
Oct
2017
Feb
Apr
Jun
11
GTM – UK |
48
49
50
51
52
53
54
55
56
0
1
2
3
4
5
6
7
Jul '14 Oct '14 Jan '15 Apr '15 Jul '15 Oct '15 Jan '16 Apr '16 Jul '16 Oct '16 Jan '17 Apr '17
Global growth
Global exports, PMI manufacturing and services% growth year on year, three-month moving average (LHS); Index level (RHS)
Source: Haver Analytics, Thomson Reuters Datastream, JP. Morgan Asset Management. The Global Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing and services sector by surveying output and employment intentions. The results are rebased such that a score of 50 means that economic conditions are neither accelerating nor deteriorating. Guide to the Markets - UK. Data as of 30 June 2017.
11
Glo
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cono
my
Global exports
Global manufacturing PMI
Global services PMI
12
GTM – UK |
-8
-6
-4
-2
0
2
4
6
8
10
'10 '12 '14 '16-2
-1
0
1
2
3
4
5
'12 '13 '14 '15 '16 '17 '18
Global inflation dynamics
Consumer price inflation and forecasts Producer price inflation% change year on year, three-month moving average % change year on year
Source: (Left) Bloomberg, BLS, Eurostat, J.P. Morgan Economic Research, Ministry of Internal Affairs and Communications, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Inflation forecasts are from Bloomberg consensus forecasts. (Right) Bank of Japan, Bureau of Statistics of China, Conference Board, Eurostat, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Glo
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cono
my
UK
Eurozone US
Japan
China
12
Forecasts*
UK
Eurozone US
Japan
China
13
GTM – UK |Global central bank policy
Market expectations for policy rate Central bank balance sheets% USD billions
Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Right) Bank of England, Bank of Japan, ECB, Swiss National Bank, US Federal Reserve, J.P. Morgan Asset Management. *Projection from central banks, national sources and J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Glo
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cono
my
13
USUK
EurozoneJapan
June '17 June '18 June ‘19 June ‘20 June ‘210
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Forecast*
US
UK
EurozoneJapan
Switzerland
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
14
GTM – UK |
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
60
70
80
90
100
110
120
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Source: (Left) OECD, J.P. Morgan Asset Management. Figures correspond to the estimated change in the primary balance or structural deficit excluding net interest payments as a share of GDP. (Right) IMF Fiscal Monitor April 2017, J.P. Morgan Asset Management. Government debt ratio is gross debt for all advanced economies in the G20. *Forecasts from the IMF. Guide to the Markets - UK. Data as of 30 June 2017.
Developed economy government debt and interest expense
Developed market fiscal policy
Change in deficit excluding debt interest, 2016-2018% of potential GDP % of GDP
Gross debt
Interest expense
Glo
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cono
my
14
Tighter policy
Looserpolicy
2007 to2016
Change in gross debt (% of GDP)
Change in interest costs
(% of GDP)US 43.3 -0.02Eurozone 26.4 -0.55UK 46.9 0.08Japan 56.2 0.25
Forecast*
-1.5
-1.0
-0.5
0.0
0.5
1.0
15
GTM – UK |
-10010203040506070
70
75
80
85
90
95
100
'13 '14 '15 '16 '17
70
80
90
100
110
120
130
'73 '77 '81 '85 '89 '93 '97 '01 '05 '09 '13 '17
US dollar vs. market rate expectations in the next 12 months
Average since 1973 May 2017
US dollar index 95.8 99.3
Global currency trends
US dollar in historical perspective
US-German interest rate differential
Index level, broad real effective exchange rate (REER)
%, 2-year yields (LHS); price of a dollar in EUR (RHS)
Source: (Top) US Federal Reserve, J.P. Morgan Asset Management. (Bottom left) FactSet, J.P. Morgan Asset Management.(Bottom right) Bloomberg, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
1978-1985:+52.7%
1985-1988:-29.5%
2002-2011:-28.9%
1995-2002:+34.2%1973-1978:
-21.8% 2011-2017:+23.7%
1985: Plaza Accord
1987: Louvre Accord
1988-1995:-7.1%
Glo
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Trade-weighted dollar
Index (LHS); basis points (RHS)
15
US rate hikes priced over 12 months
'06 '08 '10 '12 '14 '16-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
0.60
0.70
0.80
0.90
1.002-year spread
USD/EUR
16
GTM – UK |
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
'12 '13 '14 '15 '16 '17
-6
-4
-2
0
2
4
6
8
'10 '11 '12 '13 '14 '15 '16 '17
Eurozone: GDP and inflation
Contribution to eurozone real GDP growth Eurozone CPI inflation% change year on year % contribution to headline inflation, change year on year
Source: (Left) Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) Eurostat, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food, alcohol, tobacco and energy. Guide to the Markets - UK. Data as of 30 June 2017.
Glo
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16
ECB inflation target
Change in inventories
Exports
Imports
Investment
Consumption
GDP
Government
Food, alcohol, tobaccoCore rate*
EnergyCPI
17
GTM – UK |
7
8
9
10
11
12
13
-500
0
500
1,000
1,500
2,000
'00 '02 '04 '06 '08 '10 '12 '14 '16
Eurozone growth monitor
Change in unemployment and unemployment rateThousands of people per three months (LHS); % rate (RHS)
Retail sales and industrial productionIndex level
Composite PMI and GDPIndex level (LHS); % change year on year (RHS)
Source: (Left and top right) Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Bloomberg, Eurostat, Markit, J.P. Morgan Asset Management. Light grey columns in all charts indicate recession. Guide to the Markets - UK. Data as of 30 June 2017.
Glo
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Change inunemployment
GDPPMI
Recession
17
Unemployment rate
90
95
100
105
110
115
120
859095
100105110115120
'00 '02 '04 '06 '08 '10 '12 '14 '16
-6
-4
-2
0
2
4
6
35
40
45
50
55
60
65
'00 '02 '04 '06 '08 '10 '12 '14 '16
Industrial production (LHS)Retail sales (RHS)
18
GTM – UK |
-8
-6
-4
-2
0
2
4
6
-200
-150
-100
-50
0
50
100
150
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
'10 '11 '12 '13 '14 '15 '16 '17-30
-20
-10
0
10
20
30
Eurozone credit conditions
Credit demand and eurozone GDP growthNet % of banks reporting positive loan demand (LHS); % GDP growth (RHS)
Bank loans to households and non-financial corporationsEUR billions, net lending flow, three-month moving average
Corporate lending rates to smaller companies% interest, non-financial corporations*
Source: (Left) ECB, Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top and bottom right) ECB, FactSet, J.P. Morgan Asset Management.*Interest on new business lending up to €1 million, on a 1-5 year maturity. Guide to the Markets - UK. Data as of 30 June 2017.
Stronger loan demand
Consumer credit (LHS)Eurozone GDP growth y/y (RHS)
Housing loans (LHS)
Overall corporate (LHS)
Weaker loan demand
Glo
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ItalyGermanySpainFrance
18
19
GTM – UK |
0.0
1.0
2.0
3.0
4.0
5.0
6.0
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
European Central Bank (ECB) policies
ECB balance sheet: Assets* Trade-weighted euro and EUR/USDEUR trillions Index level (LHS); price of euro in dollars (RHS)
Source: (Left) ECB, FactSet, J.P. Morgan Asset Management. *Balance sheet forecast does not include Targeted Longer Term Refinancing Operations (TLTRO).Expansion in balance sheet still to come assumes EUR 60bn per month expansion between June 2017 and December 2017 and reduction of monthly purchase by EUR 10bn each month starting January 2018. **Inflation is Q4 to Q4 for each year. (Right) FactSet, J.P. Morgan Asset Management. Guide to the Markets - UK.Data as of 30 June 2017.
Glo
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Trade-weighted euro
EUR/USD
19
ECB June 2017 forecasts
2017 2018 2019
CPI inflation** 1.5 1.3 1.6
Forecast
20
GTM – UK |
-50
0
50
100
150
200
250
300
Eurozone debt
Eurozone: Total debt outstanding Gross & net issuance vs. ECB purchases by countryEUR billions EUR billions
Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Right) ECB, J.P. Morgan Asset Management. *Public Sector Purchase Programme.Guide to the Markets - UK. Data as of 30 June 2017.
20
Estimated net issuanceEstimated gross issuance
Current annual PSPP* purchases
Glo
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0
500
1,000
1,500
2,000
2,500
21
GTM – UK |
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
40
50
60
70
80
90
Italy France Spain Belgium N'lands Germany
European politics
Europe 2017 political timeline
Survey results: Do you support the euro?% answering “yes” as of November 2016
Italian election polling%, latest data
Source: (Top) J.P. Morgan Asset Management. (Bottom left) European Commission, J.P. Morgan Asset Management. (Bottom right) Scenaripolitici.com, J.P. Morgan Asset Management. M5S is 5 Star Movement, PD is Democratic Party, FI is Forza Italia, LN is Lega Nord, Fdl is Brothers of Italy.Guide to the Markets - UK. Data as of 30 June 2017.
Glo
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15 MarchNetherlandsGeneral election
23 April FranceFirst round of the presidential election
24 September GermanyFederal election
25 January ItalyCourt decision on “Italicum” electoral reform
11-18 June FranceLegislative election
22-29 January France Socialist presidential primaries
7 May FranceSecond round of the presidential election
September SpainPossible Catalonia independence referendum
29 March UKArticle 50 invoked
21
8 June UKGeneral election
0
5
10
15
20
25
30
M5S PD FI LN FdI
22
GTM – UK |US: GDP and inflation
Real GDP Inflation% change quarter on quarter, SAAR % change year on year
Source: (Left) BEA, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) BLS, Thomson Reuters Datastream, J.P. Morgan Asset Management.SAAR is seasonally adjusted annual rate. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - UK. Data as of 30 June 2017.
Average since 1999 1Q17
Real GDP 1,8% 1,4%
Average
Average since 1999
May2017
Headline CPI* 2,2% 1,9%
Core CPI 2,0% 1,7%
Glo
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22
Components of nominal GDP 1Q17
Consumption 68,9%Government 17,5%Investment ex-housing 12,6%Housing 4,0%Net exports -2,9%
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
'01 '04 '07 '10 '13 '16-2
-1
0
1
2
3
4
5
6
7
'00 '02 '04 '06 '08 '10 '12 '14 '16
23
GTM – UK |
0
1
2
3
4
5
6
7
'99 '03 '07 '11 '15 '19
US Federal Reserve outlook
Federal funds rate expectations
Source: Bloomberg, Federal Reserve Bank of New York, US Federal Reserve, J.P. Morgan Asset Management. *Forecasts of Federal Open Market Committee (FOMC) participants, midpoints of central tendency except for federal funds rate, which is a median estimate. Long-run market expectation is the 10-year forward fed funds swap rate. Guide to the Markets - UK. Data as of 30 June 2017.
Glo
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Federal funds rate
Market expectations on 30 June 2017
US Fed FOMC forecasts medianUS Fed FOMC forecasts range
FOMC long-run projection: 3.0%
23
% fed funds rate, FOMC and market expectationsFOMC June 2017 forecasts*
2017 2018 2019 Long run
Change in real GDP, Q4 to Q4 2.2 2.1 1.9 1.8
Unemployment rate, Q4 4.3 4.2 4.2 4.6
PCE inflation, Q4 to Q4 1.6 2.0 2.0 2.0
Long-run marketexpectation: 2.6%
Long-run
24
GTM – UK |
1.01.52.02.53.03.54.04.5
0
5
10
15
20
25
'87 '90 '93 '96 '99 '02 '05 '08 '11 '14 '17
Unemployment rate and wage growth
US labour market
Companies due to raise wages vs. Employment cost index
%, wage growth year on year, seasonally adjusted, wages of production and non-supervisory workers
Source: (Top) BEA, FactSet, J.P. Morgan Asset Management. (Bottom left) BLS, National Federation of Independent Business, Thomson Reuters Datastream, J.P. Morgan Asset Management. Employment cost index and NFIB companies planning to raise wages are 12-month moving averages. (Bottom right) BEA, FactSet, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
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Unemployment
Wage growth50-yr average: 4.2%
50-yr average: 6.2%May 2017:
4.3%
May 2017: 2.4%
% of total (LHS); % change year on year (RHS) % of GDPEmployee compensation and profitability
Corporate profitsEmployee compensation
24
NFIB companies planning to raise wages
Employment cost index
25
GTM – UK |
020406080100120140160
200
300
400
500
600
700
'84 '94 '04 '140
1,000
2,000
3,000
50
70
90
110
130
'84 '94 '04 '14
US growth monitor
Corporate profits, business investment and employment growth% change year on year
Source: (All charts) Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns in all charts indicate recessions determined by NBER. Guide to the Markets - UK. Data as of 30 June 2017.
Initial jobless claims vs. consumer confidenceJobless claims in thousands (LHS); index level (RHS)
Consumer confidenceJobless claims
Glo
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Housing starts and Conference Board Leading Economic Index Index level (LHS); thousands (RHS)
Leading indicator
Housing starts
Recession
25
Business investment
Profits
Employment-8
-3
2
7
12
-40
-20
0
20
40
60
'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
26
GTM – UK |
0.0
0.4
0.8
1.2
1.6
'77-'86 '87-'96 '97-'06 '07-'16 '17-'26
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
'57-'66 '67-'76 '77-'86 '87-'96 '97-'06 '07-'160
2
4
6
'55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Drivers of US GDP growth
Long-term drivers of US economic growth
Average year on year % changeGrowth in US working age population% increase in civilian non-institutional population ages 16-64
Growth in investment in structures and equipmentNon-residential fixed assets, year on year % change
Source: (Top left) Census Bureau, DOD, DOJ, J.P. Morgan Asset Management. *Forecast by J.P. Morgan Asset Management. (Bottom left) BEA, BLS, J.P. Morgan Asset Management. (Right) BEA, BLS, J.P. Morgan Asset Management. GDP drivers are calculated as the average annualised growth between Q4 of the first and last year. Future working age population is calculated as the total estimated number of Americans from the Census Bureau, controlled for military enrollment, growth in institutionalised population and demographic trends. Guide to the Markets - UK. Data as of 30 June 2017.
Growth in workers + Growth in real output per worker
Growth in real GDP
Forecast*
2016: 1.6%
1.4%
2.0%2.1%
1.5%
1.3%
0.4%
2.8% 1.1% 1.2% 1.6% 1.9% 0.9%
4.2%
3.0%
3.3%
3.1%3.2%
1.3%
1.3%
1.0%
1.4%
0.6%
0.3%
Glo
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26
Immigrant US born
27
GTM – UK |
-10
0
10
20
-30-20-10
01020304050
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
US business environment
Philly Fed Capex intentions vs. bank creditIndex level (LHS); % change year on year (RHS)
Foreign content of domestic sales%
Source: (Top left) Thomson Reuters Datastream, J.P. Morgan Asset Management. *Philly Fed Capex intentions is 3-month moving average, 12 months advanced. (Bottom left) US Department of Commerce, J.P. Morgan Asset Management. (Right) Germany Federal Ministry of Finance, OECD, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Glo
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27
0
20
40
60
80
100
Clothing Tech Autos Energy Staples
National tax rate on corporate income%, including local government taxes
2006
2016
40%
33%31%
30%
27%
20%
40%41%
37%39%
36%
30%
10
15
20
25
30
35
40
45
US Japan Italy Germany Canada UK
Headline rate
Philly Fed Capex intentions* Bank credit
28
GTM – UK |
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
-8
-4
0
4
8
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
Japan: Abenomics and the economy
Bank lending and job-to-applicant ratio% lending growth year on year (LHS); ratio of number of jobs to applicants (RHS)
Wage growth% change year on year, three-month moving average
Japanese yen effective exchange rate
Source: (Top left) FactSet, Japan Ministry of Health, Japan Ministry of Internal Affairs & Communications, Labour and Welfare, J.P. Morgan Asset Management.*CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. (Bottom left) FactSet, J.P. Morgan Asset Management. NIRP stands for negative interest rate policy. (Right) Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Nominal wage growthCore CPI*
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Job-to-applicant ratio
Bank lending (y/y)
Abe elected
NIRP
28
Yield curve targeting
Index level US election
29
GTM – UK |China economic indicators
China industrial production and retail sales% change year on year
Fixed asset investment (FAI)% change year on year
Central government fiscal deficit % of GDP
Source: (Left) National Bureau of Statistics of China, Thomson Reuters Datastream, J.P. Morgan Asset Management. Industrial production is a three-month moving average and retail sales is a six-month moving average (Top right) FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. (Bottom right) BofA/Merrill Lynch, CEIC, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Glo
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29
Industrial productionRetail sales
OverallPublic
Private
0
5
10
15
20
25
'96 '00 '04 '08 '12 '16-5
-4
-3
-2
-1
0
1
2
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
30
GTM – UK |
0
5
10
15
20
25
'12 '13 '14 '15 '16 '17
China monetary conditions and housing
Chinese house prices vs. Shanghai Interbank Offered Rate% (LHS); % change year on year (RHS)
Chinese property inventoriesMonths of inventory
Policy rate and reserve ratio requirement (RRR)**% policy rate on one-year renminbi deposits (LHS); % RRR (RHS)
Source: (Left) BIS, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) CREIS, J.P. Morgan Securities Research, J.P. Morgan Asset Management. *Tier system used in China to rank cities based on GDP, politics and population. (Bottom right) FactSet, People’s Bank of China (PBoC), J.P. Morgan Asset Management. **Average RRR for large and small banks. Guide to the Markets - UK. Data as of 30 June 2017.
China house price growth
SHIBOR
Low 2nd tier averageTop 2nd tier average
1st tier* average
30
Glo
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PBoC policy rate
RRR
-12
-8
-4
0
4
8
12
0
1
2
3
4
5
6
7
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
31
GTM – UK |
-130
-80
-30
20
70
120
'13 '14 '15 '16 '17
China financial dynamics
Public, household and non-financial corporate debt% of GDP, Q216
Chinese renminbiRebased index level (LHS); price of a dollar in RMB (RHS)
China FX reservesChange in monthly FX reserves, USD billions
Source: (Left) BIS, J.P. Morgan Asset Management. Household and NFC debt is market value. Government debt is gross and nominal value. (Top right) BIS, FactSet, J.P. Morgan Asset Management. (Bottom right) People’s Bank of China, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
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31
USD/RMB
Trade-weighted RMB
0
50
100
150
200
250
300
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
Non-financial corporation debtPublic debt
Household debt
32
GTM – UK |
0
2
4
6
8
10
12
14
16
18
20
China economic and financial linkages
Foreign bank lending to China by sector% of world total by sector
China’s share of world GDP and trade% of world total
China’s share of merchandise imports% of total imports of selected economies
Source: (Top left) OECD, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) OECD, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Chinese Taipei, Hong Kong, Malaysia, the Philippines, Singapore, Thailand and Vietnam. **BRIIS is Brazil, India, Indonesia, Russia and South Africa.(Right) OECD, BIS, Bloomberg, J.P. Morgan Asset Management. ***Chinese bonds are onshore Chinese bonds only. All lending is lending by BIS reporting foreign banks and excludes lending in domestic markets. All sectors is lending to all sectors in China as a proportion of lending to all sectors in all countries. Chinese non-financial corps is lending to Chinese non-financial corps as a proportion of lending to all countries non-financial corps. Chinese banks is foreign bank lending to Chinese banks as a proportion of lending to all countries banks. Guide to the Markets - UK. Data as of 30 June 2017.
0
5
10
15
20
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Real GDP
Real goods and services trade
Forecast
2005 Latest
32
2014 2015 2016Foreign
ownership of Chinese bonds***
1.9% 1.6% 1.3%
Glo
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All sectors Chinese non-financial corps
Chinese banks Holdings of US Treasuries
0
5
10
15
20
33
GTM – UK |
20
25
30
35
5
10
15
20
25
30
35
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16-30
-20
-10
0
10
20
30
'92 '96 '00 '04 '08 '12 '16
Emerging market adjustments
EM currencies vs. US dollar% from fair value, relative to US dollar
“Fragile Five” current account balance% of GDP
EM foreign exchange reserves vs. external debt% of GDP
Source: (Left) J.P. Morgan Asset Management. Based on nominal exchange rates relative to PPP exchange rates and adjusted for GDP per capita. EM currencies used are a weighted average of JPM GBI-EM Global Diversified Index countries. (Top right) Haver Analytics, J.P. Morgan Asset Management. “Fragile Five” are Brazil, India, Indonesia, South Africa and Turkey. (Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Guide to the Markets - UK.Data as of 30 June 2017.
External debt
EM reserves
+1 std. dev.
-1 std. dev.
Average
Glo
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33
EM currencies cheap relative
to USD
EM currencies expensive
relative to USD
-6
-4
-2
0
2
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
34
GTM – UK |
2
8
14
20
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Globalisation and trade
Source: (Left) IMF Direction of Trade, IMF World Economic Outlook October 2016, J.P. Morgan Asset Management. (Top right) Centre for Economic and Policy Research, J.P. Morgan Asset Management. Discriminatory trade measures are measures taken by governments worldwide that harmed foreign traders, investors, workers or owners of intellectual property. (Bottom right) TPG, World Bank, J.P. Morgan Asset Management. Guide to the Markets - UK.Data as of 30 June 2017.
Glo
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34
Number of global discriminatory trade measures% of GDP, 2016Exports of goods
China
EM ex-China
US
Eurozone
Other
200
300
400
500
600
700
800
'09 '10 '11 '12 '13 '14 '15
%Mean weighted average global tariff
0 10 20 30 40 50
US
Eurozone
Canada
Brazil
India
China
Russia
Mexico
Japan
Korea
35
World stock market returns
Source: FactSet, MSCI, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. Annualised return covers the period 2007 to 2016. HDY Equity: MSCI AC World High Dividend Yield Index; Small Cap: MSCI The World Small Cap Index. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 20% FTSE 100; 20% S&P 500; 15% EM; 10% Euro ex-UK; 10% Asia ex-Japan; 10% TOPIX; 10% HDY Equity and 5% small cap. All indices are total return. Guide to the Markets - UK. Data as of 30 June 2017.
GTM – UK |
GBP
Local
Equi
ties
20102007 201620122008 2011 Q2172009 2013 2014 2015 10-yr ann.
35
YTD 38.2%
Asia ex-Jp 38.0%
1.3% TOPIX
-40.6%
59.4% MSCI EM
62.8%
30.5% Sm all Cap
24.4%
2.9% S&P 500
2.1%
17.3% Asia ex-Jp
19.7%
30.5% Sm all Cap
35.8%
20.8% S&P 500 13.7%
18.2% TOPIX 12.1%
35.1% Sm all Cap
14.5%
16.9% Asia ex-Jp
19.9%
4.8% Euro ex-UK
2.7%
12.0% S&P 500
7.3%
37.5% MSCI EM
33.6%
-12.8% S&P 500 -37.0%
53.6% Asia ex-Jp
67.2%
23.7% Asia ex-Jp
15.6%
0.9% HDY Equity
1.5%
17.2% Euro ex-UK
20.0%
29.9% S&P 500 32.4%
11.7% Asia ex-Jp
7.7%
7.3% S&P 500
1.4%
33.5% S&P 500 12.0%
12.8% MSCI EM
15.0%
4.3% Asia ex-Jp
8.8%
11.0% Sm all Cap
7.6%
15.5% Euro ex-UK
6.6%
-18.3% HDY Equity
-34.4%
28.9% Sm all Cap
40.8%
22.9% MSCI EM
14.4%
-2.2% FTSE 100
-2.2%
13.4% MSCI EM
17.4%
26.3% Euro ex-UK
24.2%
8.7% Sm all Cap
6.7%
5.9% Sm all Cap
2.8%
33.1% MSCI EM
10.1%
12.6% Euro ex-UK
10.0%
2.4% MSCI EM
6.7%
8.9% Asia ex-Jp
3.6%
13.3% Portfolio
11.2%
-19.1% Sm all Cap
-40.4%
27.3% FTSE 100
27.3%
19.5% TOPIX 1.0%
-7.0% Portfolio
-6.5%
13.0% Sm all Cap
18.4%
24.7% TOPIX 54.4%
8.4% HDY Equity
8.7%
5.9% Euro ex-UK
9.1%
32.4% HDY Equity
13.1%
7.9% Portfolio
9.8%
1.9% TOPIX 6.8%
8.6% HDY Equity
5.4%
7.9% HDY Equity
4.7%
-21.9% Portfolio -38.5%
27.3% Portfolio
35.6%
18.7% S&P 500 15.1%
-8.0% Sm all Cap
-8.7%
11.6% Portfolio
16.2%
18.7% FTSE 100
18.7%
7.6% Portfolio
7.5%
2.2% Portfolio
1.0%
27.4% Portfolio
10.8%
6.0% TOPIX 7.4%
1.5% Portfolio
4.0%
8.5% Portfolio
5.1%
7.4% FTSE 100
7.4%
-23.9% Euro ex-UK
-42.7%
23.2% HDY Equity
30.2%
17.3% Portfolio
11.9%
-11.9% TOPIX
-17.0%
10.9% S&P 500 16.0%
17.6% Portfolio
23.1%
4.3% MSCI EM
5.6%
0.9% HDY Equity
0.2%
26.2% Asia ex-Jp
6.4%
4.8% HDY Equity
6.9%
1.0% FTSE 100
1.0%
7.0% MSCI EM
3.1%
3.7% S&P 500
5.5%
-28.3% FTSE 100 -28.3%
19.3% Euro ex-UK
29.0%
12.6% FTSE 100
12.6%
-13.9% Euro ex-UK
-12.1%
10.3% HDY Equity
14.0%
16.8% HDY Equity
20.5%
2.7% TOPIX 10.3%
-1.3% FTSE 100
-1.3%
23.4% TOPIX 0.3%
4.7% FTSE 100
4.7%
0.5% Sm all Cap
3.1%
6.0% Euro ex-UK
3.1%
-0.6% Sm all Cap
-3.8%
-33.9% Asia ex-Jp
-47.7%
12.6% S&P 500 26.5%
12.1% HDY Equity
8.0%
-16.5% Asia ex-Jp
-14.6%
10.0% FTSE 100
10.0%
1.4% Asia ex-Jp
6.2%
0.7% FTSE 100
0.7%
-3.6% Asia ex-Jp
-5.3%
19.7% Euro ex-UK
3.2%
4.6% Sm all Cap
7.5%
-0.2% HDY Equity
1.8%
5.9% TOPIX 2.9%
-6.8% TOPIX
-11.1%
-35.2% MSCI EM -45.7%
-6.7% TOPIX 7.6%
5.7% Euro ex-UK
5.1%
-17.6% MSCI EM -12.5%
2.8% TOPIX 20.9%
-4.1% MSCI EM
3.8%
0.0% Euro ex-UK
7.4%
-9.7% MSCI EM
-5.4%
19.1% FTSE 100
19.1%
4.0% S&P 500
9.3%
-0.8% S&P 500
3.1%
5.2% FTSE 100
5.0%
36
European sector returns and valuations
Source: FactSet, MSCI, Thomson Reuters Datastream, J.P Morgan Asset Management. All calculations are total return in local currency, not annualised. Technology and Telecomms have 10-year rather than 15-year numbers on forward and trailing P/E due to data availability. *Financials no longer includes real estate, which is now a separate section making up 2.6% of the MSCI Europe Value index and 0.5% of the MSCI Europe growth index. It is not included in the chart due to a lack of historical data for the sector. **“Since market peak” represents period 9 October 2007 to end of latest quarter. ***“Since market low” represents period 9 March 2009 to end of latest quarter. Guide to the Markets - UK. Data as of 30 June 2017.
GTM – UK |
MSCI Europe IndexFinancials* Health
careCons.
staplesCons. disc. Industrials Materials Energy Telecom Utilities Tech Europe
Europe weight
Q217
YTD
Since market peak**
Since market low***
Forward P/E ratio
15-year average
Trailing P/E ratio
15-year average
Dividend yield
15-year average
Growth weight
Value weight
Beta to Europe
Equi
ties
36
21.4% 12.9% 14.0% 10.5% 13.5% 7.6% 6.6% 3.9% 3.6% 4.5% 100%
5.3% 15.3% 25.5% 14.7% 19.2% 9.1% 0.4% 1.7% 0.6% 7.9% 100%
35.9% 11.3% 3.2% 6.5% 7.9% 5.8% 12.8% 6.2% 6.7% 1.3% 100%
5.0 2.9 3.4 0.1 3.8 -1.7 -4.4 -0.5 2.6 2.0 2.1
11.0 10.9 11.7 5.9 13.2 4.6 -8.3 3.2 9.4 13.7 8.4
-19.9 122.7 141.5 87.7 56.7 15.6 28.2 46.6 2.7 34.9 38.0
240.8 219.6 253.2 315.2 267.4 174.1 76.0 120.2 80.8 241.2 195.9
1.35x 0.65x 0.64x 0.96x 1.12x 1.28x 1.01x 0.81x 0.85x 0.98x 1.00x β
11.9x 16.2x 19.6x 12.4x 16.9x 14.5x 13.7x 15.7x 13.9x 19.9x 14.8x
10.5x 14.9x 15.3x 13.0x 13.6x 12.6x 11.6x 13.4x 12.4x 18.5x 12.5x
13.7x 16.8x 20.4x 13.8x 18.2x 17.5x 20.5x 17.6x 14.2x 21.8x 16.5x
12.2x 15.9x 16.5x 15.2x 15.4x 14.4x 12.2x 14.8x 12.9x 13.8x 13.9x
4.1% 2.9% 2.7% 2.8% 2.5% 2.5% 6.3% 4.8% 4.7% 1.4% 3.3%
4.0% 2.8% 2.8% 2.8% 2.8% 2.8% 4.4% 4.7% 5.0% 1.9% 3.4%
Wei
ghts
Ret
urn
P/E
Div
37
GTM – UK |
0.0x
0.4x
0.8x
1.2x
1.6x
2.0x
2.4x
2.8x
3.2x
3.6x
4.0x
4.4x
4.8x
5.2x
0x
5x
10x
15x
20x
25x
30x
35x
40x
Price-to-book
Pric
e-to
-ear
ning
s40
60
80
100
120
140
160
180
200
220
'09 '10 '11 '12 '13 '14 '15 '16 '17
Relative equity valuations
Global earnings Global valuations EPS, US dollar, rebased to 100 in January 2009 Current and 25-year historical valuations
Source: (Left) FTSE, MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) FactSet, MSCI, Standard & Poor’s,J.P. Morgan Asset Management. Valuations refer to NTMA P/E for Europe ex-UK, U.S., Japan and UK and P/B for emerging markets. Valuation and earnings charts
use MSCI indices for all regions/countries, except for the US, which is the S&P 500. Guide to the Markets - UK. Data as of 30 June 2017.
Equi
ties
Japan
Europe ex-UK
US
EM
UK
37
Axis
US UK EuropeEx-UK
Japan EM
75x
38
GTM – UK |
-60
-40
-20
0
20
Jan'16 Apr'16 Jul'16 Oct'16 Jan'17 Apr'17 Jul'17
6
7
8
9
10
11
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Relative performance of European equities
Europe vs. US: Relative performance and earningsRebased to 100 in December 2002
Europe vs. US operating profits margins%, earnings per share / sales per share
European equities flowsEUR billions, cumulative
Source: (Left) MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) GFICC quant research group, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Equi
ties
MSCI Europe ex-UK/S&P 500 performance
MSCI Europe ex-UK/S&P 500 earnings
US index and earnings outperforming Europe
Europe index and earnings outperforming US
38
MSCI Europe ex-UK
S&P 500
70
80
90
100
110
120
130
140
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
39
GTM – UK |
84
88
92
96
100
104
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
MSCI Europe ex-UK performance and drivers
MSCI Europe ex-UK earnings and performanceIndex level, next 12 months’ earnings estimates (LHS); index level (RHS)
Source: (Left) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) MSCI, IBES, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Securities Research, J.P. Morgan Asset Management. EPS is earnings per share. Guide to the Markets - UK.Data as of 30 June 2017.
MSCI Europe ex-UK index level
MSCI Europe ex-UK EPS
Equi
ties
39
Eurozone yearly earnings trendEPS, rebased to 100 in January
2013 2014 2015
2016 2017
Europe earnings by sectorEPS, % change year on year
-10
0
10
20
30
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
80
90
100
110
120
130
140
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17
40
GTM – UK |
5
15
25
35
45
55
'80 '84 '88 '92 '96 '00 '04 '08 '12 '16
81012141618202224
'01 '03 '05 '07 '09 '11 '13 '15 '17
-1
0
1
2
3
4
5
6
7
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17
MSCI Europe ex-UK equity valuations
Dividend yield and 10-year bond yield% yield
MSCI Europe ex-UK forward P/E ratiox, multiple
MSCI Europe ex-UK cyclically adjusted P/E ratiox, adjusted using trailing 10-year average inflation-adjusted earnings
Source: (Top left) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. (Bottom left) FactSet, MSCI, J.P. Morgan Asset Management. (Right) MSCI, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. Guide to the Markets - UK.Data as of 30 June 2017.
30 June 2017:15.5x
Average: 13.3x
Average: 19.4x30 June 2017:
18.7x
Equi
ties
Dividend yield
10-year German Bund yield
30 June 2017:3.1%
30 June 2017:0.5%
40
41
GTM – UK |
1,500
2,000
2,500
3,000
3,500
4,000
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
30 June 2017:P/E = 14.5x
4,002
UK FTSE All-Share at inflection points
FTSE All-Share index
Source: FTSE, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Return calculations shown in green are based on the total return index. Guide to the Markets - UK. Data as of 30 June 2017.
4 Sep 2000: P/E = 19.4x
3,266
12 Mar 2003:P/E = 16.2x
1,593
15 Jun 2007:P/E = 13.0x
3,479
9 Mar 2009:P/E = 8.3x
1,792
31 Dec 1996: P/E = 14.5x
2,014
+151%-48% -45%
Total return:+79%
Equi
ties
+200%
Characteristic Sep 2000 Jun 2007 June 2017Index level 3,266 3,479 4,002P/E ratio (fwd) 19.4x 13.0x 14.5xDividend yield 2.0% 2.7% 3.6%UK 10-year 5.3% 5.5% 1.3%
41
42
GTM – UK |
0 1 2 3 4 5
5
10
15
20
UK equities
FTSE All-Share earnings and performanceIndex level, next 12 months’ earnings estimates (LHS); index level (RHS)
Dividend yield and ex-energy dividend yield% yield
Source: (Left) FTSE, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. (Top right) FactSet, FTSE, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. UK is MSCI UK, Japan is Topix, eurozone is Euro Stoxx 50, US is S&P 500. Guide to the Markets - UK. Data as of 30 June 2017.
FTSE All-Share index levelFTSE All-Share EPS
Equi
ties
Dividend yieldDividend yield ex-energy
Commodities weights% of index
42
FTSE All-Share MSCI Europe ex-UK S&P 500 MSCI Japan
UK
Eurozone
MSCI EM
Japan
US
MSCI World
1,500
2,000
2,500
3,000
3,500
4,000
4,500
180
200
220
240
260
280
300
320
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
43
GTM – UK |
75
80
85
90
95
100
105
85
90
95
100
105
'16 '170
10
20
30
40
50
60
70
'12 '13 '14 '15 '16
UK equities post-referendum
Trade-weighted GBP and FTSE 250 / FTSE 100Index level
FTSE 100 vs. FTSE 250 valuationsRelative price-to-book value
Source: (Left) FactSet, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) FTSE, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Asset Management. *Exposure to small & mid cap companies is the exposure of all UK funds excluding small & mid cap only funds. Guide to the Markets - UK.Data as of 30 June 2017.
Equi
ties
Average
FTSE 250 expensive vs.FTSE 100
FTSE 100 expensive vs.
FTSE 250
43
UK small & mid cap exposure*%
% of revenues from overseas
FTSE 100 67.3%FTSE 250 44.3%
Average fund manager exposure*
Weight of small & mid cap in UK market
FTSE 250 / FTSE 100
GBP trade weighted
25th - 75th percentile range
44
GTM – UK |
5
15
25
35
'83 '87 '91 '95 '99 '03 '07 '11 '15 0
1
2
3
4
5
6
7
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16
6
11
16
21
26
'00 '02 '04 '06 '08 '10 '12 '14 '16
Source: (Top left) FTSE, Thomson Reuters Datastream, J.P. Morgan Asset Management. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. (Bottom left) FTSE, Goldman Sachs, J.P. Morgan Asset Management. (Right) FTSE ,Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - UK.Data as of 30 June 2017.
UK FTSE All-Share equity valuations
Forward P/E ratio
FTSE All-Share Shiller CAPE
30 June 2017:14.5x
Average: 14.1x
Dividend yield and 10-year Gilt yield
Average: 16.9x
30 June 2017:14.6x
Equi
ties
x, adjusted using trailing 10-year average inflation-adjusted earnings
Dividend yield
10-year Gilt yield
30 June 2017:3.6%
30 June 2017:1.3%
x, multiple % yield
44
45
GTM – UK |
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
US S&P 500 at inflection points
S&P 500 Index
Source: FactSet, Standard & Poor’s, Tullett Prebon, J.P. Morgan Asset Management. The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Return calculations shown in green are based on the total return index. Guide to the Markets - UK. Data as of 30 June 2017.
24 Mar 2000:P/E = 22.6x
1,527
9 Oct 2002:P/E = 15.4x
777
9 Oct 2007:P/E = 14.8x
1,565
9 Mar 2009:P/E = 10.8x
677
31 Dec 1996:P/E = 15.7x
741
-47%
-55%
+121%Total return:+116%Eq
uiti
es
+327%
Characteristic Mar 2000 Oct 2007 June 2017Index level 1,527 1,565 2,423P/E ratio (fwd) 22.6x 14.8x 17.5xDividend yield 1.1% 1.7% 2.1%US 10-year 6.2% 4.6% 2.3%
30 June 2017:P/E = 17.5x
2,423
45
46
GTM – UK |
-45
-30
-15
0
15
30
45
30
35
4045
50
5560
65
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
60
70
80
90
100
110
120
130
140
150
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
600900120015001800210024002700
200
300
400
500
600
700
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16
S&P 500 index level
US equities
S&P 500 earnings and performanceIndex level, next 12 months’ earnings estimates (LHS); index level (RHS)
Initial jobless claims vs. S&P 500 performanceThousands, four-week moving average (LHS); index level (RHS)
S&P 500 earnings per share (EPS) vs. ISM manufacturingIndex level (LHS); % change year on year (RHS)
Source: (Left) Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS 2018 estimates are IBES as of 31 Oct 2016 and 30 Jun 2017. (Top right) BLS, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) ISM, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Equi
ties
S&P 500 index levelS&P 500 EPSInitial jobless claims
46
EPS ISM manufacturing
2018 EPS estimatesOct ‘16 $146.3Jun ‘17 $144.4
47
GTM – UK |
101214161820222426
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
0
10
20
30
40
50
'00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10
600
1,000
1,400
1,800
2,200
2,600
85
90
95
100
105
110
115
120
125
130
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
US S&P 500 equity indicators
Leading economic indicator vs. S&P 500 performanceIndex level
Forward P/E ratiox, multiple
S&P 500 Shiller cyclically adjusted P/Ex, adjusted using trailing 10-year average inflation-adjusted earnings
Source: (Left) Conference Board, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by consensus estimates for earnings in the next 12 months. (Bottom right) FactSet, Robert Shiller, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Average: 15.8x
31 Jul 1999: 24.5x
30 June 2017:17.5x
30 June 2017:30.1x
Average:16.8x
Equi
ties
47
S&P 500Leading economic indicator
Average since 1980:21.7x
48
GTM – UK |
1
2
3
4
5
6
60708090
100110120130
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Equity markets and reflation
S&P 500 average P/E ratio in various inflation environments US bond yield vs. value/growth performance*Index level (LHS); % (RHS)
US bond yield vs. banks/staples performance**Relative index level (LHS); % (RHS)
Source: (Left) Robert Shiller, J.P. Morgan Asset Management. (Top right) Russell, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. (Bottom right) , MSCI, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. *Value index is the Russell 1000 value index. The growth index is the Russell 1000 growth index. *MSCI USA index used for both banks and consumer staples indices. Guide to the Markets - UK. Data as of 30 June 2017.
US 10-year yield
Value/growth
US 10-year yieldBanks/staples
8
9
10
11
12
13
14
15
16
17
18
-1 to 0 0 to 1 1 to 3 3 to 5 5 to 7 7 to 10 10 to 15 >15US inflation ranges (% CPI y/y)
S&P
500
trai
ling
P/E
Equi
ties
1872-2016
48
1.2
1.6
2.0
2.4
2.8
70
80
90
100
110
120
'15 '16 '17
49
GTM – UK |
Market correctionsBear markets Macro
environment Bull markets Return before peak
Market Bear DurationRecession
Bull Bull Duration 12 months 24 monthspeak return (months) start date return (months) % %
1 Crash of 1929 – excessive leverage, irrational exuberance Sep 1929 -86% 33 - - -2 1937 Fed Tightening – premature policy tightening Mar 1937 -60 63 Jun 1932 324% 58 27% 119%3 Post WWII crash – post-war demobilisation, recession fears May 1946 -30 37 Apr 1942 158 50 27 574 Flash crash of 1962 – flash crash, Cuban Missile Crisis Dec 1961 -28 7 Jun 1949 436 152 28 235 Tech crash of 1970 – economic overheating, civil unrest Nov 1968 -36 18 Jun 1962 107 78 15 356 Stagflation – OPEC oil embargo Jan 1973 -48 21 May 1970 74 32 16 317 Volcker Tightening – campaign against inflation Nov 1980 -27 21 Oct 1974 126 75 32 488 1987 crash – programme trading, overheating markets Aug 1987 -34 3 Aug 1982 229 61 36 809 Tech bubble – extreme valuations, “dot com” boom/bust Mar 2000 -49 31 Dec 1987 582 150 19 39
10 Global Financial Crisis – leverage/housing, Lehman collapse Oct 2007 -57 17 Oct 2002 101 61 16 31Current cycle – – – Mar 2009 258 100
MEDIAN – - 42% 21 158 68 27 39
US bear markets
Source: FactSet, NBER, Robert Shiller, Standard & Poor’s, J.P. Morgan Asset Management. *A bear market represents a 20% or more decline from the previous market high using a monthly frequency; a bull market represents a 20% increase from a market trough. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. Guide to the Markets - UK. Data as of 30 June 2017.
Equi
ties
S&P 500 declines from all-time highs, %
Recession
Characteristics of past bear and bull markets*
20% market decline
10
49
-100%
-80%
-60%
-40%
-20%
0%
1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
7
9
8
6
54
3
2
1
7
9
8
6
54
3
2
1
10
50
GTM – UK |
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
0 2 4 6 8 10
Interest rates and equities
Correlations between weekly equity returns and interest rate movementsRolling two-year correlation of weekly returns of the S&P 500, MSCI Europe Index and the 2-year Treasury yield, 1983-2017
Source: MSCI, Standard & Poor’s, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Data for each of the rate hikes: '94-'95 is February 1994 to February 1995, '99-'00 is June 1999 to May 2000, '04-'06 is June 2004 to June 2006,'15-'17 is December 2015 to June 2017. Guide to the Markets - UK. Data as of 30 June 2017.
Cor
rela
tion
2-year Treasury yield
S&P 500
MSCI Europe
Positive relationship between yield movements and equity returns
Negative relationship between yield movements and equity returns
Equi
ties
Market reaction when the US Fed raised rates
'94-'95 '99-'00 '04-'06 '15-'17
Change in Fed funds 3.00% 1.75% 4.25% 1.00%
Change in 10-yr yields 1.89% 0.49% 0.51% 0.03%
Initial market reaction -10% -7% -8% -9%
Subsequent market reaction 7% 18% 20% 25%
Total reaction -2% 10% 11% 17%
50
51
GTM – UK |
0
20
40
60
80
100
Japanese equities performance and drivers
Source: (Left) Thomson Reuters Datastream, TOPIX, J.P. Morgan Asset Management. EPS is earnings per share. (Top right) Thomson Reuters Datastream, TOPIX, J.P. Morgan Asset Management. (Bottom right) MSCI, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
TOPIX price levelTOPIX EPS
TOPIX earnings and performanceIndex level, next 12 months’ earnings estimates (LHS); index level (RHS)
Equi
ties
Stock market composition% of total stock market
51
Index level (LHS); price of US dollar in yen (RHS)TOPIX vs. JPY/USD
JPY/USD
TOPIX
Defensive Cyclicals
US Europe Japan
70
80
90
100
110
120
130
400
600
800
1,000
1,200
1,400
1,600
1,800
'07 '09 '11 '13 '15 '17
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
20
30
40
50
60
70
80
90
100
110
120
'08 '10 '12 '14 '16
52
GTM – UK |
0
4
8
12
16
20
'90 '95 '00 '05 '10 '15
Japanese equities: Corporate governance
Listed companies’ dividend pay-out and share buybacksYen trillions
Companies citing ROE & ROA targets in medium-term plans% in 841 companies
Appointment of outside directors at Japanese companiesTotal
Source: (Left) Nomura, J.P. Morgan Asset Management. *Share buyback data is for repurchases of common stock, excluding repurchases from Resolution and Collection Corp. and repurchases of preferred stock collected by Nomura. (Top right) Goldman Sachs, Japan Investor Relations Association, J.P. Morgan Asset Management. ROE is return on equity and ROA is return on assets. (Bottom right) Goldman Sachs, Tokyo Stock Exchange, J.P. Morgan Asset Management. Companies are Tokyo Stock Exchange companies. Guide to the Markets - UK. Data as of 30 June 2017.
Equi
ties
0
20
40
60
80
100
120
2010 2011 2012 2013 2014 2015 2016
DividendsShare buybacks*
ROEROA
52
One independent external directorAt least one external director, not independent
At least two external directors
0
10
20
30
40
50
60
2014 2016
53
GTM – UK |Developed market equity valuations by country
Developed markets
Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (P/E), price to forward book value (P/B), price to forward cash flow (P/CF) and price to forward dividends. Results are then normalised using means and average variability since 2004 (inception of series). The grey bars represent one standard deviation either side of the average relative valuation to the All Country World Index (ACWI) since 2004. DM Index is the MSCI The World Index. Guide to the Markets - UK. Data as of 30 June 2017.
Equi
ties
Expensive relative to
own history
Expensive relative to
world
Cheap relative to own history Cheap
relative to world
How to interpret this chart
Average
Current
Std
dev
from
glo
bal a
vera
ge
Italy Spain UK France Germany Japan ACWI USSwitz.DM Index
+2.5 Std dev
Average
-2.5 Std dev
+5 Std dev
-5 Std dev
53
Current Composite Index
Current Average since 2004
Fwd. P/E Fwd. P/B Fwd. P/CF Fwd. Div. Yld. Fwd. P/E Fwd. P/B Fwd. P/CF Fwd. Div. Yld.
Italy -2.5 12.80 1.10 4.90 4.1% 11.7x 1.2x 4.6x 4.5%Spain -1.7 14.1 1.4 5.6 3.8 11.7 1.6 5.0 4.8UK -0.6 14.5 1.8 9.2 4.3 12.5 1.8 7.9 4.0Germany -0.2 13.8 1.7 8.7 2.9 12.0 1.5 6.6 3.3France 0.1 16.1 1.6 8.9 3.0 12.8 1.5 6.8 3.5Japan 0.1 14.4 1.3 8.1 2.2 15.5 1.3 7.1 1.8ACWI 1.2 16.0 2.1 10.2 2.6 13.7 1.9 8.6 2.8DM 1.6 16.6 2.2 10.6 2.5 14.0 1.9 8.6 2.7Switz. 2.3 18.1 2.5 13.8 3.2 14.3 2.3 11.7 3.0US 3.5 18.0 2.9 12.0 2.1 14.7 2.3 9.7 2.1
54
GTM – UK |Emerging market equity valuations by country
Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (P/E), price to forward book value (P/B), price to forward cash flow (P/CF) and price to forward dividends. Results are then normalised using means and average variability since 2004 (inception of series). The grey bars represent one standard deviation either side of the average relative valuation to the All Country World Index (ACWI) since 2004. Guide to the Markets - UK. Data as of 30 June 2017.
Equi
ties
Emerging markets
Std
dev
from
glo
bal a
vera
ge
Expensive relative to
own history
Cheap relative to
own history
Expensive relative to
world
Cheap relative to
world
How to interpret this chart
Average
Current+2 Std dev
Average
-2 Std dev
+4 Std dev
-4 Std dev
+6 Std dev
-6 Std dev
54
Russia Brazil Korea Taiwan EM China S. Africa ACWI Mexico India
Current Composite Index
Current Average since 2004
Fwd. P/E P/B P/CF Div. Yld. Fwd. P/E P/B P/CF Div. Yld.
Russia -5.5 5.1x 0.6x 3.1x 6.7% 6.9x 0.9x 4.6x 2.8%Brazil -2.3 10.4 1.4 6.5 4.1 9.7 1.7 7.8 4.1Korea -0.8 9.4 1.1 5.4 1.8 9.6 1.2 5.9 1.7Taiwan -0.7 13.9 1.8 9.1 4.0 13.6 1.7 8.3 3.9EM -0.2 12.7 1.6 7.9 2.4 11.5 1.6 7.3 2.8China 0.2 12.9 1.6 8.1 2.2 11.4 1.7 7.5 3.0S. Africa 0.5 14.8 1.9 11.9 3.3 12.0 2.0 8.9 3.7ACWI 1.2 16.0 2.1 10.2 2.6 13.7 1.9 8.6 2.8Mexico 1.4 16.7 2.3 8.4 2.4 14.8 2.6 8.7 2.3India 4.8 17.9 2.7 12.3 1.4 15.4 2.6 11.4 1.8
55
GTM – UK |
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
Emerging markets: Valuations and returns
MSCI Emerging Markets Index: Price-to-book ratio MSCI Emerging Markets Index: Price-to-book and returnsx, multiple Price-to-book ratio and next 5-year annualised % price return*
Source: (All charts) MSC, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Dots represent monthly data points January 1997 through June 2017.Guide to the Markets - UK. Data as of 30 June 2017.
-2.0 std. dev.
+2.0 std. dev.
Average: 1.8x
30 June 2017:1.6x
Equi
ties
Current level
55
-20
0
20
40
60
0.75 1.25 1.75 2.25 2.75 3.25
56
GTM – UK |
90
100
110
120
130
1400
50
100
150
200
250
'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '1510
30
50
70
90
110
130
150
170
-1
0
1
2
3
4
5
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15
Emerging markets: Investment drivers
Source: (Left) Consensus Economics, J.P. Morgan Asset Management. “EM – DM GDP growth” is consensus estimates for emerging markets growth in the next 12 months minus consensus estimates for developed markets growth in the next 12 months, provided by Consensus Economics. (Top right) Bloomberg, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) BIS, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Equi
ties
% next 12 months’ growth estimates (LHS); index level (RHS)EM equity relative performance and commoditiesEM vs. DM growth and equity performance
EM growth & equity outperformance
EM growth & equity underperformance
EM minus DM GDP growth
MSCI EM relative to MSCI DM
MSCI EM relative to MSCI DM
Bloomberg Commodity Index
56
Relative EM / DM equity performance and USD REEREquity performance rebased to 100 at 1993 (LHS); index level (RHS)
USD REER (inverted)
MSCI EM / MSCI DM
0
50
100
150
200
250
300
50
100
150
200
250
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
57
GTM – UK |
334
194
11448
0
200
400
Emergingmarkets
Europe US Japan-40
-20
0
20
40
60
80
Emerging markets: Flows, earnings and income
Total non-resident flows into EM assetsUSD billion
EM earnings expectations by regionConsensus EPS for next 12 months, US dollar, rebased to 100 in 2006
Number of companies yielding greater than 3% by regionConstituents of the MSCI All Country World Index
Source: (Left) IIF, J.P. Morgan Asset Management. IIF estimates for last two months. (Top right) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. (Bottom right) MSCI, FactSet, J.P. Morgan Asset Management. Guide to the Markets - UK.Data as of 30 June 2017.
Equi
ties
2010-2016 average: $18bn
EM Latin America
EM AsiaEM Europe
57
EM debt
EM equities
Aug ‘14 Feb ‘15 Feb ‘16 Aug ‘16Aug ‘15 Feb ‘17
507090
110130150170190210
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
58
GTM – UK |
0.3
1.3
2.4 2.5 2.6
3.64.2
5.15.6
0
2
4
6
Cash Gilts EMequity
UKcorp
Converts FTSE All-Share
GlobalREITs
Highyield
EMdebt
0
100
200
300
'00 '02 '04 '06 '08 '10 '12 '14 '16
4.7% 5.4% 6.0% 5.1% 3.3% 4.2% 4.4% 2.5%1.8%
2.1% 4.0%
13.9%
-5.3%
3.0%
13.6%
4.4%1.6%
12.6% 15.3%
-2.7%
10.5% 5.8%
-10
0
10
20
1926-1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010-2016 1926-2016
% yield
Equity income
S&P 500 total return index: Dividends and capital appreciation
FTSE indices: Price vs. total return*
%, average annualised returns
Index level, rebased to 100 at December 1999Sources of income
Source: (Top) Ibbotson, Standard & Poor’s, J.P. Morgan Asset Management. (Bottom left) FTSE, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Returns are in local currency. High dividend yield is the FTSE 350 Higher Yield Index. (Bottom right) Barclays, BofA/Merrill Lynch, Thomson Reuters Datastream, FTSE, Tullett Prebon, J.P. Morgan Asset Management. Converts: Barclays Global Convertibles; EM equity; MSCI EM; UK corporate: BofA/Merrill Lynch Sterling Corporate Index; Global REITs: FTSE NAREIT Index; High yield: BofA/Merrill Lynch Developed Markets High Yield Constrained; EM debt: J.P. Morgan EMBI Global. Yields for the bond indices are yield to worst and dividend yields for the equity indices. Guide to the Markets - UK. Data as of 30 June 2017.
DividendsCapital appreciation
Average UK inflation: 1.4%(12 months to May 2017)
Equi
ties
High dividend yield total returnTotal returnPrice return
+179%
+94%
+6%
58
59
GTM – UK |
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
'98 '01 '04 '07 '10 '13 '16
0
20
40
60
80
100
120
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
Correlation and dispersion
Developed world cross country equity index correlation
Number of days where the MSCI World has moved +/- 1%
%, rolling six-month average pairwise correlations
DM average global stock-to-stock correlation%, rolling six-month average pairwise correlations
Source: (Top) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Correlation calculated from 10 developed market indices. (Bottom left) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) MSCI, Bernstein Research, J.P. Morgan Asset Management. Correlation is a measure of how similar the price changes of each stock are relative to the other stocks in the index. The lower the correlation, the less similarity between the movements of stocks. Guide to the Markets - UK. Data as of 30 June 2017.
Equi
ties
Average: 54 days
YTD: 2 days
59
June 2017:0.34
Pre-crisis average: 0.58
Post-crisis average: 0.66
0.0
0.1
0.2
0.3
'00 '02 '04 '06 '08 '10 '12 '14 '16
Pre-crisis average: 0.097
Post-crisis average:
0.167
June 2017:0.065
60
GTM – UK |
11.6% Euro HY
8.8%
18.9% Infl Linked
18.9%
7.7% EM Debt
1.8%
40.1% US HY 17.5%
6.7% Euro HY
3.7%
4.8% Euro HY
2.1%
12.5% US HY 7.5%
5.4% US HY 7.4%
14.1% US IG 7.5%
6.7% US Treas.
0.8%
30.8% EM Debt
9.6%
2.5% UK IG 2.5%
0.5% UK IG 0.5%
11.6% EM Debt
6.6%
1.6% UK IG 1.6%
14.1% UK Gilts 14.1%
5.1% US IG -0.7%
27.5% Euro HY 10.1%
1.1% EM Debt
6.3%
-1.2% Portfolio
0.8%
10.4% US IG 5.5%
-0.1% Infl Linked
-0.1%
12.8% EM Debt
6.2%
3.0% Portfolio
0.1%
26.6% US IG 6.1%
0.2% UK Gilts
0.2%
-1.3% US IG 2.5%
9.4% Euro HY
6.9%
-2.2% Portfolio
-1.4%
12.5% Portfolio
9.3%
1.2% UK Gilts
1.2%
24.2% Infl Linked
24.2%
0.1% Portfolio
2.7%
-1.3% UK Gilts -1.3%
9.0% Portfolio
6.6%
-3.4% US IG -1.5%
12.5% UK IG 12.5%
0.9% US HY -4.6%
22.9% Portfolio
10.6%
-0.2% US HY 4.9%
-1.4% EM Debt
2.4%
8.9% US Treas.
4.0%
-4.2% UK Gilts -4.2%
11.6% US Treas.
5.1%
0.7% UK IG 0.7%
20.5% US Treas.
1.0%
-0.4% Infl Linked
-0.4%
-1.7% US HY 2.1%
8.8% Infl Linked
8.8%
-4.6% US Treas.
-2.7%
8.9% US HY 2.5%
-0.9% Infl Linked
-0.9%
12.3% UK IG 12.3%
-1.3% US IG 3.8%
-2.2% Infl Linked
-2.2%
6.4% UK Gilts
6.4%
-10.0% EM Debt
-8.3%
-1.6% Euro HY
5.5%
-4.6% Euro HY
0.5%
10.7% UK Gilts 10.7%
-3.1% US Treas.
1.9%
-2.6% US Treas.
1.2%
6.0% UK IG 6.0%
Global fixed income: Yields and returns
Fixed income sector returns
Source: Barclays, BofA/Merrill Lynch, FactSet, FTSE, J.P. Morgan Economic Research, J.P. Morgan Asset Management. YTM = Yield to maturity. Annualised return covers period 2007 to 2016. US HY: BofA/Merrill Lynch US High Yield Constrained; EM Debt: J.P. Morgan EMBI+; Euro HY: BofA/Merrill Lynch Euro Non-Financial High Yield Constrained; US IG: Barclays US Agg. Corporate – Investment Grade; UK IG: Barclays Sterling Agg. Non-Gilts – Corporate; UK Gilts: J.P. Morgan UK Global Bond; US Treasuries: Barclays US Agg. Gov. – Treasury; Infl Linked: BofA Merrill Lynch UK Gilt Inflation-Linked Government. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 20% UK Gilts; 15% US Treasuries; 10% Linkers; 15% US IG; 10% UK IG; 10% US HY; 5% Euro HY; 15% EM Debt. Returns are unhedged in sterling and local currencies. 10 years worth of weekly data is used to calculate the correlation to UST and Gilts. Guide to the Markets - UK. Data as of 30 June 2017.
|
£
Lcl
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UK IG
US Treasury
US Corporate IG
Euro HY
Infl Linked
UK Gilts
EM Debt
Portfolio
US HY
Characteristics Correlation to:
YTM(%)
Size
(GBP bns)Duration(years)
10-year Gilt
10-year UST
6.1 1,003 3.7 -0.1 -0.1
5.7 269 6.8 0.0 0.1
3.4 215 3.3 -0.1 -0.1
3.2 3,819 7.5 0.3 0.5
2.8 - 9.1 0.3 0.5
2.4 366 8.7 0.3 0.4
1.9 5,578 6.2 0.4 0.7
1.6 1,179 11.7 0.4 0.5
-1.8 641 22.5 0.3 0.4
60
2016201510-yr ann.20142013 YTD Q217
61
GTM – UK |Fixed income interest rate risk
Current and historical yields for selected indices
Illustration of the impact a 1% rise in local interest rates may have on selected indices
% yield, fluctuations over the last 10 years*
% change, assumes a parallel shift in the yield curve and spreads are maintained
Source: (Both charts) Barclays, Bloomberg, FactSet, J.P. Morgan Asset Management.
*Historical yield range is based on the last 10 years of data, with the exception of local currency emerging markets debt, which is based on eight years, due to data availability.
Fixed income sectors shown are provided by Barclays and are represented by: Treasury UK: Barclays Sterling Aggregate Gilts; Floating rate: Barclays US Floating Rate Notes (BBB); IG credit: Barclays Global Aggregate –Corporates; High yield: Barclays Global High Yield; Convertibles: Bloomberg Barclays Credit/Rate Sensitive;EMD sovereign USD: Barclays Emerging Markets –Sovereigns; EMD corporate ($): Barclays Emerging Markets – Corporates; EMD sovereign (LC): Barclays Emerging Market Local Currency Government.For illustrative purposes only.Change in bond price is calculated using both duration and convexity, with the exception of Convertibles, which is historical change.
Guide to the Markets - UK. Data as of 30 June 2017.
How to interpret this chart
AverageCurrent
Max
Min
Price return
Total return
UK Gilts 1-3 years 5-7 years 10+ years
UK Gilts 1-3 years 5-7 years 10+ years
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61
Investment-grade credit
High yield
EMD USD sovereign
EMD USD corporate
EMD LC sovereign
Floatingrate Convertibles
Investment-grade credit
Highyield
EMD USD sovereign
EMD USD corporate
EMD LC sovereign
Floatingrate
Convertibles
0
5
10
15
20
25
-20
-16
-12
-8
-4
0
4
62
GTM – UK |
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
'02 '04 '06 '08 '10 '12 '14 '16
-1
0
1
2
3
-15
-10
-5
0
5
10
Inflation implications for fixed income
10-year break-even inflation%
Breakdown of US Treasury yield increasesChange in yield, %
US Treasury and inflation-linked bond returns% total return
Source: (Left) Bloomberg, J.P. Morgan Asset Management. Break-even inflation is the difference in yield between nominal and inflation-protected government bonds. (Top and bottom right) Bloomberg, J.P. Morgan Asset Management. The 10-year Treasury return is the return of the Merrill Lynch 10-year U.S. Treasury Futures Total Return index, the 10-year TIPS return is the return of the S&P 10-year US TIPS Total Return Index. 2009 reflation is 1 Jan 2009 to 31 Dec 2009; Taper Tantrum is 14 Apr 2013 to 5 Sep 2013; 2016 reflation is 8 July 2016 to 31 Dec 2016. Guide to the Markets - UK. Data as of 30 June 2017.
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10-year US break-even inflation change
10-year US real Treasury yield change
US 10-year TIPS (inflation-linked) return
US 10-year Treasury return
UK
US
Germany
2009 reflation Taper Tantrum 2016 reflation
2009 reflation Taper Tantrum 2016 reflation
63
GTM – UK |Historical impact of Fed tightening
Federal funds rateTarget rate*, shaded areas denote periods of rate hikes
Source: FactSet, Federal Reserve, Standard & Poor’s, J.P. Morgan Asset Management. Averages do not include the current cycle. US investment grade is the Citigroup USBIG Corporate All Maturities index. The emerging market debt is the J.P. Morgan EMBI+ Composite index. Averages do not include the current cycle. *Between 1979 and 1982, the FOMC changed its approach to monetary policy, focusing on the money supply, rather than the federal funds rate. In the fall of 1982, however, the Federal Reserve shifted back to its approach of targeting the “price” rather than the “quantity” of money. Thus, because the federal funds rate was not the FOMC’s key policy tool, we exclude increases in the federal funds rate between 1979 to 1982 in our analysis of rate hike cycles. Guide to the Markets – UK. Data is as of 30 June 2017.
7 hikes14 months
10 hikes11 months
7 hikes12 months
6 hikes11 months
17 hikes24 months
5-cycle average: 9 hikes, 14 months
4 hikes19 months
Market reaction in prior rate hiking cycles
May 1983 –July 1984
March 1988 –February 1989
February 1994 –February 1995
June 1999 –May 2000
June 2004 –June 2006
Average of past five rate hiking cycles
December 2015 –Present
Change in federal fundsrate (BPS) 313 325 300 175 425 308 100
2-year treasury 8.6% 3.8% 1.7% 2.9% 3.0% 4.0% 1.1%
10-year treasury -0.4% 2.1% -6.9% 0.6% 3.6% -0.2% 3.0%
30-year treasury -4.6% 2.8% -10.9% 1.8% 8.2% -0.5% 7.8%
US investment grade -3.0% 5.4% -3.0% 0.2% 6.1% 1.1% 10.3%
Emerging market debt - ‐ -21.4% 16.9% 27.4% 7.6% 16.9%
S&P 500 -1.8% 10.6% 0.7% 9.7% 16.2% 7.1% 20.8%
U.S. dollar 10.4% 1.7% -4.7% 3.4% -5.8% 1.0% -2.4%
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tal R
etur
n
64
GTM – UK |
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
0
6
12
18
Historical yields of government bonds
10-year bond yields%
Source: FactSet, Tullett Prebon, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
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Fed QE32012
Fed QE22010
Fed QE2008
Oil shock1981
Black Friday1987
Asian currency crisis1997
Dot com bubbleFeb 2000
Fall of Berlin Wall1989
ECB QE2015
BoE QE2009
UK
Germany
US
JapanBritain leaves European Exchange
Rate Mechanism1992
Brexit vote2016
64
US election
20169/11 attacks
2001
65
GTM – UK |
-1
0
1
2
3
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
Government bonds
Global government bond net supplyUSD billion
Source: (Left) Copyright 2017 Morgan Stanley. 2017 and 2018 are estimates. (Top right) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Bloomberg, BofA/Merrill Lynch, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
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Yield below 1%
Yield below 0%
Global government bond yields% of BofA/Merrill Lynch Global Government Bond Index
US yield curve%, 10-year yield minus 2-year yield
Recession
65
-1,000
-500
0
500
1,000
1,500
2012 2013 2014 2015 2016 2017e 2018e
US
UK
EurozoneJapan
Net supply
0
20
40
60
80
100
'14 '15 '16 '17
66
GTM – UK |
6
8
10
12
14
16
1.0
1.5
2.0
2.5
'00 '02 '04 '06 '08 '10 '12 '14 '16
Net leverage
Global investment-grade bonds
Investment-grade spreadsBasis points, option-adjusted spread over local government bond yield
US IG leverage measuresx, leverage (LHS); x, interest coverage ratio (RHS)
Source: (Left) BofA Merrill Lynch, Bloomberg, J.P. Morgan Asset Management. (Top right) J.P. Morgan Securities, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. (Bottom right) US Federal Reserve, Barclays, J.P. Morgan Asset Management. Yield is Barclays US Investment Grade Corporate Index yield to maturity. Guide to the Markets - UK. Data as of 30 June 2017.
Interest coverage
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UK IG
US IG energy
US IGEuro IG
66
USD trillions (LHS); % yield (RHS)US IG yield and insurance holdings
0
2
4
6
8
10
1
2
3
4
'01 '03 '05 '07 '09 '11 '13 '15
Insurance
US IG yield0
100
200
300
400
500
600
700
'00 '02 '04 '06 '08 '10 '12 '14 '16
67
GTM – UK |Global investment-grade bond market
Global investment-grade bond marketUSD billions; % of total
Market capitalisation by duration bucket% of total in each currency
Cumulative number of issuers%, of total index issuers
Source: (All charts) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
GBPUSD
EUR
1-3 years 3-7 years 7-10 years +10 years
Fixe
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USD EUR GBP
Number of issuers
USD EUR GBP CAD Other
67
0.0
0.2
0.4
0.6
0.8
1.0
0 100 200 300 400 500
$5979, 67%
$2014, 23%
$477, 5%
$238,3%
236, 3%
0
20
40
60
68
GTM – UK |
0
500
1,000
1,500
2,000
2,500
0
5
10
15
'87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
US high yield bonds
US high yield spreads and defaults
US high yield leverage measures
%, Fed funds rate and defaults (LHS); basis points, spread over 10-year US Treasury (RHS)
x, leverage and interest coverage ratio
Source: (Top) Credit Suisse, J.P. Morgan Economic Research, US Treasury, J.P. Morgan Asset Management. HY index is the J.P. Morgan Domestic High Yield index. Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. Guide to the Markets - UK. Data as of 30 June 2017.
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Federal funds rate (LHS)
Asset class Average since 1986 LatestHY spread – bps (RHS) 557 411
HY defaults (LHS) 3.9%1.3% total index
4.6% energy
Interest coverage ratio
Net leverage
68
3
4
5
'08 '09 '10 '11 '12 '13 '14 '15 '16
69
GTM – UK |
0
30
60
90
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
0
5
10
15
20
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '170
500
1,000
1,500
2,000
2,500
European high yield bonds
European high yield: Spread to worst and default rates
European high yield issuance by credit rating
%, defaults (LHS); basis points, spread (RHS)
EUR billions
Source: (Top) BofA/Merrill Lynch, Credit Suisse, FactSet, J.P. Morgan Asset Management. Spread to worst is BofA/Merrill Lynch Euro Non-Financial High Yield Constrained. . Default rates are reported by JPMAM’s Quant Team. The calculation universe is based on par value percentage of the BofA ML Global High Yield Index (HW00) that is covered by Moody’s and filtered for EUR Developed Markets Ex-Financial. (Bottom left) FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. EBITDA is earnings before interest, tax, depreciation and amortisation. Guide to the Markets - UK. Data as of 30 June 2017.
Default rate 2002: 34%
BBB
CCCUnrated
Fixe
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69
x, leverage and interest coverage ratioEuropean high yield leverage measures
Interest coverage ratio
Net debt / EBITDA
2
3
4
5
6
7
'06 '08 '10 '12 '14 '16
Asset class Average LatestHY spread - bps (RHS) 623 291HY defaults (LHS) 4.6% 0.9%
70
GTM – UK |
-2
0
2
4
6
8
Emerging market debt
Emerging market debt yields% yield
Real 10-year government bond yields% yield, local currency
Cumulative emerging market debt flowsUSD millions
Source: (Left) J.P Morgan Dataquery, J.P. Morgan Asset Management. All indices are J.P. Morgan regional debt indices, yield to maturity. (Top right) Bloomberg, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Asset Management GFICC Quant research group. EM sovereign (local currency) is the J.P. Morgan GBI-EM; EM sovereign (USD) is the J.P. Morgan EMBI+; EM corporate (USD) is the J.P. Morgan CEMBI. Blend is flows into funds with all three EMD sub-types. Guide to the Markets - UK. Data as of 30 June 2017.
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Hard currency corporateHard currency government
BlendLocal currency government
Total
Apr ‘16Jan ‘16 Aug ‘16 May ‘17
Developed markets
Emerging markets
10-year range10-year average
Current
USD Sovereigns
EM Local US HY Euro HYUSD Corporates
USD Europe
Sov.
USD LatinAmerica
Sov.
USD AsiaSov. -6,000
4,000
14,000
24,000
34,000
Dec ‘16
5.6
4.0
6.7
4.7 5.2
6.96.6
3.9
0
5
10
15
20
25
71
GTM – UK |
20
40
60
80
100
120
140
'11 '12 '13 '14 '15 '16 '17
Gross fixed capital formation in commodity industry
0
2
4
6
0
40
80
120
2000 2005 2010 2015
Commodities
Commodity pricesIndex level, rebased to 100 at Dec 2010
China’s imports of key commoditiesMillions of metric tonnes
Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Top right) China Customs, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Australia Bureau of Statistics, Thomson Reuters Datastream, Worldscope, J.P. Morgan Asset Management. *Global data defined as global listedintegrated oil and gas. Guide to the Markets - UK. Data as of 30 June 2017.
Bloomberg Commodity Index weightsLivestock 7% Industrial metals 18%Energy 28% Precious metals 17%Crops 30%
Oth
er a
sset
s
Iron ore (LHS)
Copper (RHS)
Crude oil (LHS)
71
Index level, rebased to 100 at Jan 1995
Australian mining
Global oil and gas*
50
150
250
350
450
550
0
200
400
600
800
'95 '00 '05 '10 '15
72
GTM – UK |
0
600
1,200
1,800
200
400
600
'07 '09 '11 '13 '15 '17
0
40
80
120
160
'92 '96 '00 '04 '08 '12 '16
YTD change Change since 2016 lowBrent crude -15.8% 39.2%
Oil market drivers
Crude oil pricesUSD per barrel
US rig count vs. oil inventories*Thousands of barrels (LHS); rigs (RHS)
Global oil supply and demand Millions of barrels per day
Source: (Left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Baker Hughes, Bloomberg, US Department of Energy, J.P. Morgan Asset Management. *Excluding US strategic petroleum reserve. (Bottom right) Bloomberg, EIA, J.P. Morgan Asset Management. Forecast from EIA, six-month moving average. Guide to the Markets - UK. Data as of 30 June 2017.
Oth
er a
sset
s
Forecast
Demand
Supply
Rigs
Inventories
Average: $50
72
30 June 2017: $48
Share of total oil supply
In % Q1 2012 Q1 2017
OPEC 41.6% 39.9%
US 12.0% 15.5%
88
90
92
94
96
98
100
102
'12 '13 '14 '15 '16 '17 '18
73
GTM – UK |
0
500
1,000
1,500
2,000
2,500
Jewellery Technology Total bar andcoin demand
ETFs &similar
products
Central bank& other inst.
-1.0
-0.5
0.0
0.5
1.01,000
1,300
1,600
1,900
'12 '13 '14 '15 '16 '17
Gold market dynamics
Gold priceGold vs. US 10-year Treasury real yields$ per Troy ounce (LHS); % inverted (RHS)
Breakdown of world gold demand by sectorTonnes
Source: (Top left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) World Gold Council, J.P. Morgan Asset Management. (Right) Thomson Reuters, J.P. Morgan Asset Management. Inflation-adjusted gold price is the historic gold price in today’s money, converted using the US Consumer Price Index. The 2001 low is defined as April 2001, and the 2011 peak is defined as August 2011. Guide to the Markets - UK. Data as of 30 June 2017.
Oth
er a
sset
s
Real yields (inverted)
Gold
$ per Troy ounce
2015Q1 2017 annualised
73
Change since 2001 low
Change since 2011 peak
YTD change
Gold +371.3% -31.9% +7.4%
Inflation-adjusted gold price
Gold price
30 June 2017: $1,243
0
500
1,000
1,500
2,000
2,500
'78 '82 '86 '90 '94 '98 '02 '06 '10 '14
74
GTM – UK |Risk-adjusted returns and downside protection
Risk-adjusted returns of a 50/50 portfolioSharpe ratio of a portfolio of 50% global equities and 50% global bonds*
Six-month stock and bond correlationsOf total return on US equities (S&P 500) and US Treasuries (10-yr)
Hedge fund returns in different market environments%, average total return in up and down months, 2001-2016
Source: (Left) MSCI, J.P. Morgan Asset Management. *The equity index is the MSCI World (EUR hedged) and the bond index is the JP Morgan Global Bond index (EUR hedged). The portfolio is rebalanced monthly. Sharpe ratio is calculated as (Return - Risk free rate) / Volatility. (Top right) Bloomberg, J.P. Morgan Asset Management. (Bottom right) Barclays, Hedge Fund Research, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. **HFRI FW is Hedge Fund Research Index Fund Weighted. ***US bonds is the Barclays US Aggregate Bond Index. Downside protection refers to attempting to minimise the impact of any falls in the underlying investments. Guide to the Markets - UK. Data as of 30 June 2017.
HFRI FW**US bonds***
HFRI FW**S&P 500
5-year Sharpe ratio
3-year Sharpe ratio
S&P 500 up S&P 500 down Bond downBond up
Oth
er a
sset
s
74
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
'04 '06 '08 '10 '12 '14 '16
-1
0
1
'91 '96 '01 '06 '11 '16
1.3
-1.1
0.5 0.4
2.9
-3.8
1.0
-0.7
-4
-2
0
2
4
75
GTM – UK |
-5
0
5
10
15
20
25
30
0
4
8
12
16
'70 '80 '90 '00 '10
Alternative strategies
Manager dispersion: Public and private markets*%, annual returns
Public vs. private equity returns%, MSCI AC World total return vs. Global Buyout & Growth Equity Index**
Infrastructure returns%, OECD allowed RoE over cost of debt
Source: (Left) Cambridge Associates, Lipper, J.P. Morgan Asset Management. *Manager dispersion is based on the time period from 31 December 2009 through 31 December 2014, except for private equity, which is based on the five-year period ending 31 March 2014 due to returns being reported with a lag. (Top right) Cambridge Associates, Deutsche Bank, FactSet, MSCI, National Venture Capital Association, J.P. Morgan Asset Management. **Data as of Q416. (Bottom right) Bloomberg, Regulatory Research Associates, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Recession
Electric
Natural gas
10-yr US Treasury
Utility bond
Global Buyout & Growth Equity Index
MSCI ACWI75th percentile
25th percentile
Median
Public Private
Oth
er a
sset
s
75
9.0%
4.6%
6.9% 6.5%
13.4%
10.5%
12.6% 12.7%
0
4
8
12
16
5 years 10 years 15 years 20 years
76
Correlation of returns (GBP)
Source: Barclays, Bloomberg, Citigroup, FTSE, J.P. Morgan Economic Research, MSCI, NCREIF, Standard & Poor’s, US Federal Reserve, J.P. Morgan Asset Management. UK Gilts: FTSE Actuaries Government Securities UK Gilts All Stocks; EM debt: JP Morgan EMBI Global; High yield bonds: JP Morgan Domestic High Yield; Global bonds: Barclays Global Aggregate; Cmdty: Bloomberg Commodity; Hedge Funds: CS/Tremont Multi-Strategy; Real estate: blended index, which includes NCREIF Property Index data and Federal Reserve estimates of changes in capital value. All indices are total returns based on quarterly return data in GBP, real estate correlations are lagged by one quarter Guide to the Markets - UK.Data as of 30 June 2017.
GTM – UK |10-year correlations
3-year correlations
FTSE 100 S&P 500
MSCI Europe ex-UK
MSCI Asia
ex-JapanMSCI EM UK Gilts EM debt High yield
bonds Cmdty Hedgefunds
Realestate
Global bonds
MSCI Japan
FTSE 100
S&P 500
MSCI Asiaex-Japan
MSCI EM
UK Gilts
EM debt
High yield bonds
Cmdty
Realestate
Global bonds
Hedge funds
MSCI Europe ex-UK
MSCI Japan
Oth
er a
sset
s
76
1.00 0.80 0.91 0.58 0.78 0.83 -0.26 0.07 0.71 -0.18 0.45 0.71 -0.34
0.70 1.00 0.74 0.65 0.62 0.61 -0.11 0.20 0.35 0.04 0.31 0.43 -0.16
0.88 0.54 1.00 0.58 0.77 0.79 -0.24 -0.06 0.60 -0.06 0.32 0.61 -0.27
0.84 0.67 0.83 1.00 0.51 0.45 -0.10 0.11 0.12 0.18 0.16 0.20 -0.16
0.83 0.60 0.78 0.75 1.00 0.96 -0.10 0.23 0.67 -0.08 0.31 0.63 -0.44
0.85 0.56 0.74 0.65 0.95 1.00 -0.21 0.19 0.77 -0.17 0.49 0.73 -0.44
0.01 0.36 -0.04 -0.03 0.25 0.22 1.00 0.25 -0.43 0.76 -0.22 -0.55 0.07
0.54 0.66 0.57 0.76 0.56 0.49 0.38 1.00 0.14 0.01 0.01 0.12 -0.28
0.63 0.08 0.50 0.24 0.59 0.73 0.01 -0.07 1.00 -0.55 0.40 0.86 -0.53
0.22 0.46 0.16 0.12 0.26 0.32 0.84 0.41 0.17 1.00 -0.09 -0.65 0.02
0.56 0.40 0.26 0.29 0.26 0.45 0.14 0.30 0.55 0.42 1.00 0.45 -0.05
0.52 0.23 0.66 0.62 0.63 0.47 0.00 0.50 0.21 -0.15 -0.07 1.00 -0.28
-0.52 -0.17 -0.44 -0.18 -0.38 -0.44 0.12 0.08 -0.61 0.04 -0.40 -0.53 1.00
77
GTM – UK |
-4 0 4 8 12
Asset markets in coming decades
Past and expected returns% per year
Source: 2017 Long-term capital market assumptions, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management, October 2016. Returns are in GBP.Guide to the Markets - UK. Data as of 30 June 2017.
Oth
er a
sset
s
Expected return in next decade
Return in past decade
EM equity
Private equity
UK large cap
Eurozone large cap
EM local currency debt
UK core direct real estate
US large cap
Global direct infrastructure equity
Diversified hedge funds hedged
Commodities
UK investment-grade corporates
UK cash
UK gilts
World government bonds
UK government inflation linked
77
78
GTM – UK |
66
23
76
35
92
50
0
20
40
60
80
100
80 years 90 years
Life expectancy
Probability of reaching ages 80 and 90% probability, persons aged 65, by gender and combined couple
Source: ONS 2012-2014 Life Tables, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 30 June 2017.
Men
Women
Couple – at least one lives to specified age
Inve
stin
g pr
inci
ples
80 years 90 years
78
79
GTM – UK |
0
2
4
6
0
2,000
4,000
6,000
'01 '03 '05 '07 '09 '11 '13 '15 '170
1
10
100
1,000
1899 1919 1939 1959 1979 1999
Cash investments
Income generated by £100,000 in a three-month bank deposit Total return of £1 in real termsGBP (LHS); % change year on year (RHS) GBP, log scale for total returns
Source: (Left) Bloomberg, ONS, J.P. Morgan Asset Management. (Right) Dimson, Marsh and Staunton ABN AMRO/LBS Global Investment Returns Yearbook 2008, FactSet, J.P. Morgan Asset Management. J.P. Morgan estimates from 2008. Equities: FTSE 100; Bonds: JPMorgan GBP Government Bond Index; Cash: three-month GBP Libor (prior to 2008 cash is short dated Treasury bills). Guide to the Markets - UK. Data as of 30 June 2017.
June 2017: £410
2007: £6,000Annualised real returns
1899–2016 2000–2016
Equities 5.3% 2.0%
Bonds 1.7% 4.1%
Cash 0.8% -0.3%
Equities: £400
Bonds: £7
Cash: £3
Inve
stin
g pr
inci
ples
79
Income Inflation (y/y)
80
GTM – UK |
0
20,000
40,000
60,000
80,000
100,000
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
25 30 35 40 45 50 55 60 65
The power of compounding
£5,000 invested annually with 5% growth per year £5,000 investment with/without income reinvestedGBP GBP, FTSE All-Share returns
Source: (Left) J.P. Morgan Asset Management. For illustrative purposes only, assumes all income reinvested, actual investments may incur higher or lower growth rates and charges. (Right) Bloomberg, FTSE, J.P. Morgan Asset Management. Based on FTSE All-Share index and assumes no charges. Guide to the Markets - UK. Data as of 30 June 2017.
Inve
stin
g pr
inci
ples
Starting at age 35
Starting at age 25
Without dividends reinvested
With dividends reinvested
Age
£353,803
£29,301
£639,199 £93,253
80
81
GTM – UK |
22
46
30
-14
15 15
23
-10
19
12
20
11
21
-8
-15
-25
17
9
18
13
2
-33
25
11
-7
8
17
-2 -3
12
3
-9
-37
-8
-14
-22
-12
-18
-4
-18
-4
-6 -10
-25
-11 -12
-30 -31
-17
-6 -7-10
-13
-43
-23
-17-19
-12 -12 -10
-15-12
-3
-50
-40
-30
-20
-10
0
10
20
30
40
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
Annual returns and intra-year declines
FTSE All-Share Index intra-year declines vs. calendar-year returnsDespite average intra-year drops of 15.8% (median 12.6%), annual returns are positive in 22 of 31 years%
Source: FactSet, FTSE, J.P Morgan Asset Management. Returns are based on local price only and do not include dividends. Intra-year decline refers to the largest market fall from peak to trough within a short time period during the calendar year. Returns shown are calendar years from 1986 to 2016. Guide to the Markets - UK. Data as of 30 June 2017
Intra-year decline
Calendar-year return
Inve
stin
g pr
inci
ples
81
YTD
82
GTM – UK |
7.4%
4.2%
0.2%
-2.9%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Fully invested Missed 10 best days Missed 30 best days Missed 50 best days
Impact of being out of the market
Returns of FTSE All-ShareGBP, value of a £10,000 investment between 1996 and 2016 with annualised return (%)
Source: FactSet, FTSE, J.P. Morgan Asset Management. For illustrative purposes only. Assumes all income is reinvested; returns calculated daily over the time period assuming no return on each of the specified number of best days. Guide to the Markets - UK. Data as of 30 June 2017.In
vest
ing
prin
cipl
es
Initial investment
82
83
GTM – UK |
48% 49%
30%24% 24% 21%
17% 17% 18%13% 15%
-18%-24%
-7% -3% -1% -3% 0%1%
4%1%
4%
-50
-25
0
25
50
75
61%
-43%
US asset returns by holding period
Range of equity and bond total returns%, annualised total returns, 1950-2016
Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Large cap equity represents the S&P 500 Composite and Bonds represents the Strategas/Ibbotson US Government Bond Index and US Long-term Corporate Bond Index. Returns shown are per annum and are calculated based on monthly returns from 1950 to May 2016 and include dividends. Guide to the Markets - UK. Data as of 30 June 2017.
1-yr rolling 5-yr rolling 10-yr rolling 20-yr rolling
Inve
stin
g pr
inci
ples
Large cap equityBonds50/50 portfolio
83
84
Asset class returns (GBP)
Source: Barclays, Bloomberg, FactSet, FTSE, MSCI, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Annualised return covers the period from 2007 to 2016. Vol. is the standard deviation of annual returns. Govt bonds: Barclays Global Aggregate Government Treasuries; HY bonds: Barclays Global High Yield; EMD: JP Morgan EMBI+; IG bonds: Barclays Global Aggregate – Corporates; Cmdty: Bloomberg UBS Commodity; REITS: FTSE NAREIT All REITS; DM Equities: MSCI World; EME: MSCI EM; Hedge funds: Credit Suisse/Tremont Hedge Fund; Cash: JP Morgan Cash United Kingdom (3M). Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 30% DM equities; 10% EM equities; 15% IG bonds; 12.5% government bonds; 7.5% HY bonds; 5% EMD; 5% commodities; 5% cash; 5% REITS and 5% hedge funds. Returns are unhedged, total return, in GBP. Guide to the Markets - UK. Data as of 30 June 2017.
GTM – UK |
Inve
stin
g pr
inci
ples
20102007 20122008 2011 20162009 2013 2014 2015 10-yr ann. Vol.Q217
84
YTD
EME 37.5%
Govt bonds 52.6%
EME 59.4%
REITS 31.6%
EMD 10.0%
REITS 14.9%
DM Equities 25.0%
REITS 35.1%
REITS 8.2%
HY bonds 36.3%
EME 11.5%
EME 2.4%
HY bonds 12.4%
EME 25.5%
Cmdty 14.7%
IG bonds 26.5%
HY bonds 41.9%
EME 22.9%
REITS 8.1%
HY bonds 14.4%
Hedge Funds 9.6%
EMD 12.8%
EMD 7.7%
Cmdty 32.9%
DM Equities 4.1%
Hedge Funds 1.4%
EMD 11.6%
REITS 16.8%
Hedge Funds 12.6%
EMD 25.0%
Hedge Funds 18.4%
Cmdty 20.5%
Govt bonds 7.1%
EME 13.4%
Portfolio 6.0%
DM Equities 12.1%
DM Equities 5.5%
EMD 30.8%
Hedge Funds 3.9%
DM Equities 0.3%
REITS 9.6%
Cmdty 16.2%
Portfolio 8.9%
Cash 6.9%
Portfolio 16.5%
HY bonds 18.4%
IG bonds 5.1%
EMD 12.9%
HY bonds 5.3%
IG bonds 9.6%
HY bonds 2.9%
REITS 30.4%
Portfolio 2.2%
Cash 0.1%
DM Equities 9.0%
Govt bonds 16.2%
Govt bonds 8.7%
Portfolio 1.3%
DM Equities 16.4%
DM Equities 15.9%
HY bonds 3.9%
DM Equities 11.4%
REITS 1.3%
Portfolio 8.7%
Govt bonds 2.3%
EME 29.5%
HY bonds 1.3%
IG bonds -0.3%
IG bonds 8.9%
HY bonds 13.8%
DM Equities 7.7%
HY bonds 1.2%
REITS 13.5%
EMD 15.3%
Cash 1.2%
Portfolio 8.0%
Cash 0.5%
HY bonds 6.2%
IG bonds 2.0%
DM Equities 25.6%
EMD 1.1%
Portfolio -0.3%
Portfolio 8.7%
DM Equities 11.9%
Cash 6.1%
Cmdty -12.5%
EMD 12.1%
Portfolio 14.9%
Portfolio -0.9%
Hedge Funds 7.5%
IG bonds -1.5%
Govt bonds 5.4%
Portfolio 1.3%
IG bonds 24.4%
REITS 0.3%
HY bonds -0.7%
Govt bonds 7.8%
EMD 10.5%
IG bonds 4.9%
REITS -13.2%
Cmdty 7.3%
Hedge Funds 10.6%
Hedge Funds -2.9%
IG bonds 6.3%
EME -4.1%
EME 4.3%
Cash 0.7%
Portfolio 24.4%
Cash 0.2%
EMD -1.4%
EME 6.7%
Hedge Funds 9.3%
EMD 4.7%
DM Equities -17.4%
IG bonds 6.1%
Govt bonds 9.2%
DM Equities -4.3%
Cash 1.4%
Govt bonds -6.1%
Hedge Funds 4.1%
Hedge Funds -0.8%
Govt bonds 21.3%
IG bonds 0.1%
REITS -1.4%
Hedge Funds 3.5%
IG bonds 8.7%
HY bonds 1.4%
Hedge Funds -18.3%
Cash 2.2%
IG bonds 9.2%
Cmdty -12.7%
Govt bonds -2.6%
EMD -10.0%
Cash 0.6%
EME -9.7%
Cash 0.7%
Govt bonds -0.6%
Govt bonds -1.5%
Cash 2.1%
Portfolio 7.4%
REITS -19.2%
EME -35.2%
Govt bonds -8.6%
Cash 1.0%
EME -17.6%
Cmdty -5.4%
Cmdty -11.2%
Cmdty -11.8%
Cmdty -20.3%
Hedge Funds -1.1%
Cmdty -10.2%
Cmdty -6.6%
Cmdty -1.2%
Cash 2.2%
J.P. Morgan Asset Management: Index definitions
All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. The S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market, representing all major industries.The Russell 3000 Index® measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell 1000 Index ® measures the performance of the 1,000 largest companies in the Russell 3000. The Russell 1000 Growth Index ® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index ® measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap Index ® measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell Midcap Growth Index ® measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The Russell Midcap Value Index ® measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index. The Russell 2000 Index ® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.The Russell 2000 Growth Index ® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Value Index ® measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell Top 200 Index ® measures the performance of the largest cap segment of the U.S. equity universe. It includes approximately 200 of the largest securities based on a combination of their market cap and current index membership and represents approximately 68% of the U.S. market. The MSCI® EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America. The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWIconsisted of 45 country indices comprising 23 developed and 22 emerging market country indices. The MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group, within each country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of USD200-1,500 million.The MSCI All Country Asia Pacific ex-Japan Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The MSCI All Country Asia Pacific ex-Japan Index consists of the following 11 developed and emerging market countries: Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, and Thailand.
The MSCI China Index is an unmanaged index considered representative of stocks of China.The MSCI KOKUSAI Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets excluding Japan. The MSCI KOKUSAI Index consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States*.The Nikkei 225 Index is a price-weighted average of the 225 top-rated Japanese companies listed in the first section of the Tokyo Stock Exchange.The Tokyo Price Index (TOPIX) is a capitalization-weighted index lists all firms that are considered to be under the 'first section' on the TSE, which groups all of the large firms on the exchange into one pool. The second section groups all of the remaining smaller firms.The FTSE 100 Index is an index of the 100 largest companies (by market capitalization) in the United Kingdom.The FTSE All Share Index is an index of the 630 largest companies (by market capitalization) in the United Kingdom.The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes - three for value and five for growth including forward-looking variables. The objective of the indexdesign is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each targeting 50% of the free float adjusted market capitalization of the underlying country index. Country Value/Growth indices are then aggregated into regional Value/Growth indices. Prior to May 30, 2003, the indices used Price/Book Value (P/BV) ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either "value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index.The following MSCI Total Return IndicesSM are calculated with gross dividends:This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to individuals resident in the country of the company, but does not include tax credits.The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Pacific IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of June 2007, the MSCI Pacific Index consisted of the following 5 Developed Market countries: Australia, Hong Kong, Japan, New Zealand, and Singapore. Credit Suisse/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index, LLC. It is an asset-weighted hedge fund index and includes only funds, as opposed to separate accounts. The Index uses the Credit Suisse/Tremont database, which tracks over 4500 funds, and consists only of funds with a minimum of US$50 million under management, a 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC. The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment. The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance, and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.
J.P. Morgan Asset Management: Index definitions
The Dow Jones Industrial Average measures the stock performance of 30 leading blue-chip U.S. companiesThe Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents twenty two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc.West Texas Intermediate (WTI) is underlying commodity in the New York Mercantile Exchange's oil futures contracts. The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. The Barclays U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. This U.S. Treasury Index is a component of the U.S. Government index. The Barclays High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. The Barclays 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. The Barclays Euro-Aggregate Index consists of bond issued in the euro or the legacy currencies of the sovereign countries participating the European Monetary Union (EMU).The Global Bond Index Emerging Market Broad Diversified Index (GBI-EM) is a comprehensive global local emerging markets index, and consists of liquid, fixed-rate, domestic currency government bonds.The Barclays Global Aggregate Corporate Index consists of corporate issues in Europe, the US and Asia-pacific regions. The Barclays Global High Yield Index is an unmanaged index considered representative of fixed rate, noninvestment-grade debt of companies in the U.S., developed markets and emerging markets.The Barclays Emerging Markets Index includes USD-denominated debt from emerging markets in the following regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability.The Barclays MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. Aggregate components must have a weighted average maturity of at least one year, must have $250 million par amount outstanding, and must be fixed rate mortgages.The Barclays Corporate Bond Index is the Corporate component of the U.S. Credit index.The Barclays TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury.The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities.The Li Keqiang Index is a composite measure composed of China’s electricity production, financial institution loans and railway freight.The Euro Stoxx 600 Index represents large, mid and small capitalisation companies across 18 European countries. The JPMorgan GBI-EM Global Diversified consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index.The JPMorgan Corporate Emerging Markets Bond Index (CEMBI): The CEMBI tracks total returns of US dollar-denominated debt instruments issued by corporate entities in Emerging Markets countries, and consists of an investable universe of corporate bonds. Both indices are also available in Diversified version. The JPMorgan CEMBI Index is a USD denominated external debt index tracking bond issued by sovereigns and quasi-sovereigns in the developing nations. The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market.
The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing exposure to the systematic risk of the market (i.e. a beta of zero).*The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among several hedge fund strategies. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage.The Barclays U.S. Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate note market.*Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy, and are based on a December 8, 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data). Presumed to be excluded from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate representation of returns in the category. CS/Tremont later published a finalized November return of -40.56% for the month, reflecting this mark-down. CS/Tremont assumes no responsibility for these estimates.The Office of National Statistics (ONS) Index is a mix-adjusted average housing price index. The index is calculated monthly using mortgage financed transactions from the Regulated Mortgage Survey by the Council of Mortgage Lenders. The Nationwide House Price Index is a mix adjusted index constructed from Nationwide lending data across the UK.The Halifax House Price Index is constructed from mortgage data derived from Halifax lending data across the UK.The MSCI AC World High Dividend Yield Index is composed of those securities that have higher-than-average dividend yield within its parent index, a track record of consistent dividend payments and the capacity to sustain future dividend payments.
J.P. Morgan Asset Management: Risks and disclosures
The Market Insights programme provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the programme explores the implications of current economic data and changing market conditions.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results.
J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority; in other EEA jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E); in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Korea by JPMorgan Asset Management (Korea) Company Limited; in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in the United States by JPMorgan Distribution Services Inc. and J.P. Morgan Institutional Investments, Inc., both members of FINRA/SIPC.; and J.P. Morgan Investment Management Inc.
In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other countries in APAC, to intended recipients only.
Copyright 2017 JPMorgan Chase & Co. All rights reserved.
Prepared by: Stephanie Flanders, Tilmann Galler, Vincent Juvyns, Dr. David Stubbs, Maria Paola Toschi, Michael Bell, Nandini Ramakrishnan and Jai Malhi.Unless otherwise stated, all data as of 30 June 2017 or most recently available.Guide to the Markets - UKJP-LITTLEBOOK
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