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Guide To The Markets - J.P. Morgan Asset Management
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Guide to the Markets Europe | | MARKET INSIGHTS 1Q 2018 As of 31 December 2017
Transcript of Guide To The Markets - J.P. Morgan Asset Management
Guide to the MarketsEurope | |
MARKET INSIGHTS
1Q 2018 As of 31 December 2017
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Global Market Insights Strategy Team
Manuel Arroyo Ozores, CFAMadrid
Lucia Gutierrez MelladoMadrid
Vincent JuvynsLuxembourg
Tilmann Galler, CFAFrankfurt
Maria Paola ToschiMilan
Tai HuiHong Kong
Ian HuiHong Kong
Marcella ChowHong Kong
Dr. Jasslyn Yeo, CFASingapore
Kerry Craig, CFAMelbourne
Chaoping Zhu, CFAShanghai
Alex Dryden, CFANew York
Dr. David Kelly, CFANew York
Samantha AzzarelloNew York
Gabriela SantosNew York
David LebovitzNew York
Jordan JacksonNew York
Abigail Yoder, CFANew York
John ManleyNew York
Tyler VoigtNew York
Hannah AndersonHong Kong
Yoshinori ShigemiTokyo
Shogo MaekawaTokyo
Nandini RamakrishnanLondon
Michael Bell, CFALondon
Jai MalhiLondon
Ambrose CroftonLondon
Karen WardLondon
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Page reference
Europe economy4. Eurozone: GDP and inflation5. Eurozone growth monitor6. Eurozone credit conditions7. Eurozone: Unemployment and labour costs8. Eurozone government debt and ECB bond purchases9. European politics10. UK economic indicators11. Brexit: UK trade
Global economy12. World economic data13. Global Purchasing Managers’ Index (PMI) for manufacturing14. Global growth15. Unemployment and spare capacity16. Global inflation dynamics17. Core inflation18. Global central bank policy19. Global currency trends20. US: GDP and inflation21. US profits and the business cycle22. US: Cyclical sectors23. US labour market24. US inflation and wages25. US Federal Reserve outlook26. US corporate environment27. Japan: GDP and inflation28. Japan economic indicators29. China: GDP and inflation30. China economic indicators31. EM aggregate: GDP and inflation32. Emerging market adjustments33. Emerging markets structural dynamics34. Global trade
Equities35. World stock market returns36. European sector returns and valuations37. Relative equity earnings and valuations38. MSCI Europe Index at inflection points39. European equities: Macro correlations40. European equities: Earnings fundamentals41. European equities: Earnings42. European equities: Large vs. mid/small capitalisation43. European equities: Valuations
44. UK equities45. US S&P 500 at inflection points46. US equities: Macro correlations47. US equities: Earnings and performance48. US equities: Valuations49. US corporate fundamentals and activity50. US bull and bear markets51. Interest rates and equities52. Japanese equities: Earnings and performance53. Japanese equities: Corporate governance54. Developed market equity valuations by country55. Emerging market equity valuations by country 56. Emerging markets: Macro correlations57. Emerging markets: Flows, earnings and income58. Emerging markets: Valuations59. Equity income60. Correlation, dispersion and volatility
Fixed income61. Global fixed income: Yields and returns62. Government bonds63. Inflation expectations and real yields64. Fixed income interest rate risk65. Historical impact of Fed tightening66. Global investment-grade bonds67. Global investment-grade bond market68. US high yield bonds69. European high yield bonds70. Emerging market bonds
Other assets71. Commodities72. Gold73. Risk-adjusted returns and downside protection74. Alternative strategies75. Correlation of returns (EUR)76. Asset markets in coming years
Investing principles77. Life expectancy 78. Cash investments79. The power of compounding80. Annual returns and intra-year declines81. Impact of being out of the market82. US asset returns by holding period83. Asset class returns (EUR)
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Eurozone: GDP and inflation
Contribution to eurozone real GDP growth Contribution to eurozone CPI inflation% contribution to GDP growth, 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, Thomson Reuters Datastream, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food, alcohol, tobacco and energy. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
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ECB inflation target
Change in inventories
Net exports
Investment
ConsumptionGDP
Government
Euro
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Food, alcohol, tobaccoCore rate
EnergyCPI*
Average since 2000 3Q17
1,3% 2,6%
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Eurozone growth monitor
Unemployment rate%
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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Recession
Euro
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Industrial production (LHS)
Retail sales (RHS)
PMI GDP
90
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100
105
110
115
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859095
100105110115120
'00 '02 '04 '06 '08 '10 '12 '14 '16
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Eurozone credit conditions
Eurozone lending rates Eurozone loan growth% interest % change year on year
Source: (All charts) ECB, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Euro
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Loan growth to householdsLoan growth to non-financial corporations
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Eurozone loan rate for house purchasesEurozone loan rate for non-financial corporations
ECB main refinancing rate
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'00 '02 '04 '06 '08 '10 '12 '14 '160
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Eurozone: Unemployment and labour costs
Unemployment rate Unit labour costs% Rebased to 100 as of Dec 1998
Source: (Left) Eurostat, FactSet, J.P. Morgan Asset Management. (Right) ECB, FactSet, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
FranceEurozone
Average of Portugal, Spain, Italy
GermanySpain
Ireland
FranceGreece
GermanyEuro
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Eurozone government debt and ECB bond purchases
Eurozone debt and ECB PSPP* purchases Eurozone net bond supply in 2018**EUR billions EUR billions
Source: (Left) ECB, Eurostat, J.P. Morgan Asset Management. *PSPP is Public Sector Purchase Programme. 33% is the ECB purchase limit. (Right) ECB, J.P. Morgan Securities Research, J.P. Morgan Asset Management. **Gross issuance and gross minus redemptions and PSPP are estimates for 2018. Net bond supply is gross bond issuance minus redemptions minus PSPP purchases estimated for 2018. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Euro
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Total outstanding debt
Cumulative ECB PSPP purchases
33% limit
Gross bond issuance
Net bond supply
PSPP purchases in 2018
Gross bond issuance minus redemptions
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European politics
Eurozone real GDP levelsIndex level rebased to 100 at 1Q07
Survey results: Do you support the euro?% answering “yes” as of November 2017
Italian election polling%, monthly average
Source: (Left) Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Eurobarometer survey, J.P. Morgan Asset Management. (Bottom right) Termometropolitico.it, 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Nov ’16
Nov ’13
Nov ’17
Italy France Spain Germany
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Euro
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M5SPD
LN
FIFdI
GermanyEurozone
SpainFrance
Italy
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UK economic indicators
Source: (Top left) FactSet, OECD, J.P. Morgan Asset Management. (Bottom left) ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) GFK, ONS, Thomson Reuters Datasteam, J.P. Morgan Asset Management. (Bottom right) Bloomberg, ONS, J.P. Morgan Asset Management. *Nominal wages include bonuses. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Real GDP growth comparisonIndex level, rebased to 100 at 1Q08
UK unemployment rate and consumer confidenceIndex level (LHS); % (RHS)
UK current account% of GDP
UK real wage growth% change year on year
USUKGermany
FranceJapan
Headline CPIReal wage growth
Nominal wage growth*
Current account balanceTrade balanceInvestment income
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Consumer confidence
Unemployment rate
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0 50 100 150 200 250 300 350
EU27
US
Australia
Japan
Singapore
Hong Kong
Canada
Saudi Arabia
India
China
Switzerland
Brexit: UK trade
UK exports and imports of goods and servicesGBP billions
Source: UK ONS Pink Book, J.P. Morgan Asset Management. Data is latest available, measured at end of 2016. Middle East includes Israel, Saudi Arabia, residual Gulf Arabian countries and other near and middle eastern countries. Asia includes China, Hong Kong, India, Indonesia, Iran, Japan, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
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Euro
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UK export share EU27 43%US 17%Asia 12%Middle East 5%
Services
Services
Goods
Goods
Exports:
Imports:
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Selectedcountries
Gross domestic product (GDP)
Real GDP%
Inflation%
Policy rate %
Unemployment %
EUR per capita
EUR billions 2017* 2018* 2017* 2018*
Switzerland 69.941 588 0,9 1,8 0,5 0,6 -0,75 3,1United States 51.199 16.495 2,3 2,6 2,1 2,1 1,50 4,1Sweden 47.093 463 3,0 2,6 1,8 1,9 -0,50 5,8Netherlands 43.009 731 3,1 2,2 1,3 1,5 -0,40 7,2Finland 40.734 224 2,8 2,0 0,9 1,1 -0,40 7,1Germany 39.989 3.276 2,5 2,2 1,7 1,7 -0,40 5,5France 35.275 2.283 1,8 1,8 1,2 1,3 -0,40 9,4United Kingdom 34.346 2.260 1,5 1,4 2,7 2,5 0,50 4,3Eurozone 33.162 11.180 2,3 2,1 1,5 1,5 -0,40 8,8Japan 32.774 4.187 1,6 1,3 0,5 0,8 0,10 2,7Italy 28.755 1.709 1,6 1,4 1,3 1,2 -0,40 11,2Spain 25.096 1.163 3,1 2,5 2,0 1,5 -0,40 16,4Greece 16.906 189 1,2 2,1 1,2 1,0 -0,40 20,2Russia 9.578 1.379 1,8 1,9 3,7 3,7 7,75 5,0Brazil 8.460 1.757 0,9 2,5 3,4 3,8 7,00 8,2China 7.654 10.742 6,8 6,5 1,6 2,3 4,35 4,0India 1.599 2.117 6,3 6,7 4,5 3,5 6,00 8,0
World economic data
Source: Bloomberg, various national statistical agencies, J.P. Morgan Asset Management. Table ordered by GDP per capita. Nominal GDP figure is latest quarter annualised. *Forecasts are Bloomberg consensus estimates. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
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50,9 50,0 50,6 50,2 50,1 50,4 51,0 50,8 51,1 52,0 52,1 52,7 52,8 53,0 53,0 52,7 52,6 52,6 52,8 53,2 53,3 53,5 54,1 54,5
52,1 50,8 50,9 50,5 50,4 51,2 51,5 51,2 51,5 52,6 53,0 53,8 54,2 54,1 53,9 54,1 54,1 53,9 54,0 54,2 54,6 55,2 55,8 56,3
49,4 48,9 50,2 49,5 49,5 49,3 50,3 50,1 50,4 51,0 50,8 51,1 50,8 51,3 51,6 50,9 50,6 50,8 51,0 51,7 51,4 51,2 51,7 52,2
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 56,6 57,4 58,1 58,5 60,1 60,650,0 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 54,9 55,8 56,1 56,1 57,7 58,852,3 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 58,1 59,3 60,6 60,6 62,5 63,353,2 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 55,1 56,3 56,3 57,8 58,3 57,455,4 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 54,0 52,4 54,3 55,8 56,1 55,850,0 48,4 49,0 49,7 48,4 50,4 48,7 50,4 49,2 48,6 48,3 49,3 46,6 47,7 46,7 48,2 49,6 50,5 50,5 52,2 52,8 52,1 52,2 53,154,3 52,9 54,9 52,6 51,5 53,0 50,2 51,7 51,3 52,1 53,7 55,7 55,5 53,8 53,6 55,0 55,9 56,0 54,6 56,1 55,4 54,4 58,1 59,155,3 51,7 53,1 53,9 54,1 52,9 55,4 51,0 54,9 58,6 57,3 60,3 62,1 61,0 65,2 62,5 58,8 62,3 60,3 54,7 63,7 59,3 63,3 60,450,2 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 60,9 61,2 61,7 62,0 65,1 65,252,3 50,9 51,3 49,6 50,5 53,0 48,5 53,1 55,7 54,0 53,1 55,9 55,4 54,6 54,3 57,1 56,4 54,2 55,3 56,8 56,1 56,3 58,2 56,352,4 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 52,0 53,3 52,8 53,1 54,6 53,9 55,151,5 53,5 58,1 53,4 51,0 51,8 56,4 46,9 49,8 50,9 54,2 55,4 51,2 59,3 57,5 59,2 54,8 55,0 56,0 59,8 54,2 51,1 57,3 56,252,3 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 52,1 52,2 52,9 52,8 53,6 54,248,4 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 51,1 51,6 51,0 51,0 50,8 51,548,9 48,7 50,6 50,9 50,6 51,9 48,4 50,4 50,9 48,7 49,7 49,0 50,4 49,3 50,5 51,2 50,6 49,5 48,6 50,7 50,4 50,1 50,4 49,349,5 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 49,1 49,9 50,6 50,2 51,2 49,950,6 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 53,3 53,6 54,3 54,2 53,6 56,3 56,651,1 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 47,9 51,2 51,2 50,3 52,6 54,747,4 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 50,5 50,0 50,9 50,9 51,2 53,5 52,452,2 53,1 53,2 52,4 53,6 51,1 50,6 50,9 51,9 51,8 51,1 50,2 50,8 50,6 51,5 50,7 51,2 52,3 51,2 52,2 52,8 49,2 52,4 51,749,8 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 51,6 51,9 51,1 51,5 52,0
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 results are rebased such that a score of 50 means that economic conditions are neither accelerating nor deteriorating. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
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India
Indonesia
Greece
Germany
USUK
EurozoneFrance
ItalySpain
Ireland
AustraliaJapanChina
Korea
GlobalDevelopedEmerging
Taiwan
MexicoBrazil
Russia
SwitzerlandSweden
Euro
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Lowest relative to 50 PMI Highest relative to 50 PMI50Ja
n
Mar
Nov
Dec May
Jul
Jan
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May
2016
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2017
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Global growth
Real GDP growth Real GDP growth expectations% change year on year % change year on year
Source: (Left) BEA, Eurostat, Japan Cabinet Office, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) IMF World Economic Outlook, J.P. Morgan Asset Management. GDP growth expectations are from the IMF World Economic Outlook October 2016 and October 2017. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
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Japan UK Eurozone US-8
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Current estimate for 2017
Last year’s estimate for 2018Last year’s estimate for 2017
Current estimate for 2018
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|GTM – EuropeUnemployment and spare capacity
Unemployment rates Actual GDP minus potential GDP (output gap)% % of potential GDP
Source: (Left) BLS, Eurostat, Japan Ministry of Internal Affairs & Communications, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) IMF World Economic Outlook October 2017, J.P. Morgan Asset Management. 2017 and 2018 are IMF estimates. Output gap is a measure of the difference between actual GDP of an economy and its potential GDP. IMF output gap is calculated using actual GDP minus potential GDP expressed as a percentage of potential GDP. Spare capacity is the extent to which an economy is operating below the maximum sustainable level of employment and production, therefore showing the amount of slack in the economy. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
USEurozone
JapanUK
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1,6 1,8 1,7 1,6 1,6 1,5 1,6 1,5 1,5 1,7 1,7 1,8 1,9 2,3 2,1 1,9 2,0 1,8 1,7 1,7 1,9 2,0 2,1 2,2
0,5 0,8 0,5 0,5 0,5 0,5 0,6 0,5 0,6 0,9 1,1 1,2 1,5 2,0 2,1 1,8 1,9 1,6 1,4 1,5 1,7 1,8 1,6 1,8
3,5 3,5 3,7 3,4 3,4 3,2 3,2 3,2 2,9 3,0 3,1 3,1 3,0 3,2 2,4 2,5 2,6 2,6 2,5 2,4 2,7 2,6 2,8 2,8
0,2 0,3 -0,2 0,0 -0,2 -0,1 0,1 0,2 0,2 0,4 0,5 0,6 1,1 1,8 2,0 1,5 1,9 1,4 1,3 1,3 1,5 1,5 1,4 1,50,3 0,3 -0,1 -0,1 -0,1 0,1 0,3 0,4 0,4 0,5 0,5 0,7 0,8 1,6 1,4 1,4 1,4 0,9 0,8 0,8 1,0 1,1 1,2 1,20,2 0,4 -0,2 0,1 -0,3 0,0 0,2 0,4 0,3 0,5 0,7 0,7 1,7 1,9 2,2 1,5 2,0 1,4 1,5 1,5 1,8 1,8 1,5 1,80,1 0,4 -0,2 -0,2 -0,4 -0,3 -0,2 -0,2 -0,1 0,1 -0,1 0,1 0,5 1,0 1,6 1,4 2,0 1,6 1,2 1,2 1,4 1,3 1,1 1,1-0,1 -0,4 -1,0 -1,0 -1,2 -1,1 -0,9 -0,7 -0,3 0,0 0,5 0,5 1,4 2,9 3,0 2,2 2,6 2,0 1,6 1,7 2,0 1,8 1,7 1,80,4 -0,1 0,1 -0,7 -0,4 -0,2 0,2 0,2 0,4 -0,1 0,6 -0,2 0,3 1,5 1,4 1,7 1,7 1,5 0,9 0,9 0,6 1,0 0,5 1,10,2 0,0 -0,2 -0,6 -0,2 -0,2 0,1 0,1 -0,4 -0,3 -0,4 -0,2 -0,2 0,2 0,3 0,6 0,7 0,0 -0,6 -0,2 0,4 0,2 0,5 0,50,7 1,3 0,8 1,2 1,0 0,8 1,2 1,1 1,2 0,8 1,1 1,3 1,7 1,5 1,9 1,4 2,0 1,8 1,8 2,3 2,2 2,2 1,7 1,9-1,4 -1,5 -0,9 -1,0 -0,5 -0,5 -0,6 -0,5 0,0 -0,3 -0,3 -0,2 -0,2 0,3 0,7 0,5 0,7 0,4 0,4 0,6 0,5 0,8 0,8 0,80,2 0,3 0,3 0,5 0,3 0,3 0,5 0,6 0,6 1,0 0,9 1,2 1,6 1,8 2,3 2,3 2,7 2,9 2,6 2,6 2,9 3,0 3,0 3,10,7 1,4 1,0 0,9 1,1 1,0 1,0 0,8 1,1 1,5 1,6 1,7 2,1 2,5 2,7 2,4 2,2 1,9 1,6 1,7 1,9 2,2 2,0 2,22,0 2,3 2,1 1,7 1,5 1,0 1,5 1,0 1,2 1,3 1,5 1,5 1,8 2,1 2,1 2,2 2,6 2,8 2,3 2,7 2,6 2,4 2,6 2,70,2 -0,1 0,2 0,0 -0,3 -0,5 -0,4 -0,4 -0,5 -0,5 0,1 0,5 0,3 0,4 0,3 0,2 0,4 0,4 0,4 0,4 0,7 0,7 0,2 0,61,6 1,8 2,3 2,3 2,3 2,0 1,9 1,8 1,3 1,9 2,1 2,3 2,1 2,5 0,8 0,9 1,2 1,5 1,5 1,4 1,8 1,6 1,9 1,73,4 4,1 4,4 4,5 3,6 3,3 3,5 3,2 2,8 3,1 3,3 3,6 3,0 3,5 3,8 3,6 4,2 4,3 4,4 3,9 3,8 3,7 3,6 3,31,1 0,6 1,1 0,8 1,0 0,8 0,7 0,4 0,5 1,4 1,5 1,5 1,3 2,0 1,9 2,2 1,9 2,0 1,9 2,3 2,6 2,1 1,8 1,30,1 0,8 2,4 2,0 1,9 1,2 0,9 1,2 0,6 0,3 1,7 2,0 1,7 2,2 -0,1 0,2 0,1 0,6 1,0 0,8 1,0 0,5 -0,3 0,45,6 5,7 5,3 4,8 5,5 5,8 5,8 6,1 5,0 4,4 4,2 3,6 3,4 3,2 3,7 3,9 3,0 2,2 1,5 2,4 3,3 3,3 3,6 4,9
10,7 10,7 10,4 9,4 9,3 9,3 8,8 8,7 9,0 8,5 7,9 7,0 6,3 5,4 4,8 4,6 4,1 3,6 3,0 2,7 2,5 2,5 2,7 2,82,1 2,6 2,9 2,6 2,5 2,6 2,5 2,7 2,7 3,0 3,1 3,3 3,4 4,7 4,9 5,4 5,8 6,2 6,3 6,4 6,7 6,4 6,4 6,6
12,9 9,8 8,1 7,3 7,3 7,3 7,5 7,2 6,9 6,4 6,1 5,8 5,4 5,1 4,6 4,3 4,1 4,1 4,4 3,9 3,3 3,0 2,7 2,5
Global inflation dynamics
Source: Bank of Mexico, DGBAS, ECB, FactSet, Federal Reserve, Goskomstat of Russia, IBGE, India Ministry of Statistics & Programme Implementation, Japan Ministry of Internal Affairs & Communication, Korean National Statistical Office, Melbourne Institute, National Bureau of Statistics China, Riksbank, Statistics Indonesia, Swiss National Bank, UK Office for National Statistics (ONS), J.P. Morgan Asset Management. Figures are % change year on year. Heatmap colours are based on the respective central bank target inflation rates. Blue is below target, white is at target and red is above target. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
GTM – Europe |
Glob
al e
cono
my
16
India
Indonesia
Greece
Germany
USUK
EurozoneFrance
ItalySpain
Ireland
AustraliaJapanChina
Korea
GlobalDevelopedEmerging
Taiwan
MexicoBrazil
Russia
SwitzerlandSweden
Euro
zone
Dev
elop
edEm
ergi
ng
Jan
Mar
Nov
Dec May
Jul
Dec
Jan
Feb
Mar
Apr
May
2015 2016
Jun
Jul
Aug
Sep
Oct
2017
Feb
Apr Jun
Aug
Sep
Oct
Nov
17
GTM – Europe |
-2
-1
0
1
2
3
4
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Core inflation
Core inflation% change year on year
Source: Bank of Japan, BLS, Eurostat, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core inflation for the US and Japan is defined as CPI excluding food and energy. Core inflation for the UK and the eurozone is defined as CPI less energy, food, alcohol and tobacco. Japan core CPI has been adjusted down by 2% from April 2014 to March 2015 to remove the estimated impact of the consumption tax hike over this period. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Glob
al e
cono
my
17
Average since 2000 Latest
1,4% 0,9%
2,0% 1,7%
1,7% 2,7%
-0,1% 0,3%
US
Eurozone
JapanUK
18
|GTM – Europe
0
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
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
Global central bank policy
Market expectations for policy rate Central bank balance sheets% USD billions
Source: (Left) Bloomberg, J.P. Morgan Asset Management. Expectations calculated using OIS forwards. (Right) Bank of England (BoE), Bank of Japan (BoJ), European Central Bank (ECB), US Federal Reserve (Fed), Thomson Reuters Datastream, J.P. Morgan Asset Management. *Balance sheet forecast assumptions: BoE to have zero net purchases until the end of ’19; BoJ to have an ann. purchase pace of 50tn yen, then a reduction in the ann. monthly purchase rate by 10tn yen each quarter until Oct ’18, when purchases continue at an ann. monthly pace of 20tn yen; ECB to have net purchases of EUR 30bn per month from Jan ’18 to Sep ’18 and then reduce monthly purchases to EUR 15bn in Oct ’18 and to zero asset purchases after Mar ’19; Fed forecast is based on a monthly reduction of USD 20bn and then stepping up the monthly reduction by a further USD 10bn in each subsequent quarter until reaching a maximum of USD 50bn reduction per month, depending on the monthly maturity schedule of the balance sheet. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
US
Eurozone
Japan
UK
Forecast*
Glob
al e
cono
my
18
Switzerland
US
UK
EurozoneJapan
Switzerland
Dec ’17 Dec ’18 Dec ’21Dec ’20Dec ’19
19
GTM – Europe |Global currency trends
US dollar real effective exchange rate
Euro real effective exchange rate
Index level, broad real effective exchange rate (REER)
GBP real effective exchange rateIndex level, broad real effective exchange rate (REER)
Glob
al e
cono
my
19
Index level, broad real effective exchange rate (REER)
Source: (Top) Thomson Reuters Datastream, US Federal Reserve, J.P. Morgan Asset Management. (Bottom left) European Central Bank, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Bank of England, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
70
80
90
100
110
'99 '01 '03 '05 '07 '09 '11 '13 '15 '1780
85
90
95
100
105
110
'99 '02 '05 '08 '11 '14 '17
70
80
90
100
110
120
130
'73 '77 '81 '85 '89 '93 '97 '01 '05 '09 '13 '17
20
|GTM – Europe
-2
-1
0
1
2
3
4
5
'10 '11 '12 '13 '14 '15 '16 '17-2
-1
0
1
2
3
4
5
6
7
'00 '02 '04 '06 '08 '10 '12 '14 '16
US: GDP and inflation
Contribution to US real GDP growth US inflation% contribution to GDP growth, change year on year % 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.*CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Average since 2000
November2017
Headline CPI* 2,2% 2,2%
Core CPI 2,0% 1,7%
Glob
al e
cono
my
20
Average since 2000 3Q17
2,0% 2,3%Change in inventoriesNet exportsInvestment Consumption
GDP
Government
21
GTM – Europe |
-8
-3
2
7
12
-40
-20
0
20
40
60
'84 '88 '92 '96 '00 '04 '08 '12 '16
Business investment
US profits and the business cycle
US corporate profits, business investment and employment growth% change year on year
Source: BEA, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Glob
al e
cono
my
21
Profits Employment
Recession
22
|GTM – Europe
45
50
55
60
65
70
75
80
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
US: Cyclical sectors
US light vehicle sales US real capital goods ordersMillions, seasonally adjusted annual rate Non-defense capital goods orders ex-aircraft, USD billions, SA
Source: (Left) BEA, FactSet, J.P. Morgan Asset Management. (Right) Census Bureau, FactSet, J.P. Morgan Asset Management, Capital goods orders deflated using the producer price index for capital goods with a base year of 2009. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
22
Average:62,3
November 2017:61,3
Average: 15,6
December 2017:17,9
Glob
al e
cono
my
23
GTM – Europe |US labour market
US unemployment rate and wage growth%, wage growth is year on year
Source: BEA, Thomson Reuters Datastream, J.P. Morgan Asset Management. Wage growth is average hourly earnings of total private production and non-supervisory employees. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Glob
al e
cono
my
23
Unemployment
Wage growth
0
2
4
6
8
10
12
'67 '72 '77 '82 '87 '92 '97 '02 '07 '12 '17
November 2017: 4,1%
November 2017: 2,3%
24
GTM – Europe |
1,0
1,4
1,8
2,2
2,6
1
2
3
4
5
'01 '03 '05 '07 '09 '11 '13 '15 '17-3
2
7
12
17
22
1
2
3
4
5
'01 '03 '05 '07 '09 '11 '13 '15 '17
-2,2
-1,2
-0,2
0,8
1,8
30
40
50
60
70
'89 '93 '97 '01 '05 '09 '13 '17
US inflation and wages
US ISM Manufacturing and core inflation
US wage growth and companies planning to raise wages
Index level, advanced 18 months (LHS); absolute change in year on year core CPI in % (RHS)
% change year on year (LHS); % of businesses (RHS)US wage growth and US quit rate% change year on year (LHS); % of total employment (RHS)
Source: (Top) BLS, ISM, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. (Bottom left) BLS, NFIB, Thomson Reuters Datastream, J.P. Morgan Asset Management. NFIB companies planning to raise wages is a 12-month moving average. Wage growth is average hourly earnings of total private production and non-supervisory employees. (Bottom right) BLS, Thomson Reuters Datastream, J.P. Morgan Asset Management. US quit rate is a three-month moving average. Wage growth is average hourly earnings of total private production and non-supervisory employees. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Glob
al e
cono
my
24
Recession
ISM Manufacturing
Change in core CPI
Wage growth Wage growth
US quit rateNFIB companies planning to raise wages
25
GTM – Europe |
0
1
2
3
4
5
6
7
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
US Federal Reserve outlook
Federal funds rate expectations% Fed funds rate, FOMC and market expectations
Source: Bloomberg, Federal Reserve Bank of New York, US Federal Reserve, J.P. Morgan Asset Management. *Forecasts are median estimates of Federal Open Market Committee (FOMC) participants. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Glob
al e
cono
my
Federal funds rate
Market forecast on 31 December 2017 (mean)
US Fed FOMC forecasts (median)
25
FOMC December 2017 forecasts* 2017 2018 2019 2020
Change in real GDP, 4Q to 4Q 2,5 2,5 2,1 2,0
Unemployment rate, 4Q 4,1 3,9 3,9 4,0
PCE inflation, 4Q to 4Q 1,7 1,9 2,0 2,0
26
GTM – Europe |
-20
-10
0
10
20
-30
-20
-10
0
10
20
30
40
'05 '07 '09 '11 '13 '15 '17
40
30
28
30
27
19
21
35
23 24
15 15
19
10
15
20
25
30
35
40
45
-3
0
3
6
'81 '86 '91 '96 '01 '06 '11 '16
US corporate environment
Tax rates on corporate income%
US future capex intentions and business investmentIndex level (LHS); % change year on year (RHS)
US productivity% change year on year
Source: (Left) Germany Federal Ministry of Finance, OECD, J.P. Morgan Asset Management. (Top right) BEA, Dallas Fed, Kansas City Fed, New York Fed, Philadelphia Fed, Richmond Fed, Thomson Reuters Datastream, J.P. Morgan Asset Management. Capex intentions is an average index level of the five aforementioned Fed districts equally weighted displayed using a three-month moving average. (Bottom right) BEA, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
26
Recession
Future capex intentions
Business investment
US Japan Italy Germany Canada UK
Glob
al e
cono
my
2017 rate, including local and state taxes
2017 central government headline rate
2018 central government headline rate
27
|GTM – Europe
-5
-4
-3
-2
-1
0
1
2
3
'01 '03 '05 '07 '09 '11 '13 '15 '17-3
-2
-1
0
1
2
3
4
5
'01 '03 '05 '07 '09 '11 '13 '15 '17
Japan: GDP and inflation
Japan real GDP growth Japan inflation% change quarter on quarter % change year on year
Source: (Left) Japan Cabinet Office, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) Japan Ministry of Internal Affairs & Communications, Thomson Reuters Datastream, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Average since 2000 3Q17
Real GDP 0,2% 0,6%
Average
Average since 2000
November2017
Headline CPI* 0,0% 0,6%Core CPI -0,1% 0,3%
Glob
al e
cono
my
27
28
|GTM – Europe
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 '18
1
2
3
4
5
6-6
-4
-2
0
2
4
6
8
'80 '85 '90 '95 '00 '05 '10 '15
Japan economic indicators
Japan bank lending and job-to-applicant ratio% lending growth year on year (LHS); ratio of number of jobs to applicants (RHS)
Japan Tankan business conditionsIndex level
Japan wage growth and unemployment% change year on year, six-month moving average (LHS); % (RHS)
Source: (Top left) Bank of Japan, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) Thomson Reuters Datastream, J.P. Morgan Asset Management. Wage growth is the nominal Japan wage index for all industry cash earnings. (Right) Bank of Japan, Japan Institute for Labour Policy and Training, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Glob
al e
cono
my
Job-to-applicant ratio
Bank lending (y/y)
28
Wage growth
Unemployment rate (inverted)
-60
-40
-20
0
20
40
'80 '84 '88 '92 '96 '00 '04 '08 '12 '16
Non-manufacturingManufacturing
29
|GTM – Europe
-10
-5
0
5
10
15
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17-5
0
5
10
15
20
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
China: GDP and inflation
Contribution to China real GDP growth China inflation% change year on year % change year on year
Source: (All charts) FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. **PPI is the Producer Price Index. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Glob
al e
cono
my
29
Average since 2006
November 2017
Headline CPI* 2,7% 1,7%Core CPI 1,2% 2,3%Headline PPI** 1,1% 5,8%Consumption
GDP growthInvestment
Net exports
Average1990-2016 3Q17
9,7% 6,8%
30
|GTM – Europe
0
5
10
15
20
25
1
3
5
7
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
0
10
20
30
40
50
60
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
0
5
10
15
20
25
'96 '00 '04 '08 '12 '16
0
10
20
30
40
50
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
China economic indicators
Source: (Top left) People’s Bank of China (PBoC), J.P. Morgan Asset Management. The augmented credit measure consists of all reported bank claims on the domestic economy, plus bankers’ acceptances, entrusted loans, trust loans, new net corporate bond and non-financial equity financing, issuance of asset-backed securities and interbank loans. Total social financing is a measure of total funds provided to the economy, tabulated from bank loans to individuals and corporations, as well as equity and bond financing to non-financial corporations. RMB bank lending is the sum of all bank-reported claims on domestic borrowers. (Bottom left) PBoC, Thomson Reuters Datastream, J.P. Morgan Asset Management. Average RRR for large and small banks. (Top right) FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. (Bottom right) 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
China credit growth% change year on year
China fixed asset investment (FAI)% change year on year
China policy rate, interbank rate and reserve requirement ratio% rate
China industrial production and retail sales% change year on year
Total social financing
Augmented credit
RMB bank lending
RRRPBoC 1-year deposit rate
Industrial production
Retail sales
Glob
al e
cono
my
30
SHIBOR
OverallPublic
Private
31
|GTM – Europe
0
2
4
6
8
10
12
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18-4
-2
0
2
4
6
8
10
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
EM aggregate: GDP and inflation
EM GDP growth EM inflation% change year on year % change year on year
Source: (All charts) IMF, national statistics agencies, J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. Manufacturing countries are China, India, Malaysia, Mexico, Philippines, Poland, Romania, Thailand, Turkey, Vietnam. Commodity countries are Argentina, Brazil, Chile, Colombia, Indonesia, Kazakhstan, Peru, Russia, South Africa, Venezuela. GDP and inflation aggregates are calculated using the mid-weight average, which is the mean of GDP-weighted average and simple average. Forecasts are from J.P. Morgan Global Economic Research. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
31
Glob
al e
cono
my
Commodity countries
Manufacturing countries Commodity
countries
Manufacturing countries
Forecast Forecast
32
|GTM – Europe
-30
-20
-10
0
10
20
30
'92 '96 '00 '04 '08 '12 '16
Emerging market adjustments
EM currencies vs. US dollar “Fragile Five” current account balance% from fair value, relative to US dollar % 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. (Right) IMF World Economic Outlook October 2017, J.P. Morgan Asset Management. 2017 is an IMF forecast. “Fragile Five” are Brazil, India, Indonesia, South Africa and Turkey. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Glob
al e
cono
my
32
+1 std. dev.
-1 std. dev.
Average
EM currencies cheap relative
to USD
EM currencies expensive
relative to USD
-5
-4
-3
-2
-1
0
1
2
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
33
|GTM – Europe
-2
-1
0
1
2
3
4
5
6
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Emerging markets structural dynamics
Urbanisation and economic growth Contribution to global real GDP growthUrbanisation rates, % and GDP per capita, USD, 1960-2016 % of overall growth
Source: (Left) IMF, J.P. Morgan Asset Management. Urbanisation ratio refers to the proportion of the total population living within an urban area defined by national statistical offices. (Right) IMF World Economic Outlook October 2017, J.P. Morgan Asset Management. 2017 and 2018 are forecasts from the IMF World Economic Outlook October 2017. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
0
10.000
20.000
30.000
40.000
50.000
60.000
70.000
0 20 40 60 80 100
US
China
South Korea
India
GD
P pe
r cap
ita
Urbanisation rate
Global economic growthEM growthDM growth
Glob
al e
cono
my
33
34
|GTM – Europe
0 10 20 30 40 50
Global trade
Exports of goods Global export volumes% of GDP, 2016 % change year on year, three-month moving average
Source: (Left) IMF Direction of Trade, IMF World Economic Outlook October 2017, J.P. Morgan Asset Management. (Right) CPB Netherlands, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Glob
al e
cono
my
China
EM ex-China
US
Eurozone
Other
34
Brazil
US
Eurozone
Canada
India
China
Russia
Mexico
Japan
Korea
DMGlobalEM
UK
-2
-1
0
1
2
3
4
5
6
7
8
'12 '13 '14 '15 '16 '17
35
-23,0% TOPIX -40,6%
73,4% MSCI EM
62,8%
35,4% Small Cap
24,4%
5,5% US S&P 500
2,1%
20,8% Asia ex-Jp
19,7%
27,2% Small Cap
35,8%
29,5% US S&P 500
13,7%
24,4% TOPIX 12,1%
16,6% Small Cap
14,5%
24,8% Asia ex-Jp
35,9%
6,9% TOPIX 8,7%
10,7% US S&P 500
8,5%
-33,7% US S&P 500
-37,0%
67,2% Asia ex-Jp
67,2%
28,3% Asia ex-Jp
15,6%
3,5% HDY Equity
1,5%
18,1% Europe 16,4%
26,7% US S&P 500
32,4%
19,7% Asia ex-Jp
7,7%
12,9% US S&P 500
1,4%
15,3% US S&P 500
12,0%
21,0% MSCI EM
31,0%
6,6% Asia ex-Jp
6,3%
10,3% Small Cap
8,7%
-37,9% HDY Equity
-34,4%
40,2% Small Cap
40,8%
27,5% MSCI EM
14,4%
-5,7% Small Cap
-8,7%
16,8% MSCI EM
17,4%
21,5% TOPIX 54,4%
16,5% Small Cap
6,7%
11,5% Small Cap
2,8%
14,9% MSCI EM
10,1%
12,4% Portfolio
21,4%
5,8% MSCI EM
5,7%
6,8% Portfolio
5,8%
-38,6% Small Cap
-40,4%
37,6% Portfolio
35,8%
23,9% TOPIX 1,0%
-5,8% Portfolio
-7,5%
16,3% Small Cap
18,4%
20,5% Europe 22,3%
16,2% HDY Equity
8,7%
8,8% Europe 5,4%
14,3% HDY Equity
13,1%
11,2% TOPIX 22,2%
5,0% US S&P 500
6,6%
6,8% HDY Equity
6,2%
-40,3% Portfolio -40,1%
34,0% HDY Equity
30,2%
23,1% US S&P 500
15,1%
-7,5% Europe -8,8%
15,6% Portfolio
17,1%
15,3% Portfolio
23,6%
15,3% Portfolio
8,2%
8,3% Portfolio
1,9%
10,1% Portfolio
9,0%
10,9% Europe 13,7%
3,8% Portfolio
4,7%
6,2% TOPIX 4,2%
-43,3% Europe -38,5%
32,5% Europe 28,6%
20,9% Portfolio
11,1%
-9,6% TOPIX -17,0%
14,2% US S&P 500
16,0%
13,9% HDY Equity
20,5%
11,8% MSCI EM
5,6%
6,3% HDY Equity
0,2%
8,9% Asia ex-Jp
6,4%
8,2% Small Cap
19,1%
3,7% Small Cap
5,1%
6,2% Asia ex-Jp
4,9%
-49,8% Asia ex-Jp
-47,7%
22,5% US S&P 500
26,5%
16,2% HDY Equity
8,0%
-14,3% Asia ex-Jp
-14,6%
13,6% HDY Equity
14,0%
-1,1% Asia ex-Jp
6,2%
10,1% TOPIX 10,3%
1,5% Asia ex-Jp
-5,3%
6,6% TOPIX 0,3%
7,0% US S&P 500
21,8%
2,3% HDY Equity
3,5%
4,1% MSCI EM
4,5%
-50,8% MSCI EM
-45,7%
1,5% TOPIX 7,6%
11,7% Europe 7,5%
-15,4% MSCI EM
-12,5%
5,9% TOPIX 20,9%
-6,5% MSCI EM
3,8%
7,4% Europe 5,2%
-4,9% MSCI EM
-5,4%
3,2% Europe 7,9%
5,3% HDY Equity
14,7%
0,7% Europe 1,3%
4,0% Europe 4,2%
World stock market returns
Source: FactSet, MSCI, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. Annualised return covers the period 2008 to 2017. HDY Equity: MSCI AC World High Dividend Yield Index; Small Cap: MSCI The World Small Cap Index. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 30% Europe; 20% S&P 500; 15% EM; 10% Asia ex-Japan; 10% TOPIX; 10% HDY equity and 5% small cap. All indices are total return. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
GTM – Europe |
EUR
Local
Equi
ties
35
2010 201620122008 2011 4Q172009 2013 2014 2015 10-yr ann.2017
36
21,0% 12,2% 13,7% 10,5% 13,2% 8,4% 7,4% 3,8% 3,6% 5,0% 100%
6,2% 15,8% 23,3% 12,8% 19,2% 9,3% 1,2% 0,7% 1,4% 9,7% 100%
36,0% 8,6% 4,3% 8,2% 7,1% 6,9% 13,4% 6,9% 6,0% 0,3% 100%
-0,4 -2,8 2,9 1,3 0,7 6,5 7,8 0,4 -2,7 1,4 1,3
15,5 7,9 13,2 12,1 18,1 21,9 8,8 4,4 10,6 21,7 13,7
-16,6 116,7 144,8 98,7 63,5 34,8 52,2 48,3 3,8 44,5 44,7
254,6 210,9 257,9 339,5 283,5 219,6 108,9 122,7 82,7 265,3 210,3
1,36x 0,65x 0,64x 0,95x 1,11x 1,28x 1,01x 0,81x 0,86x 0,98x 1,00x β
11,8x 15,9x 19,8x 12,7x 17,2x 14,6x 15,2x 15,3x 14,3x 20,9x 15,0x
10,4x 14,8x 16,3x 13,4x 14,2x 12,6x 11,3x 46,4x 12,7x 17,9x 12,9x
13,0x 16,8x 20,9x 13,7x 19,0x 15,6x 17,1x 16,4x 14,4x 24,0x 16,2x
12,2x 15,7x 16,7x 15,0x 15,5x 14,5x 12,3x 14,4x 12,8x 8,4x 13,8x
3,9% 2,9% 2,7% 2,7% 2,4% 2,5% 5,3% 4,6% 4,7% 1,3% 3,2%
4,0% 2,9% 2,8% 2,8% 2,8% 2,8% 4,5% 4,8% 5,0% 1,8% 3,4%
Wei
ghts
Ret
urn
P/E
Div
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 2,3% of the MSCI Europe Value index and 0,3% 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
GTM – Europe |
MSCI Europe Index
Europe weight
4Q17
2017
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
Financials* Health care
Cons. staples
Cons. disc. Industrials Materials Energy Telecom Utilities Tech Europe
Equi
ties
36
Wei
ghts
Ret
urn
P/E
Div
37
|GTM – Europe
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
s
Axis
75x
Europeex-UK
40
60
80
100
120
140
160
180
200
220
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Relative equity earnings and valuations
Global earnings Global valuations NTM USD earnings per share estimates, rebased to 100 in Jan 2009 Current and 25-year historical valuations
Source: (Left) FTSE, IBES, MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. NTM is next twelve months. (Right) MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Valuations refer to NTM aggregate P/E for Europe ex-UK, US, Japan, 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
Japan
Europe
US
EM
37
US Japan EMUK
25-year range25-year average
Current
31 Dec ’16
38
GTM – Europe |
600
1.000
1.400
1.800
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
16 Jul 2007: P/E = 13,3x
1.6414 Sep 2000: P/E = 22,0x
1.623
31 Dec 1996: P/E = 14,6x
714
MSCI Europe Index at inflection points
MSCI Europe Index
Source: FactSet, MSCI, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Return calculations shown in green are based on the total return index. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Characteristic Sep 2000 Jul 2007 Dec 2017Index level 1.623 1.641 1.616P/E ratio (fwd) 22,0x 13,3x 15,0xDividend yield 1,8% 2,8% 3,2%German 10-year 5,3% 4,6% 0,4%
12 Mar 2003: P/E = 14,4x
676
9 Mar 2009:P/E = 9,2x
714
-55% +180%
-54%
Total return:+133%
31 December 2017:P/E = 15,0x
1.616
+210%Equi
ties
38
39
|GTM – Europe
-35
-30
-25
-20
-15
-10
-5
0
5
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17600
800
1.000
1.200
1.400
1.600
1.800
35
40
45
50
55
60
65
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17
European equities: Macro correlations
MSCI Europe and composite PMI MSCI Europe and consumer confidenceIndex level Index level
Source: (Left) Bloomberg, Markit, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. The composite Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing and services sector by surveying output and employment intentions. Dashed line at 50 indicates the level of the PMI where economic conditions are neither accelerating nor deteriorating. (Right) European Commission, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
European consumer confidence
MSCI Europe EU composite PMI
MSCI Europe
39
Equi
ties
40
GTM – Europe |
6
7
8
9
10
11
12
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
0,7
0,9
1,1
1,3
1,5
1,7
30
50
70
90
110
130
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18-70
-50
-30
-10
10
30
50
-10
-8
-6
-4
-2
0
2
4
6
8
10
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
European equities: Earnings fundamentals
Europe earnings per share (EPS) and nominal GDP% change year on year
Europe vs. US operating profit margins%, earnings per share / sales per share
European earnings vs. the euroLast 12 months’ earnings per share, euros (LHS); US dollars per euro (RHS)
Source: (Left) Bloomberg, Eurostat, IBES, IMF World Economic Outlook, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Trailing EPS is last 12 months’ earnings per share. Nominal GDP forecast is calculated as the sum of 2018 forecasts for real GDP from the IMF World Economic Outlook October 2017, and inflation from the Bloomberg contributor composite. (Top right) MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management.(Bottom right) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
40
S&P 500
MSCI Europe
MSCI Europe EPS
EURUSD
MSCI Europe trailing EPS
EU28 nominal GDP2018 GDP
forecast: 3,8%
41
GTM – Europe |
-10
-6
-2
2
6
10
14
18
'11 '12 '13 '14 '15 '16 '17 '18
600
800
1.000
1.200
1.400
1.600
1.800
60
70
80
90
100
110
120
130
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17
54 21 18 17 14 9 6 6 6 42
10
5
10
15
20
25
European equities: Earnings
MSCI Europe earnings and performanceNext 12 months’ earnings per share estimates (LHS); index level (RHS)
Eurozone yearly earningsEPS, % change year on year
European 3Q17 earnings by sectorEPS, % change year on year
Source: (Left) IBES, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. (Top right) IBES, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Expected earnings growth and delivered earnings growth are calculated using IBES consensus estimates for next 12 months’ EPS and last 12 months’ EPS respectively. Year on year growth rates are calculated using year end data. (Bottom right) J.P. Morgan Securities Research, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
MSCI Europe index levelMSCI Europe EPS
Equi
ties
41
Expected earnings growthDelivered earnings growth
42
GTM – Europe |
-20
-10
0
10
20
-30
-20
-10
0
10
20
30
'04 '06 '08 '10 '12 '14 '16 '18
0,0
0,5
1,0
1,5
2,0
2,5
3,0
European equities: Large vs. mid/small capitalisation
Small cap relative performance and economic performance% change year on year, relative performance (LHS); % (RHS)
Risk-adjusted returns by company size and holding periodSharpe ratio level*
European small cap: Price-to-book ratiox, multiple
Source: (Left) Markit, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Bloomberg, MSCI, J.P. Morgan Asset Management. *Risk-adjusted returns are calculated assuming the risk-free rate is equal to zero. (Bottom right) Citibank, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
MSCI small cap minus large cap performance
12-month percentage change in eurozone composite PMI
Equi
ties
Small capsMid capsLarge caps
Average: 1,8x
31 December 2017:2,0x
1-year 5-year 10-year
42
43
|GTM – Europe
0
10
20
30
40
'80 '84 '88 '92 '96 '00 '04 '08 '12 '16
7
12
17
22
27
'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
-1
0
1
2
3
4
5
6
7
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
European equities: Valuations
MSCI Europe dividend yield and 10-year bond yield% yield
MSCI Europe forward P/E ratiox, multiple
MSCI Europe cyclically adjusted P/E ratiox, adjusted using trailing 10-year average inflation-adjusted earnings
Source: (Top left) IBES, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) FactSet, MSCI, J.P. Morgan Asset Management. (Right) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
31 December 2017:15,0x
Average: 14,7x
Average: 17,7x
31 December 2017:18,4x
Dividend yield
10-year German Bund yield
31 December 2017:3,2%
31 December 2017:0,4%
43
44
GTM – Europe |
0 1 2 3 4 5
5
10
15
20
UK equities
FTSE All-Share earnings and performanceNext 12 months’ earnings per share estimates (LHS); index level (RHS)
Commodities weights in global equity markets% of index
Dividend yield and ex-energy dividend yield% yield
Source: (Left) FTSE, IBES, 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) IBES, MSCI, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
FTSE All-Share index levelFTSE All-Share EPS
Equi
ties
Dividend yieldDividend yield ex-energy
44
UK
Eurozone
EM
Japan
US
World
FTSE All-Share MSCI Europe ex-UK
S&P 500 MSCI Japan
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
45
GTM – Europe |
600
800
1.000
1.200
1.400
1.600
1.800
2.000
2.200
2.400
2.600
2.800
'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, J.P. Morgan Asset Management. The P/E ratios are forward P/E ratios. Return calculations shown in green are based on the total return index. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 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%
Characteristic Mar 2000 Oct 2007 Dec 2017Index level 1.527 1.565 2.674P/E ratio (fwd) 22,6x 14,8x 18,5xDividend yield 1,1% 1,7% 1,9%US 10-year 6,2% 4,6% 2,4%
+376%
31 December 2017:P/E = 18,5x
2.674
Equi
ties
45
46
GTM – Europe |
0
500
1.000
1.500
2.000
2.500
3.000
30
35
40
45
50
55
60
65
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
0
500
1.000
1.500
2.000
2.500
3.000
200
300
400
500
600
700
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
0
500
1.000
1.500
2.000
2.500
3.000
80
90
100
110
120
130
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
US equities: Macro correlations
ISM manufacturing and S&P 500 performanceIndex level
Source: (Left) ISM, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. The Institute for Supply Management (ISM) survey assesses the economic health of the manufacturing sector by surveying output and employment intentions. Dashed line at 50 indicates the level of the ISM survey where economic conditions are neither accelerating nor deteriorating. (Top right) BLS, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management.(Bottom right) Conference Board, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
46
Initial jobless claims vs. S&P 500 performanceThousands, three-month moving average (LHS); index level (RHS)
Leading economic indicator vs. S&P 500 performanceIndex level
ISM manufacturing S&P 500 index level
Leading economicindicator S&P 500 index level
Initial jobless claims S&P 500 index level
47
GTM – Europe |
1
2
3
4
5
6
60
70
80
90
100
110
120
130
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
125
135
145
155
165
1,2
1,6
2,0
2,4
2,8
60
70
80
90
100
110
120
130
'15 '16 '17 '18
US equities: Earnings and performance
US earnings forward estimatesUSD, S&P 500 end-of-year earnings per share estimates (EPS)
US bond yield vs. value/growth performance*Relative index level (LHS); % (RHS)
US bond yield vs. banks/staples performance**Relative index level (LHS); % (RHS)
Source: (Left) IBES, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Russell, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) MSCI, Thomson Reuters Datastream, 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
US 10-year yield
Value/growth
US 10-year yieldBanks/staples
47
2019e EPS
2018e EPS
2017e EPS
Next 12 month EPS
Oct ’16 Jan ’17 Apr ’17 Jul ’17 Oct ’17 Jan ’18
48
GTM – Europe |
600
800
1.000
1.200
1.400
1.600
1.800
2.000
2.200
2.400
2.600
2.800
60
70
80
90
100
110
120
130
140
150
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '170
10
20
30
40
50
'00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10
101214161820222426
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
US equities: Valuations
S&P 500 earnings and performanceNext 12 months’ earnings per share estimates (LHS); index level (RHS)
S&P 500 forward P/E ratiox, multiple
S&P 500 Shiller cyclically adjusted P/Ex, adjusted using trailing 10-year average inflation-adjusted earnings
Source: (Left) IBES, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) IBES, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Robert Shiller, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
48
S&P 500 index levelS&P 500 EPS
31 December 2017:32,4x
Average:16,8x
Average: 15,8x
31 Jul 1999: 24,5x
31 December 2017:18,5x
49
GTM – Europe |
0,0
0,5
1,0
1,5
2,0
1,3
1,5
1,7
1,9
2,1
2,3
2,5
'00 '02 '04 '06 '08 '10 '12 '14 '1620
40
60
80
100
120
140
160
15
20
25
30
35
40
45
50
55
'01 '03 '05 '07 '09 '11 '13 '15 '17
36
38
40
42
44
46
'00 '02 '04 '06 '08 '10 '12 '14 '16
US corporate fundamentals and activity
Cash returned to S&P 500 shareholdersUSD (LHS); USD billions, four-quarter moving average (RHS)
Non-financial corporate debt% of GDP
Capital expenditure and M&A activityUSD trillions
Source: (Left) Bloomberg, Standard & Poor’s, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom right) BEA, Bloomberg, Thomson Reuters Datastream, J.P. Morgan Asset Management. M&A activity is the quarterly value of officially announced transactions, and capital expenditures are private non-residential fixed domestic investment. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Share buybacks
Dividends per share
Capital expenditures Global M&A activity
3Q17:45,3%
49
Equi
ties
50
|GTM – Europe
-100-90-80-70-60-50-40-30-20-10
0
'28 '33 '38 '43 '48 '53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08 '13
US bull and bear markets
S&P 500 declines from all-time highs, %
Characteristics of past bear and bull markets*
Source: Bloomberg, 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. Chart and table shows price return. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
20% market decline
50
Market correctionsBear markets Macro
environment Bull markets Return before peak
Market Bear DurationRecession
Bull Bull Duration 12 24peak return (months) start date return (months) months 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 3910 Global Financial Crisis – leverage/housing, Lehman collapse Oct 2007 -57 17 Oct 2002 101 61 16 31
Current cycle – – – Mar 2009 295 106MEDIAN – - 42% 21 158% 68 27% 39%
7
9
8
6
5
4
3
2
1
10Recession
51
GTM – Europe |
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
0 2 4 6 8 10
Interest rates and equities
Correlations between weekly equity returns and interest rate movementsRolling two-year correlation of weekly returns of the S&P 500, MSCI Europe Index and the 2-year US Treasury yield, 1984-2017
Source: MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
S&P 500
MSCI Europe
Equi
ties
51C
orre
latio
n
2-year US Treasury yield
Positive relationship between yield movements and equity returns
Negative relationship between yield movements and equity returns
52
GTM – Europe |
0
20
40
60
80
100
Japanese equities: Earnings and performance
TOPIX earnings and performanceIndex level, next 12 months’ earnings estimates (LHS); index level (RHS)
TOPIX vs. USDJPYIndex level (LHS); yen per US dollar (RHS)
Stock market composition% of total stock market
Source: (Left) IBES, 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) FactSet, MSCI, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
TOPIX EPS TOPIX index level
Equi
ties
52
USDJPY
TOPIX
Defensive Cyclicals
US Europe ex-UK JapanUK
70
80
90
100
110
120
130
400600800
1.0001.2001.4001.6001.8002.000
'07 '09 '11 '13 '15 '17
100
300
500
700
900
1.100
1.300
1.500
1.700
1.900
20
30
40
50
60
70
80
90
100
110
120
130
140
'07 '09 '11 '13 '15 '17
53
GTM – Europe |
-5
0
5
10
15
3
5
7
9
11
13
'90 '93 '96 '99 '02 '05 '08 '11 '14 '17
0
4
8
12
16
20
'90 '95 '00 '05 '10 '150
5
10
15
20
25
30
2014 2015 2016 2017
Japanese equities: Corporate governance
Listed companies’ dividend pay-out and share buybacksYen trillions
Japan corporate profits and return on equity% of GDP (LHS); % (RHS)
Japanese companies appointing independent directors% of publicly listed large companies
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. 2017 figures for share buybacks and dividends are estimates. (Top right) Bloomberg, Japan Ministry of Finance, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Corporate profits are operating profits and excludes financials and insurance companies. ROE is return on equity for MSCI Japan. (Bottom right) Japan Association of Corporate Directors, J.P. Morgan Asset Management. 2017 figures are estimates. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
DividendsShare buybacks*
53
Corporate profits
ROE
More than 50% independent directors
More than 33% independent directors
54
|GTM – EuropeDeveloped 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
Average
Current
Std
dev
from
glo
bal a
vera
ge54
+2,5 Std dev
Average
-2,5 Std dev
+5,0 Std dev
-5,0 Std devItaly Spain UK Germany France Japan ACWI USSwitz.DM Index
How to interpret this chartExpensive relative to
own history
Cheap relative to
own history
Expensive relative to
world
Cheap relative to
world
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 -2,2 12,9x 1,2x 5,8x 4,2% 11,7x 1,2x 4,6x 4,5%Spain -2,2 12,9 1,3 5,2 4,1 11,8 1,6 5,0 4,8UK -0,6 14,4 1,9 9,3 4,3 12,5 1,8 7,9 4,0Germany -0,3 13,7 1,7 8,8 3,0 12,0 1,5 6,6 3,3France 0,0 15,9 1,6 8,9 3,1 12,9 1,5 6,9 3,5Japan 0,5 14,6 1,4 8,6 2,1 15,4 1,3 7,1 1,8ACWI 1,5 16,3 2,2 10,5 2,5 13,7 1,9 8,7 2,8DM 1,9 17,0 2,3 11,1 2,5 14,1 1,9 8,7 2,7Switz. 2,0 17,7 2,5 13,2 3,2 14,4 2,3 11,8 3,1US 4,1 18,7 3,1 12,8 1,9 14,9 2,3 9,8 2,1
55
|GTM – EuropeEmerging market equity valuations by country
Emerging 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
How to interpret this chart
Std
dev
from
glo
bal a
vera
ge
Equi
ties Russia Korea Brazil ACWIChinaEMTaiwan S. Africa IndiaMexico
55
Expensive relative to
own history
Cheap relative to
own history
Expensive relative to
world
Cheap relative to
world
Average
Current
+2 Std dev
Average
-2 Std dev
+4 Std dev
-4 Std dev
+6 Std dev
-6 Std dev
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.
Russia -5,1 6,2x 0,6x 3,6x 6,4% 6,8x 0,9x 4,5x 2,9%Korea -1,9 8,5 1,0 4,8 2,2 9,5 1,2 5,9 1,7Taiwan -1,1 13,2 1,7 8,6 4,2 13,6 1,7 8,3 3,9Brazil -1,0 12,7 1,7 8,3 3,6 9,8 1,7 7,8 4,1EM -0,7 12,4 1,6 7,7 2,7 11,0 1,6 7,7 3,0China 0,7 13,3 1,8 8,4 2,1 11,5 1,7 7,5 2,9Mexico 0,8 16,1 2,1 8,6 2,6 14,9 2,5 8,7 2,3ACWI 1,5 16,3 2,2 10,5 2,5 13,7 1,9 8,7 2,8S. Africa 1,6 15,9 2,1 13,9 3,0 12,1 2,0 9,0 3,7India 4,8 18,7 2,8 12,7 1,5 15,5 2,6 11,5 1,8
56
GTM – Europe |
10
40
70
100
130
160
-1
0
1
2
3
4
5
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
CRB Commodity Index170
330
490
650
406080
100120140160180
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
85
95
105
115
125
13520406080
100120140160180
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
Emerging markets: Macro correlations
EM vs. DM growth and equity performance%, next 12 months’ growth estimates (LHS); index level (RHS)
EM equity relative performance and commoditiesRelative index level rebased to 100 at 1997 (LHS); index level (RHS)
Relative EM / DM equity performance and USD REERRelative index level rebased to 100 at 1997 (LHS); index level (RHS)
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. Index level is a relative index level rebased to 100 at 1997. (Top right) Bloomberg, Commodity Research Bureau, MSCI, J.P. Morgan Asset Management. (Bottom right) BIS, Bloomberg, MSCI, J.P. Morgan Asset Management. For all charts, MSCI EM and MSCI DM returns are in USD. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
EM growth & equity outperformance
EM growth & equity underperformance
EM minus DM GDP growth
MSCI EM / MSCI DM
56
MSCI EM / MSCI DM
USD REER (inverted)
MSCI EM / MSCI DM
57
GTM – Europe |
507090
110130150170190210
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
-30
-20
-10
0
10
20
30
40
50
60
321
193
128
33
0
200
400
Emerging markets: Flows, earnings and income
Total non-resident flows into EM assetsUSD billions
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) IBES, MSCI, Thomson Reuters Datastream,J.P. Morgan Asset Management. EPS is earnings per share. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
EM Latin America
EM Asia
Emerging markets Europe US Japan
57
EM debt EM equities
EM Europe
Aug ’14 Feb ’15 Feb ’16 Aug ’16Aug ’15 Feb ’17 Aug ’17
58
|GTM – Europe
-20
0
20
40
60
0,75 1,25 1,75 2,25 2,75 3,250,75
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
MSCI Emerging Markets Index: Price-to-book ratio MSCI Emerging Markets Index: Price-to-book and returnsx, multiple Price-to-book ratio and next five-year annualised % price return*
Source: (All charts) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Dots represent monthly data points over the past 20 years. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
58
-2,0 std. dev.
+2,0 std. dev.
Average: 1,8x
31 December 2017:1,8x
Current level
59
GTM – Europe |
0,00,4 0,8
2,2 2,2
3,2
4,35,1
5,5
0
1
2
3
4
5
6
0
100
200
300
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Equity income
S&P 500 total return index: Dividends and capital appreciation
MSCI Europe indices: Price vs. total return*
%, average annualised returns
Rebased to 100 at start of 2000Sources of income% yield
Source: (Top) Ibbotson, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) FTSE, Thomson Reuters Datastream, J.P. Morgan Asset Management. High dividend yield is the MSCI Europe High Dividend Index. *Returns in local currency. (Bottom right) Barclays, BofA/Merrill Lynch, FTSE, Thomson Reuters Datastream, J.P. Morgan Asset Management. Euro corporate: Bloomberg Barclays Euro Aggregate Credit - Corporate; Converts: Bloomberg Barclays Global Convertibles; EM equity: MSCI EM; Global REITs: FTSE NAREIT Index; High yield: BofA/Merrill Lynch Developed Markets High Yield Constrained; EM debt: J.P. Morgan EMBI Global. Yields for the bond indices are yield to worst and dividend yields for the equity indices. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Eurozone average inflation: 1,6% (12 months to November 2017)
DividendsCapital appreciation
Equi
ties
High dividend yield total returnTotal returnPrice return
+177%
+90%
+7%
Bunds Eurocorp
Converts MSCIEurope
Global REITS
EMECash High yield
EM debt
59
4,7% 5,4% 6,0% 5,1% 3,3% 4,2% 4,4% 2,5%1,8%
2,1% 3,9%
13,9%
-5,3%
3,0%
13,6%
4,4% 1,6%12,6% 15,3%
-2,7%
11,6% 6,0%
-10
0
10
20
1926-1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010-2017 1926-2017
60
GTM – Europe |
0
10
20
30
40
50
60
'98 '00 '02 '04 '06 '08 '10 '12 '14 '1680
90
100
110
120
0,2
0,3
0,4
0,5
0,6
0,7
0,8
0,9
'98 '01 '04 '07 '10 '13 '16
December 2017:0,35
Correlation, dispersion and volatility
MSCI World sector performance relative to indexRelative index level rebased to 100 in Oct 2016, local currency
Cross country equity index correlation%, rolling six-month average pairwise correlations
VIX volatility indexIndex level, implied volatility of S&P 500 Index options
Source: (Left) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Bloomberg, J.P. Morgan Asset Management. Correlation calculated from 10 market indices. (Bottom right) CBOE, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Equi
ties
60
TechnologyFinancials
Consumer staples
UtilitiesEnergyTelecommunications
December 2017: 11,0
Nov ’16 Jan ’17 May ’17 Jul ’17Mar ’17 Sep ’17 Nov ’17 Jan ’18
61
|GTM – Europe
22,4% US IG 7,5%
13,4% EM Debt
1,8%
21,0% US HY 17,5%
6,1% Euro HY
6,1%
1,8% Infl Linked
1,8%
10,1% US HY 8,0%
20,9% EM Debt
6,2%
12,3% US Treas.
0,8%
12,9% EM Debt
9,6%
2,4% Euro IG 2,4%
0,6% Euro IG 0,6%
8,9% EM Debt
6,8%
19,6% US Treas.
5,1%
10,6% US IG -0,7%
10,1% Euro HY 10,1%
1,4% Infl Linked
1,4%
0,6% Euro HY
0,6%
7,8% US IG 5,7%
16,7% US HY 2,5%
6,5% Portfolio
0,2%
9,3% US IG 6,1%
0,2% Euro Gov
0,2%
0,6% Euro Gov
0,6%
7,7% Euro HY
7,7%
15,4% Portfolio
7,3%
6,3% US HY -4,6%
8,0% Portfolio
6,3%
-3,1% Portfolio
4,0%
-0,3% Portfolio
0,6%
6,8% Portfolio
5,6%
13,1% Euro Gov
13,1%
1,6% Euro Gov
1,6%
4,7% Euro IG 4,7%
-4,9% EM Debt
8,3%
-0,4% US IG 1,2%
5,4% US Treas.
3,3%
8,4% Euro IG 8,4%
0,8% Infl Linked
0,8%
4,1% US Treas.
1,0%
-5,6% US HY 7,5%
-1,1% US HY 0,4%
4,9% Euro Gov
4,9%
5,5% Euro HY
5,5%
0,5% Euro HY
0,5%
3,8% Infl Linked
3,8%
-6,5% US IG 6,4%
-1,5% US Treas.
0,1%
4,8% Euro IG 4,8%
5,3% Infl Linked
5,3%
-0,6% Euro IG -0,6%
3,2% Euro Gov
3,2%
-10,1% US Treas.
2,3%
-1,9% EM Debt
-0,3%
3,0% Infl Linked
3,0%
Euro HY
Global fixed income: Yields and returns
Fixed income sector returns
Source: (All charts) Barclays, BofA/Merrill Lynch, FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. YTM = Yield to maturity. Annualised return covers period 2008 to 2017. 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: Bloomberg Barclays US Agg. – Corporate – Investment Grade; US Treasuries: Bloomberg Barclays US Agg. Gov. – Treasury; Euro IG: Bloomberg Barclays Euro Agg. – Credit – Corporate; Euro Gov.: Bloomberg Barclays Euro Agg. Government; Infl Linked: Bloomberg Barclays Euro Gov. Inflation-Linked. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 20% Euro Gov.; 15% US Treasuries; 10% Linkers; 15% US IG; 10% Euro IG; 10% US HY; 5% Euro HY; 15% EM Debt. Returns are unhedged in euro and local currencies. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Europe. Data as of 31 December 2017.
|
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Lcl:
EU IG
US Treasury
US Corporate IG
Infl Linked
Euro Gov
EM Debt
Portfolio
US HY
61
Characteristics
YTM(%)
Size
(EUR bns)Duration(years)
6,2 1.091 3,8
5,7 292 7,1
3,3 4.324 7,6
3,1 246 3,6
2,6 - 6,5
2,2 6.215 6,2
0,7 1.865 5,3
0,6 6.162 7,5
-0,3 502 8,1
2016201510-yr ann.2014 2017 4Q17
62
GTM – Europe |
0
20
40
60
80
'14 '15 '16 '17
Government bonds
Source: (Left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Bloomberg, Thomson Reuters Datastream, US Federal Reserve,J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. (Bottom right) Bloomberg, BofA/Merrill Lynch, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Fixe
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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 Fed funds rate Recession
62
%10-year government bond yields
UK
Germany
US
Japan
-8
-6
-4
-2
0
2
4
6
'71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15
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0
2
4
6
8
10
12
14
16
18
'80 '84 '88 '92 '96 '00 '04 '08 '12 '16
63
|GTM – EuropeInflation expectations and real yields
10-year break-even inflation Real 10-year government bond yields% %, nominal yield minus 10-year break-even inflation
Source: (Left) Bloomberg, J.P. Morgan Asset Management. Break-even inflation is the difference in yield between nominal and inflation-protected government bonds. (Right) Thomson Reuters Datastream, J.P. Morgan Asset Management. Real yield is the difference between 10-year government bond yields and 10-year inflation break-evens. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
UK
US
Germany
63
Fixe
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UK
US
Germany
-3
-2
-1
0
1
2
3
4
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '170
1
2
3
4
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
64
|GTM – Europe
-20
-16
-12
-8
-4
0
4
-5
0
5
10
15
20
25
Fixed income interest rate risk
Current and historical yields for selected indices
Illustration of the impact a 1% rise in local interest rates may have on selected indices
% 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 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 Europe: Bloomberg Barclays Pan-European Aggregate Government – Treasury; Floating rate: Bloomberg Barclays US Floating Rate Notes (BBB); IG credit: Bloomberg Barclays Global Aggregate – Corporates; High yield: Bloomberg Barclays Global High Yield; Convertibles: Bloomberg Barclays Credit/Rate Sensitive;EMD sovereign USD: J.P. Morgan EMBIG; EMD corporate ($): J.P. Morgan CEMBI; EMD sovereign (LC): J.P. Morgan GBI-EM. For illustrative purposes only.Change in bond price is calculated using both duration and convexity, with the exception of Convertibles, which is historical change.Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
How to interpret this chart
Average
Current
Max
Min
Treasury: Europe 1-3 years 5-7 years 10+ years
Investment-grade credit
Highyield
EMD USD sovereign
EMD USD corporate
EMD LC sovereign
Floatingrate
Price returnTotal return
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64
Convertibles
Treasury: Europe
1-3 years 5-7 years 10+ years Investment-grade credit
High yield
EMD USD sovereign
EMD USD corporate
EMD LC sovereign
Floatingrate
Convertibles
65
|GTM – Europe
0
6
12
18
24
'75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15
Rate hiking cycle
Historical impact of Fed tightening
Federal funds rate and US 10-year Treasury yield%
Source: Bloomberg, Standard & Poor’s, Thomson Reuters Datastream, US Federal Reserve, 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. 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Market reaction in prior rate hiking cycles
May 1983 –August 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
Federal funds rate (change in bps) 294 325 300 175 425 304 125
10-year Treasury yield (change in bps) 204 92 188 49 51 117 12
2-year Treasury 10,0% 3,8% 1,7% 2,9% 3,0% 4,3% 1,0%
10-year Treasury 3,7% 2,1% -6,9% 0,6% 3,6% 0,6% 3,4%
30-year Treasury 0,5% 2,8% -10,9% 1,8% 8,2% 0,5% 12,4%
US investment grade 1,3% 5,4% -3,0% 0,2% 6,1% 2,0% 13,1%
Emerging market debt - ‐ -21,4% 16,9% 27,4% 7,6% 19,1%
S&P 500 -3,0% 10,6% 0,7% 9,7% 16,2% 6,8% 34,6%US dollar 10,2% 1,7% -4,7% 3,4% -5,8% 0,9% -5,8%
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65To
tal R
etur
n
US 10-year Treasury
Federal funds rate
66
GTM – Europe |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) Bloomberg, BofA Merrill Lynch, 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) Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
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UK IG
US IG energy
US IGEuro IG
66
USD billions, rolling 12-month totalForeign net purchases of US corporate bonds
Net leverage
Interest coverage
-50
0
50
100
150
200
'13 '14 '15 '16 '17
6
8
10
12
14
16
1
2
3
'00 '02 '04 '06 '08 '10 '12 '14 '16
0
100
200
300
400
500
600
700
'02 '04 '06 '08 '10 '12 '14 '16
67
|GTM – EuropeGlobal 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
1-3 years 3-7 years 7-10 years 10+ years
Number of issuers
USD EUR GBP CAD Other
GBPUSD
EUR
67
0
20
40
60
80
100
0 100 200 300 400 500
0
20
40
60
USD EUR GBP
$7.79568%
$2.56122%
$5635%
$256 2%
$2262%
Fixe
d in
com
e
68
GTM – Europe |
0
50
100
150
200
250
1-2 2-3 3-4 4-5 5-6 6-7 7-8 8+
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
BB
US high yield bonds
US high yield spreads and defaults%, Fed funds rate and defaults (LHS); basis points, spread over 10-year US Treasury (RHS)
US high yield leverage measuresx, 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 left) Bloomberg, BofA/Merrill Lynch, J.P. Morgan Asset Management. Maturity schedule is calculated using BofA/Merrill Lynch US High Yield Constrained Index (HUC0). (Bottom right) 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Fixe
d in
com
e
Federal funds rate (LHS)
Asset class Average since 1986 LatestHY spread; bps (RHS) 555 392
HY defaults (LHS) 3,9%1,3% total index
2,1% energy
Interest coverage ratio
Net leverage
68
BCCC & lower
US high yield maturity scheduleUSD billions
Years to maturity3
4
5
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17
69
GTM – Europe |
0
5
10
15
20
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
3
4
5
6
7
'06 '08 '10 '12 '14 '16
Asset class Average LatestHY spread - bps (RHS) 615 278HY defaults (LHS) 4,6% 0,3%
European high yield bonds
European high yield: Spread to worst and default rates
Default rate 2002: 34%
Fixe
d in
com
e
%, defaults (LHS); basis points, spread (RHS)
69
x, leverage and interest coverage ratioEuropean high yield leverage measures
Interest coverage ratio
Net leverage
Source: (Top) BofA/Merrill Lynch, 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 GFICC Quantitative Research Group. Defaults are defined as a bond rated as Ca or lower. 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) Bloomberg, BofA/Merrill Lynch, J.P. Morgan Asset Management. Maturity schedule is calculated using BofA/Merrill Lynch Euro Developed Markets Non-Financial High Yield Constrained Index (HECM). (Bottom right) 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
European high yield maturity scheduleEUR billions
Years to maturity
0
10
20
30
40
50
1-2 2-3 3-4 4-5 5-6 6-7 7-8 8+
BB
BCCC & lower
0
500
1.000
1.500
2.000
2.500
70
|GTM – Europe
2
3
4
5
6
7
8
9
10
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Emerging market bonds
Real 10-year government bond yields Corporate and sovereign EMD spreads % yield % spread over 10-year US Treasury
Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Right) J.P. Morgan DataQuery, J.P. Morgan Asset Management. EM sovereign local currency is theJ.P. Morgan GBI-EM; EM sovereigns USD is the J.P. Morgan EMBIG; EM corporate USD is the J.P. Morgan CEMBI. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Fixe
d in
com
e
70
Developed markets
Emerging marketsAverage Latest
EM sovereigns local 4,2% 4,6%EM sovereigns USD 3,6% 3,1%EM corporates USD 3,7% 2,8%
-3
-2
-1
0
1
2
3
4
5
6
7
8
71
GTM – Europe |
0
50
100
150
200
'07 '09 '11 '13 '15 '170
40
80
120
160
'92 '96 '00 '04 '08 '12 '16
Metal pricesIndex level, rebased to 100 in Jan 2007
Commodities
Crude oil pricesUSD per barrel
Crude Oil price and US rig countUSD (LHS); number of rigs (RHS)
Source: (Left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Baker Hughes, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Bloomberg, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Oth
er a
sset
s
71
2017 change Change since 2016 lowBrent crude +17,5% +94,2%
Average: $50
31 Dec 2017: $67
Share of total oil supply
In % 2012 1Q 2017 2Q
OPEC 42% 40%
US 12% 20%
RigsOil price
Nickel
Copper
Zinc
Aluminium
0
600
1.200
1.800
0
30
60
90
120
150
180
'07 '09 '11 '13 '15 '17
72
|GTM – Europe
0
500
1.000
1.500
2.000
2.500
'78 '82 '86 '90 '94 '98 '02 '06 '10 '14 '18
-1,0
-0,5
0,0
0,5
1,01.000
1.300
1.600
1.900
'12 '13 '14 '15 '16 '17 '18
Gold
Gold vs. US 10-year Treasury real yields Gold price$ per Troy ounce (LHS), % inverted (RHS) $ per Troy ounce
Source: (Left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) Thomson Reuters Datastream, 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. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe.Data as of 31 December 2017.
Oth
er a
sset
s
Inflation-adjusted gold price
Gold price
Real yields (inverted)
Gold
72
Change since 2001 low
Change since 2011 peak
2017 change
Gold +394,0% -28,6% +12,6%
31 Dec 2017: $1.303
73
GTM – Europe |
-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
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, 2001-2017
Source: (Left) MSCI, J.P. Morgan Multi-Asset Solutions, 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 Bloomberg Barclays US Aggregate Bond Index. Downside protection refers to attempting to minimise the impact of any falls in the underlying investments. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
HFRI FW**US bonds***
HFRI FW**S&P 500
S&P 500 up S&P 500 down Bond downBond up
5-year Sharpe ratio
3-year Sharpe ratio
Oth
er a
sset
s
73
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17
74
GTM – Europe |
Recession
02468
10121416
'70 '80 '90 '00 '10
11,4
5,2
9,6
6,6
14,1
8,9
13,512,6
0
4
8
12
16
-5
0
5
10
15
20
25
30
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%, US allowed return on equity 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, FactSet, Frank Russell, MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. **Data as of 4Q16. (Bottom right) Bloomberg, Regulatory Research Associates, J.P. Morgan Asset Management. Light grey columns in chart indicate US recessions determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
MSCI ACWI
Electric
Natural gas
10-yr US Treasury
Utility bond
Median
Public Private
25th percentile
Global Buyout & Growth Equity Index
Oth
er a
sset
s
5 years
74
10 years 15 years 20 years
75th percentile
75
1,00 0,80 0,87 0,66 0,86 -0,03 0,28 0,76 -0,20 0,47 0,80 0,14
0,87 1,00 0,72 0,72 0,74 -0,10 0,49 0,46 0,10 0,47 0,58 0,25
0,83 0,73 1,00 0,62 0,97 -0,04 0,44 0,82 -0,10 0,59 0,82 -0,08
0,93 0,90 0,78 1,00 0,67 -0,06 0,40 0,28 0,16 0,36 0,41 0,18
0,87 0,74 0,97 0,85 1,00 0,03 0,50 0,74 0,01 0,46 0,74 -0,08
0,08 0,09 0,15 0,09 0,17 1,00 0,27 -0,03 0,41 -0,37 -0,15 -0,23
0,73 0,79 0,63 0,76 0,66 0,49 1,00 0,13 0,78 0,30 0,12 -0,08
0,10 -0,05 0,51 -0,01 0,40 0,08 0,02 1,00 -0,39 0,50 0,86 -0,16
0,53 0,62 0,44 0,57 0,47 0,69 0,94 -0,11 1,00 -0,03 -0,41 -0,16
0,39 0,57 0,48 0,45 0,38 -0,08 0,53 0,31 0,41 1,00 0,57 0,18
0,80 0,48 0,66 0,66 0,74 0,11 0,53 0,31 0,37 0,17 1,00 0,06
0,05 0,14 -0,25 0,26 -0,15 -0,02 0,27 -0,79 0,33 -0,07 -0,16 1,00
Correlation of returns (EUR)
Source: Barclays, Bloomberg, Citigroup, J.P. Morgan Economic Research, MSCI, NCREIF, Standard & Poor’s, US Federal Reserve, J.P. Morgan Asset Management. Pan Europe bonds: Citigroup Europe Government Bond; EM debt: JP Morgan EMBI Global; High yield bonds: JP Morgan Domestic High Yield; Global bonds: Bloomberg Barclays Global Aggregate; Commodities: Bloomberg Commodity; Hedge Funds: CS/Tremont Multi-Strategy; Real estate: blended index, which includes NCREIF Property Index data and Federal Reserve estimates of changes in capital value. All indices are total returns based on quarterly return data in euros; real estate correlations are lagged by one quarter. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
GTM – Europe |10-year correlations
3-year correlations
MSCIEurope S&P 500 MSCI EM MSCI Asia
ex-JapanPan Europe
bonds EM debt High yieldbonds
Globalbonds Cmdty Hedge
fundsReal
estateMSCI Japan
MSCIEurope
S&P 500
MSCI EM
MSCI Asiaex-Japan
Pan Europebonds
EM debt
High yieldbonds
Global bonds
Commodities
HedgefundsRealestate
MSCI Japan
Oth
er a
sset
s
75
76
GTM – Europe |
-6 -4 -2 0 2 4 6 8 10
Asset markets in coming years
Past and expected returns% per year
Source: 2018 Long-term capital market assumptions, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management. Returns are in euros. The projections in the chart above are based on J.P. Morgan Asset Management’s (JPMAM) proprietary long-term capital market assumptions (10 – 15 years) for returns of major asset classes. The resulting projections include only the benchmark return associated with the portfolio and do not include alpha from the underlying product strategies within each asset class. The assumptions are presented for illustrative purposes only. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
EM equity
Private equity
UK large cap
Eurozone large cap
EM local currency debt
US direct real estate
US large cap
Global infrastructure
Diversified hedge funds hedged
Commodities
European high yield bonds
Euro cash
Euro government bonds
World government bonds
US high yield bonds hedged
Oth
er a
sset
s
76
Expected return in coming 10-15 yearsReturn over past 10 years
Japan equity
77
GTM – Europe |
67
24
76
35
92
50
0
20
40
60
80
100
Life expectancy
Probability of reaching ages 80 and 90% probability, persons aged 65, by gender and combined couple
Source: ONS 2014-2016 Life Tables, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Men
Women
Couple – at least one lives to specified age
80 years 90 years
Inve
stin
g pr
inci
ples
77
78
|GTM – Europe
0
1
10
100
1.000
10.000
1899 1919 1939 1959 1979 1999-1
0
1
2
3
4
5
-1.000
0
1.000
2.000
3.000
4.000
5.000
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Cash investments
Income generated by €100.000 in a three-month bank deposit Total return of $1 in real termsEUR (LHS); % change year on year (RHS) USD, log scale, total returns
Source: (Left) Bloomberg, Eurostat, J.P. Morgan Asset Management. Inflation is the percentage change year on year for the eurozone harmonised index of consumer prices. (Right) Bloomberg, Bloomberg Barclays, FactSet, Shiller, Siegel, Standard & Poor’s, J.P. Morgan Asset Management. Pre 2010 returns: Shiller, Siegel; from 2010: Equities: S&P 500; Bonds: Bloomberg Barclays US Treasury 20+ year Total Return Index; Cash: Bloomberg Barclays US Treasury Bills Total Return Index. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Dec 2017: €0
2007: €4.650
Inflation Income Equities: $2.023
Bonds: $13
Cash: $2
Annualised real returns
1899–2017 2000–2017
Equities 6,6% 4,0%
Bonds 2,2% 4,6%
Cash 0,6% -0,6%
Inve
stin
g pr
inci
ples
78
79
|GTM – Europe
0
20.000
40.000
60.000
80.000
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '180
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 reinvestedEUR EUR, MSCI Europe 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, MSCI, J.P. Morgan Asset Management. Based on MSCI Europe index and assumes no charges. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Inve
stin
g pr
inci
ples
Starting at age 35
Starting at age 25
Without dividends reinvested
With dividends reinvested
Age
€72.580
€27.972
79
€639.199
€353.803
80
GTM – Europe |
13
2
15
34
16
39
21
-18
22
28
-19
13
6
34
-8
12
20
35
20
28
-4
-18
-31
17
9
22
16
3
-41
23
4
-12
12
18
2 24
10
-11-15
-7-4
-11
-3
-10
-35
-6
-11
-24
-11
-18
-4
-16
-6 -5
-12
-31
-9-12
-35 -37
-22
-8-6
-12 -12
-48
-26
-15
-25
-15-12 -12
-17-15
-4
-50
-40
-30
-20
-10
0
10
20
30
40
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
Annual returns and intra-year declines
MSCI Europe Index intra-year declines vs. calendar-year returnsDespite average intra-year drops of 15,3% (median 12,0%), annual returns are positive in 30 of 38 years%
Source: MSCI, Thomson Reuters Datastream, J.P Morgan Asset Management. Returns are based on local price only and do not include dividends. Intra-year decline refers to the largest market fall from peak to trough within a short time period during the calendar year. Returns shown are calendar years from 1980 to 2017. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Intra-year decline
Calendar-year return
Inve
stin
g pr
inci
ples
80
81
GTM – Europe |
4,03%
-0,78%
-5,41%
-9,13%
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
18.000
20.000
Impact of being out of the market
Returns of MSCI EuropeEUR, value of a €10.000 investment between 2002 and 2017 with annualised return (%)
Source: Bloomberg, MSCI, J.P. Morgan Asset Management. Investment outcomes based on price returns. For illustrative purposes only. Returns calculated daily over the time period assuming no return on each of the specified number of best days. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
Inve
stin
g pr
inci
ples
Initial investment
Fully invested
81
Missed 10 best days Missed 30 best days Missed 50 best days
82
GTM – Europe |
48% 49%
30%24% 24% 21%
17% 17% 18%13% 15%
-18%-24%
-7% -3% -1% -3% 0%1%
4%1%
4%
-50
-25
0
25
50
75
61%
-43%
US asset returns by holding period
Range of equity and bond total returns%, annualised total returns, 1950-present
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 latest available and include dividends. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
1-yr rolling 5-yr rolling 10-yr rolling 20-yr rolling
Large cap equityBonds50/50 portfolio
Inve
stin
g pr
inci
ples
82
83
Asset class returns (EUR)
Source: Barclays, Bloomberg, FactSet, FTSE, MSCI, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Annualised return covers the period from 2007 to 2017. Vol. is the standard deviation of annual returns. Govt bonds: Bloomberg Barclays Global Aggregate Government Treasuries; HY bonds: Bloomberg Barclays Global High Yield; EMD: J.P. Morgan EMBI+; IG bonds: Bloomberg Barclays Global Aggregate – Corporates; Cmdty: Bloomberg Commodity; REITS: FTSE NAREIT All REITS; DM Equities: MSCI World; EME: MSCI EM; Hedge funds: Credit Suisse/Tremont Hedge Fund; Cash: JP Morgan Cash Index EUR (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. All returns except Hedge Funds are unhedged. All returns are total return, in EUR. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 December 2017.
GTM – Europe |
Inve
stin
g pr
inci
ples
83
2010 20122008 2011 20162009 2013 2014 2015 10-yr ann. Vol.4Q172017
Govt bonds 15,9%
EME 73,4%
REITS 36,4%
EMD 12,9%
REITS 18,3%
DM Equities 21,9%
REITS 44,8%
REITS 13,9%
HY bonds 17,7%
EME 21,0%
EME 5,8%
HY bonds 10,2%
EME 30,6%
Cash 5,7%
HY bonds 54,4%
EME 27,5%
REITS 10,9%
HY bonds 17,8%
Hedge Funds 9,1%
EMD 20,9%
EMD 13,4%
Cmdty 15,2%
DM Equities 8,1%
DM Equities 4,0%
REITS 9,9%
REITS 21,0%
IG bonds -3,9%
DM Equities 26,7%
Cmdty 24,9%
Govt bonds 9,9%
EME 16,8%
Portfolio 3,6%
DM Equities 20,1%
DM Equities 11,0%
EME 14,9%
Hedge Funds 5,2%
Cmdty 3,1%
EMD 8,9%
HY bonds 18,9%
EMD -5,0%
Portfolio 25,8%
HY bonds 22,8%
IG bonds 7,8%
EMD 16,2%
HY bonds 2,7%
IG bonds 17,5%
HY bonds 8,4%
EMD 12,9%
Portfolio 2,2%
Portfolio 1,8%
DM Equities 7,7%
DM Equities 17,4%
Hedge Funds -19,0%
REITS 23,5%
DM Equities 20,1%
HY bonds 6,6%
DM Equities 14,7%
Cash 0,2%
Portfolio 15,7%
Govt bonds 7,7%
REITS 12,6%
Cash -0,3%
REITS 0,8%
Portfolio 6,6%
Cmdty 16,6%
Portfolio -20,8%
EMD 22,0%
EMD 19,6%
Cash 1,7%
Portfolio 10,9%
REITS -1,3%
HY bonds 13,9%
IG bonds 7,4%
DM Equities 11,4%
HY bonds -3,0%
Hedge Funds 0,7%
IG bonds 6,3%
Portfolio 12,0%
HY bonds -23,1%
Hedge Funds 18,6%
Portfolio 18,7%
Portfolio 1,4%
IG bonds 9,5%
IG bonds -4,0%
Govt bonds 13,0%
Portfolio 6,0%
Portfolio 9,9%
REITS -4,0%
Cash -0,1%
Govt bonds 4,7%
EMD 11,7%
Cmdty -32,7%
Cmdty 15,8%
Govt bonds 13,3%
DM Equities -1,8%
Hedge Funds 7,3%
EME -6,5%
EME 11,8%
Cash 0,1%
IG bonds 7,4%
IG bonds -4,2%
IG bonds -0,1%
EME 4,1%
Hedge Funds 9,5%
REITS -34,1%
IG bonds 15,5%
IG bonds 13,2%
Hedge Funds -2,4%
Cash 1,2%
Govt bonds -8,4%
Hedge Funds 3,7%
Hedge Funds -1,1%
Govt bonds 4,7%
EMD -4,9%
Govt bonds -0,5%
Hedge Funds 2,5%
Govt bonds 8,0%
DM Equities -37,2%
Cash 2,3%
Hedge Funds 10,2%
Cmdty -10,4%
Govt bonds 0,3%
EMD -12,3%
Cash 0,3%
EME -4,9%
Cash -0,2%
Govt bonds -5,8%
HY bonds -0,7%
Cash 1,2%
IG bonds 7,7%
EME -50,8%
Govt bonds -0,6%
Cash 1,1%
EME -15,4%
Cmdty -2,6%
Cmdty -13,4%
Cmdty -5,5%
Cmdty -16,1%
Hedge Funds -1,7%
Cmdty -10,6%
EMD -1,9%
Cmdty -5,0%
Cash 1,7%
J.P. Morgan Asset Management: Index definitionsAll 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 definitionsThe 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 Bloomberg 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 Bloomberg 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 Bloomberg 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 Bloomberg 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 Bloomberg Barclays Global Aggregate Corporate Index consists of corporate issues in Europe, the US and Asia-pacific regions. The Bloomberg 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 Bloomberg 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 Bloomberg 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 Bloomberg Barclays Corporate Bond Index is the Corporate component of the U.S. Credit index.The Bloomberg 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 Bloomberg 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 taken 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 authorized and regulated by the Financial Conduct Authority; in other European 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.
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Prepared by: Karen Ward, Tilmann Galler, Vincent Juvyns, Maria Paola Toschi, Michael Bell, Nandini Ramakrishnan, Jai Malhi and Ambrose CroftonUnless otherwise stated, all data as of 31 December 2017 or most recently available.Guide to the Markets - EuropeJP-LITTLEBOOK0903c02a81fb9230
