1Q | 2015

As at 31 December 2014

Guide to the Markets

EUROPE

Global Market Insights Strategy Team

Americas

Europe

Asia

Dr. David P. Kelly, CFA

Stephanie H. Flanders

Tai Hui

Andrew D. Goldberg

Maria Paola Toschi

Geoff Lewis

Anastasia V. Amoroso, CFA

Vincent Juvyns

Yoshinori Shigemi

James C. Liu, CFA

Manuel Arroyo Ozores, CFA

Grace Tam, CFA

Julio C. Callegari

Tilmann Galler, CFA

Ian Hui

David M. Lebovitz

Dr. David Stubbs

Ben Luk

Gabriela D. Santos

Lucia Gutierrez

Ainsley E. Woolridge

Kerry Craig, CFA

Hannah J. Anderson

Alexander W. Dryden

Abigail B. Dwyer

Nandini L. Ramakrishnan

New York
New York
Houston
Chicago

So Paulo
New York
New York
New York
New York
New York

London
Milan

Luxembourg
Madrid

Frankfurt
London

Hong Kong
Hong Kong
Tokyo

Hong Kong
Hong Kong
Hong Kong

Madrid

London
London
London

Past performance is no guarantee of comparable future results. For China and Australia distribution, please note this communication is
for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the full disclaimer at the end.
Unless otherwise stated, all data is as at 31 December 2014 or most recently available.

Page Reference
European Economy
3.
4.
5.
6.
7.
8.
9.
10.

Europe: GDP and Inflation

Eurozone Recovery Monitor
Eurozone Credit Demand and Supply
Eurozone Divergences
Europe Government Interest Rates
European Central Bank (ECB)
Europe Cash Accounts
Europe Corporate Finances

Global Economy
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.

World Economic Data

Global Purchasing Managers Index (PMI) for Manufacturing
Economic Slack and the Equity Market
Global Disinflationary Pressures
Economic and Monetary Policy Divergence
US Dollar
Sovereign Debt Stresses
Fiscal Austerity and Debt Levels
Global Trade: The Importance of Exports
US Federal Reserve Policies
US Economic Growth and the Composition of GDP
US Employment
US Inflation
US Cyclical Indicators
US Consumer Finances
Japan: GDP and Inflation
Japan: Abenomics and the Economy
China: GDP and Inflation
China: Growth and Transformation
China Financial Dynamics
Emerging Markets Structural Dynamics
Emerging Markets Challenges
Emerging Markets Currencies
Emerging Markets Sensitivity

Equities
35.
36.
37.
38.
39.
40.
41.

World Stock Market Returns

European Sector Returns
Bond and Equity Relative Valuations
MSCI Europe Index at Inflection Points
MSCI Europe Index Equity Valuations
MSCI Europe Earnings and Profit Margins
US S&P 500 at Inflection Points

42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.

US S&P 500 Equity Valuations

US S&P 500 Earnings and Profit Margins
Interest Rates and Equities
Developed Markets Equity Valuations by Country
Emerging Markets Equity Valuations by Country
Emerging Markets Valuations and Returns
Emerging Markets Equity Composition
Emerging Markets: Performance, Dividends and Earnings Growth
Equity Income
Equity Dividends and Valuations
Equity Correlations and Volatility
Annual Returns and Intra-year Declines

Fixed Income
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.

Fixed Income Sector Returns

Fixed Income Market Data
Policy and Real Rates
Fixed Income Interest Rate Risk
Liquidity and Duration Risks
Global Bond Supply and Demand
Government and Investment Grade Bond Yields
US High Yield Bonds
European High Yield Bonds
Emerging Markets Debt
Emerging Markets Debt Composition

Other Assets and Investor Behaviour

65.
66.
67.
68.
69.
70.
71.
72.
73.
74.

Asset Class Returns

Correlation of Returns (EUR)
Commodity Returns
Commodities
Oil Consumption and Production
Life Expectancy and Pension Shortfall
Consumer Confidence and the Stock Market
Industry Fund Flows
US Asset Returns by Holding Period
Returns in Different Inflation Environments

Europe Economy

Europe: GDP and Inflation

Real GDP
EU28, change quarter on quarter
1,5

Inflation

Avg since
1999

3Q14

0,3%

0,3%

Real GDP

EU28, change year on year

5
%

1,0

Avg since
1999

Nov 2014

Headline CPI*

2,4%

0,4%

Core CPI

1,9%

0,8%

Average
4

0,5

0,0

3
-0,5

-1,0

2
-1,5

-2,0

-2,5

-3,0
'99

'01

'03

'05

'07

'09

'11

'13

0
'99

'01

'03

'05

'07

Source: (Both charts) Eurostat, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding unprocessed food
and energy. Guide to the Markets - Europe. Data as at 31 December 2014.

'09

'11

'13

Europe Economy

Eurozone Recovery Monitor

Manufacturing purchasing managers indices

Economic sentiment

Index level
65

Index level
120

Germany

Italy

France

Spain

Greece

60
110

55
50

100

45
90

40
35

Germany

Italy

30

France

Spain

Greece

25
'07

'08

'09

'10

'11

Unemployment rate

'12

'13

70
'07

'14

12

'11

'10

'12

'14

'13

Excluding motor vehicles, change year on year

France
Germany

'09

'08

'15

Retail sales

Eurozone

14

80

Oct 2014:
1,4%

%
2

10
0

-2

6
4
'99

-4

'01

'03

'05

'07

'09

'11

'13

-6
'00

'01

'02

'03

'04

'05

'06

'07

'08

Source: (Top left) Markit, J.P. Morgan Asset Management. (Bottom left) Eurostat, J.P. Morgan Asset Management. (Top right) European Commission, FactSet,
J.P. Morgan Asset Management. (Bottom right) Eurostat, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as at 31 December 2014.

'09

'10

'11

'12

'13

'14

Europe Economy

Eurozone Credit Demand and Supply

Eurozone bank loans outstanding

Credit demand and eurozone GDP growth

Net % of banks reporting positive loan demand, GDP growth

Rebased to 100 as at December 2010, households and non-financial companies

100

110

%
3

105

Stronger
loan demand

100
50

95
90

Non-periphery banks
Eurozone aggregate

85

Periphery banks

1
0

80
'10

'11

'12

-1

Eurozone bank lending

-2

15
%
12

-3

'13

Change year on year

-50

Overall corporate (lhs)

-100

-4

Housing loans (lhs)

Consumer credit (lhs)

-5

Weaker loan
demand

Eurozone GDP growth

(y/y) (rhs)

-6
'04

'06

'07

'08

'09

'11

'12

'13

3
0
-3

-150
'03

House purchases
Non-financial companies

'14

-6
'03

'04

'05

'06

'07

'08

'09

'10

'11

Source: (Left) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Top and bottom right) ECB, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe.
Data as at 31 December 2014.

'12

'13

'14

Europe Economy

Eurozone Divergences
Corporate lending rates

Gross exports

Non-financial corporations, new business lending up to 1 million

7,5
%

Rebased to 100 at December 2007, two-quarter moving average

140
130

6,5

120

Periphery

5,5

110
100

4,5

Spain
Portugal
Germany

90

3,5

Core

2,5
'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

80
70
'07

'08

'09

'10

Italy
Ireland
France

'11

'12

'13

Inflation

Unemployment rate for selected European countries

Change year on year

5
%
4

30
%
25

'14

Greece
Spain
Portugal

20

Core

Italy

15

Ireland

1
10

0
-1

Periphery

-2
'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

5
0
'99

'01

'03

'05

'07

'09

Source: (Top left) ECB, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left, top and bottom right) Eurostat, FactSet, J.P. Morgan Asset Management.
Core includes Germany and France; periphery includes Spain, Italy, Greece, Portugal and Ireland. All aggregations are based on simple averages. Guide to the Markets Europe. Data as at 31 December 2014.

'11

'13

Europe Economy

Europe Government Interest Rates

Europe sovereign funding costs

LTRO

10-year benchmark bond yield

35
%
30

25

20

Greece
Portugal
Italy
UK
Spain
Ireland
Germany

31 Dec 2014
yield
9,4%
2,7
1,9
1,8
1,6
1,2
0,5

One-year
change
+115 bps
-336
-221
-127
-253
-221
-139

OMT

15

TLTRO
10

0
'06

'07

'08

'09

'10

'11

'12

Source: Tullett Prebon, FactSet, J.P. Morgan Asset Management. The ECB announced the second round of Long-Term Refinancing Operations (LTRO) in February 2012.
The Outright Monetary Transaction (OMT) programme was formally outlined in September 2012. The ECB conducted the first round of Targeted Long-Term Refinancing
Operations (TLTRO) in September 2014. Guide to the Markets - Europe. Data as at 31 December 2014.

'13

'14

Europe Economy

European Central Bank (ECB)

ECB balance sheet: Assets

Eurozone ABS* and covered bonds outstanding

trillions
3,5

trillions

Jun 2012 Dec 2014:

-31%

ABS

Covered bonds

3,0

1
2,5

0
'03

Jan 2005 Jun 2012:

248%
2,0

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

Q2
2014

ECB balance sheet and the euro

trillions, real broad effective exchange rate (REER)
1,2

115

1,5

1,0

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

1,6

105

2,0

100

2,4

95

0,5
'04

ECB balance sheet

(rhs, inverted)

110

90
'07

Euro REER
(lhs)

'08

'09

2,8

'10

'11

'12

Source: (Left) ECB, FactSet, J.P. Morgan Asset Management. (Top right) ECB, European Covered Bond Council (ECBC), Security Industry and Financial Markets Association
(SIFMA), J.P. Morgan Asset Management. (Bottom right) ECB, J.P. Morgan Economic Research, J.P. Morgan Asset Management. *ABS is asset-backed securities. Yearly
covered bond amounts are from ECBC and 2Q14 amount is from ECB. Guide to the Markets - Europe. Data as at 31 December 2014.

'13

3,2
'14

Europe Economy

Europe Cash Accounts

Euro area deposits
trillions

Income generated by 100.000 investment in a one-year bank

deposit

Aug 2012: 3,3tn

3,5

5.000

Income

Inflation (y/y)

2007: 4.580

4.000

3,0

2,5
Nov 2014:
1,5tn
2,0

3.000

Dec 2014:
365

1,5
2.000

1.000

1,0

0,5

0,0
'06

'07

'08

'09

'10

'11

'12

'13

'14

'00

'02

'04

'06

'08

Source: (Left) ECB, J.P. Morgan Asset Management. (Right) Bloomberg, Eurostat, J.P. Morgan Asset Management. Orange marker points represent year on year inflation
and illustrates how the value of income would have been eroded due to inflation. Guide to the Markets - Europe. Data as at 31 December 2014.

'10

'12

'14

Europe Economy

Europe Corporate Finances

Total leverage

MSCI Europe Index: Geographical source of revenues

MSCI Europe, ratio of total debt to total equity, quarterly

340
RoW*
11%

Asia
10%

320

Europe
54%

300

Americas
25%

280

260

Interest coverage ratio (EBIT / net interest)

Average: 261%

MSCI Europe, quarterly

7
x

4Q14:
4,6x

240

220

5
Average: 4,1x

4Q14:
186%

200

3
2
'97

'99

'01

'03

'05

'07

'09

'11

'13

180
'97

'99

'01

'03

'05

'07

'09

Source: (Top left) MSCI, Thomson Reuters Datastream, Worldscope, J.P. Morgan Asset Management. (Right and bottom left) MSCI, FactSet, J.P. Morgan Asset Management.
*RoW denotes revenues coming from the world excluding Europe, Asia and the Americas. Guide to the Markets - Europe. Data as at 31 December 2014.

10

'11

'13

World Economic Data

Selected countries

Global Economy

Gross domestic
product (GDP)

Switzerland
Sweden
United States
Netherlands
United Kingdom
Germany
Finland
France
Japan
Eurozone
Italy
Spain
Greece
Russia
Brazil
China
India

Real GDP
%

Inflation
%

per
capita

billions

2014*

2015*

2014*

2015*

62.449
44.677
44.028
41.076
37.588
37.114
36.685
35.611
28.969
28.885
27.516
23.471
18.700
11.366
8.919
5.742
1.253

499
431
13.932
690
2.383
3.049
193
2.248
3.687
11.188
1.692
1.112
201
1.631
1.793
7.749
1.530

1,8
1,9
2,3
0,7
3,0
1,5
-0,2
0,4
0,3
0,8
-0,4
1,3
0,3
0,5
0,2
7,4
5,4

1,8
2,4
3,0
1,4
2,6
1,2
0,7
0,8
1,0
1,1
0,4
1,8
1,7
-1,2
0,9
7,0
5,5

0,0
-0,2
1,7
0,4
1,5
0,9
1,2
0,6
2,8
0,5
0,2
-0,1
-1,2
7,6
6,3
2,1
7,2

0,1
0,7
1,5
0,7
1,4
1,1
1,0
0,6
1,5
0,6
0,3
0,3
-0,1
8,2
6,4
2,0
6,7

Policy rate
%

Unemployment
%

-0,25
0,00
0,25
0,05
0,50
0,05
0,05
0,05
0,10
0,05
0,05
0,05
0,05
8,25
11,75
5,60
8,00

3,2
7,4
5,8
8,0
6,0
6,6
8,2
9,9
3,5
11,5
12,8
23,7
25,5
4,9
4,8
4,1
8,8

Source: Bloomberg, FactSet, various national statistical agencies, J.P. Morgan Asset Management. Table ordered by GDP per capita. Nominal GDP figure is latest quarter
annualised. *Forecasts are Bloomberg consensus estimates. Guide to the Markets - Europe. Data as at 31 December 2014.

11

Global Purchasing Managers Index (PMI) for Manufacturing

Europe
Emerging

Developed

Global Economy

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Aug

Jul

Jun

2014

Global

50,1 51,4 50,8 51,0 50,1 50,4 50,4 50,6 51,5 51,7 51,9 52,9 52,9 53,0 53,2 52,4 51,9 52,2 52,6 52,4 52,6 52,2 52,2 51,8 51,6

Eurozone

46,1 47,9 47,9 46,8 46,7 48,3 48,8 50,3 51,4 51,1 51,3 51,6 52,7 54,0 53,2 53,0 53,4 52,2 51,8 51,8 50,7 50,3 50,6 50,1 50,6

France

44,6 42,9 43,9 44,0 44,4 46,4 48,4 49,7 49,7 49,8 49,1 48,4 47,0 49,3 49,7 52,1 51,2 49,6 48,2 47,8 46,9 48,8 48,5 48,4 47,5

Germany

46,0 49,8 50,3 49,0 48,1 49,4 48,6 50,7 51,8 51,1 51,7 52,7 54,3 56,5 54,8 53,7 54,1 52,3 52,0 52,4 51,4 49,9 51,4 49,5 51,2

Italy

46,7 47,8 45,8 44,5 45,5 47,3 49,1 50,4 51,3 50,8 50,7 51,4 53,3 53,1 52,3 52,4 54,0 53,2 52,6 51,9 49,8 50,7 49,0 49,0 48,4

Spain

44,6 46,1 46,8 44,2 44,7 48,1 50,0 49,8 51,1 50,7 50,9 48,6 50,8 52,2 52,5 52,8 52,7 52,9 54,6 53,9 52,8 52,6 52,6 54,7 53,8

Ireland

51,4 50,3 51,5 48,6 48,0 49,7 50,3 51,0 52,0 52,7 54,9 52,4 53,5 52,8 52,9 55,5 56,1 55,0 55,3 55,4 57,3 55,7 56,6 56,2 56,9

UK

50,6 51,0 48,1 50,1 50,4 52,0 52,5 54,5 58,4 56,8 56,3 57,7 57,0 56,6 56,4 55,5 57,0 56,6 56,7 54,9 52,9 51,4 53,3 53,3 52,5

US

54,0 55,8 54,3 54,6 52,1 52,3 51,9 53,7 53,1 52,8 51,8 54,7 55,0 53,7 57,1 55,5 55,4 56,4 57,3 55,8 57,9 57,5 55,9 54,8 53,9

Japan

45,0 47,7 48,5 50,4 51,1 51,5 52,3 50,7 52,2 52,5 54,2 55,1 55,2 56,6 55,5 53,9 49,4 49,9 51,5 50,5 52,2 51,7 52,4 52,0 52,1

Brazil

51,1 53,2 52,5 51,8 50,8 50,4 50,4 48,5 49,4 49,9 50,2 49,7 50,5 50,8 50,4 50,6 49,3 48,8 48,7 49,1 50,2 49,3 49,1 48,7 50,2

Russia

50,0 52,0 52,0 50,8 50,6 50,4 51,7 49,2 49,4 49,4 51,8 49,4 48,8 48,0 48,5 48,3 48,5 48,9 49,1 51,0 51,0 50,4 50,3 51,7 48,9

India

54,7 53,2 54,2 52,0 51,0 50,1 50,3 50,1 48,5 49,6 49,6 51,3 50,7 51,4 52,5 51,3 51,3 51,4 51,5 53,0 52,4 51,0 51,6 53,3 54,5

China

51,5 52,3 50,4 51,6 50,4 49,2 48,2 47,7 50,1 50,2 50,9 50,8 50,5 49,5 48,5 48,0 48,1 49,4 50,7 51,7 50,2 50,2 50,4 50,0 49,6

Korea

50,1 49,9 50,9 52,0 52,6 51,1 49,4 47,2 47,5 49,7 50,2 50,4 50,8 50,9 49,8 50,4 50,2 49,5 48,4 49,3 50,3 48,8 48,7 49,0 49,9

Taiwan

50,6 51,5 50,2 51,2 50,7 47,1 49,5 48,6 50,0 52,0 53,0 53,4 55,2 55,5 54,7 52,7 52,3 52,4 54,0 55,8 56,1 53,3 52,0 51,4 50,0

Lowest relative to 50 PMI

12

May

Apr

Mar

Feb

2013
Jan

Dec

2012

50

Highest relative to 50 PMI

Source: Markit, J.P. Morgan Economic Research, J.P. Morgan Asset Management. The Purchasing Managers Index (PMI) assesses the economic health of the
manufacturing sector by surveying output and employment intentions. Heatmap colours are based on PMI relative to 50, which indicates expansion or contraction of
the sector for the time period shown. Guide to the Markets - Europe. Data as at 31 December 2014.

Economic Slack and the Equity Market

Developed markets real GDP

Developed markets (DM) output gap* and equity market

Index 2010 = 100

120

Index level, output gap shown as % of potential GDP

DM stock market (log scale)

DM output gap

Global Economy

%
Narrow output gap
1

115

1.000
900
800

700

110

Pre-2006 trend

Potential

600

-1

500

105

-2

400

Actual

300

-3

100
-4

200

95
Wide output gap
90

13

-6

100

'04

'06

'08

'10

'12

'14

-5

'81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

Source: (Left) J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Right) MSCI, IMF World Economic Outlook October 2014, J.P. Morgan Asset Management.
*The output gap is the difference between actual output and the output that could be achieved if the economy were running at full capacity (also referred to as potential GDP).
DM stock market is the MSCI World Index. Guide to the Markets - Europe. Data as at 31 December 2014.

Global Disinflationary Pressures

Long-term inflation expectations

Contribution to the decline in eurozone inflation

5-year/5-year breakeven inflation

4,0
Eurozone (rhs)

Global Economy

Since January 2013

0,3
%
0,0

2,3

-0,3

2,4
UK (lhs)
US (lhs)

3,8

2,5
%
2,0
1,5

-0,6
3,6

2,2

3,4

2,1

3,2

2,0

3,0

1,9

-0,9

Food (lhs)

1,0

Energy (lhs)
-1,2
Industrial goods (lhs)
-1,5
Services (lhs)
CPI* (rhs)
-1,8
Jan 13 Apr 12 Jul 13 Oct 13

0,5
0,0
Jan 14

Apr 14

Jul 14 Oct 14

Eurozone inflation and consumer confidence

2,8

1,8

5
%
4

Consumer confidence

CPI* lagged six months (y/y)

-5
-10

3
2,6

1,7

-15
-20

-25

1
2,4

1,6

-30
0

2,2
Dec 12

14

Jun 13

Dec 13

Jun 14

1,5
Dec 14

-1
'03

-35
'04

'05

'06

'07

'08

'09

'10

Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Top and bottom right) Eurostat, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index.
5-year/5-year breakeven inflation expectations is the market expectation for inflation over 5 years beginning in 5 years time, derived from the breakevens in the long term
forwards market. Guide to the Markets Europe. Data as at 31 December 2014.

'11

'12

'13

-40
'14

Economic and Monetary Policy Divergence

Market expectations for target policy rate

Nominal GDP growth

Rebased to 100 at Q1 2008

2,0
US

120

Global Economy

UK

%
US

1,8

UK
115

Eurozone

1,6
Eurozone
core

110

Dec 2016:
1,50%

1,4

1,2

Dec 2016:
1,30%

105

1,0
100

Dec 2015:
0,80%

0,8
Eurozone
periphery
0,6

95

Dec 2015:
0,60%

Japan
0,4

90

Dec 2016: 0,10%

0,2
Dec 2015: 0,05%
0,0

85
'08

15

'09

'10

'11

'12

'13

'14

'15

'16

Source: (Left) Various national statistics agencies, FactSet, J.P. Morgan Asset Management. (Right) Bloomberg, J.P. Morgan Asset Management. Eurozone core is Germany
and France; periphery is Spain, Italy, Greece, Portugal and Ireland. There is no active Japanese futures market and therefore we cannot derive the market expectations for
Japans target policy rate. Guide to the Markets Europe. Data as at 31 December 2014.

'17

US Dollar
US Dollar Index
Real broad effective exchange rate (REER)
130

Nov 2014

95,7

89,0

US Dollar Index
1985: Plaza
Accord

120

Global Economy

Avg since 1973

110

1973-78:
-21,8%

100

1978-85:
+52,6%

1987: Louvre
Accord

1985-88:
-30,0%

1995-02:
+34,2%

2002-11:
-28,6%
2011-14:
+10,5%

90
80
'73

'77

'81

'85

'89

'93

Current account deficit

'97

'01

'05

'09

'13

US dollar performance vs. selected currencies

% of GDP
7,0
%
6,0

US net oil imports

2,4
%
2,2

2014
16
%

11,7

12

1,8

14,1

Euro

Japanese
Yen

9,0

2,0
5,0

13,9
12,5

6,2

4,0
1,6
3,0

1,4

US current account deficit

2,0

1,2
'99

'01

'03

'05

'07

'09

'11

'13

2,5

0
Chinese
Renminbi

British
Pound

Canadian
Dollar

Swiss
Franc

Mexican
Peso

Source: (Top) US Federal Reserve, J.P. Morgan Asset Management. (Bottom left) BEA, FactSet, J.P. Morgan Asset Management. (Bottom right) FactSet, J.P. Morgan Asset
Management. Guide to the Markets - Europe. Data as at 31 December 2014.

16

Sovereign Debt Stresses

GDP growth, debt-to-GDP and borrowing costs

Bubble size = 10-year

government bond yield

8
China

10%
Indonesia

5%
India
Malaysia

Real GDP growth (2013 2015F)

Global Economy

5
4

Korea
Singapore

Turkey

3
Australia

UK

Mexico

US

South Africa
Brazil

Japan

Germany

France

Russia

EU

Portugal

Spain

Greece
Italy

Emerging markets

-1

Developed markets
-2
0

20

40

60

80

100

120

140

160

180

Gross debt-to-GDP ratio (2014F)

17

Source: IMF World Economic Outlook October 2014, FactSet, Barclays, J.P. Morgan Asset Management. Borrowing costs based on local currency debt. EU overall borrowing cost
based on Barclays Capital Euro-Aggregate 7-10 Year Treasury Index. South Africas borrowing costs are based on seven-year government bond yield due to data availability.
Guide to the Markets - Europe. Data as at 31 December 2014.

240
200

Fiscal Austerity and Debt Levels

Government fiscal tightening

Government debt levels

Decline in structural deficit* as % of GDP

Gross debt as % of GDP

140

Forecast

Global Economy

2010-2013

Italy
Portugal

2013-2016F

120

Ireland
US
Spain
France

100

UK

3
80

Germany

2
60

40

0
UK

18

US

Eurozone**

Japan

20
'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

Source: (Both charts) IMF World Economic Outlook October 2014, FactSet, J.P. Morgan Asset Management. *Structural deficit is the cyclically adjusted budget deficit or the
deficit that would prevail if the economy were running at full capacity. **Eurozone data is change between 2013 and 2015 due to data availability. Guide to the Markets - Europe.
Data as at 31 December 2014.

'14

'15

'16

Global Trade: The Importance of Exports

Exports as % of GDP
Goods exports only in 2013

Global Economy

Brazil 1,2
India

1,9

1,9

China

2,2
2,0

1,2
3,0

2,7

Eurozone

1,9

UK

1,7

7,0
1,1

Italy

7,6

26,2%

14,6%
18,5%

1,0

8,3

1,8

20,7%
24,6%

11,2

14,7

10

19,6%

9,0
1,4

9,9

3,9

15

37,6%

16,6

20

25

30

Source: IMF, FactSet, J.P. Morgan Asset Management. Numbers represent goods exports only and would be higher if services were included. Values may not sum to total
exports due to rounding. *BRIC is Brazil, Russia, India and China. Guide to the Markets - Europe. Data as at 31 December 2014.

19

Other

9,4%

9,8

2,4

13,2

14,1

1,7

Germany

2,3

2,5

France 1,2

BRIC*

24,9%

16,1

3,2

7,9

Eurozone

16,0%

1,5

10,1

US 1,2 1,2
Japan

US

10,8

4,3

Russia 0,6

10,8%

5,5

35

40

US Federal Reserve Policies

Individual FOMC member forecasts for the federal funds rate

US Federal Reserve balance sheet: Assets

Global Economy

$ trillions
5
$
4

Forecast

Other

From the December 2014 meeting

5,0
%
Mid-point of FOMC forecasts
4,5
4,0

US Treasuries

3,5
1

Agency MBS

3,0

0
'08

'09

'10

'11

'12

'13

'14

'15
2,5

US Federal Reserve MBS purchases

$ billions
120
$
100
80
60

2,0
New purchases*
Reinvested purchases*

1,5
1,0

40
20

0,5

0
0,0
2015

2016

2017

Source: (All charts) US Federal Reserve, FactSet, J.P. Morgan Asset Management. *New purchases are the stated purchases from the US Federal Reserve. Reinvested
purchases are bonds purchased with the principal received from maturing bonds. Guide to the Markets - Europe. Data as at 31 December 2014.

20

Longer run

US Economic Growth and the Composition of GDP

Real GDP

Global Economy

Change quarter on quarter, SAAR

10

Real GDP

Avg since
1999

3Q14

2,0%

5,0%

%
8

Components of GDP
3Q14 nominal GDP, $ trillions
18

3,2% Housing

$
16

14

12

13,3% Investment ex-housing

18,2%
Government spending

Average

10

68,2% Consumption
-2

-4

-6

-8

-2,9% Net exports

-10
'99

-2
'01

'03

'05

'07

'09

'11

'13

Source: (Both charts) BEA, FactSet, J.P. Morgan Asset Management. SAAR denotes seasonally adjusted annual rate. Percentages may not sum to 100% due to
rounding. Guide to the Markets - Europe. Data as at 31 December 2014.

21

US Employment
Unemployment rate

Labour force participation rate

Seasonally adjusted
11

% of population aged 16+ working or looking for work

68
%
67

Global Economy

%
10

66
65

64
63

Nov 2014: 62,8%

'93
7

'95

'97

'99

'01

'03

'05

'07

'09

'11

'13

Employment cost index: Wages and salaries

Change year on year for private sector workers
5
%

Average: 6,1%
6

Nov 2014:
5,8%

3
4

3
'65

Sep 2014:
2,2%

1
'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

'85

'87

'89

'91 '93

Source: (All charts) BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as at 31 December 2014.

22

'95

'97

'99 '01

'03

'05 '07

'09

'11

'13

US Inflation
Inflation
Change year on year
15

Headline CPI*

Global Economy

Core CPI

US Federal Reserve inflation projections

Avg
since
1964

Avg
since
1999

Nov 2014

4,2%

2,4%

1,3%

4,1%

2,0%

1,7%

Average PCE** projection, December 2014

2,5
%
2,0
1,5

12

1,25

1,30

2014

2015

1,85

1,90

2016

2017

2,00

1,0
0,5

0,0
6

Longer run

Planned vs. actual wage rises

25
%
20

Wages & salaries***

lagged nine months (y/y)

4,5
%
4,0
3,5

15

3,0

10

2,5
2,0

5
-3
'64

23

% of small businesses planning to

raise worker pay

1,0

0
'69

'74

'79

'84

'89

'94

'99

'04

'09

'14

1,5

'87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

Source: (Left) BLS, FactSet, J.P. Morgan Asset Management. (Top right) US Federal Reserve, J.P. Morgan Asset Management. (Bottom right) National Federation
of Independent Business (NFIB), BLS, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. **Personal consumption expenditure (PCE)
measures the prices paid by consumers for goods and services, excluding food and energy prices. ***Wages & salaries is the civilian employment cost index (ECI).
Guide to the Markets - Europe. Data as at 31 December 2014.

US Cyclical Indicators
Light vehicle sales

Manufacturing and trade inventories

Millions, SAAR

Days of sales, seasonally adjusted

24

48

Global Economy

22

Dec 2014:
16,8

20
18
16

46
44
42

14

Average: 15,3

Oct 2014:
39,5

40

12

38

10
8
'93

'95

'97

'99

'01

'03

'05

'07

'09

'13

'11

36
'93

'95

'97

'99

'01

'03

'05

'07

'09

'11

'13

Housing starts

Real capital goods orders*

Thousands, SAAR
2.400

Non-defense capital goods orders ex-aircraft, $ billions, seasonally adjusted

75
$
70
Nov 2014:
61,0
65

2.000

Nov 2014:
1.028

1.600

60

1.200

Average: 1.349

Average: 57,4

55

800
50

400
0
'93

45

'95

'97

'99

'01

'03

'05

'07

'09

'11

'13

'99

'01

'03

'05

'07

'09

Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top and bottom right and bottom left) US Census Bureau, FactSet, J.P. Morgan Asset Management. *Capital
goods orders deflated using the producer price index for capital goods. SAAR is seasonally adjusted annual rate. Guide to the Markets - Europe. Data as at 31 December 2014.

24

'11

'13

US Consumer Finances
Household net worth
$ billions, SAAR

2Q07:
$67.874

80.000
$
70.000

Global Economy

4Q14*:
$82.907

US home sales, prices and housing starts

Rebased to 100 at December 1999
175

60.000
150

50.000
40.000
30.000

+21,2%

125

20.000
'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14
100

US household debt service ratio

Debt payments as % of disposable personal income, seasonally adjusted
14
4Q07: 13,2%
%

+42,9%
75

13

Price index
Existing home sales

12
50

Housing starts

11

+115,0%
10
'80

25

4Q14*: 9,9%
'85

'90

'95

'00

'05

'10

25
'99

'01

'03

'05

'07

Source: (Top and bottom left) US Federal Reserve, FactSet, J.P. Morgan Asset Management. (Right) National Association of Realtors, US Census Bureau, FactSet,
J.P. Morgan Asset Management. Price index is the mean existing home sale price. SAAR is seasonally adjusted annual rate. *4Q14 numbers for US household net
worth and debt service ratio are J.P. Morgan Asset Management forecasts. Guide to the Markets - Europe. Data as at 31 December 2014.

'09

'11

'13

Japan: GDP and Inflation

Real GDP growth
Change quarter on quarter

Avg since
1999

3Q14

0,2%

-0,5%

Global Economy

Real GDP

Avg since
1999

Nov 2014

Headline CPI*

-0,1%

2,4%

Core CPI

-0,4%

2,1%

Inflation
Change year on year

%
4

Average

0
1

-1
0

-2
-1

-3
-2

-4
'99

26

'01

'03

'05

'07

'09

'11

'13

'99

'01

'03

'05

'07

Source: (Left) Japan Statistics Bureau & Statistics Centre, FactSet, J.P. Morgan Asset Management. (Right) Japan Ministry of Health, Labour and Welfare, FactSet,
J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - Europe.
Data as at 31 December 2014.

'09

'11

'13

Japan: Abenomics and the Economy

Japanese yen and the stock market

Global Economy

Central bank balance sheet

Projection*

% of nominal GDP
90
Japan
%
Eurozone
US
60

20.000

Nikkei 225 Index

per $

130

18.000

Change in 2014
Yen
-14,1%
Nikkei 225
7,1%

UK
30

120

16.000
110

0
'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

14.000
100

Japanese wage growth

Change year on year, three-month moving average

12.000

3
%
2

Core inflation
Wage growth

90
10.000

1
0

80

8.000
-1
-2
'97

27

'99

'01

'03

'05

'07

'09

'11

'13

6.000
'03

'04

'05

'06

'07

'08

'09

'10

Source: (Top left) US Federal Reserve, Bank of England, Bank of Japan, ECB, J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom left) Japan
Ministry of Health, Labour and Welfare, FactSet, J.P. Morgan Asset Management. (Right) FactSet, J.P. Morgan Asset Management. *Projections are based on central
banks stated economic intentions. Guide to the Markets - Europe. Data as at 31 December 2014.

'11

'12

'13

70
'14

China: GDP and Inflation

Inflation

Change year on year

Food CPI

2,3%

30

Change year on year

24
%

Headline CPI**

1,4%

18

Core CPI

1,3%

15
Real GDP growth

Global Economy

Nov 2014

Real GDP Growth and Li Keqiang Index*

Li Keqiang index
Includes:
Electricity production
Loan growth
Railway freight

14

25

13

12
6

12

20

0
-6
'99

11
15

'01

'03

'05

'07

'09

'11

'13

1960

1990

2013

Chinas share of global nominal GDP

35
%
30

10

10

25
20

15
5
10

5
6

0
'00

28

'02

'04

'06

'08

'10

'12

'14

0
1820

1870

1900

1930

Source: (Left and top right) National Bureau of Statistics of China, FactSet, J.P. Morgan Asset Management. (Bottom right) Angus Maddison, J.P. Morgan Asset
Management. *Li Keqiang index refers to an unofficial economic index used to gauge economic activity in China. Popularised by Chinese Premier Li Keqiang, such an index
may include a variety of economic indicators. **CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - Europe.
Data as at 31 December 2014.

China: Growth and Transformation

GDP growth

External Accounts

Change year on year

100
%
80

GDP growth

21
%

Investment

Global Economy

Consumption
18

Net exports

15

12

Exports (lhs)

100
$bn
80

Trade balance (rhs)

60

Imports (lhs)

60
40

40

20

20

-20

-20

-40
9

-40
'04

'06

'08

'10

'12

'14

Investment as a share of GDP

6

China

50
%
45

40
EM Asia ex-China

35
0
30
25

-3

DM
20
Latin America

15

-6
'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14

'82

'86

'90

'94

'98

'02

Source: (Left and top right) National Bureau of Statistics of China, FactSet, J.P. Morgan Asset Management. (Bottom right) IMF World Economic Outlook October 2014,
J.P. Morgan Asset Management. 2014 GDP figure is 3Q14 values. Guide to the Markets - Europe. Data as at 31 December 2014.

29

'06

'10

'14

China Financial Dynamics

Private non-financial debt

2013 public, household and non-financial corporate debt

% of GDP, quarters since the start of debt rise

230

% of GDP
350
%
300

Japan (1965)

Global Economy

Household debt

200
150
130

100
50

80

0
1

27

53

79

105

Japan

131

Credit to private sector

US

Eurozone

China

Korea

% of GDP
50
%
40

100

Average: 93%

30

80

20

60

10

40
'76

UK

Foreign exchange reserves

2013: 140%

% of GDP
140
%
120

30

Non-financial corporate debt

250

China (1998)

180

Public debt

'80

'84

'88

'92

'96

'00

'04

'08

'12

0
'96

'98

'00

'02

'04

'06

Source: (Top left) BIS, CEIC, Lombard Street Research, J.P. Morgan Asset Management. (Bottom left) World Bank, J.P. Morgan Asset Management. (Top right) BIS,
Lombard Street Research, IMF World Economic Outlook October 2014, J.P. Morgan Asset Management. (Bottom right) Bloomberg, Oxford Economics, FactSet,
J.P. Morgan Asset Management. Foreign exchange reserves are year-end percentages for all years until 2014; 2014 data is the most recent available data.
Guide to the Markets - Europe. Data as at 31 December 2014.

'08

'10

'12

'14

Emerging Markets Structural Dynamics

Urbanisation and economic growth

Share of global consumption

Urbanisation ratios and real GDP per capita, 1960-2013

% of global consumption
40
%
35

60.000
US

50.000

Japan

30
25

GDP per capita

Global Economy

2012: 36%

2012: 27%
EM consumption

20

40.000

US consumption

15
'90
30.000

'94

'98

'02

'06

'10

Contribution to global GDP growth*

South
Korea

6
%

20.000

10.000

China

0
Global economic growth
EM growth

India
0
0

31

20

40
60
Urbanisation ratio

80

100

DM growth

-3
'80

'84

'88

'92

'96

'00

Source: (Left) IMF, J.P. Morgan Asset Management. (Top right) United Nations, J.P. Morgan Asset Management. (Bottom right) IMF World Economic Outlook October
2014, 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.
*Forecast for 2014 from the IMF World Economic Outlook October 2014. Guide to the Markets - Europe. Data as at 31 December 2014.

'04

'08

'12

Emerging Markets Challenges

Real policy rates: Emerging and developed markets

Consensus growth forecasts

Estimates for next 12 months
6,0

Global Economy

%
5,0

8,5

Brazil
Thailand

China (rhs)

Turkey

Indonesia (rhs)

Russia

India (rhs)

%
8,0

4
%
3

Emerging
markets

2
1
0

7,5

4,0

-1

Developed
markets

-2
7,0

3,0

-3
'04
6,5

2,0

6,0

1,0

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

Relative EM / DM equity performance and USD REER*

Rebased to 1993 = 100
250
MSCI EM / MSCI DM

90

200
5,5

0,0

100

150
110

5,0

-1,0

100

-2,0
Jan 13 Apr 13 Jul 13 Oct 13

4,5
Jan 14 Apr14

Jul 14

Oct 14

0
'93

'95

'97

'99

'01

'03

'05

'07

Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Top right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom right) MSCI, FactSet,
J.P. Morgan Asset Management. *REER is real effective exchange rate. Guide to the Markets - Europe. Data as at 31 December 2014.

32

120

USD REER (inverted)

50

'09

'11

'13

130

Emerging Markets Currencies

Currency performance in 2014

Emerging markets real effective exchange rate (REER)

Performance against the US dollar

Market cap weighted

135

-0,1

Thai Baht

Global Economy

Philippine Peso

-0,8

Indonesian Rupiah

-1,7

Indian Rupee

-2,0

Chinese Renminbi

-2,4

South Korean Won

125
115
105

-4,0

Malaysian Ringgit

95

-6,3

Turkish Lira

'05

-8,1

Mexican Peso

-11,1

Brazilian Real

-11,2

-9,5

Chilean Peso

-13,4

Hungarian Forint

Russian Rouble

'09

'10

'11

'12

'14

Financial crisis

Asian crisis
Eurozone
crisis
Taper
Tantrum

-45,2

0
-40

-30

-20

-10

'94

'96

'98

'00

'02

'04

'06

'08

Source: (Left) FactSet, J.P. Morgan Asset Management. (Top right) MSCI, FactSet, J.P. Morgan Asset Management. (Bottom right) Bloomberg, J.P. Morgan Asset Management.
Guide to the Markets - Europe. Data as at 31 December 2014.

33

'13

-18,7

-50

'08

-17,4

Columbian Peso

'07

Emerging market currency volatility

12
%
10

South African Rand

'06

'10

'12

'14

Emerging Markets Sensitivity

EM equity performance and US rate hikes

Net oil consumption for selected emerging economies

MSCI EM Index in USD, rebased to 100 on the date of first rate hike

Oil consumption minus oil production as a % of GDP

150

Qatar
UAE

Global Economy

30 Jun 2004
30 Jun 1999

-33,7
-28,3
-14,2

Russia
Columbia
Mexican

4 Apr 1994
125

Egypt
Malaysia
Brazil
Peru
China
Indonesia

100

Turkey
Czech Rep.

-7,4
-2,7
0,6
0,9
1,5
2,4
2,8
3,4
3,4
3,5
3,9
3,9
4,3
4,7
5,4
6,2
6,4
6,8
7,6
7,7

Hungary
Poland
Philippines
Greece
Chile
South Africa
India
Korea

75

Taiwan
Thailand

50
-250

-125
0
125
Number of trading days before and after the first rate hike

250

-40

-30

-20

Source: (Left) MSCI, US Federal Reserve, J.P. Morgan Asset Management. (Right) BP, various national statistics agencies, IMF, J.P. Morgan Asset Management.
Guide to the Markets - Europe. Data as at 31 December 2014.

34

-10

10

World Stock Market Returns

Equities

Local

35

4Q14

Ten-yr
Ann.

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

55,0%
MSCI EM
35,8%

20,2%
MSCI
Europe
19,6%

26,7%
MSCI Asia
ex-Japan
38,0%

-23,0%
Japan
TOPIX
-40,6%

73,4%
MSCI EM
62,8%

35,4%
Sm all Caps
24,4%

5,5%
US S&P 500
2,1%

20,8%
MSCI Asia
ex-Japan
19,7%

27,2%
Sm all Caps
35,8%

29,5%
US S&P 500
13,7%

9,5%
US S&P 500
4,9%

11,0%
MSCI Asia
ex-Japan
10,0%

45,3%
Japan
TOPIX
45,2%

19,6%
MSCI Asia
ex-Japan
28,6%

26,1%
MSCI EM
33,6%

-33,7%
US S&P 500
-37,0%

67,2%
MSCI Asia
ex-Japan
67,2%

28,3%
MSCI Asia
ex-Japan
15,6%

3,5%
HDY Equity
1,5%

18,1%
MSCI
Europe
16,4%

26,7%
US S&P 500
32,4%

19,7%
MSCI Asia
ex-Japan
7,7%

7,3%
Sm all Caps
5,1%

10,1%
MSCI EM
10,3%

41,9%
MSCI Asia
ex-Japan
24,1%

18,6%
MSCI EM
28,8%

4,6%
Portfolio
11,1%

-37,9%
HDY Equity
-34,4%

40,2%
Sm all Caps
40,8%

27,5%
MSCI EM
14,4%

-5,7%
Sm all Caps
-8,7%

16,8%
MSCI EM
17,4%

21,5%
Japan
TOPIX
54,4%

16,5%
Sm all Caps
6,7%

4,6%
MSCI Asia
ex-Japan
2,3%

9,3%
Sm all Caps
8,2%

33,8%
Sm all Caps
23,3%

16,0%
HDY Equity
21,6%

3,2%
MSCI
Europe
6,5%

-38,6%
Sm all Caps
-40,4%

37,6%
Portfolio
35,8%

23,9%
Japan
TOPIX
1,0%

-5,8%
Portfolio
-7,5%

16,3%
Sm all Caps
18,4%

20,5%
MSCI
Europe
22,3%

16,2%
HDY Equity
8,7%

3,1%
Portfolio
2,2%

8,9%
US S&P 500
7,7%

33,6%
Portfolio
23,9%

12,5%
Portfolio
19,4%

-1,0%
HDY Equity
4,7%

-40,3%
Portfolio
-40,1%

34,0%
HDY Equity
30,2%

23,1%
US S&P 500
15,1%

-7,5%
MSCI
Europe
-8,8%

15,6%
Portfolio
17,1%

15,3%
Portfolio
23,6%

15,3%
Portfolio
8,2%

2,3%
HDY Equity
1,1%

8,5%
Portfolio
8,0%

27,0%
HDY Equity
17,7%

5,2%
Sm all Caps
13,6%

-4,9%
US S&P 500
5,5%

-43,3%
MSCI
Europe
-38,5%

32,5%
MSCI
Europe
28,6%

20,9%
Portfolio
11,1%

-9,6%
Japan
TOPIX
-17,0%

14,2%
US S&P 500
16,0%

13,9%
HDY Equity
20,5%

11,8%
MSCI EM
5,6%

1,5%
Japan
TOPIX
6,3%

8,2%
HDY Equity
7,7%

26,7%
MSCI
Europe
25,5%

3,6%
US S&P 500
15,8%

-8,8%
Sm all Caps
-3,8%

-49,8%
MSCI Asia
ex-Japan
-47,7%

22,5%
US S&P 500
26,5%

16,2%
HDY Equity
8,0%

-14,3%
MSCI Asia
ex-Japan
-14,6%

13,6%
HDY Equity
14,0%

-1,1%
MSCI Asia
ex-Japan
6,2%

10,1%
Japan
TOPIX
10,3%

-0,1%
MSCI
Europe
0,0%

6,4%
MSCI
Europe
6,4%

20,9%
US S&P 500
4,9%

-8,7%
Japan
TOPIX
3,0%

-14,5%
Japan
TOPIX
-11,1%

-50,8%
MSCI EM
-45,7%

1,5%
Japan
TOPIX
7,6%

11,7%
MSCI
Europe
7,5%

-15,4%
MSCI EM
-12,5%

5,9%
Japan
TOPIX
20,9%

-6,5%
MSCI EM
3,8%

7,4%
MSCI
Europe
5,2%

-0,2%
MSCI EM
0,1%

3,5%
Japan
TOPIX
3,9%

Source: MSCI, TOPIX, Standard & Poors, FactSet, J.P. Morgan Asset Management. Local return is analogous to the return from a hedged position. Annualised return covers the
period 2005 to 2014. HDY Equity is the MSCI AC World High Dividend Yield Index. Small Caps is the MSCI Europe Small Cap Index. Hypothetical portfolio (for illustrative
purposes only and shouldnt be taken as a recommendation): 15% EM Equity, 10% Asia ex Japan, 30% Europe, 10% Japan, 10% HDY Equity, 20% S&P 500, 5% Small Cap. All
indices are total return. Guide to the Markets - Europe. Data as at 31 December 2014.

European Sector Returns

MSCI Europe Index
Financials

Cons.
staples

Health
care

Industrials

Cons.
disc.

Energy

Materials

Telecom

Utilities

Tech

Europe

Europe weight
Growth weight
Value weight
4Q14

Equities

2014
Since market peak*
Since market low*

Beta to int. rates**

Forward P/E ratio
15-year avg
Trailing P/E ratio
15-year avg
Dividend yield
15-year avg
Source: FactSet, MSCI, J.P Morgan Asset Management. All calculations are total return in local currency, not annualised. *Since market peak represents period 9 October
2007 to end of latest quarter. Since market low represents period 9 March 2009 to end of latest quarter. **Beta to int. rates is the regression coefficient based on a 10-year
regression of daily sector returns on the daily change in the 10-year German Bund yield. Guide to the Markets - Europe. Data as at 31 December 2014.

36

Beta to Europe

Bond and Equity Relative Valuations

Histogram: S&P 500 earnings yield (inverse of P/E)
Number of days: 1964 2014

Equity risk premium*

8

4.000

31 Dec 2014: lower

than 68% of days
since 1964

3.500
3.000

Equities relatively
less expensive

2.500
2.000
1.500
1.000

Equities

500
0
1

10 11 12 13 14 15%16

Histogram: Nominal 10-year Treasury yield

Average: 1,7%

Number of days: 1964 2014

2.500
2.000

Equities relatively
more expensive

31 Dec 2014: lower

than 96% of days
since 1964

1.500
-2

1.000
500
0

-4

10 11 12 13 14 15 %16

'89

'91

'93

'95

'97

'99

'01

'03

'05

'07

Source: (All charts) Tullett Prebon, Standard & Poors, FactSet, J.P. Morgan Asset Management. *The equity risk premium is the S&P 500 forward earnings yield less the US
Treasury 10-year yield. Guide to the Markets - Europe. Data as at 31 December 2014.

37

'09

'11

'13

MSCI Europe Index at Inflection Points

MSCI Europe Index
1.800

Characteristic

4 Sep 2000:
P/E = 21,3x
1.623
1.600

Sep 2000 Jul 2007 Dec 2014

Index level

1.623

1.641

1.379
14,1x

P/E ratio (fwd)

21,3x

13,5x

Dividend yield

1,9%

2,9%

3,3%

Euro gov bond yld

5,4%

4,5%

1,0%

16 Jul 2007:
P/E = 13,5x
1.641
31 Dec 2014:
P/E = 14,1x
1.379

Equities

1.400

Total return
+133%

-55%

-54%

+180%

+140%

1.200

1.000

800

12 Mar 2003:
P/E = 11,9x
676

31 Dec 1996:
P/E = 16,3x
714
'96

38

'97

'98

'99

'00

'01

'02

'03

'04

9 Mar 2009:
P/E = 8,3x
714
'05

'06

'07

'08

'09

'10

'11

Source: MSCI, FactSet, BofA/Merrill Lynch, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up
calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market
Aggregates. Euro government bond is the BofA/Merrill Lynch Euro Government (7-10Y) Index. Return calculations shown in green are based on the total return index.
Guide to the Markets - Europe. Data as at 31 December 2014.

'12

'13

'14

MSCI Europe Equity Index Valuations

Earnings yield and 10-year bond yield

Forward P/E ratio

30

14

x
%

25

Earnings yield
(inverse of forward P/E)

12

20

31 Dec 2014:
14,1x

Average: 13,7x

15

10

Equities

10

5
'99

'01

'03

'05

'07

'09

'11

'13

Europe dividend yield vs. European corporate bonds

10

31 Dec 2014:
7,1%

%
8

European corporate
bond yield

31 Dec 2014:
3,3%

10-year European
bond yield

2
2
0

39

Dividend yield

'01

'03

'05

31 Dec 2014:
1,4%
'07

'09

'11

'13

31 Dec 2014:
1,0%
0
'00

'02

'04

'06

'08

'10

Source: (Top left) FactSet, J.P. Morgan Asset Management. (Bottom left) Barclays, MSCI, FactSet, J.P. Morgan Asset Management. (Right) MSCI, BofA/Merrill Lynch,
FactSet, J.P. Morgan Asset Management. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by consensus estimates for earnings
in the next 12 months and is provided by FactSet Market Aggregates. Earnings yield is calculated as the inverse of the forward P/E ratio. Guide to the Markets - Europe.
Data as at 31 December 2014.

'12

'14

MSCI Europe Earnings and Profit Margins

Economic growth and revenue growth estimates

MSCI Europe earnings and performance

Index level, analyst estimates of the next 12 months of earnings
11
MSCI Europe
MSCI Europe

profits
index level

1.600

1.500

12-month revenue growth & PMI for manufacturing (advanced 12 months)

15
%
10

70

60
5

10
1.400

50

0
-5

40

Equities

1.300

-10

Manufacturing PMI

Revenue growth

-15
8

30
'03

1.200

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

US and European operating profit margins

1.100

1.000

900
6

Earnings per share/sales per share for MSCI Europe and S&P 500*
11
%

US

10
9

Europe

800
7

5
'07

'08

'09

'10

'11

'12

'13

700
'14

6
'04

'05

'06

'07

'08

Source: (Left) MSCI, FactSet, J.P. Morgan Asset Management. (Top right) Markit, MSCI, FactSet, J.P. Morgan Asset Management. (Bottom right) MSCI,
Standard & Poors, FactSet, J.P. Morgan Asset Management. *Data is last 12 months. Guide to the Markets - Europe. Data as at 31 December 2014.

40

'09

'10

'11

'12

'13

'14

US S&P 500 at Inflection Points

S&P 500 Index
2.200

Characteristic

2.000

31 Dec 2014:
P/E = 16,2x
2.059

Mar 2000 Oct 2007 Dec 2014

Index level

1.527

1.565

2.059

P/E ratio (fwd)

25,6x

15,2x

16,2x

Dividend yield

1,1%

1,8%

2,1%

10-year Treasury

6,2%

4,7%

2,2%

Equities

1.800

9 Oct 2007:
P/E = 15,2x
1.565

24 Mar 2000:
P/E = 25,6x
1.527

1.600

1.400

Total return
+116%

+121%

-47%

-55%

+244%

1.200

1.000

800

31 Dec 1996:
P/E = 16,0x
741
'96

41

'97

'98

9 Mar 2009:
P/E = 10,3x
677

9 Oct 2002:
P/E = 14,1x
777
'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

Source: Standard & Poors, FactSet, J.P. Morgan Asset Management. The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the most
recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Return calculations shown in
green are based on the total return index. Guide to the Markets - Europe. Data as at 31 December 2014.

'12

'13

'14

US S&P 500 Equity Valuations

Earnings yield and Baa corporate bond yield

Forward P/E ratio

11

28
x

31 Dec 1999:
25,4x

24

10

31 Dec 2014:
6,2%

Baa corporate
bond yield

20

31 Dec 2014:
16,2x

16

Equities

Average: 16,2x

12
'89

'91

'93

'95

'97

'99

'01

'03

'05

'07

'09

'11

'13

S&P 500 Shiller cyclically adjusted P/E

Adjusted using trailing 10-year average inflation-adjusted earnings
50

31 Dec 2014:
27,3x

x
40

30

30 Nov 2014:
4,7%

42

'91

'93

'95

'97

'99

'01

'03

20
10

Earnings yield
(inverse of forward P/E)
3
'89

Average:
16,5x

'05

'07

'09

'11

'13

0
'00

'10

'20

'30

'40

'50

'60

'70

Source: (Left) Standard & Poors, Moodys, IBES, FactSet, J.P. Morgan Asset Management. (Top right) Standard & Poors, FactSet, J.P. Morgan Asset Management.
Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by
FactSet Market Aggregates. (Bottom right) Robert Shiller, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as at 31 December 2014.

'80

'90

'00

'10

US S&P 500 Earnings and Profit Margins

S&P 500 earnings and performance

US operating profit margins

Index level, analyst estimates of the next 12 months of earnings

Earnings per share / sales per share for S&P 500*

12
%
10

130

S&P 500 index level

S&P 500 profits

2.000

120
1.800

1.600

Equities

6
4

110

2
0

100

'93

'95

'97

'99

'01

'03

'05

'07

'09

'11

'13

1.400

Employee compensation and profitability

% of GDP

90
1.200

80

1.000

70

60
'07

60

Employee compensation

Corporate profits

12

58

10

56

54

52

800

'08

'09

'10

'11

'12

'13

600
'14

50
'60

'65

'70

'75

'80

'85

'90

'95

Source: (Left and top right) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom right) BEA, FactSet, J.P. Morgan Asset Management. *Data is last 12
months. **3Q14 profit margins are based on an estimate from Standard & Poors. Guide to the Markets - Europe. Data as at 31 December 2014.

43

3Q14**:
10,1%

'00

'05

'10

2
'15

Interest Rates and Equities

Correlations between weekly equity returns and interest rate movements
Rolling two-year correlation of weekly returns of the S&P 500, MSCI Europe Index and the 10-year Treasury yield, 1980 - 2014
0,8

Market reaction when the US Fed raised rates

S&P 500
MSCI Europe

0,6
Positive
relationship
between yield
movements and
equity returns

0,2
Correlation

Equities

0,4

S&P 500
price return

87

87-89

94-95

99-00

04-06

Initial reaction

-5%

-8%

-10%

-7%

-8%

Subsequent
market
reaction

32%

27%

7%

18%

20%

Total reaction

26%

17%

-2%

10%

11%

0,0

-0,2
Negative
relationship
between yield
movements and
equity returns

-0,4

-0,6

-0,8
0

44

8
10-year Treasury yield

10

12

Source: Standard & Poors, US Treasury, MSCI, FactSet, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. The initial
reaction represents the period during which, in our judgment, markets began pricing the first rate hike through the date of the second rate hike. The subsequent market
reaction is the period from the second rate hike to a point determined to be the end of the rate hiking cycle. The total reaction is the market movement across the full rate
hiking cycle. Guide to the Markets - Europe. Data as at 31 December 2014.

14

16

Developed Markets Equity Valuations by Country

Developed markets
How to interpret this chart

Equities

Std dev from global average

+6 Std Dev

45

+5 Std Dev

Expensive
relative to
world

+4 Std Dev
+3 Std Dev

Expensive
relative to
own history

+2 Std Dev
+1 Std Dev
Average

Current
Average

-1 Std Dev

Cheap relative
to own history

-2 Std Dev
-3 Std Dev

Cheap
relative to
world

-4 Std Dev
-5 Std Dev

Italy

Spain

UK

France

Germany

Japan

ACWI

DM Index Switzerland

Current

US
10-year average

Current composite
index

Forward P/E

P/B

P/CF

Dividend yield

Forward P/E

P/B

P/CF

Dividend yield

Italy

-2,27

12,5x

0,9x

3,7x

3,5%

11,4x

1,0x

3,8x

4,4%

Spain

-1,94

14,0

1,3

4,8

5,4

11,1

1,4

4,5

6,1

UK

-0,76

13,8

1,8

7,3

3,9

11,7

1,8

7,1

3,8

France

-0,68

13,8

1,4

7,7

3,3

11,6

1,3

6,0

3,9

Germany

-0,58

12,9

1,6

7,5

2,9

11,6

1,5

5,3

3,5

Japan

0,63

14,3

1,4

8,1

1,8

16,5

1,2

6,2

2,1

ACWI

0,65

14,8

2,1

8,7

2,5

13,3

2,0

7,3

2,6

DM Index

1,00

15,4

2,2

9,3

2,4

13,6

1,9

7,5

2,7

Switzerland

1,32

15,7

2,5

11,3

3,2

13,9

2,3

10,2

3,1

US

2,55

16,4

2,8

11,0

1,9

14,2

2,3

8,7

2,1

Source: MSCI, FactSet, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (forward
P/E), price to current book (P/B), price to last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalised using means and average
variability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Guide to the Markets - Europe.
Data as at 31 December 2014.

Emerging Markets Equity Valuations by Country

Emerging markets
How to interpret this chart

+7 Std Dev

Equities

Std dev from global average

+6 Std Dev

+4 Std Dev

Expensive
relative to
own history

+3 Std Dev
+2 Std Dev
+1 Std Dev

Current

Average

Average

-1 Std Dev

Cheap
relative to
own history

-2 Std Dev
-3 Std Dev

Cheap
relative to
world

-4 Std Dev
-5 Std Dev
-6 Std Dev

Russia

46

Expensive
relative to
world

+5 Std Dev

Russia

Brazil

China

EM Index

Taiwan

S. Korea

ACWI

S. Africa

Mexico

Current

India
10-year average

Current composite
index

Forward P/E

P/B

P/CF

Dividend yield

Forward P/E

P/B

P/CF

Dividend yield

-5,32

3,8x

0,4x

1,8x

6,6%

7,1x

1,1x

3,8x

2,7%

Brazil

-2,50

10,2

1,2

5,2

4,5

10,0

1,9

5,7

3,3

China

-2,31

9,4

1,4

4,0

3,2

11,8

2,1

4,5

2,8

EM Index

-1,48

11,0

1,4

5,4

2,8

11,1

1,9

6,0

2,7

Taiwan

-0,56

13,2

1,9

6,9

3,0

14,5

1,9

6,3

3,7

S. Korea

0,02

9,6

1,0

5,8

1,3

9,6

1,4

5,4

1,7

ACWI

0,65

14,8

2,1

8,7

2,5

13,3

2,0

7,3

2,6

S. Africa

1,36

15,7

2,6

11,0

3,0

12,0

2,5

8,8

3,2

Mexico

2,91

18,3

2,6

7,1

1,4

15,0

2,9

6,7

1,9

India

3,71

16,7

3,0

12,2

1,5

15,8

3,2

12,5

1,4

Source: MSCI, FactSet, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (forward
P/E), price to current book (P/B), price to last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalised using means and average
variability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Guide to the Markets - Europe.
Data as at 31 December 2014.

Emerging Markets Valuations and Returns

MSCI Emerging Markets Index: Price to book

MSCI Emerging Markets Index: Price to book and returns

3,00

Price-to-book ratio and next 12 months price return

100
Current level
%

x
2,75

80

+2,0 Std dev

2,50

60

Equities

2,25

40

2,00

20

1,75

0
Average: 1,81x

1,50

-20
Dec 2014: 1,52x

1,25

-40
-2,0 Std dev
-60

1,00

0,75
'95

'97

'99

'01

'03

'05

'07

'09

'11

'13

-80
0,75

1,00

1,25

1,50

1,75

2,00

2,25

2,50

Source: (Both charts) MSCI, FactSet, J.P. Morgan Asset Management. Linear regression of price-to-book ratios on next 12 months price return from September 1995 through
December 2014 results in a R-squared of 0,17%. Guide to the Markets - Europe. Data as at 31 December 2014.

47

2,75

3,00

3,25

Emerging Markets Equity Composition

MSCI Emerging Markets Index by region

17%

16%

MSCI Emerging Markets Index by sector

Defensive

13%

17%

EMEA

Ind. & mat.

Asia

14%

Latin America

Financials

18%
8%

Tech

68%

Equities

29%

Consumer

MSCI Emerging Markets indices: Country index by sector

100
%

9%

80

17%

7%
11%

10%

4%
15%

17%

13%

9%

11%

11%

20%

26%

10%

15%

18%

11%
3%

18%
2%
14%

4%

60
58%

18%

35%

25%

15%
20%
10%

0
Brazil

17%

41%

49%

Russia

Ind. & mat.

Energy
Financials

Consumer
12%

36%
22%

9%

India

Defensive

Tech

23%

4%

20

40%
42%

40

China

Mexico

S. Korea

32%
19%

Turkey

Indonesia

Source: (All charts) MSCI, FactSet, J.P. Morgan Asset Management. Defensive is comprised of health care, telecommunication services and utility sectors. Ind. & mat. is
industrials and materials sectors. Percentages may not sum to 100% due to rounding. Guide to the Markets - Europe. Data as at 31 December 2014.

48

Energy

Emerging Markets: Performance, Dividends and Earnings Growth

MSCI country performance

MSCI EM Index: Long-term growth in dividends per share

(DPS) and earnings per share (EPS)

2014, total return in USD

Rebased to 100 at December 1995

Russia -45,9

500

-27,4

Hungary
Colombia

-19,8

EM EPS (fwd)

450

Brazil

-13,7

Poland

-13,6

Chile

Equities

EM DPS

DM EPS (fwd)

400

-12,2

S. Korea

-10,7

Malaysia

-10,7

Mexico

DM DPS
350
300

-9,2
-1,8

MSCI EM

250

DM Index

5,5

S. Africa

5,7

China

200

8,3
16,8

Thailand
Turkey

150

19,1

India

100

23,9

Philippines

26,4

Indonesia

27,2

Egypt

50

29,3
-50

-40

-30

-20

-10

10

20

30

40 % 50

0
'95

'97

'99

'01

'03

'05

'07

Source: (Left) MSCI, FactSet, J.P. Morgan Asset Management. (Right) MSCI, IBES, FactSet, J.P. Morgan Asset Management. Regular dividends only in local currency.
Guide to the Markets - Europe. Data as at 31 December 2014.

49

'09

'11

'13

Equity Income
S&P 500 total return: Dividends and capital appreciation
Capital appreciation

Average annualised returns

25
%
20

Dividends

15
12,6%

3,0%

5
4,7%

5,4%

6,0%

4,4%
3,3%

5,1%

-10

1926-1929

1930s

5,9%
4,4%

4,2%

1940s

1950s

1960s

1970s

+115%

High dividend
yield total return
+47%

Price return

4
3

-9%
100

1980s

'01

'02 '03

'04 '05

'06

'07

'08

'09

2000s

Eurozone average CPI inflation

(12 months to Nov 2014)
3,2
2,9

50
'00

1990s

2010-2014

1926-2014

6,2

'10

'11

'12

'13

'14

3,3

6,6

3,8

1,0
0,5

'99

4,0%

7
%
6
5

Total return
150

2,7%

Sources of income

Rebased to 100 at December 1999

50

2,5%

1,8%
-2,7%

MSCI Europe indices: Price vs. total return*

200

16,6%

15,3%

1,6%

-5,3%

-5

Equities

13,6%

13,9%

10

0,1
Cash

Bunds

Euro
corp

EM Converts MSCI Global

equity
Europe REITs

Source: (Top) Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left) MSCI, FactSet, J.P. Morgan Asset Management. (Bottom right) Eurostat, Tullett Prebon, Barclays,
J.P. Morgan Economic Research, MSCI, BofA/Merrill Lynch, FactSet, J.P. Morgan Asset Management. Total return index is the S&P 500. European corporate: BarCap European Aggregate Credit Corporate Index;
Emerging markets debt: JP Morgan EMBI+; High yield: BofA/Merrill Lynch High Yield Master II; EME: MSCI Emerging Markets Index, Converts is the Barclays Global Convertibles. Global REITs: FTSE NAREIT Index.
Yields for the bond indices are yield-to-worst and dividend yields for the equity indices. *Returns in local currency. Guide to the Markets - Europe. Data as at 31 December 2014.

EM
Debt

High
Yield

Equity Dividends and Valuations

Relative valuation of high dividend yielding equities

Defensives vs. cyclicals PE ratio

Valuation vs. long-term average, three-month moving average

125

MSCI All Country World Index

0,9
0,8

US

120

Defensive
sectors more
expensive
Average: 0,73

Europe

0,7

Emerging markets

115

Equities

0,6

110

0,5

105

0,4
'04

Cyclical
sectors more
expensive
'05

'06

'07

'08

'09

'10

'11

'12

'13

Number of companies yielding greater than 2% by region

100

Constituents of the MSCI All Country World Index

600
504
500

95

400
303

90

300

232

200
85

83

100
0

80
'00

'02

'04

'06

'08

'10

'12

'14

Emerging
Markets

Europe

Source: (Left) IBES, Compustat, FactSet, J.P. Morgan Asset Management. (Top and bottom right) MSCI, FactSet, J.P. Morgan Asset Management.
Guide to the Markets - Europe. Data as at 31 December 2014.

51

US

Japan

'14

Equity Correlations and Volatility

Global large cap stocks

Sovereign Debt
Crisis

Correlations among stocks

70

Great Depression

60

Lehman
Bankruptcy

1987 Crash
Cuban Missile Crisis

50

OPEC Oil
Crisis

Tech Bust & 9/11

40
30
20
10

Equities

Dec 2014:
37,4%

Average: 27,0%

0
'26

'32

'38

'44

'50

'56

'62

Stock market volatility

3,5
%
3,0

'74

Volatility measures
DJIA (left)
VIX (right)
VDAX

DJIA volatility shown

in three-month
moving average

2,5

'68

'80

'86

2008 peak
3,30%
80,9
74,0

'92

Average
0,71%
20,0
22,2

'98

'04

'10

Latest
0,56%
19,2
19,5

90
75
60

2,0
45
1,5
30

1,0

15

0,5
0,0
'30

'35

'40

'45

'50

'55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. (Bottom) CBOE, Deutsche Boerse, Dow Jones, FactSet, J.P. Morgan Asset Management.
Capitalisation-weighted correlation of top 750 stocks by market capitalisation, daily returns, 1926 2014. DJIA volatility is represented as three-month moving average of the daily absolute
percentage change in the Dow Jones Industrial Average. Guide to the Markets - Europe. Data as at 31 December 2014.

52

'10

0
'15

Annual Returns and Intra-year Declines

MSCI Europe Index intra-year declines vs. calendar year returns
Calendar year return

Despite average intra-year drops of 15,6% (median 11,9%), annual returns are positive in 27 of 35 years
39

40
%

28

30

20

28

22

21

18

17
13

13

23

22

20

20

16

15

16

12

12
9

10

Equities

Intra-year decline

35

34

34

6
4

-10

-4

-3

-4

-6

-7
-11

-11

-10

-15

-20

-4
-8

-6

-5

-6
-8

-9

-11

-11
-16

-18

-19

-12

-12 -12

-12

-12

-15

-18

-18

-12 -12
-15

-22
-24

-25

-26

-30
-31

-31
-35

-40

-35

-37
-41

-50
'80

53

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

-48

'08

Source: MSCI, FactSet, J.P. Morgan Asset Management. Returns are based on price only and do not include dividends. Intra-year decline refers to the largest market
fall from peak to trough within a short time period during the calendar year. Returns shown are calendar years from 1980 to 2014. Guide to the Markets - Europe.
Data as at 31 December 2014.

'10

'12

'14

Fixed Income Sector Returns

2005

Fixed Income

Local

2006

2007

2008

2009

2010

2011

2012

2013

2014

4Q14

Ten-yr
Ann.

28,9%
EM Sov
(USD)
11,9%

9,8%
Global HY
12,2%

7,5%
US Treas.
9,0%

14,2%
US Treas.
13,7%

58,2%
Global HY
57,7%

23,7%
EM Sov
(LC)
11,1%

12,9%
EM Sov
(USD)
9,2%

18,6%
Global HY
19,2%

6,2%
Global HY
6,5%

20,9%
EM Sov
(USD)
6,2%

3,4%
EM Sov
(USD)
-0,9%

9,0%
EM Sov
(USD)
7,7%

22,5%
EM Sov
(LC)
10,7%

3,1%
EM Sov
(LC)
8,6%

6,5%
EM Sov
(LC)
6,4%

8,8%
Govt.
(ex-US)
8,1%

22,0%
EM Sov
(USD)
25,9%

19,6%
EM Sov
(USD)
11,8%

10,6%
US Treas.
9,8%

16,2%
EM Sov
(USD)
18,0%

0,9%
Govt.
(ex-US)
1,1%

9,2%
Govt.
(ex-US)
9,2%

2,9%
Govt.
(ex-US)
2,9%

8,0%
EM Sov
(LC)
8,9%

6,4%
Portfolio
5,4%

2,2%
Portfolio
5,2%

3,4%
Govt.
(ex-US)
4,9%

0,1%
Portfolio
1,0%

18,2%
EM Sov
(LC)
8,6%

15,2%
Global HY
15,1%

5,8%
Portfolio
6,0%

15,0%
EM Sov
(LC)
14,4%

-0,1%
Global IG
0,1%

8,5%
EM Sov
(LC)
9,0%

1,9%
US Treas.
1,9%

7,3%
Global HY
8,3%

4,4%
Global HY
5,6%

1,4%
Global IG
3,6%

3,2%
Portfolio
4,9%

-0,3%
EM Sov
(LC)
10,9%

16,6%
Global IG
16,6%

8,8%
Portfolio
7,1%

5,2%
Global IG
4,8%

10,7%
Global IG
10,9%

-1,5%
Portfolio
0,2%

7,9%
Portfolio
7,3%

1,7%
Global IG
1,8%

5,5%
Portfolio
5,9%

4,4%
Govt.
(ex-US)
5,5%

1,2%
Govt.
(ex-US)
3,4%

1,8%
Global IG
3,2%

-5,0%
EM Sov
(USD)
-9,7%

13,9%
Portfolio
13,1%

7,2%
Global IG
7,2%

4,9%
Govt.
(ex-US)
4,2%

9,2%
Portfolio
9,5%

-2,9%
US Treas.
-2,7%

7,5%
Global IG
7,6%

1,5%
Portfolio
1,7%

4,6%
Global IG
5,1%

2,3%
Global IG
3,5%

0,9%
US Treas.
3,1%

0,6%
Global HY
2,0%

-5,3%
Global IG
-5,1%

2,4%
Govt.
(ex-US)
2,3%

6,1%
US Treas.
5,9%

3,5%
Global HY
3,6%

5,2%
Govt.
(ex-US)
5,4%

-12,3%
EM Sov
(USD)
-8,3%

5,0%
US Treas.
5,1%

-1,5%
EM Sov
(LC)
2,3%

4,3%
Govt.
(ex-US)
4,7%

1,6%
US Treas.
2,8%

-1,2%
EM Sov
(USD)
10,5%

-4,0%
EM Sov
(USD)
6,5%

-27,9%
Global HY
-25,2%

-3,8%
US Treas.
-3,6%

3,0%
Govt.
(ex-US)
2,9%

1,5%
EM Sov
(LC)
9,7%

1,9%
US Treas.
2,0%

-12,9%
EM Sov
(LC)
-0,2%

2,3%
Global HY
2,6%

-1,7%
Global HY
-1,6%

4,0%
US Treas.
4,4%

Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Annualised return covers the period from 2005 to 2014. Global HY: Barclays Global High Yield; US Treasury: Barclays US Aggregate
Government Treasury; Govt. (ex-US): Barclays Global Treasury ex-US; EM Sov Debt (USD): JP Morgan EMBI+; Global Corp (IG): Barclays Global Aggregate Corporates; EM Sov Debt (LC):
JPMorgan GBI-EM Global. Hypothetical portfolio (for illustrative purposes only and shouldnt be taken as a recommendation): 15% US Treasury; 30% Treasury (ex-US); 5% EM Debt (USD); 10% Global
HY; 10% EM Sov Debt (LC); 30% Global Corp (IG). Multi-currency indices are hedged. Guide to the Markets - Europe. Data as at 31 December 2014.

54

Fixed Income Market Data

Yield
# of issues

Mkt. value
($ billions)

1-3 years

106

1.754

1,9 years

0,31%

5-7 years

59

1.251

6,0

10+ years

122

2.937

1-3 years

95

5-7 years
10-20 years

Return*

10-year correlation

4Q14

2014

10-year
Bund

10-year
Treasury

0,36%

0,12%

1,55%

0,44

0,17

0,76

1,03

1,72

9,99

0,83

0,58

21,3

1,94

2,43

7,95

26,97

0,85

0,66

2.528

2,0 years

0,68%

0,60%

0,19%

0,63%

0,46

0,65

39

986

6,1

1,85

2,04

1,83

4,84

0,74

0,95

14

128

13,4

2,31

2,71

4,83

14,53

0,79

1,00

410

5.070

6,5 years

2,60%

2,88%

1,79%

6,08%

0,63

0,80

IG credit

8.914

7.583

8,8

2,57

2,61

0,06

3,15

0,08

0,25

High yield

3.366

2.128

6,3

6,68

6,04

-2,51

0,01

-0,29

-0,20

Floating rate

492

343

2,1

0,71

0,54

-0,16

0,65

-0,26

-0,21

Convertibles

821

358

0,0

3,34

3,12

1,09

6,02

-0,45

-0,41

EMD USD sovereign

328

516

12,3

5,66

5,32

-0,61

7,15

0,06

0,22

EMD USD corporate

553

412

6,7

5,78

4,99

-2,08

3,91

-0,04

0,11

EMD LC sovereign

431

1.750

7,3

5,41

5,44

-4,19

-1,91

-0,19

-0,09

Europe Treasuries

Avg. maturity 31/12/2014 30/09/2014

Europe bonds

Fixed Income

US Treasuries

55

Sector
MBS

Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Fixed income sectors shown are represented by the following indices: Europe Treasuries Barclays Pan-Euro
Aggregate Government-Treasury indices, US Treasuries Barclays US Treasury indices, MBS Barclays US Aggregate Securitized-MBS, IG Credit Barclays Global AggregateCorporates, High yield Barclays Global High Yield, Floating rate Barclays US Floating Rate Notes, Convertibles Barclays Global Convertibles Composite, EMD USD
sovereign Barclays Emerging Markets USD Aggregate Sovereign, EMD USD corporate Barclays Emerging Markets USD Aggregate Corporate, EMD LC sovereign
Barclays Emerging Market Local Currency Government. *Return is in local currency of the index and unhedged. Guide to the Markets - Europe. Data as at 31 December 2014.

Policy and Real Rates

Bank of England

US Federal Reserve

%
6

Base rate
31 Dec 2014:
0,50%

Fed funds
31 Dec 2014:
0,25%

Real interest rate

Nov 2014: -0,67%

-2

Real interest rate

Nov 2014: -1,46%

-2

Fixed Income

'99

'01

'03

'05

'07

'09

'11

'13

European Central Bank

'99

'01

'03

'05

'07

'09

'11

'13

Bank of Japan
2,0
%
1,5

%
4

Call rate
31 Dec 2014:
0,10%

1,0
0,5
0,0

Repo rate
31 Dec 2014:
0,05%

Real interest rate

Nov 2014: -2,06%

-1,0
-1,5

Real interest rate

Nov 2014: -0,62%
'99

56

-0,5

'01

'03

'05

'07

-2,0
-2,5
'09

'11

'13

'99

'01

'03

'05

'07

Source: (Top left) Bank of England, ONS, FactSet, J.P. Morgan Asset Management. (Top right) US Federal Reserve, BLS, FactSet, J.P. Morgan Asset Management.
(Bottom left) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Bottom right) Bank of Japan, Japanese Statistics Bureau & Statistics Centre, FactSet,
J.P. Morgan Asset Management. Real interest rate is policy rate less core CPI inflation. Guide to the Markets - Europe. Data as at 31 December 2014.

'09

'11

'13

Fixed Income Interest Rate Risk

Source: (Both charts)
Barclays, FactSet, J.P.
Morgan Asset Management.

Current and historical yields for selected indices

Last 10 years*
25
%
20

How to
interpret this
chart
Max

15
10

Average
Current

Min

Fixed Income

Treasury:
Europe

1-3 years 5-7 years

10+ years

Floating Investment- High yield EMD USD EMD USD EMD LC

rate
grade credit
sovereign corporate sovereign

Illustration of the impact a 1% rise in local interest rates may have on selected indices
Assumes a parallel shift in the yield curve and spreads are maintained

0
%
Price return
-5

Total return

-10

-15

57

Treasury:
Europe

1-3 years

5-7 years

10+ years

Floating Investment- High yield EMD USD EMD USD EMD LC

sovereign corporate sovereign
Rate grade credit

*Historical spread analysis is

based on the last 10 years
of data, with the exception of
10+ yrs UK Treasuries and
local currency emerging
markets debt, which are
based on nine years and six
years of data, respectively,
due to data availability.
Fixed income sectors shown
are provided by Barclays
Capital and are represented
by Treasury Europe:
Barclays Pan-Euro
Aggregate Government Treasury Index; Floating
Rate Barclays US Floating
Rate Notes (BBB); IG credit:
Barclays Global Aggregate
Corporates Index; High
yield: Barclays Global High
Yield Index; EMD sovereign
($): Barclays Emerging
Markets Sovereigns index;
EMD corporate ($): Barclays
Emerging Markets
Corporates Index; EMD
sovereign (LC): Barclays
Emerging Market Local
Currency Government
Index.
For illustrative purposes
only.
Change in bond price is
calculated using both
duration and convexity.
Guide to the Markets Europe. Data as at 31
December 2014.

Liquidity and Duration Risks

US corporate debt market liquidity

Mark to market: Interest rate risks

$ billions

Estimated amount of yield increase to wipe out next years income

4.000

900

Dealer inventories (lhs)

bps

IG corporate debt outstanding (rhs)

3.500

600
$

Current yield

800
159

500
700
3.000

93

600

400

A 102 bps increase

in yield wipes out
income earned
through the end of
2015

102

2.500

Fixed Income

500
2.000

300

400
56
1.500
200
1.000

43
300
27

200

22
100
500

12

100

0
0

0
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Global
HY

EMD
EMD
USD Sovereign

Global
IG

US IG

Euro
US
UK Gilts
Aggregate
Treasuries
Govt

Source: (Left) Federal Reserve Bank of New York, Barclays, J.P. Morgan Asset Management. (Right) Barclays, FactSet, J.P. Morgan Asset Management. Interest rate risks chart assumes that
all investments are issued at par and are made on 31 December 2014, with no re-investment of income and with no consideration to convexity characteristics. Fixed income sectors shown are provided

58

by Barclays Capital and are represented by Barclays Global High Yield, Barclays Emerging Market Local Currency Government, Barclays Emerging Markets USD Aggregate, Barclays Global
Credit Corporate, Barclays US Aggregate Credit - Corporate - Investment Grade, Barclays US Aggregate Government - Treasury (7-10 Y), Barclays UK Gilt (7-10 Y), Barclays Euro
Aggregate Government - Treasury (7-10 Y). Guide to the Markets Europe. Data as at 31 December 2014.

Global Bond Supply and Demand

Estimated global bond supply

Estimated global bond demand

$ billions per annum

$ billions per annum

4.500

Banks, pension funds,

insurance companies

4.500

Other bonds

$
4.000

Retail funds

$
4.000

Government bonds

Foreign official
G4 central banks

3.500

3.500
3.000

3.000
Estimated
$2.600 bn

2.500

Fixed Income

2.500
2.000

2.000

1.500

1.500

1.000

1.000

500

500

-500

-500
'07

'08

'09

'10

'11

'12

'13

'14

'15

Estimated
$2.000 bn

'07

'08

'09

'10

Source: (Both charts) Central bank sources, ICI, Bloomberg, IMF, J.P. Morgan Securities, J.P. Morgan Asset Management. Guide to the Markets - Europe.
Data as at 31 December 2014.

59

'11

'12

'13

'14

'15

Government and Investment Grade Bond Yields

Ten-year bond yields

Investment grade bond yields

5,5

10

%
8

5,0

US
6

UK

4,5

Germany
4

4,0
2

UK
Eurozone

3,5
0
'06

3,0

Fixed Income

US

'07

'08

'09

'10

'11

'12

'13

'14

Yield curve steepness

Ten-year government bond yield less two-year government bond yield

2,5

3,0

US

UK

2,5

2,0

Germany
2,0

1,5
1,5

1,0

0,5
'06

60

1,0

'07

'08

'09

'10

'11

'12

'13

'14

0,5
'10

'11

'12

Source: (Left and bottom right) Tullett Prebon, FactSet, J.P. Morgan Asset Management. (Top right) Barclays, FactSet, J.P. Morgan Asset Management. Investment grade
bond yields shown are provided by Barclays Capital and are represented by US: Barclays US Aggregate Corporate Investment Grade, UK: Barclays Sterling Aggregate
Non-Gilts Corporate, Eurozone: Barclays Euro-Aggregate Corporate. Guide to the Markets - Europe. Data as at 31 December 2014.

'13

'14

US High Yield Bonds

US high yield spreads and defaults
20

Asset class

Average

Latest

2.000

1,9%

bps
1.500

HY defaults (lhs)

4,0%

15

HY spread (rhs)

576bps

571bps

Lev. loan spread (rhs)

440bps

526bps

1.000

10

500

Fixed Income

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

US historical high yield recovery rates

High yield issuance

High yield bonds, cents on the dollar

70

$ billions

60
Average: 41,8 cents

50

'08

'10

'12

'14

2014:
$342,9bn

400
$

Refinancing

300

Acquisition/LBO
General*

40
200

30
20

100

10
0

0
'82

61

'85

'88

'91

'94

'97

'00

'03

'06

'09

'12

'05

'06

'07

'08

'09

'10

'11

Source: (Top) US Treasury, J.P. Morgan Economic Research, Credit Suisse, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the
total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. Leveraged loan spread is the discount
margin to maturity. (Bottom left and right) J.P Morgan, J.P. Morgan Asset Management. *General issuance includes issuance for the purpose of paying dividends.
Guide to the Markets - Europe. Data as at 31 December 2014.

'12

'13

'14

European High Yield Bonds

Europe high yield: Spread to worst and default rates

Asset class

20

Default rate 2002:

33%

Average

Latest

HY spread (rhs)

662bps

395bps

HY defaults (lhs)

5,2%

1,0%

2.500
bps
2.000

15

1.500
10
1.000
5

Fixed Income

500

'98

'99

'00

'01

'02

'03

'04

'05

'06

European high yield issuance by credit rating

Unrated

'09

'10

'11

'12

'13

'14

Government bonds are 5-year German Bund and 5-year US Treasury

90
European

CCC
B

60

'08

Ratio of high yield to government bond yield

2014:
84,5bn

billions
90

'07

Global

60

BB
30

30

0
'03

62

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

0
'05

'06

'07

'08

'09

'10

'11

Source: (Top) Credit Suisse, FactSet, J.P. Morgan Asset Management. (Bottom left) J.P. Morgan Economic Research, FactSet, J.P. Morgan Asset Management. (Bottom right)
FactSet, Barclays, J.P. Morgan Asset Management. European high yield is the BofA/Merrill Lynch European High Yield index. Global high yield is the Barclays High Yield index.
Guide to the Markets - Europe. Data as at 31 December 2014.

'12

'13

'14

Emerging Markets Debt

Emerging markets debt yields

Real policy rates

14

6
%
4

Developed markets
Emerging markets

2
12
0
-2
-4

Fixed Income

10

EM sovereign debt and Baa corporate bond yields

7,0

%
6,5

EMBIG*

6,0
5,5

6
EM sovereign (local currency)

5,0

EM sovereign (USD)

4,5

Baa corporate
bond (USD)

EM corporate (USD)
4
'01

63

'03

'05

'07

'09

'11

'13

4,0
'09

'10

'11

'12

Source: (Left and top right) J.P. Morgan Economic Research, FactSet, J.P. Morgan Asset Management. (Bottom right) Moodys, J.P. Morgan Economic Research, FactSet,
J.P. Morgan Asset Management. EM sovereign (local currency) is the JP Morgan GBI-EM; EM sovereign (USD) is the JP Morgan EMBI+; EM corporate (USD) is the JP Morgan
CEMBI. *The JP Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations.
Guide to the Markets Europe. Data as at 31 December 2014.

'13

'14

Emerging Markets Debt Composition

EMBI Global*: Credit rating breakdown

Emerging markets investable debt outstanding

% of the index

$ trillions
3,5

100
%

EM corporate (USD)

90

EM sovereign (USD)

3,0

EM sovereign (local currency)

80
Unrated

70

2,5

Fixed Income

60

BB

2,0

IG

50

1,5
40
30

1,0

20
0,5
10
0,0

0
1994-97 1998-01 2002-05 2006-09 2010-13

64

2014

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

Source: (Both charts) J.P. Morgan Economic Research, J.P. Morgan Asset Management. *The JP Morgan EMBI Global (EMBIG) is a USD-denominated external debt index
tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. EM corporate (USD) is the CEMBI; EM sovereign (USD) is the JP Morgan EMBI Global; EM
sovereign (local currency) is the Global Bond Index Emerging Market Broad Diversified Index (GBI-EM). Guide to the Markets - Europe. Data as at 31 December 2014.

'11

'12

'13

'14

Other Assets and

Investor Behaviour

Asset Class Returns

65

Ten-yr
Ann.

2010

2011

2012

2013

Govt bonds
9,1%

EME
62,8%

REITS
27,6%

REITS
7,3%

REITS
20,1%

World
equities
29,6%

REITS
27,1%

REITS
12,4%

EME
10,3%

Cmdty
16,2%

Cash
5,7%

HY bonds
57,7%

Cmdty
16,8%

EMD
7,0%

HY bonds
19,2%

Portfolio
9,7%

World
equities
10,4%

World
equities
3,4%

HY bonds
8,3%

World
equities
16,1%

Hedge
funds
12,6%

IG bonds
-5,1%

EMD
34,2%

HY bonds
15,1%

Govt bonds
5,5%

EMD
17,9%

Hedge
funds
9,7%

Govt bonds
8,1%

Govt bonds
2,7%

EMD
7,8%

Portfolio
12,6%

Hedge
funds
13,9%

Portfolio
7,3%

EMD
-14,7%

REITS
27,4%

EME
14,4%

IG bonds
4,8%

EME
17,4%

HY bonds
6,5%

IG bonds
7,6%

IG bonds
1,8%

REITS
7,5%

EMD
12,3%

Portfolio
12,7%

Govt bonds
5,6%

Hedge
funds
-19,1%

World
equities
26,5%

EMD
12,8%

HY bonds
3,6%

World
equities
16,4%

EME
3,8%

Portfolio
7,0%

Portfolio
1,5%

World
equities
6,9%

REITS
8,3%

HY bonds
12,2%

World
equities
5,2%

Portfolio
-22,6%

Portfolio
26,3%

Hedge
funds
10,9%

Cash
1,7%

Portfolio
12,6%

REITS
3,2%

EME
5,6%

Hedge
funds
0,7%

Portfolio
6,8%

Hedge
funds
7,6%

EMD
10,0%

EMD
5,2%

HY bonds
-25,2%

Cmdty
18,9%

Portfolio
10,7%

Portfolio
-1,1%

IG bonds
10,9%

Cash
0,2%

EMD
4,8%

EME
0,1%

Hedge
funds
5,8%

HY bonds
5,6%

IG bonds
3,6%

Cash
4,4%

Cmdty
-35,6%

Hedge
funds
18,6%

World
equities
10,6%

Hedge
funds
-2,5%

Hedge
funds
7,7%

Govt bonds
0,1%

Hedge
funds
4,1%

Cash
0,0%

IG bonds
5,1%

Govt bonds
5,0%

Govt bonds
3,3%

IG bonds
3,2%

REITS
-37,3%

IG bonds
16,6%

IG bonds
7,2%

World
equities
-5,0%

Govt bonds
4,5%

IG bonds
0,1%

HY bonds
2,6%

HY bonds
-1,6%

Govt bonds
4,6%

IG bonds
3,5%

Cash
3,0%

HY bonds
2,0%

World
equities
-38,3%

Cash
2,3%

Govt bonds
3,6%

EME
-12,5%

Cash
1,2%

EMD
-4,1%

Cash
0,3%

EMD
-1,7%

Cash
2,2%

Cash
2,2%

Cmdty
2,1%

REITS
-17,8%

EME
-45,7%

Govt bonds
1,0%

Cmdty
-13,3%

Cmdty
-1,1%

Cmdty
-9,5%

Cmdty
-17,0%

Cmdty
-12,1%

Cmdty
-1,9%

2006

2007

EME
35,8%

REITS
34,4%

EME
33,6%

Cmdty
21,4%

EME
28,8%

World
equities
16,3%

2008

Cash
1,1%

2014

4Q14

2009

2005

Source: MSCI, Barclays Capital, Bloomberg/UBS, NAREIT, J.P. Morgan Economic Research, Credit Suisse/Tremont, FactSet, J.P. Morgan Asset Management. Returns are in base currency of the index.
Annualised return covers the period from 2005 to 2014. EME: MSCI EM Emerging Market; Govt bonds: Barclays Global Aggregate Government Treasuries; HY bonds: Barclays Global High Yield; EMD:
Barclays Emerging Markets (USD); IG bonds: Barclays Global Aggregate Corporates; Cmdty: Bloomberg/UBS Commodity; REITS: FTSE NAREIT All REITS; DM equities: MSCI World; Hedge funds:
Credit Suisse/Tremont Hedge Fund; Cash: JP Morgan Cash Index ECU (3M). Hypothetical portfolio (for illustrative purposes only and shouldnt be taken as a recommendation): 15% government bonds; 5%
HY bonds; 15% IG bonds; 5% EMD; 5% commodities; 5% cash; 5% REITS; 5% hedge funds; 7,5% EM equities; 32,5% World equities. Multi-currency indices are hedged. Guide to the Markets - Europe.
Data as at 31 December 2014.

Correlation of Returns (EUR)

Other Assets and

Investor Behaviour

10-year correlations
MSCI
Europe

S&P 500

Global
bonds

Cmdty

Hedge
funds

MSCI
Europe

1,00

0,76

0,80

0,77

-0,14

0,54

0,72

-0,29

0,36

0,70

0,67

0,19

S&P 500

0,39

1,00

0,64

0,65

-0,04

0,27

0,50

0,12

0,30

0,44

0,53

0,22

MSCI EM

0,51

0,40

1,00

0,96

-0,09

0,59

0,67

-0,18

0,48

0,68

0,61

0,04

MSCI Asia
ex-Japan

0,44

0,42

0,95

1,00

-0,03

0,54

0,64

-0,09

0,39

0,62

0,58

0,02

Pan Europe
bonds

0,06

0,14

0,35

0,40

1,00

0,15

-0,13

0,59

-0,13

-0,28

-0,21

-0,15

EM debt

0,63

0,12

0,64

0,57

0,39

1,00

0,75

-0,25

0,25

0,54

0,53

-0,08

High yield
bonds

0,70

0,21

0,57

0,47

0,25

0,79

1,00

-0,33

0,34

0,79

0,88

-0,13

Global
bonds

-0,37

0,26

0,08

0,18

0,64

-0,06

-0,21

1,00

-0,03

-0,42

-0,25

-0,15

Cmdty

0,31

0,24

0,30

0,27

0,11

0,32

0,42

0,22

1,00

0,50

0,40

0,24

Hedge
funds

0,73

0,27

0,42

0,39

0,12

0,43

0,61

-0,35

0,12

1,00

0,81

0,09

Leveraged
loans

0,57

0,17

0,49

0,40

0,08

0,57

0,81

-0,27

0,36

0,69

1,00

-0,05

Real
estate

-0,04

0,03

-0,35

-0,30

-0,44

-0,61

-0,55

-0,35

-0,45

-0,10

-0,39

1,00

MSCI EM

MSCI Asia
ex-Japan

Pan Europe
bonds

EM debt

High yield
bonds

Leveraged
loans

Three-year correlations

66

Source: Citigroup, Barclays, Credit Suisse, NCREIF, Standard & Poors, MSCI, Federal Reserve, Bloomberg, J.P. Morgan Economic Research, Bloomberg/UBS, J.P. Morgan Asset Management. Pan
Europe bonds: Citigroup Europe Government Bond; EM debt: JP Morgan EMBI Global; High yield bonds: JP Morgan Domestic High Yield; Global bonds: Barclays Global Aggregate; Lev. Loans: Credit
Suisse Leveraged Loans; Cmdty: Bloomberg/UBS 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. Ten-year correlation values are calculated for period December 2004 to December 2014. All indices except Real Assets are total return based on monthly return data
in euros; real asset correlations are based on quarterly data and are as at 30 September 2014. Guide to the Markets - Europe. Data as at 31 December 2014.

Real
estate

Other Assets and

Investor Behaviour

Commodity Returns
4Q14

Crude Oil
6,8%

Coffee
37,7%

Wheat
21,8%

Gold
8,0%

Wheat
9,7%

Nat. gas
5,0%

Nickel
7,3%

Corn
19,7%

Copper
6,9%

Crude Oil
-3,7%

Silver
7,0%

Copper
-8,8%

Gold
-1,8%

Gold
-2,3%

Silver
6,0%

Corn
30,5%

Silver
-10,2%

Gold
6,0%

Nickel
-20,1%

Alum inum
-3,1%

Copper
-5,9%

Nickel
0,4%

Gold
22,7%

Copper
29,4%

Coffee
-11,2%

Copper
4,9%

Alum inum
-20,8%

Wheat
-9,5%

Alum inum
-6,4%

Corn
-3,1%

Wheat
-39,4%

Coffee
10,1%

Gold
28,5%

Alum inum
-21,7%

Alum inum
-4,1%

Wheat
-27,2%

Corn
-13,3%

Nickel
-7,6%

Coffee
-5,8%

Coffee
-6,4%

Alum inum
-41,0%

Crude Oil
4,2%

Wheat
21,0%

Copper
-24,5%

Nickel
-10,3%

Gold
-28,7%

Copper
-16,6%

Silver
-8,8%

Alum inum
-6,1%

Coffee
1,0%

Nickel
-16,9%

Copper
-53,8%

Corn
-10,3%

Alum inum
5,2%

Nickel
-24,7%

Crude Oil
-11,8%

Corn
-30,3%

Silver
-20,5%

Coffee
-15,8%

Wheat
-8,1%

Coffee
-11,7%

Crude Oil
-16,7%

Alum inum
-18,9%

Crude Oil
-53,9%

Wheat
-26,1%

Crude Oil
3,7%

Wheat
-34,0%

Nat. gas
-30,7%

Coffee
-30,6%

Nat. gas
-30,8%

Nat. gas
-32,5%

Crude Oil
-9,4%

Corn
-18,4%

Nat. gas
-72,1%

Nat. gas
-22,9%

Nickel
-56,8%

Nat. gas
-51,6%

Nat. gas
-40,7%

Nat. gas
-47,1%

Coffee
-41,6%

Silver
-36,7%

Crude Oil
-41,7%

Crude Oil
-40,7%

Nat. gas
-34,1%

2006

2007

2008

2009

2010

2011

2012

Copper
56,1%

Nickel
167,2%

Wheat
52,1%

Gold
2,4%

Copper
129,6%

Silver
81,6%

Gold
9,6%

Corn
18,9%

Nat. gas
52,8%

Copper
45,1%

Crude Oil
40,1%

Corn
-23,1%

Nickel
54,6%

Coffee
66,8%

Corn
1,1%

Silver
25,0%

Corn
40,0%

Gold
24,2%

Silver
-26,6%

Silver
47,4%

Nickel
32,0%

Crude Oil
21,9%

Silver
37,8%

Silver
9,1%

Coffee
-27,3%

Alum inum
33,6%

Alum inum
15,5%

Wheat
20,0%

Copper
4,1%

Nat. gas
-38,0%

Gold
13,8%

Alum inum
19,4%

Corn
-2,3%

Nickel
-8,1%

Gold
16,0%

Wheat
-8,8%

2013

Source: Bloomberg, UBS, FactSet, J.P. Morgan Asset Management. Returns are in base currency of the index. Annualised period covers 2005 to 2014.
Guide to the Markets - Europe. Data as at 31 December 2014.

67

Ten-yr
Ann.

2014

2005

Commodities
Commodity volatility

Gold price

Standard deviation of weekly returns, 10 years

2.500

Inflation-adjusted gold price

5,9

Natural gas

Grains

3,5

Industrial metals

3,5

Gold price

$/oz.

4,5

Crude oil

31 Jan 1980:
$2.086
2.000

3,2

Precious metals
Bloomberg/UBS
Cmdty Index
ACWI

2,5
2,3
1,9

Livestock

1.500

Commodity prices and US inflation

Other Assets and

Investor Behaviour

Change year on year

8
%
6

Bloomberg/UBS
Commodity Index

Headline CPI*

80
%
60

40

20

-2

-20

-4

-40

-6

-60
'95

'97

'99

'01

'03

'05

'07

'09

'11

'13

1.000

31 Dec 2014:
$1.199

500

0
'69

'74

'79

'84

'89

'94

Source: (Top and bottom left) Bloomberg, UBS, MSCI, J.P. Morgan Asset Management. (Right) BLS, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer
Price Index. Guide to the Markets - Europe. Data as at 31 December 2014.

68

'99

'04

'09

'14

Oil Consumption and Production

Oil production by country

Middle East energy production & chokepoints

Millions of barrels per day

% of global liquid fuel production, 2013

Kuwait
3,1%

Syria
0,1%

14
Suez Canal
2,2%

12

Iraq
3,4%

Iran
3,5%

10
US
Saudi Arabia
Russia

Egypt
0,8%

Libya
1,1%

Saudi Arabia
12,9%

Strait of
Hormuz
17,0%

6
'01

'03

'05

'07

'09

'11

Crude oil prices

140

$
120

Brent Crude

-46%

WTI

-47%

100
80
60
40
'10

Sudan
0,3%

Change in
2014

$ per barrel

Other Assets and

Investor Behaviour

'13

'11

'12

'13

UAE
3,6%
Bab el-Mandeb
3,4%

Selected producers

Selected consumers

Percent of global total, 2013

Percent of global total, 2013

United States 14% Canada

5%

United States 21% India

4%

Saudi Arabia

13% United Arab Emirates

4%

China

11% Russia

4%

Russia

12% Iran

4%

Eurozone

11% Brazil

3%

Africa

10% Brazil

3%

Japan

5%

Saudi Arabia

3%

China

5%

1%

Africa

4%

Germany

3%

Eurozone

'14

Source: (Top left) EIA, J.P. Morgan Asset Management. (Bottom left) FactSet, J.P. Morgan Asset Management. (Right) EIA, IMF, J.P. Morgan Asset Management.
Guide to the Markets - Europe. Data as at 31 December 2014.

69

Life Expectancy and Pension Shortfall

If youre 65 today, the probability of living to a specific age

Perceived retirement shortfall by country

100

25

Expected savings
shortfall (years)

94%

Savings expected
to last (years)

Men

Women
78%

80

Couple at least one

lives to specified age

20

70%

11

7
66%

10

15
60

8
8

10

10

10

47%
10
36%
14
10

UAE

10

Mexico

India

12

11

8
20

Brazil

Singapore

France

US

Australia

90 years

Canada

80 years

UK

0
0

70

11

10

China

Average

Other Assets and

Investor Behaviour

40

Source: (Left) ONS 2010-2012 Life Tables, J.P. Morgan Asset Management. (Right) The Future of Retirement: A new reality study by HSBC, J.P. Morgan Asset Management.
Figures represent the expected portion of retirement that will not be covered by retirement savings based on survey data. Guide to the Markets - Europe.
Data as at 31 December 2014.

Consumer Confidence and the Stock Market

Eurozone consumer confidence
5

Aug 2000:
-23,8%

Average 12-month MSCI Europe Index return:

After a peak: -3,4%
0

-5

After a trough: +27,4%

Jul 1989:
+4,4%

Total period: +8,1%

Jun 2007:
-22,5%

Jun 1995:
+17,7%

May 1986:
+12,1%

Nov 2010:
-8,3%
-10

Dec 2014
-15

Feb 1988:
+19,6%
Nov 1996:
+30,1%

Other Assets and

Investor Behaviour

-20

Mar 2003:
+32,5%

-25

Dec 2012:
+18,1%

-30

Mar 1993:
+19,4%

Mar 2009:
+44,7%

-35
'85

71

'87

'89

'91

'93

'95

'97

'99

'01

'03

'05

'07

'09

'11

Source: European Commission, FactSet, J.P. Morgan Asset Management. Peak is defined as the highest index value before a series of lower lows, while a trough is defined as
the lowest index value before a series of higher highs. Subsequent 12-month MSCI Europe Index returns are price returns only, which excludes dividends. Total period return is
the average 12-month rolling return. Guide to the Markets - Europe. Data as at 31 December 2014.

'13

Industry Fund Flows

Cumulative mutual fund flows

Cumulative flows into US equity funds

US-domiciled funds, $ billions

Includes both mutual funds and ETFs, $ billions

Equity funds

800
$

Bond funds

400

$1.175bn

1.200
$

Institutional
Institutional
+$590 billion
billion
+$626

1.000
0

Retail
Retail
-$649billion
billion
-$643

$837bn
-400

800

-800
'07

'08

'09

'10

'11

'12

'13

600

Monthly mutual fund flows

Net new cash flow to US mutual funds, $ billions
60
$
40

Other Assets and

Investor Behaviour

400

Equity funds
Bond funds

20

200
$107bn
$64bn

0
-20
-40

0
1997-2000
Tech bubble

2009-2012
Post crisis

-60
'10

'11

'12

Source: (Left) Strategic Insight, FactSet, J.P. Morgan Asset Management. (Top and bottom right) Investment Company Institute, FactSet, J.P. Morgan Asset Management.
Latest data November 2014. Guide to the Markets - Europe. Data as at 31 December 2014.

72

'13

'14

US Asset Returns by Holding Period

Range of equity and bond total returns
Annualised total returns, 1950 2014
75
Large cap equity
Bonds

50/50 portfolio

61%
50
48%

49%

30%

25

24%

24%

21%
17%

17%

18%
13%

1%

Other Assets and

Investor Behaviour

0
-7%

-3%

-1%

-3%

4%

4%
1%

0%

-18%
-24%
-25

-43%
-50
1-yr rolling

5-yr rolling

10-yr rolling

20-yr rolling

Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Returns shown are per annum and are calculated based on monthly returns from 1950 to November 2014
and includes dividends. Guide to the Markets - Europe. Data as at 31 December 2014.

73

15%

Returns in Different Inflation Environments

Rising inflation scenarios

Falling inflation scenarios

High and falling inflation

High and rising inflation

Occurred in 14 years since 1972
30
%
20
13%
7%

10

12%

30
%
20

Occurred in 6 years since 1972

30
% 22%
20
14%

10

10

11%

7%

2%

9%

8%

30
%
20
12%

10

na

0%

Environment
average
inflation

na

-1%

-10
-20

Govt
Equities Cash Cmdty bonds

High
yield*

Real Utilties Hedge

funds
estate

-10

-10

-20

-20

Other Assets and

Investor Behaviour

74

Occurred in 7 years since 1972

30
%
20%
17%
20
3%

17%
13%

16%

4%

-10
Govt
Equities Cash Cmdty bonds

High
yield*

30
%
20

High
yield*

Real Utilties Hedge

funds
estate

Occurred in 14 years since 1972

30
%
20
13%

11%

-20

Govt
Equities Cash Cmdty bonds

-20
Median
inflation:
3.2%

Low and falling inflation

Low and rising inflation

10

-10

-8%

Real Utilties Hedge

funds
estate

10

10

-10

-10

-20

-20

30
%
20
11%

4%

3%

6%

5%

6%

7%

10
0
-10

Govt
Equities Cash Cmdty bonds

High
yield*

Real Utilties Hedge

funds
estate

Source: (All charts) BLS, Barclays Capital, Robert Shiller, Federal Reserve, NCREIF, Dow Jones, Strategas/Ibbotson, J.P. Morgan Asset Management. Period returns are the arithmetic average of the
nominal annual returns for the years specified by category. High or low inflation distinction reflects whether inflation was in the top or bottom quartile based on data from 1972-2013. *High yield returns
based on the period 1984-2013. **Hedge funds based on the period 1994-2013. Rising or falling inflation distinction is relative to the previous year. Commodities returns are based on GSCI, equities on the
S&P 500 total return index, govt bonds are the Barclays Aggregate US Treasury Index, high yield is the Barclays US Corporate High Yield Index, real estate is a blended index based on NCREIF and
Federal Reserve data, utilities is a blended index based on the DJ Utilities Average Index and Hedge Funds on the Credit Suisse/Tremont Hedge Fund index.
Guide to the Markets - Europe. Data as at 31 December 2014.

-20

J.P. Morgan Asset Management

All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees
or expenses.
The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index
includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P
500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an
ideal proxy for the total market. An investor cannot invest directly in an index.
The S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market,
representing all major industries.
The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market
capitalization.
The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000.
The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book
ratios and higher forecasted growth values.
The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book
ratios and lower forecasted growth values.
The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index.
The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher
price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index.
The Russell Midcap Value Index measures the performance of those Russell Midcap companies with lower
price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index.
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index.
The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price-to-book
ratios and higher forecasted growth values.
The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-book
ratios and lower forecasted growth values.
The Russell Top 200 Index measures the performance of the largest cap segment of the U.S. equity universe. It includes
approximately 200 of the largest securities based on a combination of their market cap and current index membership and
represents approximately 68% of the U.S. market.
The MSCI EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States
to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets
outside of North America.
The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity
market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the
following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary,
India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South
Africa, Taiwan, Thailand, and Turkey.
The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is
designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWI
consisted of 45 country indices comprising 23 developed and 22 emerging market country indices.
The MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group, within each
country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of
USD200-1,500 million.

75

The MSCI All Country Asia Pacific ex-Japan Index is a free float-adjusted market capitalization weighted index that is
designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The
MSCI All Country Asia Pacific ex-Japan Index consists of the following 11 developed and emerging market countries:
Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, and
Thailand.
The MSCI China Index is an unmanaged index considered representative of stocks of China.
The MSCI KOKUSAI Index is a free float-adjusted market capitalization index that is designed to measure the equity market
performance of developed markets excluding Japan. The MSCI KOKUSAI Index consists of the following 23 developed
market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong,
Ireland, Israel, Italy, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United
Kingdom, and the United States*.
The Nikkei 225 Index is a price-weighted average of the 225 top-rated Japanese companies listed in the first section of the
Tokyo Stock Exchange.
The Tokyo Price Index (TOPIX) is a capitalization-weighted index lists all firms that are considered to be under the 'first
section' on the TSE, which groups all of the large firms on the exchange into one pool. The second section groups all of the
remaining smaller firms.
The FTSE 100 Index is an index of the 100 largest companies (by market capitalization) in the United Kingdom.
The FTSE All Share Index is an index of the 630 largest companies (by market capitalization) in the United Kingdom.
The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes.
As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth
Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized
using different attributes - three for value and five for growth including forward-looking variables. The objective of the index
design is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each
targeting 50% of the free float adjusted market capitalization of the underlying country index. Country Value/Growth indices
are then aggregated into regional Value/Growth indices. Prior to May 30, 2003, the indices used Price/Book Value (P/BV)
ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either
"value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index.
The following MSCI Total Return IndicesSM are calculated with gross dividends:
This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to
individuals resident in the country of the company, but does not include tax credits.
The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed
market equity performance in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed
market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands,
Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
The MSCI Pacific IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market
performance in the Pacific region. As of June 2007, the MSCI Pacific Index consisted of the following 5 Developed Market
countries: Australia, Hong Kong, Japan, New Zealand, and Singapore.
Credit Suisse/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index, LLC. It is an asset-weighted
hedge fund index and includes only funds, as opposed to separate accounts. The Index uses the Credit Suisse/Tremont
database, which tracks over 4500 funds, and consists only of funds with a minimum of US$50 million under management, a
12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net
of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC.
The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of
a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only.
All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great
majority being pension funds. As such, all properties are held in a fiduciary environment.

J.P. Morgan Asset Management

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.
The Dow Jones Industrial Average measures the stock performance of 30 leading blue-chip U.S. companies.
The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents twenty
two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc.
West Texas Intermediate (WTI) is the underlying commodity for 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. Individual components qualify for inclusion in the index on the basis of liquidity
and are weighted by their respective world production quantities.
The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar
denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government
and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are
subdivided into more specific indexes that are calculated and reported on a regular basis.
This U.S. Treasury Index is a component of the U.S. Government index.
The Barclays Capital High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK)
bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.)
are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue
zeroes, step-up coupon structures, and 144-As are also included.
The Barclays Capital 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that
have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million
or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and
non convertible.
The Barclays Euro-Aggregate Index consists of bond issued in the euro or the legacy currencies of the sovereign countries
participating the European Monetary Union (EMU).
The Global Bond Index Emerging Market Broad Diversified Index (GBI-EM) is a comprehensive global local emerging
markets index, and consists of liquid, fixed-rate, domestic currency government bonds.
The Barclays Global Aggregate Corporate Index consists of corporate issues in Europe, the US and Asia-pacific regions.
The Barclays Capital Global High Yield Index is an unmanaged index considered representative of fixed rate,
noninvestment-grade debt of companies in the U.S., developed markets and emerging markets.
The Barclays Capital Emerging Markets Index includes USD-denominated debt from emerging markets in the following
regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays
Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability.
The Barclays Capital MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and
Freddie Mac. Aggregate components must have a weighted average maturity of at least one year, must have $250 million
par amount outstanding, and must be fixed rate mortgages.
The Barclays Capital Corporate Bond Index is the Corporate component of the U.S. Credit index.
The Barclays Capital TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury.
The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local
market debt instruments issued by sovereign and quasi-sovereign entities.
The Li Keqiang Index is a composite measure composed of Chinas electricity production, financial institution loans and
railway freight.

76

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 dollardenominated 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 quasisovereigns in the developing nations.
The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high
yield corporate debt market.
The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing
exposure to the systematic risk of the market (i.e., a beta of zero).
The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among
several hedge fund strategies. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible
bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage.
The Barclays U.S. Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate
note market.
*Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy, and are based on a
December 8, 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were
estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data). Presumed to be excluded
from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard
Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate representation of returns in the category.
CS/Tremont later published a finalized November return of -40.56% for the month, reflecting this mark-down. CS/Tremont
assumes no responsibility for these estimates.
The Office of National Statistics (ONS) Index is a mix-adjusted average housing price index. The index is calculated
monthly using mortgage financed transactions that are collected via the Regulated Mortgage Survey by the Council of
Mortgage Lenders.
The Nationwide House Price Index is a mix adjusted index which is derived from Nationwide lending data on a monthly
basis across the UK.
The Halifax House Price Index is constructed from mortgage data derived from Halifax lending data on a quarterly basis
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 & 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.
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information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material should not be relied upon by you in evaluating the merits of
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increase or decrease. Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to market movements. Investments in emerging markets may be more volatile and therefore the risk to your capital could be
greater. Further, the economic and political situations in emerging markets may be more volatile than in established economies and these may adversely influence the value of investments made.
It shall be the recipients sole responsibility to verify his / her eligibility and to comply with all requirements under applicable legal and regulatory regimes in receiving this communication and in making any investment. All case studies shown are for
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Past performance is no guarantee of comparable future results.
Diversification does not guarantee investment returns and does not eliminate the risk of loss.
Prepared by: Stephanie Flanders, David Stubbs, Vincent Juvyns, Maria Paola Toschi, Kerry Craig,
Alexander Dryden, Nandini Ramakrishnan.
Brazilian recipients:

Unless otherwise stated, all data as at 31 December 2014 or most recently available.
Guide to the Markets Europe
JP-LITTLEBOOK