MARKET INSIGHTS. Guide to the Markets. Europe 3Q 2015 As of 30 June 2015

Transcription

1 MARKET INSIGHTS Guide to the Markets Europe 3Q 215 As of 3 June 215

2 Global Market Insights Strategy Team Americas Europe Asia Dr. David P. Kelly, CFA New York Andrew D. Goldberg New York Anastasia V. Amoroso, CFA Houston Julio C. Callegari São Paulo James C. Liu, CFA Chicago David M. Lebovitz New York Gabriela D. Santos New York Hannah J. Anderson New York Abigail B. Dwyer New York Ainsley E. Woolridge New York Stephanie H. Flanders London Manuel Arroyo Ozores, CFA Madrid Tilmann Galler, CFA Frankfurt Lucia Gutierrez-Mellado Madrid Vincent Juvyns Luxembourg Dr. David Stubbs London Maria Paola Toschi Milan Alexander W. Dryden London Nandini L. Ramakrishnan London Tai Hui Hong Kong Yoshinori Shigemi Tokyo Grace Tam, CFA Hong Kong Kerry Craig, CFA Melbourne Ian Hui Hong Kong Akira Kunikyo Tokyo Ben Luk Hong Kong Anthony Tsoi, CFA Hong Kong 2 For China, Australia, Vietnam and Canada distribution: Please note this communication is for intended recipients only. In Australia for wholesale clients use only and in Canada for institutional clients use only. For further details, please refer to the full disclaimer. Unless otherwise stated, all data is as of 3 June 215 or most recently available.

3 Page reference Europe economy 4. Europe: GDP and inflation 5. Eurozone cyclical indicators 6. Eurozone recovery monitor 7. Eurozone credit conditions 8. European Central Bank (ECB) policies 9. Europe cash accounts 1. Europe corporate finances 11. UK economic indicators Global economy 12. Global Purchasing Managers Index (PMI) for manufacturing 13. Global and European inflation dynamics 14. Economic and monetary policy divergence 15. US dollar 16. US Federal Reserve policies 17. US: GDP and inflation 18. US employment 19. US cyclical indicators 2. US consumer finances 21. Japan: GDP and inflation 22. Japan: Abenomics and the economy 23. China: GDP, inflation and policy rate 24. China cyclical indicators 25. China financial dynamics 26. Emerging markets challenges 27. Emerging markets trade connections with developed markets Equities 28. World stock market returns 29. European sector returns 3. Bond and equity relative valuations 31. MSCI Europe Index at inflection points 32. MSCI Europe Index equity valuations 33. MSCI Europe earnings and profit margins 34. US S&P 5 at inflection points 35. US S&P 5 equity valuations 36. US S&P 5 earnings and profit margins 37. Bear markets 38. Interest rates and equities 39. Japanese equities 4. Developed markets equity valuations by country 41. Emerging markets equity valuations by country 42. Emerging markets valuations and returns 43. Emerging markets: Dividends and valuations 44. Equity income 45. Annual returns and intra-year declines Fixed income 46. Fixed income sector returns 47. Fixed income market data 48. Central bank policy 49. Government interest rates 5. Fixed income interest rate risk 51. Liquidity and duration risks 52. Government bonds 53. Investment-grade bonds 54. US high yield bonds 55. European high yield bonds 56. Emerging markets debt 57. Emerging markets debt composition Other assets and investor behaviour 58. Asset class returns 59. Correlation of returns (EUR) 6. Asset volatility 61. Commodity returns 62. Commodities 63. Oil consumption and production 64. Life expectancy and pension shortfall 65. Consumer confidence and the stock market 66. Industry fund flows 67. US asset returns by holding period 68. Alternative asset class returns 69. Risk/return characteristics of alternatives 7. Alternative strategies 3

4 Europe: GDP and inflation 4 Europe economy Real GDP EU28, change quarter on quarter 2 1 Average since Q15 Inflation EU28, change year on year Real GDP,3,4 5 Headline CPI* 2,3,3 4 Core CPI Average since 1999 May 215 1,6,9 Average '99 '1 '3 '5 '7 '9 '11 '13-1 '99 '1 '3 '5 '7 '9 '11 '13 Source: (Both charts) Eurostat, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food, energy and tobacco. Guide to the Markets - Europe. Data as of 3 June

5 Eurozone cyclical indicators 5 Europe economy New auto registrations EU19, millions of new passenger cars, seasonally adjusted 1,2 1,1 1,,9 Average:,89,8 May 215:,78 Retail sales growth EU19, excluding motor vehicles, change year on year Apr 215: 2,2,7-4,6 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15-6 '1 '3 '5 '7 '9 '11 '13 Gross fixed capital formation Rebased to 1 at March US* Eurozone* Industrial production and money supply EU19, change year on year, three-month moving average 16 M1 (y/y) lead by 12 months 12 Industrial production (y/y) '8 '9 '1 '11 '12 '13 '14 '15 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 Source: (Top left, top and bottom right) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Bottom left) Eurostat, FactSet, US Bureau of Economic Analysis, J.P. Morgan Asset Management. *US data is nonresidential gross fixed capital formation, Eurozone data is overall gross fixed capital formation due to data availability. M1 is defined as the sum of currency held by the public and transaction deposits at depository institutions. Guide to the Markets - Europe. Data as of 3 June

6 Eurozone recovery monitor 6 Europe economy Manufacturing purchasing managers indices Index level Economic sentiment Index level Germany France Italy Spain Greece 35 Germany Italy Greece France Spain 25 '7 '8 '9 '1 '11 '12 '13 '14 ' '7 '8 '9 '1 '11 '12 '13 '14 '15 Unemployment rate Germany France Eurozone Italy Spain Greece '7 '8 '9 '1 '11 '12 '13 '14 Gross exports Rebased to 1 at December 27, two-quarter moving average Germany Italy Portugal 8 France Spain Ireland 7 '7 '8 '9 '1 '11 '12 '13 '14 Source: (Top left) Markit, J.P. Morgan Asset Management. (Bottom left and bottom right) Eurostat, FactSet, J.P. Morgan Asset Management. (Top right) European Commission, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 3 June

7 Eurozone credit conditions 7 Europe economy Credit demand and eurozone GDP growth Net of banks reporting positive loan demand, GDP growth 1 Stronger loan demand Bank loans to households and non-financial corporations billions, net lending flow, three-month moving average Consumer credit (lhs) Weaker loan demand Overall corporate (lhs) Housing loans (lhs) Eurozone GDP growth y/y (rhs) '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 Source: (Left) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Top and bottom right) ECB, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 3 June '9 '1 '11 '12 '13 '14 '15 Corporate lending rates Non-financial corporations, new business lending up to 1 million, 1-5 years 7 6 Italy Spain France Germany 2 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 7

8 European Central Bank (ECB) policies 8 Europe economy ECB balance sheet: Assets trillions 4, 3,5 3, 2,5 Jan 25 Jul 212: 249 Aug 212 Jun 215: -2 Jul 215 Sep 216: est. 39 Central bank quantitative easing purchases 3 of net issuance over 25 of debt outstanding QE period* Fed BoE BoJ ECB 2, 1,5 1, Changes in equities and exchange rates Since policy announcements** ,6 4 Equities Exchange rate 8,5, '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 ' ,7 2, -1,1-1,9 Source: (Left) ECB, FactSet, J.P. Morgan Asset Management. (Top right) Bank of England (BoE), Bank of Japan (BoJ), Deutsche Bank, European Central Bank (ECB), US Federal Reserve, J.P. Morgan Asset Management. (Bottom right) Bank of England, FactSet, IMF, MSCI, Standard & Poor s, J.P. Morgan Asset Management. *QE period for Fed is September 28 to October 214, BoE is March 29 to June 212, ECB is from March 215 to September 216. QE period for BoJ is April 213 to October 215 and based on Deutsche Bank estimates, as are net issuance amounts over the QE period for Japan and eurozone. **All US data is for 2 years following initial policy announcement. US QE1 is from November 28, US QE2 is from November 21, US QE3 is from September 212. Eurozone QE is from August 214 to 3 June 215. Japan QE is from April 213 to 3 June 215. US equities is the S&P 5, Eurozone equities is the MSCI EMU and Japan equities is the MSCI Japan. Guide to the Markets - Europe. Data as of 3 June , 38,5 11,5-9,2-15, US QE1 US QE2 US QE3 Eurozone Japan

9 Europe cash accounts 9 Europe economy Euro area deposits trillions 3,5 3, 2,5 Aug 212: 3,3tn May 215: 1,8tn Income generated by 1. investment in a one-year bank deposit 5. 27: Income Inflation (y/y) Jun 215: , 1, , 1. 1,5, '6 '7 '8 '9 '1 '11 '12 '13 '14 '15-1. ' '2 '4 '6 '8 '1 '12 '14-1 Source: (Left) ECB, J.P. Morgan Asset Management. (Right) Bloomberg, Eurostat, J.P. Morgan Asset Management. Blue marker points represent year on year inflation and illustrate how the value of income would have been eroded due to inflation. Guide to the Markets - Europe. Data as of 3 June

10 Europe corporate finances 1 Europe economy MSCI Europe Index: Geographical sources of revenue Asia 9 RoW* 11 Americas 26 Europe 53 Total leverage MSCI Europe, ratio of total debt to total equity, quarterly Interest coverage ratio (EBIT / net interest) MSCI Europe, quarterly 6 x 3Q15: 3,6x Average: 3,1x Average: 26 1Q15: '97 '99 '1 '3 '5 '7 '9 '11 '13 18 '97 '99 '1 '3 '5 '7 '9 '11 '13 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 of 3 June

11 UK economic indicators 11 Europe economy Real GDP growth Rebased to 1 at 1Q8 11 US 16 Germany UK France Japan Unemployment rate and consumer confidence 9, 8, 7, 6, Unemployment rate Consumer confidence , -4 9 '8 '9 '1 '11 '12 '13 '14 '15 4, '5 '6 '7 '8 '9 '1 '11 '12 '13 '14-5 Current account Wage growth of GDP Investment income Trade balance Change year on year 4 6 Current transfers Current account balance Nominal wage growth* Headline CPI Real wage growth '5 '7 '9 '11 '13-4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 Source: (Top left) OECD, J.P. Morgan Asset Management. (Bottom left) FactSet, ONS, J.P. Morgan Asset Management. (Top right) FactSet, GFK, ONS, J.P. Morgan Asset Management. (Bottom right) FactSet, ONS, J.P. Morgan Asset Management. *Nominal wages include bonuses. Guide to the Markets - Europe. Data as of 3 June

12 Global Purchasing Managers Index (PMI) for manufacturing Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Global 5,6 51,5 51,6 51,9 52,8 52,9 52,9 53,1 52,4 51,9 52,2 52,6 52,4 52,5 52,2 52,2 51,8 51,5 51,7 51,9 51,8 51, 51,3 51, Global economy Europe Eurozone France Germany Italy Spain 5,3 51,4 51,1 51,3 51,6 52,7 54, 53,2 53, 53,4 52,2 51,8 51,8 5,7 5,3 5,6 5,1 5,6 51, 51, 52,2 52, 52,2 52,5 49,7 49,7 49,8 49,1 48,4 47, 49,3 49,7 52,1 51,2 49,6 48,2 47,8 46,9 48,8 48,5 48,4 47,5 49,2 47,6 48,8 48, 49,4 5,7 5,7 51,8 51,1 51,7 52,7 54,3 56,5 54,8 53,7 54,1 52,3 52, 52,4 51,4 49,9 51,4 49,5 51,2 5,9 51,1 52,8 52,1 51,1 51,9 5,4 51,3 5,8 5,7 51,4 53,3 53,1 52,3 52,4 54, 53,2 52,6 51,9 49,8 5,7 49, 49, 48,4 49,9 51,9 53,3 53,8 54,8 54,1 49,8 51,1 5,7 5,9 48,6 5,8 52,2 52,5 52,8 52,7 52,9 54,6 53,9 52,8 52,6 52,6 54,7 53,8 54,7 54,2 54,3 54,2 55,8 54,5 Ireland 51, 52, 52,7 54,9 52,4 53,5 52,8 52,9 55,5 56,1 55, 55,3 55,4 57,3 55,7 56,6 56,2 56,9 55,1 57,5 56,8 55,8 57,1 54,6 Developed UK US Japan 54,6 58,4 56,9 56,4 57,8 57,2 56,5 55,9 55,3 57,2 56,6 56,8 54,9 53, 51,5 53,4 53,3 52,7 52,9 53,9 54,3 51,8 51,9 51,4 53,7 53,1 52,8 51,8 54,7 55, 53,7 57,1 55,5 55,4 56,4 57,3 55,8 57,9 57,5 55,9 54,8 53,9 53,9 55,1 55,7 54,1 54, 53,6 5,7 52,2 52,5 54,2 55,1 55,2 56,6 55,5 53,9 49,4 49,9 51,5 5,5 52,2 51,7 52,4 52, 52, 52,2 51,6 5,3 49,9 5,9 5,1 Brazil 48,5 49,4 49,9 5,2 49,7 5,5 5,8 5,4 5,6 49,3 48,8 48,7 49,1 5,2 49,3 49,1 48,7 5,2 5,7 49,6 46,2 46, 45,9 46,5 Russia 49,2 49,4 49,4 51,8 49,4 48,8 48, 48,5 48,3 48,5 48,9 49,1 51, 51, 5,4 5,3 51,7 48,9 47,6 49,7 48,1 48,9 47,6 48,7 Emerging India China Korea 5,1 48,5 49,6 49,6 51,3 5,7 51,4 52,5 51,3 51,3 51,4 51,5 53, 52,4 51, 51,6 53,3 54,5 52,9 51,2 52,1 51,3 52,6 51,3 47,7 5,1 5,2 5,9 5,8 5,5 49,5 48,5 48, 48,1 49,4 5,7 51,7 5,2 5,2 5,4 5, 49,6 49,7 5,7 49,6 48,9 49,2 49,4 47,2 47,5 49,7 5,2 5,4 5,8 5,9 49,8 5,4 5,2 49,5 48,4 49,3 5,3 48,8 48,7 49, 49,9 51,1 51,1 49,2 48,8 47,8 46,1 Taiwan 48,6 5, 52, 53, 53,4 55,2 55,5 54,7 52,7 52,3 52,4 54, 55,8 56,1 53,3 52, 51,4 5, 51,7 52,1 51, 49,2 49,3 46,3 Lowest relative to 5 PMI 5 Highest relative to 5 PMI 12 Source: FactSet, Markit, J.P. Morgan Asset Management. The Global Purchasing Managers Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions. For Global PMI, heatmap colours are based on PMI relative to global recent history; for countries, heatmap colours are based on PMI relative to all countries shown. Global PMI is a GDP-weighted calculation. Guide to the Markets - Europe. Data as of 3 June 215.

13 Global and European inflation dynamics 13 Global economy Developed economies inflation CPI change year on year 5 4 Average Jan 29 to Jun 215: 1,4 3 Average Jan 199 to Dec 28: 2, '9 '94 '98 '2 '6 '1 '14 Long-term inflation expectations 5-year/5-year inflation* 4, 3,5 3, 2,5 2, UK US Eurozone 1,5 Dec 13 Jun 14 Dec 14 Jun 15 Eurozone inflation and consumer confidence -2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 Source: (Top) J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom left) Bloomberg, J.P. Morgan Asset Management. (Bottom right) Eurostat, FactSet, J.P. Morgan Asset Management. *5-year/5-year inflation expectations is the market expectation for average inflation over 5 years beginning in 5 years time, derived from inflation swaps. **CPI is the Consumer Price Index. Guide to the Markets - Europe. Data as of 3 June CPI** lagged six months (y/y) Consumer confidence

14 Economic and monetary policy divergence 14 Nominal GDP growth Rebased to 1 at 1Q8 125 Market expectations for target policy rate 3, Global economy US UK Eurozone core 2,5 2, 1,5 US Fed FOMC June 215 forecasts midpoint US UK Eurozone Dec 216: 1,37 Dec 217: 1,85 Dec 217: 1, Eurozone periphery '8 '9 '1 '11 '12 '13 '14 1,,5 -,1 '15 '16 '17 Source: (Left) FactSet, French National Institute of Statistics and Economic Studies (INSEE), German Federal Statistical Office, Irish Central Statistics Office (CSO), Italian National Statistical Institute (ISTAT), Japanese Cabinet Office, National Statistical Service of Greece, Portuguese National Statistical Institute (INE), Spanish National Statistical Institute (INE), UK Office for National Statistics (ONS), US Bureau of Economic Analysis, J.P. Morgan Asset Management. (Right) Bloomberg, US Federal Reserve, J.P. Morgan Asset Management. Eurozone core is France and Germany and eurozone periphery is Greece, Italy, Ireland, Portugal and Spain. The market expectations for the path of interest rates is derived from the futures market. There is no active Japanese futures market, therefore no market expectations for the target policy rate. Guide to the Markets - Europe. Data as of 3 June 215. Japan Dec 215:,73 Dec 215:,3 Dec 215:,2 Dec 216:,1 Dec 216: 1,3 Dec 217:,32

15 US dollar 15 Global economy US dollar index Real broad effective exchange rate (REER) : -29,5 US dollar index Average since : -7,1 7 '73 '77 '81 '85 '89 '93 '97 '1 '5 '9 '13 May ,7 93, 1985: Plaza : Accord +52, : : 1987: Louvre : -21,8-28,6 Accord +34, : +15,5 Current account of GDP Eurozone US US dollar performance vs. selected currencies Last 12 months 25 2,8 2,9 17, ,7 5,4 4 22, '5 '7 '9 '11 '13-3 -,1 Chinese renminbi Swiss franc British pound Canadian dollar Japanese yen Mexican peso Euro Source: (Top) US Federal Reserve, J.P. Morgan Asset Management. (Bottom left) BEA, ECB, FactSet, J.P. Morgan Asset Management. (Bottom right) FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 3 June

16 US Federal Reserve policies 16 Global economy US Federal Reserve balance sheet: Assets $ trillions From the June 215 meeting 5 Forecast 5, $ Midpoint 4 Other 4,5 Individual FOMC member forecasts 3 US Treasuries 4, 2 3,5 1 Agency MBS 3, '8 '9 '1 '11 '12 '13 '14 '15 US Federal Reserve MBS purchases $ billions 12 $ 1 8 2,5 New purchases* 2, Reinvested purchases* 1,5 Individual FOMC member forecasts for the federal funds rate 6 1, 4 2,5 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15, Longer run Source: (All charts) FactSet, US Federal Reserve, 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 of 3 June

17 US: GDP and inflation 17 Global economy Real GDP Change quarter on quarter, SAAR Real GDP Average Average since Q15 2, -,2 Inflation Change year on year Headline CPI* Core CPI Average since 1964 Average since 1999 May 215 4,1 2,3, 4,1 2, 1, Components of nominal GDP 1Q15 Consumption 68,5 Government 17,9 Investment ex- housing 13,4 Housing 3,3 Net exports -3,2-1 '99 '1 '3 '5 '7 '9 '11 ' '64 '69 '74 '79 '84 '89 '94 '99 '4 '9 '14 Source: (Left) BEA, FactSet, J.P. Morgan Asset Management. (Right) BLS, FactSet, J.P. Morgan Asset Management. SAAR is seasonally adjusted annual rate. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - Europe. Data as of 3 June

18 US employment 18 Global economy Unemployment rate Seasonally adjusted Labour force participation rate of population aged 16+ working or looking for work Disabled Retired Other 62 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 Jun 215: 62, Average: 6,1 Jun 215: 5,3 3 '64 '69 '74 '79 '84 '89 '94 '99 '4 '9 '14 Wage growth Change year on year 3,5 4, Employment Cost Index 1Q15: 3, 3,5 2,7 2,5 2, 1,5 1, '7 '8 '9 '1 '11 '12 '13 '14 Source: (Left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) Constructing the Reason-for-Nonparticipation Variable Using the Monthly CPS, 6 February 214, Shigeru Fujita, Federal Reserve Bank of Philadelphia, J.P. Morgan Asset Management. (Bottom right) BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 3 June 215. Average hourly earnings Jun 215: 2, 3, 2,5 2, 1,5 1, 18

19 US cyclical indicators 19 Global economy Light vehicle sales Millions, SAAR Average: 15,3 June 215: 17,2 8 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 Manufacturing and trade inventories Days of sales, seasonally adjusted Apr 215: 41,4 36 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 Housing starts Thousands, SAAR 2,5 2, 1,5 1, 5 Average: May 215: 1.36 Real capital goods orders* Non-defence capital goods orders ex-aircraft, $ billions, seasonally adjusted 55 $ Average: 39,5 May 215: 4,7 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 25 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top and bottom right and bottom left) FactSet, US Census Bureau, 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 of 3 June

20 US consumer finances 2 Household net worth Home sales, prices and housing starts 2Q15*: $ billions, SAAR 2Q7: $ Rebased to 1 at December $ $ Global economy '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 ' ,3 Household debt service ratio Debt payments as of disposable personal income, seasonally adjusted 14 4Q7: 13, ,1 12 Price index Q15*: 9,9 5 Existing home sales Housing starts +116,7 8 '8 '85 '9 '95 ' '5 '1 '15 25 '99 '1 '3 '5 '7 '9 '11 '13 Source: (Top and bottom left) FactSet, US Federal Reserve, J.P. Morgan Asset Management. (Right) FactSet, National Association of Realtors, US Census Bureau, J.P. Morgan Asset Management. Price index is the mean existing home sale price. SAAR is seasonally adjusted annual rate. *2Q15 numbers for US household net worth and debt service ratio are J.P. Morgan Asset Management forecasts. Guide to the Markets - Europe. Data as of 3 June

21 Japan: GDP and inflation 21 Global economy Real GDP growth Change quarter on quarter Average 1 Real GDP Average since Q15,2 1, Inflation Change year on year Headline CPI* Core CPI CPI less food & consumption tax Average since 1999 May 215,,5 -,3,4 -,1, '99 '1 '3 '5 '7 '9 '11 '13-3 '99 '1 '3 '5 '7 '9 '11 '13 Source: (Left) FactSet, Japan Statistics Bureau & Statistics Centre, J.P. Morgan Asset Management. (Right) Bloomberg, FactSet, Japan Ministry of Internal Affairs & Communications, 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 of 3 June

22 Japan: Abenomics and the economy 22 Global economy Japanese wage growth Change year on year, three-month moving average 3 Core CPI* 2 Wage growth Labour force participation rate 12-month moving average '3 '5 '7 '9 '11 '13 Current OECD avg. 58 '8 '85 '9 '95 ' '5 '1 '15 All Female 59,4 74,2 49,4 65,1 May 215: 59,4 Japanese yen and the stock market 6. '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 Source: (Top left) FactSet, Japan Ministry of Internal Affairs & Communications, Japan Ministry of Health, Labour and Welfare, J.P. Morgan Asset Management. (Bottom left) OECD, Statistics Bureau of Japan, J.P. Morgan Asset Management. (Right) FactSet, Nikkei, 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 of 3 June Nikkei 225 Index per $ Change over last 12 months per $ -17,2 Nikkei ,

23 China: GDP, inflation and policy rate 23 Global economy Nominal GDP growth Change year on year GDP growth Investment Consumption Net exports 1Q15: 7, Inflation Change year on year ' '2 '4 '6 '8 '1 '12 '14 May 215 Food CPI 1,6 Headline CPI* 1,2 Core CPI 1,6 6 3 Policy rate and reserve ratio requirement (RRR) Policy rate on one-year renminbi deposits PBoC policy rate RRR '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '4 '6 '8 '1 '12 '14 Source: (Left and top right) FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. (Bottom right) FactSet, People s Bank of China (PBoC), 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 of 3 June

24 China cyclical indicators 24 Global economy Merchandise trade growth Change year on year, three-month moving average 4 2 Exports Imports -2 '11 '12 '13 '14 '15 Top 1 cities property prices and housing inventory Change month on month, number of months 2 2 nd tier cities 3 rd tier cities 1-1 Property prices 1 st tier cities -2 '11 '12 '13 '14 '15 25 mths Retail and auto sales Change year on year, three-month moving average 24 Auto sales Fixed asset investment Change year on year, three-month moving average 7 Infrastructure 5 Manufacturing Real estate 12 Retail sales 8 '6 '7 '8 '9 '1 '11 '12 '13 '14 ' '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 Source: (All charts) CEIC, FactSet, National Bureau of Statistics of China, Soufun, J.P. Morgan Asset Management. Tier 1 cities include Beijing, Shanghai, Guangzhou and Shenzhen. Tier 2 cities include 31 provincial capital cities and municipalities not included in Tier 1 cities, and Tier 3 cities include the other 65 cities in the Soufun survey. Guide to the Markets - Europe. Data as of 3 June

25 China financial dynamics 25 Global economy Private non-financial debt of GDP, quarters since the start of debt rise 23 Japan starting in China starting in public, household and non-financial corporate debt of GDP Public debt 35 Non-financial corporate debt 3 Household debt Japan UK US Eurozone China Korea Credit to private sector of GDP : 14 Foreign exchange reserves of GDP '77 '81 '85 '89 '93 '97 '1 '5 '9 '13 ' '2 '4 '6 '8 '1 '12 '14 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, IMF World Economic Outlook April 215, Lombard Street Research, J.P. Morgan Asset Management. (Bottom right) Bloomberg, FactSet, Oxford Economics, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 3 June

26 Emerging markets challenges 26 Global economy Consensus growth forecasts Estimates for next 12 months India China Indonesia Thailand Turkey EM equity performance and US rate hikes MSCI EM Index in USD, rebased to 1 on the date of first rate hike 15 3 Jun 24 3 Jun Apr Days Relative EM / DM equity performance and USD REER* Equity performance rebased to 1 at MSCI EM / MSCI DM -1-2 Brazil Russia USD REER (inverted) 12-4 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Top right) MSCI, US Federal Reserve, J.P. Morgan Asset Management. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. *REER is real effective exchange rate. Guide to the Markets - Europe. Data as of 3 June

27 Emerging markets trade connections with developed markets 27 Global economy EM exports breakdown Manufacturing exports as of merchandise exports China Czech Republic Korea Taiwan Turkey Philippines Hungary Poland Mexico Thailand Vietnam Malaysia India Ukraine Argentina Asian countries EMEA countries LatAm countries S. Africa Indonesia Peru Brazil Russia Colombia Chile Nigeria Venezuela Commodity exports as of merchandise exports EM GDP growth: Sensitivity to DM growth* Estimated increase in real GDP growth from a 1 increase in DM growth Commodity exporters Manufacturers Chile S. Africa Russia Colombia Brazil Mexico Taiwan Turkey Korea Thailand Europe US Japan If the US economy expands by 1, then the Mexican economy is estimated to grow by an additional,3, other things equal.,,2,4,6,8 1, 1,2 Source: (Left) IMF, World Trade Organisation, J.P. Morgan Asset Management. (Right) FactSet, IMF, J.P. Morgan Asset Management. *Assumes a 1 increase in GDP growth from Japan, Europe and the US, and estimates a reaction function through a multistage regression measuring emerging market economies sensitivity to export volumes. Developed market imports are used as a proxy for developed demand and estimated from a 1 pick up in domestic GDP. The sample period tested ranges between 1993 and 214 reflecting quarterly data. Guide to the Markets - Europe. Data as of 3 June

28 World stock market returns YTD 2Q15 Ten-yr Ann. Local 55, MSCI EM 35,8 2,2 Europe 19,6 26,7 Asia ex-jp 38, -23, TOPIX -4,6 73,4 MSCI EM 62,8 35,4 Small Caps 24,4 5,5 US S&P 5 2,1 2,8 Asia ex-jp 19,7 27,2 Small Caps 35,8 29,5 US S&P 5 13,7 24,5 TOPIX 17, -, TOPIX 5,8 11, Asia ex-jp 1, 45,3 TOPIX 45,2 19,6 Asia ex-jp 28,6 26,1 MSCI EM 33,6-33,7 US S&P 5-37, 67,2 Asia ex-jp 67,2 28,3 Asia ex-jp 15,6 3,5 HDY Equity 1,5 18,1 Europe 16,4 26,7 US S&P 5 32,4 19,7 Asia ex-jp 7,7 15,3 Small Caps 7,7-2,1 Small Caps,8 1,1 MSCI EM 1,3 41,9 Asia ex-jp 24,1 18,6 MSCI EM 28,8 4,6 Portfolio 11,1-37,9 HDY Equity -34,4 4,2 Small Caps 4,8 27,5 MSCI EM 14,4-5,7 Small Caps -8,7 16,8 MSCI EM 17,4 21,5 TOPIX 54,4 16,5 Small Caps 6,7 14,7 Asia ex-jp 6,3-2,8 Portfolio -,4 9,3 Small Caps 8,2 Equities 33,8 Small Caps 23,3 16, HDY Equity 21,6 3,2 Europe 6,5-38,6 Small Caps -4,4 37,6 Portfolio 35,8 23,9 TOPIX 1, -5,8 Portfolio -7,5 16,3 Small Caps 18,4 2,5 Europe 22,3 16,2 HDY Equity 8,7 13,3 Portfolio 6,3-2,8 MSCI EM,8 8,9 US S&P 5 7,7 33,6 Portfolio 23,9 12,5 Portfolio 19,4-1, HDY Equity 4,7-4,3 Portfolio -4,1 34, HDY Equity 3,2 23,1 US S&P 5 15,1-7,5 Europe -8,8 15,6 Portfolio 17,1 15,3 Portfolio 23,6 15,3 Portfolio 8,2 13,3 Europe 7,7-3, Europe -3,6 8,5 Portfolio 8, 27, HDY Equity 17,7 5,2 Small Caps 13,6-4,9 US S&P 5 5,5-43,3 Europe -38,5 32,5 Europe 28,6 2,9 Portfolio 11,1-9,6 TOPIX -17, 14,2 US S&P 5 16, 13,9 HDY Equity 2,5 11,8 MSCI EM 5,6 12, MSCI EM 5,8-3, Asia ex-jp,8 8,2 HDY Equity 7,7 26,7 Europe 25,5 3,6 US S&P 5 15,8-8,8 Small Caps -3,8-49,8 Asia ex-jp -47,7 22,5 US S&P 5 26,5 16,2 HDY Equity 8, -14,3 Asia ex-jp -14,6 13,6 HDY Equity 14, -1,1 Asia ex-jp 6,2 1,1 TOPIX 1,3 9,9 US S&P 5 1,2-3,3 US S&P 5,3 6,4 Europe 6,4 2,9 US S&P 5 4,9-8,7 TOPIX 3, -14,5 TOPIX -11,1-5,8 MSCI EM -45,7 1,5 TOPIX 7,6 11,7 Europe 7,5-15,4 MSCI EM -12,5 5,9 TOPIX 2,9-6,5 MSCI EM 3,8 7,4 Europe 5,2 8,7 HDY Equity 1,5-3,8 HDY Equity -2, 3,5 TOPIX 3,9 28 Source: MSCI, TOPIX, Standard & Poor s, FactSet, J.P. Morgan Asset Management. Annualised return covers the period 25 to 214. HDY Equity: MSCI AC World High Dividend Yield Index; Small Cap: MSCI Europe Small Cap Index. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 3 Europe; 2 S&P 5; 15 EM; 1 Asia ex-japan; 1 TOPIX; 1 HDY equity and 5 small cap. All indices are total return. Guide to the Markets - Europe. Data as of 3 June 215.

29 European sector returns 29 MSCI Europe Index Europe weight Growth weight Value weight Financials Health care Cons. staples Cons. disc. Industrials Materials Energy Telecom Utilities Tech Europe 22,9 13,8 13,6 11,8 11, 7,5 7,1 4,9 3,9 3,4 1 11,7 17,9 2,9 17,5 13,6 6,6 1,7 3,2,1 6,7 1 34,6 9,1 6,1 5,9 8,4 8,6 12,8 6,7 7,8,1 1 Weights 2Q15-2,8-5,1-3,7-3,5-5,3-4,4-2,6 1,2-2,3-5,9-3,6 Equities YTD Since market peak* Since market low* 9,2 8,1 5,9 14,2 8,6 6,4,2 11,3-1,7 7,9 7,7-27,9 19,6 87,5 75,7 22,5 -,8 7,2 55,5-7,3 4,7 2,5 26,8 2,8 174,2 288,4 187,3 135,1 47,2 133,6 63,1 164,7 158,3 Return Beta to Europe 1,34x,62x,63x,95x 1,14x 1,31x 1,x,78x,86x,99x 1,x β Correl to int. rates**,43,26,29,36,4,37,34,33,33,33,41 ρ Forward P/E ratio 11,7x 18,x 18,9x 14,7x 15,7x 16,5x 14,2x 19,8x 14,3x 18,4x 15,1x 15-year average 11,1x 16,1x 15,9x 14,5x 14,2x 12,3x 11,9x 18,4x 13,7x 21,5x 13,5x Trailing P/E ratio 13,6x 19,4x 2,6x 17,1x 17,9x 17,7x 13,2x 21,2x 14,9x 22,x 16,6x P/E 15-year average 12,9x 17,4x 17,3x 17,1x 16,3x 14,1x 12,x 2,7x 14,5x 37,8x 15,x Dividend yield 15-year average 3,8 2,7 2,8 2,4 2,8 3,2 5,7 4,1 4,8 1,7 3,3 3,7 2,6 2,7 2,8 2,7 2,9 3,9 4,3 4,7 1,7 3,2 Div 29 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 27 to end of latest quarter. Since market low represents period 9 March 29 to end of latest quarter. **Correlation to interest rates is calculated using daily sector returns and daily 1-year German Bund yield over the last 1 years. Guide to the Markets - Europe. Data as of 3 June 215.

30 Bond and equity relative valuations 3 Equities Histogram: S&P 5 earnings yield (inverse of P/E) Number of days: Histogram: Nominal 1-year Treasury yield Number of days: Jun 215: 5, (lower than 73 of days since 1965) 3 Jun 215: 2,35 (lower than 96 of days since 1965) Equity risk premium* Average: 1,8 2-2 Equities relatively less expensive Equities relatively more expensive '89 '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 Source: (All charts) FactSet, Standard & Poor s, Tullett Prebon, J.P. Morgan Asset Management. *The equity risk premium is the S&P 5 forward earnings yield less the US Treasury 1-year yield. Guide to the Markets - Europe. Data as of 3 June

31 MSCI Europe Index at inflection points 31 MSCI Europe Index Characteristic Sep 2 Jul 27 Jun Sep 2: P/E = 21,8x Index level P/E ratio (fwd) Dividend yield Euro 1 year* ,8x 13,x 15,1x 1,8 2,8 3,3 5,2 4,6,8 16 Jul 27: P/E = 13,x Jun 215: P/E = 15,1x Equities 1.4 Total return: Dec 1996: 12 Mar 23: 9 Mar 29: P/E = 16,3x P/E = 11,9x P/E = 8,3x '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 Source: FactSet, MSCI, Tullett Prebon, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Return calculations shown in green are based on the total return index. *Represented by the German Bund Yield. Guide to the Markets - Europe. Data as of 3 June

32 MSCI Europe Index equity valuations 32 Forward P/E ratio 24 x 2 16 Average: 13,9x 3 Jun 215: 15,1x Earnings yield and 1-year bond yield 12 1 Earnings yield (inverse of forward P/E) 12 8 Equities 8 '1 '3 '5 '7 '9 '11 '13 MSCI Europe cyclically adjusted P/E ratio Adjusted using trailing 1-year average inflation-adjusted earnings 4 x Jun 215: 6,6 2 Average: 17,8x 2 1-year European bond yield* 3 Jun 215:,8 1 3 Apr 215: 16,x '79 '84 '89 '94 '99 '4 '9 '14 ' '2 '4 '6 '8 '1 '12 '14 Source: (Top left) FactSet, J.P. Morgan Asset Management. (Bottom left) FactSet, MSCI, J.P. Morgan Asset Management. (Right) FactSet, MSCI, Tullett Prebon, 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. *Represented by the German Bund Yield. Guide to the Markets - Europe. Data as of 3 June

33 MSCI Europe earnings and profit margins 33 MSCI Europe earnings and performance Index level, analyst estimates of the next 12 months of earnings 1,5 MSCI Europe profits MSCI Europe index level 1, MSCI Europe annual earnings estimates Monthly earnings per share consensus estimates 145 '13 $ '14 ' , '16 9, Equities 8,5 8, 7,5 7, '11 '12 '13 '14 US and European operating profit margins Earnings per share/sales per share for MSCI Europe and S&P 5* 11 1 US 6,5 6, Europe 5,5 '7 '8 '9 '1 '11 '12 '13 ' '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 Source: (Left) FactSet, MSCI, J.P. Morgan Asset Management. (Top right) FactSet, MSCI, J.P. Morgan Asset Management. (Bottom right) FactSet, MSCI, Standard & Poor s, J.P. Morgan Asset Management. *Data is last 12 months. Guide to the Markets - Europe. Data as of 3 June

34 US S&P 5 at inflection points 34 S&P 5 Index 2,2 2, Characteristic Mar 2 Oct 27 Jun 215 Index level P/E ratio (fwd) Dividend yield US 1 year ,2x 1,1 6, ,7x 1,7 4, ,4x 1,9 2,4 3 Jun 215: P/E = 16,4x ,8 1,6 24 Mar 2: P/E = 27,2x Oct 27: P/E = 15,7x Equities 1,4 Total return: ,2 1, 8 31 Dec 1996: 9 Oct 22: 9 Mar 29: P/E = 16,x P/E = 14,1x P/E = 1,3x '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 Source: FactSet, Standard & Poor s, Tullett Prebon, J.P. Morgan Asset Management. The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Return calculations shown in green are based on the total return index. Guide to the Markets - Europe. Data as of 3 June

35 US S&P 5 equity valuations 35 Earnings yield and Baa corporate bond yield Baa corporate bond yield 3 Jun 215: 6,1 Forward P/E ratio 28 x Average: 16,3x 31 Dec 1999: 25,4x 3 Jun 215: 16,4x Equities Earnings yield (inverse of forward P/E) 3 Jun 215: 5,2 '89 '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 S&P 5 Shiller cyclically adjusted P/E Adjusted using trailing 1-year average inflation-adjusted earnings 5 x Average: 16,6x 3 Jun 215: 26,7x 3 '89 '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 ' '1 Source: (Left) FactSet, IBES, Moody s, Standard & Poor s, J.P. Morgan Asset Management. (Top right) FactSet, Standard & Poor s, 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) FactSet, Robert Shiller, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 3 June

36 US S&P 5 earnings and profit margins 36 S&P 5 earnings and performance Index level, analyst estimates of the next 12 months of earnings 13 $ S&P 5 profits S&P 5 index level S&P 5 earnings per share growth Change year on year, 1Q ,5 6-5,5 12, 1,1 Equities Employee compensation and profitability of GDP 6 12 Employee compensation Corporate profits Total index Ex-energy Domestic companies Exporters '7 '8 '9 '1 '11 '12 '13 '14 Source: (Left and top right) FactSet, Standard & Poor s, J.P. Morgan Asset Management. (Bottom right) BEA, FactSet, J.P. Morgan Asset Management. Exporters is defined as the 4 of the S&P 5 with the highest percentage of overseas revenues and domestic companies are the remaining 6 of the S&P 5. Guide to the Markets - Europe. Data as of 3 June '6 '65 '7 '75 '8 '85 '9 '95 ' '5 '1 '

37 Bear markets 37 S&P 5 declines from all-time highs 2 market decline Recession Equities Characteristics of past bear markets* Market corrections Cycle peak Bull market duration (months) Decline from all-time high Recession Commodity spike Aggressive Fed tightening Extreme valuations Commentary 1 Crash of 1929 Aug Excessive leverage, irrational exuberance Fed tightening Feb Premature monetary tightening 3 Post WWII Crash May Post-war demobilisation, recession fears 4 Flash crash of 1962 Dec Flash crash, Cuban Missile Crisis 5 Tech crash of 197 Dec Economic overheating, civil unrest 6 Stagflation Dec OPEC oil embargo 7 Volcker tightening Nov Extremely high rates to rein in inflation Crash Aug Programme trading, overheated market 9 Tech bubble Aug Extreme valuations, mostly in tech stocks 1 Global financial crisis Oct Leverage, housing, Lehman collapse Source: FactSet, NBER, Robert Shiller, Standard & Poor s, J.P. Morgan Asset Management. *A bear market represents a 2 or more decline from the previous market high using a monthly frequency. Periods of Recession are defined using National Bureau of Economic Research (NBER) business cycle dates. Commodity spike is defined as significant rapid upward moves in oil prices. Periods of Extreme valuations are those where S&P 5 last twelve months P/E levels were approximately two standard deviations above long run averages. Aggressive Fed tightening is defined as Federal Reserve monetary tightening that was unexpected and significant in magnitude. Guide to the Markets - Europe. Data as of 3 June

38 Interest rates and equities 38 Equities Correlations between weekly equity returns and interest rate movements Rolling two-year correlation of weekly returns of the S&P 5, MSCI Europe Index and the 1-year Treasury yield, Correlation,8,6,4,2, Positive relationship between yield movements and equity returns S&P 5 MSCI Europe Market reaction when the US Fed raised rates S&P 5 price return Initial reaction Subsequent market reaction Total reaction ,2 -,4 -,6 -,8 Negative relationship between yield movements and equity returns year Treasury yield Source: FactSet, MSCI, Standard & Poor s, US Treasury, 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 of 3 June

39 Japanese equities 39 Equities Equities earnings momentum Earnings revisions, three-month moving average,6,4,2, -,2 -,4 -,6 -,8 ' '2 '4 '6 '8 '1 '12 '14 of market capitalisation, average between 24 and Japan Europe US Listed companies' cash and cash equivalents holdings* Japan Germany Italy France UK US Canada 15 Japanese pension fund asset allocation** Latest allocation (Dec 214) Target allocation Domestic bonds International bonds Domestic stocks International stocks Short-term assets TOPIX dividends per share 3 Jun 215: ' '2 '4 '6 '8 '1 '12 '14 3,2 Source: (Top left) FactSet, Standard & Poor s, STOXX, TOPIX, J.P. Morgan Asset Management. (Bottom left) IMF, J.P. Morgan Asset Management. (Top right) FactSet, Government Pension Investment Fund, Japanese Cabinet Office, Japan Investment Trust Association, Pension Fund Association, J.P. Morgan Asset Management. (Bottom right) FactSet, TOPIX, J.P. Morgan Asset Management. *Cash and cash equivalent holdings derived from "Unstash the Cash! Corporate Governance Reform in Japan, Chie Aoyagi and Giovanni Ganelli, IMF, August 214. **The Japanese Government Pension Investment Fund (GPIF) has JPY 137 trillion of assets under management as of 3 September 214. Guide to the Markets - Europe. Data as of 3 June

40 Developed markets equity valuations by country 4 Equities Developed markets Std dev from global average +6 Std dev +5 Std dev +4 Std dev +3 Std dev +2 Std dev +1 Std dev Average -1 Std dev -2 Std dev -3 Std dev -4 Std dev -5 Std dev Spain Italy UK Germany France ACWI Japan DM Index Switzerland US Current composite index Current How to interpret this chart Expensive relative to own history Cheap relative to own history 1-year average Expensive relative to world Current Average Cheap relative to world Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield Spain -1,47 14,3x 1,4x 7,2x 4,6 11,3x 1,5x 4,4x 5,1 Italy -1,46 15,1 1,1 5,2 3, 11,4 1,1 3,6 3,5 UK -,33 15,1 1,8 9,3 4, 11,8 1,9 7,1 3,7 Germany -,3 13,5 1,7 8,7 2,8 11,7 1,7 5,5 2,9 France -,21 15,4 1,6 9,1 3,2 11,8 1,5 6, 3,3 ACWI,85 15,5 2,1 1,2 2,5 13,4 2,1 7,4 2,5 Japan,89 15,4 1,5 8,7 1,7 16,3 1,4 6,5 1,8 DM Index 1,16 16,1 2,2 1,6 2,4 13,7 2,1 7,5 2,5 Switzerland 1,88 16,9 2,5 14,2 3,2 14,1 2,6 1,3 3,1 US 2,4 16,7 2,8 11,6 2, 14,3 2,7 8,8 1,9 Source: FactSet, MSCI, 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 1 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). DM Index is the MSCI The World Index. Guide to the Markets - Europe. Data as of 3 June

41 Emerging markets equity valuations by country 41 Equities Emerging markets Std dev from global average +6 Std dev +5 Std dev +4 Std dev +3 Std dev +2 Std dev +1 Std dev Average -1 Std dev -2 Std dev -3 Std dev -4 Std dev -5 Std dev -6 Std dev Russia Brazil China EM Index Taiwan S. Korea ACWI S. Africa Mexico India Current composite index Current How to interpret this chart Expensive relative to own history Cheap relative to own history 1-year average Average Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield Russia -4,75 5,3x,5x 3,x 4,9 7,2x 1,2x 6,2x 2,9 Brazil -1,94 12,7 1,2 6,4 4,1 1,3 1,9 5,9 3,4 China -1,21 1,6 1,5 7,9 2,8 11,8 2,1 4,5 2,8 EM Index -1,15 11,7 1,5 7,2 2,7 11,3 1,9 6,2 2,7 Taiwan -1,2 12,4 1,8 7,6 3,3 14,5 1,9 6,4 3,7 Korea -,96 9,5 1, 4,9 1,5 9,7 1,4 5,5 1,6 ACWI,85 15,5 2,1 1,2 2,5 13,4 2,1 7,4 2,5 S. Africa 1,31 16,1 2,6 11,5 2,9 12,3 2,6 8,9 3,2 Mexico 3,4 18,7 2,7 1,2 1,5 15,3 2,9 6,5 1,9 India 3,81 18,2 3,1 12, 1,5 16, 3,2 12,5 1,3 Expensive relative to world Current Cheap relative to world Source: FactSet, MSCI, 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 1 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 of 3 June

42 Emerging markets valuations and returns 42 MSCI Emerging Markets Index: Price to book 3, x 2,75 +2, std. dev. 2,5 2,25 MSCI Emerging Markets Index: Price to book and returns Price to book ratio and next 12 months price return Current level Equities 2, 1,75 Average: 1,8x 2 1,5 1,25 3 Jun 215: 1,55x -2 1, -2, std. dev. -4,75 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13-6,75 1, 1,25 1,5 1,75 2, 2,25 2,5 2,75 3, x 3,25 Source: (All charts) FactSet, MSCI, J.P. Morgan Asset Management. Linear regression of price to book ratios on next 12 months price return from September 1995 through June 215. Guide to the Markets - Europe. Data as of 3 June

43 Emerging markets: Dividends and valuations 43 MSCI EM Index: Long-term growth in dividends per share (DPS) and earnings per share (EPS) Rebased to 1 at December EM DPS 45 EM EPS (fwd) Relative valuation of high dividend yielding equities Valuation vs. long-term average, three-month moving average US Europe Emerging markets Equities DM DPS DM EPS (fwd) ' '2 '4 '6 '8 '1 '12 '14 Number of companies yielding greater than 2 by region Constituents of the MSCI All Country World Index '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 Emerging markets Source: (Left) FactSet, IBES, MSCI, J.P. Morgan Asset Management. (Top and bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 3 June US Europe Japan 43

44 Equity income 44 Equities S&P 5 total return index: Dividends and capital appreciation Average annualised returns MSCI Europe indices: Price vs. total return* Rebased to 1 at December High dividend yield total return ,9 13,6 12,6 15,3 3, 1,6 4,4 4,7 5,4 6, 5,1 3,3 4,2 4,4 2,5 Total return Price return -5, '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 ' Sources of income ,1,8 1,4 2,5 1,8-2,7 3, 3,2 MSCI Europe 16,6 2,7 4, s 194s 195s 196s 197s 198s 199s 2s Eurozone average CPI inflation:,1 (12 months to May 215) Cash Bunds Euro EM Converts corp equity Capital appreciation Dividends 4, Global REITs 5,9 6,2 6,2 High yield EM Debt Source: (Top) Ibbotson, Standard & Poor s, J.P. Morgan Asset Management. (Bottom left) FactSet, FTSE, J.P. Morgan Asset Management. High dividend yield is the FTSE 35 Higher Yield Index. (Bottom right) Barclays, BofA/Merrill Lynch, FactSet, FTSE, Tullett Prebon, J.P. Morgan Asset Management. Euro corporate: Barclays Euro Aggregate Credit - Corporate; EM debt: J.P. Morgan EMBI Global; High yield: BofA/Merrill Lynch Developed Markets High Yield Constrained; Global REITs: FTSE NAREIT Index; Converts: Barclays Global Convertibles; EM equity; MSCI EM. 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 of 3 June

45 Annual returns and intra-year declines 45 MSCI Europe Index intra-year declines vs. calendar-year returns Despite average intra-year drops of 15,6 (median 11,9), annual returns are positive in 27 of 35 years Calendar-year return Intra-year decline Equities '8 '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-48 Source: FactSet, MSCI, 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 198 to 214. Guide to the Markets - Europe. Data as of 3 June

46 Fixed income sector returns 46 Local YTD 2Q15 28,9 EM Debt 11,9 18,5 US Treas. 2,8 9, Euro HY 9,,5 Euro IG,5 3,7 Linkers 3,7 1,7 Euro Gov 1,4 19,6 US Treas. 13,7 9,1 Euro Gov 6,2 66,1 Euro HY 66,1 53,2 US HY 58,1 23,1 US HY 15,1 19,6 EM Debt 11,8 13,5 US Treas. 9,8 12,9 EM Debt 9,2 23,3 Euro HY 23,3 16,2 EM Debt 18, 8,8 Euro HY 8,8 2,8 US HY 7,4 22,4 US IG 7,5 2,9 EM Debt 6,2 11,3 US HY 2,5 9,7 EM Debt 1, -,9 Euro HY -,9-1,4 Linkers -1,4 Ten-yr Ann. 9, EM Debt 7,7 8,9 US HY 7,6 18,4 US HY 2,8 -, Euro Gov -,, Euro IG, 5,3 Linkers 5,3 22, EM Debt 25,9 16,6 US IG 9, 11,8 US IG 8,1 13,8 US HY 15,5 2,4 Euro IG 2,4 19,6 US Treas. 5,1 8,6 US Treas., -2,9 Euro IG -2,9 7,4 Euro HY 7,4 17,2 US IG 1,7 -,5 Linkers -,5-1,6 Euro HY -1,6,3 Portfolio -3, 16,4 Portfolio 18,9 14,3 Euro HY 14,3 7,9 US HY 4,4 13,6 Euro IG 13,6 2,1 Euro Gov 2,2 16,7 US HY 2,5 7,6 US IG -,9-3,7 US HY -, 6,8 US IG 5,5 Fixed income 13,6 Portfolio 4,8 6,8 Euro HY 6,8 4,8 Euro Gov 4,8 -,9 US HY 1,7-1,2 EM Debt 1,5-2, Portfolio 4,2-1,7 US Treas. 9, -1,8 Portfolio 3,8-4, EM Debt 6,5 -, US IG -4,9-3,8 Euro IG -3,8-5, EM Debt -9,7 15,7 Euro IG 15,7 15, US IG 18,7 7, Linkers 7, 13,2 US Treas. 5,9 11,4 Portfolio 7,3 4,7 Euro IG 4,7 7,4 Portfolio 5,4 3,5 Euro Gov 3,2 1,5 Euro IG 1,5 1,6 Portfolio 11,6 1,5 Euro Gov 11,2 8,4 Linkers 8,4-2,7 Portfolio -,3-3, Linkers -3, -5,8 US IG -1,5 14,9 Portfolio 6,6 12,4 Euro Gov 11,1 8,4 Euro IG 8,4 4,8 Portfolio,1 2,3 Euro HY 2,3,8 Linkers,8-4,3 Portfolio -2,2-4,5 EM Debt -,9-5, Euro Gov -4,3 6,6 Portfolio 5,5 5,6 US Treas. 4,4 5, Euro Gov 4,9 4, Euro IG 4, -6,7 US IG 4,3-5,7 US IG 4,6-22,3 US HY -26,1 4,5 Euro Gov 6,9 2,1 Linkers 2,1 1,3 Linkers 1,3 8,1 US IG 9,8-7, US Treas. -2,7 5,5 Euro HY 5,5-1,3 Euro Gov -1,2-5,1 US Treas. -1,6 4,5 Euro IG 4,5 3,7 Linkers 3,7-7,8 US Treas. 3,1-7,5 US HY 2,6-32,8 Euro HY -32,8-6,6 US Treas. -3,6 1,5 Euro Gov 2,2-1,1 Euro HY -1,1,4 US Treas. 2, -12,3 EM Debt -8,3 2,2 Linkers 2,2-1,6 Euro IG -1,6-6,7 US IG -3,2 3, Linkers 3, 46 Source: Barclays Capital, BofA/Merrill Lynch, FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Annualised return covers period 25 to 214. Euro Gov.: Barclays Euro Agg. Government; US Treasuries: Barclays US Agg. Gov. Treasury; Linkers: Barclays Euro Gov. Inflation-Linked; US IG: Barclays US Agg. Corporate Investment Grade; Euro IG: Barclays Euro Agg. Credit Corporate; US HY: BofA/Merrill Lynch US High Yield Constrained; Euro HY: BofA/Merrill Lynch Euro Non-Financial High Yield Constrained; EM Debt: J.P. Morgan EMBI+. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 2 Euro Gov.; 15 US Treasuries; 1 Linkers; 15 US IG; 1 Euro IG; 1 US HY; 5 Euro HY; 15 EM Debt. Returns are unhedged in euro and local currencies. Guide to the Markets - Europe. Data as of 3 June 215.

47 Fixed income market data 47 Europe Treasuries # of issues Mkt. value ($ billions) Yield Return* 1-year correlation Avg. maturity 3 Jun Mar 215 2Q15 YTD 1-year Bund 1-3 years , years,34,22,11 1,83,44, years , 1,1,62-1,91,96,83,58 1+ years ,4 2,37 1,55-9,42,83,83,67 US Treasuries 1-3 years ,9 years,63,56,14,68,47, years , 1,89 1,58-1,1 1,1,74, years , 2,5 2,11-3,28 -,7,79 1, 1-year Treasury Fixed income 47 Sector MBS ,1 years 2,78 2,4 -,74,31,64,8 IG credit ,9 2,83 2,39-1,55-2,71,9,26 High yield ,4 6,54 6,27 1,28 1,94 -,28 -,21 Floating rate ,,74,7,18,42 -,24 -,2 Convertibles , 3,2 3,4 1,44 3,35 -,46 -,46 EMD USD sovereign ,3 5,79 5,56 -,26 2,26,9,11 EMD USD corporate ,8 5,22 5,2 1,32 3,7,5,5 EMD LC sovereign ,9 6,79 6,34,19 2,44 -,4,3 Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Fixed income sectors shown are represented by the following indices: Europe Treasuries: Barclays Pan-European Aggregate Treasuries indices; US Treasuries: Barclays US Treasury indices; MBS: Barclays US Aggregate Securitized-MBS; IG Credit: Barclays Global Aggregate-Corporates; High yield: Barclays Global High Yield; Floating rate: Barclays US Floating Rate Notes; Convertibles: Barclays Global Convertibles Composite; EMD USD sovereign: J.P. Morgan EMBIG; EMD USD Corporate: J.P. Morgan CEMBI; EMD LC sovereign: J.P. Morgan GBI-EM. Credit yields are yield to worst. *Return is in local currency of the index and unhedged. Guide to the Markets - Europe. Data as of 3 June 215.

48 Central bank policy 48 Real rates Policy rate minus core inflation* Central bank policy rates Bank of Japan,1 Bank of England,5 European Central Bank,5 US Federal Reserve,25 Central bank balance sheets of nominal GDP 8 Japan Eurozone US UK 6 Projections** 2 1 Fixed income '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 Source: (Both charts) Bank of England, Bank of Japan, ECB, US Federal Reserve, J.P. Morgan Economic Research, J.P. Morgan Asset Management. *Core consumer price index inflation is the benchmark core CPI for each country, except Japan which is CPI less food and consumer tax. **Central bank assets as percent of nominal GDP is forecasted from 2Q15 to 1Q16 using J.P. Morgan Global Economics Research nominal GDP forecasts and assumptions for central bank balance sheet size based on statements released by each respective central bank and its governors. Guide to the Markets - Europe. Data as of 3 June

49 Government interest rates 49 Sovereign funding costs 1-year benchmark bond yield Portugal US UK Spain Ireland France Germany Japan Yield () Change (bps) Country Current 2Q15 From Dec 213 Greece 14,98 351bps 672bps Portugal 2, US 2, Italy 2, Spain 2, UK 2, Ireland 1, France 1, Netherlands 1, Germany, Switzerland, Fixed income Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Correlation between government bonds Correlation* between US Treasury and German Bund yields 1,,8,6,4,2, 1 yr bonds -,2 2 yr bonds -,4 '1 '11 '12 '13 '14 Source: (All charts) FactSet, Tullett Prebon, J.P. Morgan Asset Management. *Rolling six-month correlation of weekly change in yield. Guide to the Markets - Europe. Data as of 3 June

50 Fixed income interest rate risk Current and historical yields for selected indices Last 1 years* How to interpret this chart Max 5 Source: (Both charts) Barclays, FactSet, J.P. Morgan Asset Management. *Historical spread analysis is based on the last 1 years of data, with the exception of local currency emerging markets debt, which are based on six years of data, due to data availability. Fixed income 1 5 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 -5-1 Treasury: Europe 1-3 years 5-7 years 1+ years Floating rate Investmentgrade credit High yield EMD USD sovereign EMD USD corporate EMD LC sovereign Average Current Min Price return Total return Fixed income sectors shown are provided by Barclays Capital and are represented by: Treasury Europe: Barclays Pan-European Aggregate Government Treasury; Floating rate: Barclays US Floating Rate Notes (BBB); IG credit: Barclays Global Aggregate Corporates; High yield: Barclays Global High Yield; EMD sovereign USD: Barclays Emerging Markets Sovereigns; EMD corporate ($): Barclays Emerging Markets Corporates; EMD sovereign (LC): Barclays Emerging Market Local Currency Government. For illustrative purposes only. Change in bond price is calculated using both duration and convexity. Guide to the Markets - Europe. Data as of 3 June Treasury: Europe 1-3 years 5-7 years 1+ years Floating rate Investmentgrade credit High yield EMD USD sovereign EMD USD corporate EMD LC sovereign 5

51 Liquidity and duration risks 51 US corporate debt market liquidity $ billions Estimated amount of yield increase to wipe out next year s income $ US corporate debt $ Dealer inventories outstanding* 5 1. Mark to market: Interest rate risks bps Current yield A 89 bps increase in yield wipes out income earned for the next year Fixed income '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 Global HY EMD Sovereign EMD USD Global IG US IG US UK Gilts Treasuries Euro Aggregate Govt 51 Source: (Left) Barclays, Federal Reserve Bank of New York, J.P. Morgan Asset Management. (Right) Barclays, FactSet, J.P. Morgan Asset Management. *US corporate debt outstanding is the Barclays US Corporate Investment Grade. Interest rate risks chart assumes that all investments are issued at par and are made on 3 June 215, with no reinvestment of income and with no consideration to convexity characteristics. Fixed income sectors shown are provided 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 (7-1 Y), Barclays UK Gilt (7-1 Y), Barclays Euro Aggregate Government Treasury (7-1 Y). Guide to the Markets - Europe. Data as of 3 June 215.

52 Government bonds 52 1-year bond yields Oil shock 1981 Black Friday 1987 Fall of Berlin Wall 1989 Britain leaves ERM 1992 Asian currency crisis 1997 Dot com bubble Feb 2 BoE QE 29 Fed QE2 21 Fed QE /11 attacks Fed QE '79 '84 '89 '94 '99 '4 '9 '14 US UK Eurozone BoJ QE 213 ECB QE 215 Fixed income European government bonds by maturity Germany Finland France Sweden Ireland Years Euro area government bonds with a negative yield BofA/ML euro area bond index 5 Euro area bonds Jun 215 with <1 yields 4 Total value 2,6tn 3 2 of total outstanding 55 3 June 215: 16,4 Italy Spain Negative yields Negative in April 215 and now positive* Positive yields 1 Aug 14 Oct 14 Dec 14 Feb 15 Apr 15 Jun 15 Source: (Top and bottom left) FactSet, Tullett Prebon, J.P. Morgan Asset Management. (Bottom right) BofA/Merrill Lynch, Bloomberg, J.P. Morgan Asset Management. *The lowest yield reached for each country during April 215. Guide to the Markets - Europe. Data as of 3 June

53 Investment-grade bonds 53 Corporate bond spreads by currency Option-adjusted spreads* 6 bps UK US Eurozone European corporate issuance billions Gross issuance Net issuance YTD: 255bn 2 1 '6 '7 '8 '9 '1 '11 '12 '13 '14-25 '8 '9 '1 '11 '12 '13 '14 '15 Fixed income US corporate bond spreads by sector Option-adjusted spreads* 35 bps Energy Utilities Financials Industrials ex-energy US corporate issuance $ billions 1.2 $ Gross issuance Net issuance YTD: 658bn '1 '11 '12 '13 '14 '15 Source: (Top and bottom left) Barclays, FactSet, J.P. Morgan Asset Management. (Top and bottom right) J.P. Morgan Securities, J.P. Morgan Asset Management. *Option-adjusted spread is the spread of a fixed income security rate over the risk-free rate, adjusted to take into account any embedded options. Guide to the Markets - Europe. Data as of 3 June 215. '1 '11 '12 '13 '14 '15 53

54 US high yield bonds 54 US high yield spreads and defaults Average Asset class Latest 2 since HY defaults (lhs) 4, 1,9 bps 15 HY spread bps (rhs) Lev. loan spread bps (rhs) '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 Fixed income US historical high yield recovery rates High yield bonds, cents on the dollar Average: 41,5 cents '82 '85 '88 '91 '94 '97 ' '3 '6 '9 '12 '15 High yield issuance $ billions 4 $ Refinancing General* Acquisition/LBO '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 Source: (Top) Credit Suisse, J.P. Morgan Economic Research, US Treasury, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at or below 5 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 Economic Research, J.P. Morgan Asset Management. *General issuance includes issuance for the purpose of paying dividends. Guide to the Markets - Europe. Data as of 3 June 215. YTD: $185,4bn 54

55 European high yield bonds 55 European high yield: Spread to worst and default rates 2 Asset class Average Latest 2.5 Default rate 22: HY spread bps (rhs) bps 34 HY defaults (lhs) 5,2, '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 N/A Fixed income European high yield issuance by credit rating billions 9 Unrated CCC 6 B BB 3 YTD: 5,4bn High yield sector weights of index Other Energy Industrial Telecom Financial Consumer Other 7 Energy 2 Industrial 29 Telecom 17 Financial 13 Consumer 31 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 US HY Euro HY Source: (Top) BofA/Merrill Lynch, Credit Suisse, FactSet, J.P. Morgan Asset Management. (Bottom left) FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom right) Barclays, FactSet, J.P. Morgan Asset Management. Spread to worst is BofA/Merrill Lynch Euro Non-Financial High Yield Constrained. US HY is the J.P. Morgan Domestic HY index and Euro HY is the J.P. Morgan Euro HY index. Guide to the Markets - Europe. Data as of 3 June

56 Emerging markets debt 56 Emerging markets debt yields EM sovereign (local currency) EM sovereign (USD) EM corporate (USD) Real policy rates Developed markets Emerging markets 1-8 Fixed income EM sovereign debt and Baa corporate bond yields 7, 6,5 EM sovereign (USD) 6, 5,5 5 4 '1 '3 '5 '7 '9 '11 '13 5, 4,5 Baa corporate bond (USD) 4, '9 '1 '11 '12 '13 '14 Source: (Left and top right) FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom right) Moody s, J.P. Morgan Economic Research, FactSet, J.P. Morgan Asset Management. EM sovereign (local currency) is the J.P. Morgan GBI-EM; EM sovereign (USD) is the J.P. Morgan EMBI+; EM corporate (USD) is the J.P. Morgan CEMBI. The J.P. 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 of 3 June

57 Emerging markets debt composition 57 Emerging markets investable debt universe $ trillions 3,5 $ EM corporate (USD) 3, EM sovereign (USD) Sovereign local currency index breakdown GBI-EM by region 9 Asia 22 Europe 2,5 EM sovereign (local currency) 4 29 Latin America Other 2, Fixed income 1,5 1, Sovereign USD credit rating breakdown of EMBI Global Index Unrated B,5 4 BB 2 IG, '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 ' Source: (All charts) J.P. Morgan Economic Research, J.P. Morgan Asset Management. The J.P. Morgan EMBI Global (EMBIG) index 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 J.P. 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 of 3 June

58 Asset class returns YTD 2Q15 Ten-yr Ann. EME 3 5,8 REITS 3 4,4 EME 3 3,6 Govt bonds 1, 2 EME 6 2,8 REITS 2 7,6 REITS 7, 3 REITS 2,1 DM Equitie s 2 9,6 REITS 2 7,1 EME 5, 8 Cmdty 4,7 EME 1, 3 Cmdty 2 1, 4 EME 2 8,8 Cmdty 16, 2 Ca sh 5, 7 HY bonds 5 9,4 Cmdty 16, 8 EMD 7, HY bonds 19, 6 He dge Funds 9,7 DM Equitie s 1, 4 DM Equitie s 4,5 HY bonds 1,3 HY bonds 8, DM Equitie s 16, 3 DM Equitie s 16,1 He dge Funds 12, 6 IG bonds - 8, 6 EMD 3 4,2 HY bonds 14, 8 Govt bonds 6, 3 EMD 17, 9 P ortfolio 9, 3 EME 5, 6 He dge Funds 3,4 He dge Funds,8 EMD 7, 8 EMD 12, 3 He dge Funds 13, 9 Govt bonds 1, 6 EMD - 14, 7 REITS 2 7,4 EME 14, 4 IG bonds 4, 3 EME 17, 4 HY bonds 7, 3 Portfolio 5, EMD 2, 8 EME, 8 REITS 7, 5 P ortfolio 1, P ortfolio 13, 8 P ortfolio 8, 5 He dge Funds - 19,1 P ortfolio 2 7, EMD 12, 8 HY bonds 3, 1 DM Equitie s 16, 4 EME 3, 8 EMD 4, 8 HY bonds 1,9 EMD, 4 DM Equitie s 6,9 REITS 8, 3 HY bonds 13, 7 IG bonds 6, 7 P ortfolio - 2 3,2 DM Equitie s 2 6,5 He dge Funds 1, 9 Ca sh 1,7 P ortfolio 12, 3 REITS 3, 2 He dge Funds 4,1 Portfolio 1,2 Ca sh, Portfolio 6, 5 He dge Funds 7, 6 EMD 1, DM Equitie s 5, 2 HY bonds - 2 6,9 IG bonds 19, 2 P ortfolio 1, 8 P ortfolio - 1, 1 IG bonds 11,2 IG bonds, 3 IG bonds 3,1 Ca sh,1 DM Equitie s -,5 He dge Funds 5,8 Other assets and investor behaviour HY bonds 3, 6 Ca sh 2, 2 IG bonds - 3, 6 Govt bonds - 6, 7 IG bonds 7, 2 Govt bonds 6, 4 Ca sh 3, Cmdty 2,1 EMD 5, 2 Ca sh 4, 4 HY bonds 3, 2 REITS - 17, 8 Cmdty - 3 5,6 REITS - 3 7,3 DM Equitie s - 3 8,3 EME - 4 5,7 Cmdty 18, 9 He dge Funds 18, 6 Govt bonds 2, 6 Ca sh 2, 3 DM Equitie s 1, 6 Govt bonds 5, 9 IG bonds 5, 8 Ca sh 1, 1 He dge Funds - 2, 5 DM Equitie s - 5, EME - 12, 5 Cmdty - 13, 3 He dge Funds 7, 7 Govt bonds 1,8 Ca sh 1,2 Cmdty - 1,1 Ca sh, 2 EMD - 4,1 Govt bonds - 4, 3 Cmdty - 9, 5 Ca sh, 3 HY bonds, Govt bonds -, 8 Cmdty - 17, Cmdty - 1,6 IG bonds - 2, 7 Govt bonds - 3, 7 REITS - 5, 2 Portfolio -, 5 Govt bonds - 1,5 IG bonds - 1,6 REITS - 8, 9 IG bonds 4, 3 Govt bonds 3,1 Ca sh 2, 2 Cmdty - 1,9 58 Source: Barclays Capital, Bloomberg, Credit Suisse/Tremont, MSCI, FactSet, J.P. Morgan Economic Research, NAREIT, J.P. Morgan Asset Management. Annualised return covers the period from 25 to 214. 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 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 shouldn t be taken as a recommendation): 3 DM equities; 1 EM equities; 15 IG bonds; 12.5 government bonds; 7.5 HY bonds; 5 EMD; 5 commodities; 5 cash; 5 REITS and 5 hedge funds. Returns are unhedged. Guide to the Markets - Europe. Data as of 3 June 215.

59 Correlation of returns (EUR) 59 1-year correlations MSCI Europe S&P 5 MSCI EM MSCI Asia ex-japan Pan Europe bonds EM debt High yield bonds Global bonds Cmdty Hedge funds Leveraged loans Real estate MSCI Europe S&P 5 1,,79,86,84 -,8,63,77 -,22,45,81,74 -,11,47 1,,67,71,5,35,5,11,39,57,6 -,8 MSCI EM MSCI Asia ex-japan Pan Europe bonds EM debt,79,49 1,,96 -,1,68,76 -,15,58,83,77 -,26,76,62,97 1,,2,62,71 -,3,44,74,72 -,28,56,49,71,76 1,,19 -,16,7 -,3 -,33 -,22 -,12,42 -,13,61,48,48 1,,81 -,1,4,62,69 -,34 Other assets and investor behaviour High yield bonds Global bonds Cmdty Hedge funds Leveraged loans Real estate,35 -,33,11 -,4,2,69 1, -,39,48,84,92 -,47,58,72,81,87,82,26 -,31 1, -,13 -,47 -,3 -,13,49,22,54,44,28,63,39,45 1,,61,59 -,3,68,38,42,38,33,36,55,17,35 1,,87 -,18,62,9,4,29,9,6,8,4,67,67 1, -,42,15 -,18 -,5 -,6 -,9 -,6 -,1 -,7 -,3,13 -,22 1, 59 Three-year correlations Source: Barclays, Bloomberg, Citigroup, Credit Suisse, J.P. Morgan Economic Research, MSCI, NCREIF, Standard & Poor s, US Federal Reserve, J.P. Morgan Asset Management. Pan Europe bonds: Citigroup Europe Government Bond; EM debt: JP Morgan EMBI Global; High yield bonds: JP Morgan Domestic High Yield; Global bonds: Barclays Global Aggregate; Lev. Loans: Credit Suisse Leveraged Loans; Cmdty: Bloomberg Commodity; Hedge Funds: CS/Tremont Multi-Strategy; Real estate: blended index, which includes NCREIF Property Index data and Federal Reserve estimates of changes in capital value. Ten-year correlation values are calculated for period June 25 to June 215. All indices except Real Assets are total return based on quarterly return data in euros; real asset correlations are based on quarterly data and are as at 31 March 215. Guide to the Markets - Europe. Data as at 31 March 215.

60 Asset volatility 6 Relative volatility of key assets Rebased to 1 at June Volatility measures (index level) Average Latest Crude oil (OVX) US Treasuries (MOVE) S&P 5 (VIX) '1 '11 '12 '13 '14 '15 Other assets and investor behaviour Movements in US and German 3-year bond yields Six-month change in yields std. dev. US -2. std. dev. Germany -1 '7 '8 '9 '1 '11 '12 '13 '14 '15 Relative volatility of US and German equities Rebased to 1 at June Germany (VDAX) 14 S&P 5 (VIX) '1 '11 '12 '13 '14 '15 Source: (Top and bottom right) CBOE, Deutsche Boerse, BofA/Merrill Lynch, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 3 June

61 Commodity returns YTD 2Q15 Ten-yr Ann. Copper 56,1 Nickel 167,2 Wheat 52,1 Gold 2,4 Copper 129,6 Silver 81,6 Gold 9,6 Corn 18,9 Crude Oil 6,8 Coffee 37,7 Wheat 3,5 Wheat 19,3 Gold 8, Nat. gas 52,8 Copper 45,1 Crude Oil 4,1 Corn -23,1 Nickel 54,6 Coffee 66,8 Corn 1,1 Wheat 9,7 Nat. gas 5, Nickel 7,3 Corn, Crude Oil 17,5 Copper 6,9 Silver 25, Corn 4, Gold 24,2 Silver -26,6 Silver 47,4 Nickel 32, Crude Oil -3,7 Silver 7, Copper -8,8 Gold -1,8 Crude Oil, Corn 7,8 Silver 6, Crude Oil 21,9 Silver 37,8 Silver 9,1 Coffee -27,3 Alum inium 33,6 Corn 3,5 Silver -1,2 Gold 6, Nickel -2,1 Alum inium -3,1 Silver -,9 Nat. gas 1,9 Nickel 1,3 Aluminium 15,5 Wheat 2, Copper 4,1 Nat. gas -38, Gold 22,7 Copper 29,4 Coffee -11,2 Copper 4,9 Alum inium -2,8 Wheat -9,5 Gold -1,3 Gold -1, Corn -3,1 Gold 13,8 Alum inium 19,4 Corn -2,3 Wheat -39,4 Coffee 1,1 Gold 28,5 Aluminium -21,7 Aluminium -4,1 Wheat -27,2 Corn -13,3 Copper -7,7 Nickel -3,7 Coffee -5,8 Other assets and investor behaviour Nickel 1, Wheat -8,8 Coffee -11,7 Corn -18,4 Gold 16, Coffee 1, Crude Oil -16,7 Nat. gas -72,1 Coffee -6,4 Nickel -16,9 Aluminium -18,9 Nat. gas -22,9 Aluminium -41, Copper -53,8 Crude Oil -53,9 Nickel -56,8 Crude Oil 4,2 Corn -1,3 Wheat -26,1 Nat. gas -51,6 Wheat 21, Alum inium 5,2 Crude Oil 3,7 Nat. gas -4,7 Copper -24,5 Nickel -24,7 Wheat -34, Nat. gas -47,1 Nickel -1,3 Crude Oil -11,8 Nat. gas -3,7 Coffee -41,6 Gold -28,7 Corn -3,3 Coffee -3,6 Silver -36,7 Copper -16,6 Silver -2,5 Nat. gas -3,8 Crude Oil -41,7 Nat. gas -9,4 Aluminium -11,1 Nickel -21,5 Coffee -24,6 Coffee -3,9 Copper -4,8 Silver -6,6 Aluminium -7,3 Aluminium -6,1 Wheat -8,1 Crude Oil -9,4 Nat. gas -34,1 Source: Bloomberg, FactSet, J.P. Morgan Asset Management. Returns are in base currency of the index. Annualised period covers 25 to 214. Guide to the Markets - Europe. Data as of 3 June

62 Commodities 62 Commodity volatility Standard deviation of weekly returns, 1 years Natural gas Crude oil Grains 3,6 4,4 5,9 Gold price 2.5 $/oz. 31 Jan 198: $2.86 Inflation-adjusted gold price Gold price Industrial metals Precious metals Bloomberg Cmdty Index ACWI Livestock 2, 2,5 2,4 3,2 3, Other assets and investor behaviour Commodity prices and US inflation Change year on year 8 8 Bloomberg Headline CPI* 6 Commodity Index '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 Source: (Top and bottom left) Bloomberg, 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 of 3 June Jun 215: $1.175 '69 '74 '79 '84 '89 '94 '99 '4 '9 '14 62

63 Oil consumption and production 63 Oil production by country Oil importers and exporters US Millions of barrels per day Net imports as of GDP, Saudi Arabia Canada -3,6 Russia 14 Norway -1,1 Other assets and investor behaviour '1 '3 '5 '7 '9 '11 '13 '15 Crude oil prices $ per barrel 15 $ 125 YTD change Brent Crude 6,7 WTI 11, '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 UK US Italy France Germany,9 1,6 2,2 2,4 2,4 Japan 3,6 Russia -14, Brazil,5 China 2,4 Turkey 3,2 South Africa India 5,1 5, 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 of 3 June

64 Life expectancy and pension shortfall 64 If you are 65 today, the probability of living to a specific age Men Women Couple at least one lives to specified age Perceived retirement shortfall by country 25 yrs Expected savings shortfall (years) Savings expected to last (years) Other assets and investor behaviour years 9 years 5 1 Average 8 UK 14 US 9 France Canada Australia 9 Singapore 12 Brazil 1 1 China India 9 9 Mexico UAE Source: (Left) ONS 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 of 3 June

65 Consumer confidence and the stock market 65 Eurozone consumer confidence 5-5 Average 12-month MSCI Europe Index return: After a peak: -3,4 After a trough: +27,4 Total period: +8,1 May 1986: +12,1 Jul 1989: +4,4 Jun 1995: +17,7 Aug 2: -23,8 Jun 27: -22,5 Nov 21: -8,3 Jun Other assets and investor behaviour Feb 1988: +19,6 Mar 1993: +19,4 Nov 1996: +3,1 Mar 23: +32,5 Mar 29: +44,7 Dec 212: +18,1 '85 '87 '89 '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 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 of 3 June

66 Industry fund flows 66 Cumulative mutual fund flows US-domiciled funds, $ billions 1.2 Equity funds $ Bond funds 1. $1.175 bn Cumulative flows into US equity funds Includes both mutual funds and ETFs, $ billions 8 $ 4 Institutional +$654 billion 8 $837 bn -4 Retail -$77 billion Other assets and investor behaviour $64 bn $17 bn '7 '8 '9 '1 '11 '12 '13 '14 '15 Monthly mutual fund flows Net new cash flow to US mutual funds, $ billions 8 $ Equity funds Bond funds '1 '11 '12 '13 '14 Source: (Left) FactSet, Strategic Insight, J.P. Morgan Asset Management. (Top and bottom right) FactSet, Investment Company Institute, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 3 June

67 US asset returns by holding period 67 Range of equity and bond total returns Annualised total returns, Large cap equity Bonds 5/5 portfolio Other assets and investor behaviour yr rolling 5-yr rolling 1-yr rolling 2-yr rolling Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Returns shown are per annum and are calculated based on monthly returns from 195 to May 215 and include dividends. Guide to the Markets - Europe. Data as of 3 June

68 Alternative asset class returns YTD 2Q15 Ten-yr Ann. Return Ten-yr Ann. Volatility Real Estate 21,4 Private Equity 29,9 Private Equity 22,9 Glbl. Macro 4,7 Rel. Val. 23, Private Equity 18,2 Real Estate 16, Private Equity 13,1 Private Equity 19,8 Real Estate 12,5 Mrgr. Arb. 4,3 Distressed 2,2 Private Equity 11,8 Private Equity 1,4 Private Equity 21,3 Real Estate 16,3 Real Estate 16, Eq. Mkt. Ntrl. -3, Distressed 2,2 Real Estate 16,4 Private Equity 7,4 Real Estate 1,9 Distressed 15,1 Private Equity 7,3 HF Agg. 3,6 Mrgr. Arb. 2,1 Real Estate 7,1 Distressed 9,2 Distressed 1,4 Distressed 15,3 Glbl. Macro 11,4 Mrgr. Arb. -6,7 HF Agg. 18,6 Rel. Val. 12,5 Mrgr. Arb. 2,3 Rel. Val. 9,7 Real Estate 13,9 Glbl. Macro 5,8 Real Estate 3,4* HF Agg. 2, Rel. Val. 6,4 Real Estate 8,9 HF Agg. 9,1 Mrgr. Arb. 14,6 HF Agg. 11, Real Estate -1, Private Equity 15,3 Distressed 12,2 Rel. Val.,8 Distressed 8,5 HF Agg. 9,6 Rel. Val. 5,3 Rel. Val. 2,9 Rel. Val. 1,9 Distressed 6, HF Agg. 8, Eq. Mkt. Ntrl. 6,1 HF Agg. 13,3 Rel. Val. 1, Rel. Val. -17,3 Mrgr. Arb. 11,9 HF Agg. 8,5 Distressed -, HF Agg. 4,4 Rel. Val. 7,5 HF Agg. 4,3 Eq. Mkt. Ntrl. 2,3 Eq. Mkt. Ntrl. 1,1 HF Agg. 5,3 Rel. Val. 7,2 Other assets and investor behaviour Glbl. Macro 6,1 Mrgr. Arb. 5,5 Rel. Val. 5,3 Rel. Val. 12,2 Glbl. Macro 8,2 Eq. Mkt. Ntrl. 7, Mrgr. Arb. 8,9 Distressed 6,8 Eq. Mkt. Ntrl. 5,7 HF Agg. -18,7 Distressed -22,3 Private Equity -25,8 Glbl. Macro 6,9 Eq. Mkt. Ntrl. -1,7 Real Estate -29,8 Mrgr. Arb. 4,6 Glbl. Macro 3,2 Eq. Mkt. Ntrl. 2,5 Glbl. Macro -,7 Eq. Mkt. Ntrl. -1,5 HF Agg. -2, Eq. Mkt. Ntrl. 3,1 Mrgr. Arb. 1,8 Glbl. Macro -1,3 Eq. Mkt. Ntrl. 6,4 Mrgr. Arb. 5,3 Glbl. Macro,1 Eq. Mkt. Ntrl. 3,2 Mrgr. Arb. 1,9 Distressed 1,2 Glbl. Macro 2,3 Distressed 1,3 Private Equity - Glbl. Macro -,7 Real Estate - Private Equity - Mrgr. Arb. 4,9 Glbl. Macro 4,4 Eq. Mkt. Ntrl. 2,7 Glbl. Macro 4,6 Mrgr. Arb. 4, Eq. Mkt. Ntrl. 3, Source: FactSet, HFRI, NCREIF, The Burgiss Group, J.P. Morgan Asset Management. Hedge fund indices include distressed and restructuring (Distressed), relative value (Rel. Val.), global macro (Glbl. Macro), merger arbitrage (Mrgr. Arb.), equity market neutral (Eq. Mkt. Ntrl.), and the aggregate (HF Agg.). Annualised volatility and returns cover the period from 25 to 214. *YTD Real Estate returns are 1Q15 returns as no further data is available for 215 yet. Private Equity 215 returns are also unavailable due to a lag in data. Returns may fluctuate as hedge fund reporting occurs on a lag. Guide to the Markets - Europe. Data as of 3 June

69 Risk/return characteristics of alternatives 69 The effects of adding alternatives to a portfolio, Stocks 4 Bonds 2 Alternatives 6 Stocks 2 Bonds 2 Alternatives 1 Stocks Bonds Annualised return Stocks 6 Bonds 2 Alternatives 3 Stocks 7 Bonds 5 Stocks 5 Bonds 7 Stocks 3 Bonds Alternatives sub-portfolio* Hedge funds Real estate Other assets and investor behaviour 7 6 Stocks 1 Bonds Annualised volatility Private equity 69 Source: Barclays, Bloomberg, Hedge Fund Research, NCREIF, S&P, The Burgiss Group, Towers Watson, J.P. Morgan Asset Management. Data period from January 199 to December 214, utilising annual rebalancing. Stocks represents the S&P 5 Index, and Bonds represents the Barclays U.S. Aggregate Bond Index. * Alternatives represents a hypothetical sub-portfolio chosen to replicate investors preferred exposure from Global Alternatives Survey 213 by Towers Watson. All portfolios are for illustrative purposes only and should not be taken as a recommendation. Burgiss Index Pooled return for 4Q14 is not yet available so 3Q14 Pooled Return is used as a proxy. Past performance may not be indicative of future results. Indices are shown for illustrative purposes. Guide to the Markets - Europe. Data as of 3 June 215.

70 Alternative strategies 7 Allowed return on equity over cost of debt Hedge fund returns in different stock market environments OECD Infrastructure Average return based on total return performance ,1 S&P 5 Recession 2 1,4 HFRI FW Electric -2-1, 1 Utility bond Natural gas -4 S&P up months -3,9 S&P down months Other assets and investor behaviour yr US Treasury '7 '76 '82 '88 '94 ' '6 '12 Hedge fund returns in different bond market environments Average return based on bond market performance US bonds 1, HFRI FW 1,6,3-1 -,7 Bond up months Bond down months Source: (Left) Bloomberg, Regulatory Research Associates, J.P. Morgan Asset Management. (Top right) FactSet, Hedge Fund Research, Standard and Poor s, J.P. Morgan Asset Management. (Bottom right) Barclays Capital, FactSet, Hedge Fund Research, J.P. Morgan Asset Management. S&P 5 is total return performance. HFRI FW is Hedge Fund Research Index Fund Weighted. US bonds is the Barclays Capital US Aggregate Bond Index. Guide to the Markets - Europe. Data as of 3 June

71 J.P. Morgan Asset Management: Risks and disclosures All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The S&P 5 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 5 leading companies in leading industries of the U.S. economy. Although the S&P 5 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 4 Mid Cap Index is representative of 4 stocks in the mid-range sector of the domestic stock market, representing all major industries. The Russell 3 Index measures the performance of the 3, largest U.S. companies based on total market capitalization. The Russell 1 Index measures the performance of the 1, largest companies in the Russell 3. The Russell 1 Growth Index measures the performance of those Russell 1 companies with higher price-tobook ratios and higher forecasted growth values. The Russell 1 Value Index measures the performance of those Russell 1 companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap Index measures the performance of the 8 smallest companies in the Russell 1 Index. The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher priceto-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1 Growth index. The Russell Midcap Value Index measures the performance of those Russell Midcap companies with lower price-tobook ratios and lower forecasted growth values. The stocks are also members of the Russell 1 Value index. The Russell 2 Index measures the performance of the 2, smallest companies in the Russell 3 Index. The Russell 2 Growth Index measures the performance of those Russell 2 companies with higher price-tobook ratios and higher forecasted growth values. The Russell 2 Value Index measures the performance of those Russell 2 companies with lower price-to-book ratios and lower forecasted growth values. The Russell Top 2 Index measures the performance of the largest cap segment of the U.S. equity universe. It includes approximately 2 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 Index SM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 27, 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 29 the MSCI ACWI consisted of 45 country indices comprising 23 developed and 22 emerging market country indices. The MSCI Small Cap Indices SM target 4 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 USD2-1,5 million. The MSCI All Country Asia Pacific ex-japan Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The MSCI All Country Asia Pacific ex-japan Index consists of the following 11 developed and emerging market countries: Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, and Thailand. The MSCI China Index is an unmanaged index considered representative of stocks of China. The MSCI KOKUSAI Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets excluding Japan. The MSCI KOKUSAI Index consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States*. The Nikkei 225 Index is a price-weighted average of the 225 top-rated Japanese companies listed in the first section of the Tokyo Stock Exchange. The Tokyo Price Index (TOPIX) is a capitalization-weighted index lists all firms that are considered to be under the 'first section' on the TSE, which groups all of the large firms on the exchange into one pool. The second section groups all of the remaining smaller firms. The FTSE 1 Index is an index of the 1 largest companies (by market capitalization) in the United Kingdom. The FTSE All Share Index is an index of the 63 largest companies (by market capitalization) in the United Kingdom. The MSCI Value and Growth Indices SM cover the full range of developed, emerging and All Country MSCI Equity indexes. As of the close of May 3, 23, 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 5 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 3, 23, 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 Indices SM 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 Index SM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 27, 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 Index SM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of June 27, 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 45 funds, and consists only of funds with a minimum of US$5 million under management, a 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC. The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment. The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance, and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.

72 J.P. Morgan Asset Management: Risks and disclosures The Dow Jones Industrial Average measures the stock performance of 3 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 underlying commodity in the New York Mercantile Exchange's oil futures contracts. The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. The Barclays 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. 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. 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 $25 million or more of outstanding face value. The Barclays Euro-Aggregate Index consists of bond issued in the euro or the legacy currencies of the sovereign countries participating the European Monetary Union (EMU). The Global Bond Index Emerging Market Broad Diversified Index (GBI-EM) is a comprehensive global local emerging markets index, and consists of liquid, fixed-rate, domestic currency government bonds. The Barclays Global Aggregate Corporate Index consists of corporate issues in Europe, the US and Asia-pacific regions. The Barclays 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 $25 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 China s electricity production, financial institution loans and railway freight. The Euro Stoxx 6 Index represents large, mid and small capitalisation companies across 18 European countries. The JPMorgan GBI-EM Global Diversified consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index. The JPMorgan Corporate Emerging Markets Bond Index (CEMBI): The CEMBI tracks total returns of US dollar-denominated debt instruments issued by corporate entities in Emerging Markets countries, and consists of an investable universe of corporate bonds. Both indices are also available in Diversified version. The JPMorgan CEMBI Index is a USD denominated external debt index tracking bond issued by sovereigns and quasi-sovereigns in the developing nations. The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market. The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing exposure to the systematic risk of the market (i.e., a beta of zero). The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among several hedge fund strategies. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage. The Barclays U.S. Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate note market. *Market Neutral returns for November 28 are estimates by J.P. Morgan Funds Market Strategy, and are based on a December 8, 28 published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +.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 $ 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 for the month, reflecting this mark-down. CS/Tremont assumes no responsibility for these estimates. The Office of National Statistics (ONS) Index is a mix-adjusted average housing price index. The index is calculated monthly using mortgage financed transactions from the Regulated Mortgage Survey by the Council of Mortgage Lenders. The Nationwide House Price Index is a mix adjusted index constructed from Nationwide lending data across the UK. The Halifax House Price Index is constructed from mortgage data derived from Halifax lending data across the UK. The MSCI AC World High Dividend Yield Index is composed of those securities that have higher-than-average dividend yield within its parent index, a track record of consistent dividend payments and the capacity to sustain future dividend payments. The Hedge Fund Research Distressed /Restructuring Index is composed of funds whose investment process focus on corporate fixed income instruments, primarily on corporate credit instruments of companies trading at significant discounts to their value at issuance or obliged (par value) at maturity as a result of either formal bankruptcy proceeding or financial market perception of near term proceedings. The Hedge Fund Research Macro Index is composed of funds which employ an investment process that analyses underlying economic variables and the impact these have on a range of asset markets. The Hedge Fund Research Equity Market Neutral Index is composed of funds which employ sophisticated quantitative techniques for analysing price data to ascertain information about future price movements and relationships between securities. The Hedge Fund Research Merger Arbitrage Index is composed of funds which employ an investment process primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction The Hedge Fund Research Relative Value Index is composed of funds which look for valuation discrepancies in the relationship between different securities. The HFRI Fund Weighted Composite Index is a global, equal-weighted index of over 2, single-manager funds that report to HFR Database The Burgiss Pooled Return Index is an index of private equity fund level cash flows that includes buyout funds and venture capital funds. The Merrill lynch Option Volatility Estimate (MOVE) Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options which are weighted on the 2, 5, 1, and 3 year contracts. The VDAX volatility index is an indication of the expected volatility (i.e. range) of the DAX stock index for the next thirty days.

73 J.P. Morgan Asset Management: Risks and disclosures The Market Insights programme provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the programme explores the implications of current economic data and changing market conditions. The views contained herein are not to be taken as an advice or recommendation to buy or sell any investment in any jurisdiction, nor is it commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of 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 investing in any securities or products. In addition, the Investor should make an independent assessment of the legal, regulatory, tax, credit, and accounting and determine, together with their own professional advisers if any of the investments mentioned herein are suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Exchange rate variations may cause the value of investments to 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 recipient s 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 illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. Results shown are not meant to be representative of actual investment results. J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in Brazil by Banco J.P. Morgan S.A. (Brazil) which is regulated by The Brazilian Securities and Exchange Commission (CVM) and Brazilian Central Bank (Bacen ); in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority (FCA); in other EU jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Switzerland by J.P. Morgan (Suisse) SA, which is regulated by the Swiss Financial Market Supervisory Authority FINMA; in Hong Kong by JF Asset Management Limited, JPMorgan Funds (Asia) Limited or JPMorgan Asset Management Real Assets (Asia) Limited, all of which are regulated by the Securities and Futures Commission; in India by JPMorgan Asset Management India Private Limited which is regulated by the Securities & Exchange Board of India; in Singapore by JPMorgan Asset Management (Singapore) Limited or JPMorgan Asset Management Real Assets (Singapore) Pte. Ltd., both are regulated by the Monetary Authority of Singapore; in Taiwan by JPMorgan Asset Management (Taiwan) Limited which is regulated by the Financial Supervisory Commission; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Japan Securities Dealers Association, and is regulated by the Financial Services Agency (registration number Kanto Local Finance Bureau (Financial Instruments Firm) No. 33 ); in Korea by JPMorgan Asset Management (Korea) Company Limited which is regulated by the Financial Services Commission (without insurance by Korea Deposit Insurance Corporation) and in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 21 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN ) (AFSL ) which is regulated by the Australian Securities and Investments Commission; in Canada by JPMorgan Asset Management (Canada) Inc.; and in the United States by J.P. Morgan Investment Management Inc., or J.P. Morgan Distribution Services, Inc., member FINRA SIPC. EMEA Recipients: You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website Past performance is no guarantee of comparable future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss 93c2a8a12b1c Brazilian recipients: Prepared by: Stephanie Flanders, David Stubbs, Vincent Juvyns, Maria Paola Toschi, Kerry Craig, Alexander Dryden, Nandini Ramakrishnan. Unless otherwise stated, all data as of 3 June 215 or most recently available. Guide to the Markets EUROPE JP-LITTLEBOOK