MARKET INSIGHTS. Guide to the Markets. Asia 2Q 2018 As of March 31, 2018

Transcription

1 MARKET INSIGHTS Guide to the Markets Asia 2Q 2018 As of March 31, 2018

2 Global Market Insights Strategy Team Dr. David Kelly, CFA New York Dr. Cecelia Mundt New York Samantha Azzarello New York Alex Dryden, CFA New York David Lebovitz New York Gabriela Santos New York Jordan Jackson New York John Manley New York Tyler Voigt New York Karen Ward London Michael Bell, CFA London Nandini Ramakrishnan London Ambrose Crofton London Jai Malhi London Manuel Arroyo Ozores, CFA Madrid Lucia Gutierrez Mellado Madrid Tilmann Galler, CFA Frankfurt Maria Paola Toschi Milan Vincent Juvyns Luxembourg Tai Hui Hong Kong Marcella Chow Hong Kong Ian Hui Hong Kong Hannah Anderson Hong Kong Dr. Jasslyn Yeo, CFA Singapore Chaoping Zhu, CFA Shanghai Yoshinori Shigemi Tokyo Shogo Maekawa Tokyo Abigail Yoder, CFA New York Kerry Craig, CFA Melbourne

3 Page reference GTM Asia 3 Regional and local economy 4. Asia: Economic snapshot 5. ASEAN: Economic snapshot 6. China: Economic snapshot 7. China: Cyclical indicators 8. China: Monetary policy 9. China: Credit and leverage 10. China: Investment and industrial capacity 11. China: Exchange rate and foreign reserves 12. India: Economic snapshot 13. Japan: Economic snapshot Global economy 14. Global growth 15. Global Purchasing Managers Index (PMI): Manufacturing 16. Global trade 17. Capital expenditures and workforce productivity 18. Inflation and policy rates 19. Central bank policy rates 20. Central bank balance sheets 21. Political calendar 22. United States: Economic growth and the composition of GDP 23. United States: Cyclical indicators 24. United States: Employment and wages 25. United States: Inflation 26. United States: Monetary policy 27. Eurozone: Economic snapshot 28. Eurozone: Inflation and lending Equities 29. Global and Asia equity market returns 30. Global equities: Earnings expectations and returns 31. Global equities: Valuations 32. Global equities: Profit margins 33. Global equities: High dividend 34. Emerging market equities: Performance drivers 35. APAC ex-japan and U.S. equities 36. APAC ex-japan: Equities snapshot 37. APAC ex-japan: Cyclical versus defensive equities 38. APAC ex-japan: Sector returns and valuations 39. China A-shares versus H-shares: Earnings and valuations 40. Japan: Earnings, currency and equities 41. United States: Earnings and valuations 42. United States: Bear markets and subsequent bull returns 43. United States: Interest rates and equities 44. Europe: Earnings and currencies Fixed income 45. Global fixed income: Yields and returns 46. Global fixed income: Interest rate risk 47. Global fixed income: Valuations 48. Global fixed income: U.S. business cycles and yield curve 49. Global fixed income return composition 50. Global government bonds 51. U.S. high yield bonds 52. Emerging market debt: Fundamentals 53. Asia fixed income markets Other asset classes 54. Asset class returns 55. Volatility 56. Correlations 57. Treasury yield and asset class performance 58. Currencies 59. U.S. dollar drivers 60. Oil: Short-term market dynamics 61. Alternative sources of income Investing principles 62. Real return on cash and yields 63. Investors market timing 64. Annual returns and intra-year declines 65. The compounding effect 66. Portfolio construction, asset class returns and volatility 67. The benefits of diversification and long-term investing 68. The benefits of saving and investing early 69. Environmental, social and governance investing 3

4 Asia: Economic snapshot GTM Asia 4 Regional and local economy EM Asia* contribution to real GDP growth Year-over-year growth 1 8% Investment Consumption** Net exports GDP Investment and exports EM Asia* nominal investment, export volumes, y/y change, 3MMA 3 25% 2 6% 15% 1 Investment 4% 2% 5% -5% Export volumes -1-15% -2% '12 '13 '14 '15 '16 '17-2 '01 '03 '05 '07 '09 '11 '13 '15 '17 Source: CEIC, J.P. Morgan Economic Research, National Statistics Agencies, J.P. Morgan Asset Management; (Right) Netherlands Bureau of Policy Analysis. *EM Asia includes China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. **Consumption includes both private/household and public/government consumption. 4

5 ASEAN: Economic snapshot GTM Asia 5 Regional and local economy Exports Year-over-year change, 3-month moving average 25% 2 Philippines 15% Indonesia Consumption growth Year-over-year change 18% 15% 12% 9% 6% Indonesia Philippines Malaysia 1 5% Malaysia 3% Thailand Singapore -3% '12 '13 '14 '15 '16 '17 Thailand Infrastructure spending as % of GDP 7% -5% Singapore 6% 5% forecast -1 4% 3% -15% 2% 1% -2 '12 '13 '14 '15 '16 '17 '18 Indonesia Malaysia Philippines Singapore Thailand Source: National Statistics Agencies, J.P. Morgan Asset Management; (Left) FactSet; (Top right) CEIC; (Bottom right) HSBC. 5

6 China: Economic snapshot GTM Asia 6 Regional and local economy Contribution to real GDP growth Year-over-year change 2 16% Gross capital formation (investment) Consumption Net exports GDP Caixin/Markit Purchasing Managers Indices Level 56 Services /2018: % 2017: 6.9% Manufacturing 3/2018: % 46 '11 '12 '13 '14 '15 '16 '17 '18 4% -4% -8% '80 '85 '90 '95 '00 '05 '10 '15 Electricity consumption Year-over-year change, year-to-date 21% Source: J.P. Morgan Asset Management; (Left and bottom right) CEIC, FactSet, National Bureau of Statistics of China; (Top right) Caixin/Markit. 18% 15% 12% 9% 6% 3% -3% Tertiary Secondary 2/2018: 18.8% 2/2018: 11.5% -6% '11 '12 '13 '14 '15 '16 '17 '18 6

7 China: Cyclical indicators GTM Asia 7 Regional and local economy Retail and online sales Year-over-year change, 3-month moving average 12% Retail sales 11% 1 Online sales 9% '16 '17 ' % 4 35% 3 25% China inflation Year-over-year change 12% Consumer Price Index (CPI) 1 8% CPI-Goods 6% 4% CPI-Services 2% -2% -4% '06 '08 '10 '12 '14 '16 '18 Industrial profits and PPI inflation Year-over-year change 4 Industrial profits 3 Producer Price Index (PPI) 9% 6% Property prices and land sales Year-over-year change 3 25% 2 Land area sold 10 75% 2 1 3% 15% 1 5% 5 25% -1 '11 '12 '13 '14 '15 '16 '17 '18-3% -6% -5% -1-15% Residential property prices (lagged 12m) '10 '11 '12 '13 '14 '15 '16 '17 '18-25% -5 Source: CEIC, National Bureau of Statistics of China, J.P. Morgan Asset Management. 7

8 China: Monetary policy GTM Asia 8 Regional and local economy Key policy rates Per annum 7.5% 6. Chinese government bond yields 4.2% % 3.6% 4.5% Lending rate (1-year) 3.4% 3.2% Standing lending facility (7-day) year 3. Interbank repo (7-day) 2.8% 5-year 1.5% Deposit rate (1-year) 2.6% 2.4% Interest on excess reserves 2.2% 1-year '15 '16 '17 '18 01/16 07/16 01/17 07/17 01/18 Source: People s Bank of China, J.P. Morgan Asset Management; (Left) CEIC; (Right) FactSet. Past performance is not a reliable indicator of current and future results. 8

9 China: Credit and leverage GTM Asia 9 Regional and local economy Credit growth to GDP growth Broad credit measure*, ratio, year-over-year growth, 3-month moving average 4.5x Rapid rebound in CPI & PPI 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x Loosening: 216bp rate cuts, 4tn stimulus Tightening: 125bp rate hikes, BASEL III adoption Loosening: 56bp rate cuts, trust boom Interbank liquidity crunch Loosening: 165bp rate cuts, LGFV debt swap*** Tightening: shadow banking tightening A-share market crash Rate cut Tightening 1.0x Wenzhou small and medium 0.5x Global Financial Crisis enterprise (SME) crisis** 0.0x '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Credit growth Year-over-year change 4 35% 3 25% 2 15% 1 Total social financing Broad credit* RMB bank lending 5% '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Debt level by sector % of GDP 5 Government Households Non-financial corporations 1 '08 '09 '10 '11 '12 '13 '14 '15 '16 ' Source: J.P. Morgan Asset Management; (Top and bottom left) CEIC, China Central Depository & Clearing Co., People s Bank of China, Shanghai Clearing House; (Bottom right) BIS. Credit growth to GDP growth ratio utilizes rolling 12-month nominal GDP and broad credit. *The broad credit measure consists of all reported bank claims on the domestic economy, plus bankers acceptances, entrusted loans, trust loans, new net corporate bond and non-financial equity financing, issuance of asset-backed securities and interbank loans. **Wenzhou SME crisis refers to the wave of bankruptcies and funding problems faced by a large number of SMEs in Wenzhou in ***LGFV refers to local government financing vehicle.

10 China: Investment and industrial capacity GTM Asia 10 Regional and local economy Fixed asset investment Year-over-year change, year-to-date 4 Private Capacity utilization Industrial capacity utilization rate* 79% 78% 3 Total 77% 2 76% 75% 1 State-owned enterprises 74% 73% '11 '12 '13 '14 '15 '16 '17 '18 72% '13 '14 '15 '16 '17 Source: CEIC, FactSet, National Bureau of Statistics, J.P. Morgan Asset Management. *Industrial capacity utilization rate is defined as the percent of total available production capacity being used to produce finished goods. 10

11 China: Exchange rate and foreign reserves GTM Asia 11 Regional and local economy Chinese yuan exchange rate: CFETS RMB* vs. USD Index, Jan = Stronger yuan USD / CNY and change in FX reserves USD / CNY (inverted) USD / CNY CFETS RMB index Weaker yuan 90 01/16 07/16 01/17 07/17 01/18-90 Change in monthly FX reserves (USD billions) -120 '13 '14 '15 '16 '17 ' Source: FactSet, J.P. Morgan Asset Management; (Left) China Foreign Exchange Trade Center, J.P. Morgan Economic Research; (Right) People s Bank of China. *CFETS RMB index is the China Foreign Exchange Trade System basket of 24 currencies traded against the Chinese renminbi. Past performance is not a reliable indicator of current and future results. 11

12 India: Economic snapshot GTM Asia 12 Regional and local economy Real GDP growth Year-over-year change 14% 12% 1 8% 6% 4% 10-yr avg. 4Q17 Real GDP growth 7.1% 7.2% Vehicle sales Number of passenger vehicles, thousands Average: Jan. 2018: % 80 '06 '08 '10 '12 '14 '16 40 '06 '08 '10 '12 '14 '16 '18 Inflation and repo rate Year-over-year change, % per annum* 18% Consumer Price Index (CPI) 14% 1 Latest WPI 2.5% Repo rate 6. CPI 4.4% Credit and deposit growth Year-over-year change 4 35% 3 25% Domestic credit 6% 2% -2% -6% Repo rate* Wholesale Price Index (WPI) '05 '07 '09 '11 '13 '15 '17 '06 '08 '10 '12 '14 '16 '18 Source: J.P. Morgan Asset Management; (Top left) J.P. Morgan Economic Research, Ministry of Statistics and Programme Implementation; (Top right) Society of Indian Automobile Manufacturers; (Bottom left and right) Reserve Bank of India; (Bottom right) Reuters. *Reserve Bank of India (RBI) repo rate is % per annum. 2 15% 1 5% Deposits 12

13 Japan: Economic snapshot GTM Asia 13 Regional and local economy Tankan business conditions Diffusion Index, all enterprises 2 15% Non-manufacturing 1 5% -5% -1-15% Manufacturing -2 '11 '12 '13 '14 '15 '16 '17 '18 Corporate inflation expectations* % 5 years ahead 1.2% Latest 5 years ahead 1.1% 3 years ahead 0.8% 3 years ahead 1.1% 1 year ahead 0.8% 1 year ahead 0.4% '14 '15 '16 '17 '18 Operating profits Year-over-year change Non-manufacturing Manufacturing Real wage growth and labor market Year-over-year change, 6-month moving average Inverted scale 8% 1% Total real cash earnings Unemployment rate 6% 2% 4% 2% 3% 4% -2% 5% -4% -4 '11 '12 '13 '14 '15 '16 '17-6% '80 '85 '90 '95 '00 '05 '10 '15 6% Source: J.P. Morgan Asset Management; (Top left and right) Bank of Japan; (Bottom left and right) FactSet; (Bottom left) Ministry of Finance; (Bottom right) Japanese Statistics Bureau and Statistics Center, Ministry of Health, Labor and Welfare. *Inflation expectations are calculated from the responses to the Bank of Japan s all firm survey of business expectations and are for inflation expectations 1, 3 and 5 years from each point in time. Past performance is not a reliable indicator of current and future results. 13

14 Global growth GTM Asia 14 Global economy Real GDP growth Year-over-year change 1 Emerging market (EM) GDP growth Developed market (DM) GDP growth 8% EM less DM growth EM growth outperforms DM 6% 4% Forecast* 2% -2% DM growth outperforms EM -4% -6% '80 '85 '90 '95 '00 '05 '10 '15 '20 Source: IMF, J.P. Morgan Asset Management. *Forecasts are from the IMF s October 2017 World Economic Outlook. 14

15 Global Purchasing Managers Index (PMI): Manufacturing GTM Asia 15 Developed and emerging market manufacturing PMI 60 DM PMI Global manufacturing activity % of markets in expansionary territory* 10 Global economy EM PMI '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Source: Australian Industry Group, J.P. Morgan Economic Research, Markit, J.P. Morgan Asset Management. PMI s are relative to 50, which indicates contraction (below 50) or expansion (above 50) of the sector. *% of reporters available with a manufacturing PMI above

16 Global trade Exports as a share of GDP 2017 Goods exports U.S. trade balance with key partners 2017 Goods and services, USD billions GTM Asia 16 Global economy U.S. EU* Japan Canada Brazil India % 14.3% 10.5% 12.1% 25.5% U.S. EU Japan China Other China EU Mexico Trade balance Japan Exports Korea Imports Canada China Russia Mexico 19.1% 24.2% 35.8% Tariffs on imports Effectively applied tariff rate, all products, simple average 4 3 Australia 16.5% Korea 36.7% ASEAN Taiwan 47.7% 52.8% World China 1 U.S. '92 '96 '00 '04 '08 '12 '16 Source: FactSet, J.P. Morgan Asset Management; (Left) IMF; (Top right) U.S. Bureau of Economic Analysis; (Bottom right) WITS, World Bank, WTO, United Nations. *EU exports as a percentage of GDP excludes intra-eu trade as the European Union is considered one regional economy. 16

17 Capital expenditures and workforce productivity GTM Asia 17 Developed market investment and productivity* Year-over-year change 4% Emerging market investment and productivity* Year-over-year change 2 8% Productivity (lagged 2Q) Investment Productivity Investment 25% Global economy 3% 2% 1% 15% 1 5% 6% 4% 2% 2 15% 1 5% -5% -1% -1-5% -2% -15% -2% -1-3% -2-4% -15% -4% '98 '00 '02 '04 '06 '08 '10 '12 '14 '16-25% -6% '98 '00 '02 '04 '06 '08 '10 '12 '14 '16-2 Source: J.P. Morgan Economics Research, J.P. Morgan Asset Management. *Investment measured as GDP-weighted business investment in fixed capital and productivity measured as real output per worker. Excludes China and India. 17

18 Inflation and policy rates GTM Asia 18 Monthly inflation trend Year-over-year change Below target by more than 0.5% or below range Within +/- 0.5% of target or within range Above target by more than 0.5% or above range Global economy Market Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Central bank target Key policy rate* ( easing, tightening) China ( 10/2015) India ( 8/2017) Indonesia ( 9/2017) Japan ( 2/2016) Korea ( 11/2017) Malaysia ( 1/2018) Taiwan ( 6/2016) Thailand ( 4/2015) U.S ( 3/2018) Eurozone ( 3/2016) UK ( 11/2017) 18 Source: FactSet, various central banks, J.P. Morgan Economic Research, J.P. Morgan Asset Management. All inflation numbers refer to headline CPI inflation. *Arrows and dates indicate the direction and date of last change, respectively. The central bank s policy rates used are: the one-year benchmark lending rate (China), Reserve Bank of India policy repo rate (India), Bank Indonesia 7-day reverse repo rate (Indonesia), the Bank of Japan s (BoJ) policy rate on the aggregate balance of all financial institutions current accounts at the BoJ (Japan), Bank of Korea base rate (Korea), overnight policy rate (Malaysia), discount rate (Taiwan), one-day repurchase rate (Thailand), fed funds rate (U.S.), Eurozone main refinancing operations rate (Eurozone) and Bank of England official bank rate (UK). Past performance is not a reliable indicator of current and future results.

19 Central bank policy rates GTM Asia 19 Global economy G4 central bank key policy rates 7% 6% 5% 4% Policy rate Deposit rate* Eurozone % Japan** -0.1 to % UK 0.5% 0. U.S. 1.5 to 1.75% 1.75% Global central bank policy Central bank policy rate diffusion index***, 6-month moving average Policy tightening globally 3% % % Policy easing globally -1% '00 '02 '04 '06 '08 '10 '12 '14 '16 ' '00 '02 '04 '06 '08 '10 '12 '14 '16 19 Source: Bloomberg Finance L.P., J.P. Morgan Asset Management; (Left) FactSet. G4 are the Bank of England, the Bank of Japan, the European Central Bank and the U.S. Federal Reserve. *Key deposit rates that central banks charge commercial banks on their excess reserves. **The BoJ is adopting a three-tier system in which a negative interest rate of -0.1% will be applied to the policy rate balance of the aggregate amount of all financial institutions that have current accounts at the BoJ. ***Diffusion index covers 24 central banks weighted by each market s share of global debt securities outstanding on an ultimate issuer basis. A rate hike is considered tightening, a rate cut loosening and no change neutral; 1 = all banks tightening, 0 = all banks on hold, -1 = all banks loosening. Past performance is not a reliable indicator of current and future results.

20 Central bank balance sheets GTM Asia 20 Global economy Central bank asset purchases 12-month rolling bond purchases by G4 central banks*, USD billions Projections U.S. Eurozone UK Japan Net '16 '17 '18 '19 Source: Bloomberg Finance L.P., J.P. Morgan Asset Management. *New purchases of assets are based on monthly holdings as reported by each respective G4 central bank (the Bank of England (BoE), the Bank of Japan (BoJ), the European Central Bank (ECB) and the U.S. Federal Reserve (Fed)) and announced purchase plans of these central banks and J.P. Morgan Asset Management projections. 20

21 Political calendar GTM Asia 21 Developed markets political timeline 12 May U.S. U.S. potentially exits Iran nuclear agreement 30 June U.S. Trade Promotion Authority expires* October Ireland Presidential election March UK UK officially leaves the EU Global economy Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar April to June U.S. China Ongoing trade negotiations September Japan Liberal Democratic Party Presidential election 6 November U.S. U.S. Midterm elections Emerging markets political timeline 20 May Venezuela Presidential election 1 July Mexico General election October/November China 4 th Party Plenum 2019 March China Annual session of the National People s Congress (NPC) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 27 May Colombia Presidential election 24 August Malaysia Parliamentary election 7 & 28 October Brazil General election Source: Bloomberg, J.P. Morgan Asset Management. *Without the Trade Promotion Authority, the U.S. Congress may amend the trade agreements negotiated by the U.S. president. 21

22 United States: Economic growth and the composition of GDP GTM Asia 22 Global economy Real GDP Year-over-year change 1 8% 6% 4% Real GDP Average: 2.8% 4Q17 Year-over-year change: 2.6% Quarter-over-quarter SAAR* change: 2.9% Average post-global Financial Crisis: 2.3% Components of GDP 4Q17 nominal GDP, USD trillions % Housing 12.8% Investment ex-housing 17.2% Gov t spending 2% % Consumption -2% 5-4% 3 1-6% '67 '72 '77 '82 '87 '92 '97 '02 '07 '12 ' Net exports Source: Bureau of Economic Analysis, FactSet, J.P. Morgan Asset Management. *SAAR stands for the seasonally adjusted annualized rate. 22

23 United States: Cyclical indicators GTM Asia 23 Global economy Light vehicle sales Millions, seasonally adjusted annualized rate /2018: Average: '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Savings and sentiment Quarterly change 12% Personal savings rate 1 8% 6% 4% 2% Index 120 Consumer sentiment '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Housing starts Thousands, seasonally adjusted annualized rate 2,500 2,000 Investment and demand for credit Year-over-year change 15% Investment** 1 5% % reporting stronger demand* 6 Demand for business loans 4 2 1,500 1, Average: 1,324 2/2018: 1,236-5% -1-15% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18-2 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18-8 Source: J.P. Morgan Asset Management; (Top left) U.S. Bureau of Economic Analysis; (Top right, bottom left and right) FactSet; (Bottom left and right) U.S. Census Bureau. *Net percent of participants in the Senior Loan Officer Survey. **Private investment in non-residential fixed assets in real terms. 23

24 United States: Employment and wages GTM Asia 24 Unemployment rate and average hourly earnings* Percent of labor force, year-over-year change, seasonally adjusted 12% Recessions Global economy 1 8% Unemployment rate 6% 4% 2/2018: 4.1% 2% Average hourly earnings '85 '90 '95 '00 '05 '10 '15 Source: FactSet, U.S. Bureau of Labor Statistics, J.P. Morgan Asset Management. *Average hourly earnings are calculated from the wages of production and non-supervisory workers. 2/2018: 2.5% 24

25 United States: Inflation GTM Asia 25 Global economy Core inflation Year-over-year change, seasonally adjusted % % 3. Avg. since 1985 Avg. since /2018 Core CPI* 2.7% % Core PCE* 2.2% 1.7% 1.6% CPI contribution Contribution to latest year-over-year headline CPI Headline Food & Beverage Energy Core CPI % 0.8% 1.2% 1.6% % 2.5% % Shelter Healthcare 1. Transportation 0.5% '85 '90 '95 '00 '05 '10 '15 Others Source: FactSet, U.S. Bureau of Labor Statistics, J.P. Morgan Asset Management; (Left) U.S. Bureau of Economic Analysis. *Core CPI and core PCE are the Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) deflator ex-food and energy. 25

26 United States: Monetary policy GTM Asia 26 Global economy Federal funds rate expectations* FOMC and market expectations for the fed funds rate 6% FOMC median projections (as of 22/3/18) Market expectations (as of 31/3/18) 5% FOMC long-run projection (as of 22/3/18) 4% 3.4 3% Federal funds rate % % 2% 2.08% Federal Reserve balance sheet** USD trillions Sep. 2011: Operation Nov. 2010: Twist QE2 begins Dec. 2008: QE1 begins Jan. 2014: Tapering of purchases begins Sep. 2012: QE3 begins Oct. 2014: End of QE3; balance sheet stands at $4.5T Other (MBS) Oct. 2017: Balance sheet reduction begins Forecast* 1% 1 Treasuries 26 Long '05 '07 '09 '11 '13 '15 '17 '19 '21 run 0 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 Source: FactSet, Federal Reserve, J.P. Morgan Asset Management. *Market expectations are calculated from the rate implied by the fed futures market. **Balance sheet reduction assumes reduction from current level, beginning October 2017 and lasting four years, concluding in October Reduction of Treasuries and MBS is per FOMC guidelines from the September 2017 meeting minutes: Treasury securities will be reduced USD 6billion per month initially and reduction rate will increase in steps of USD 6billion at three-month intervals over 12 months until reaching USD 30billion per month; MBS will be reduced USD 4billion per month initially and reduction rate will increase in steps of USD 4billion at threemonth intervals over 12 months until reaching USD 20billion per month; Other assets are reduced in proportion. Forecasts do not take into account months where maturing assets do not exceed the stated cap nor do they consider the reinvestment of principal or interest repayment in excess of the stated cap. Past performance is not a reliable indicator of current and future results.

27 Eurozone: Economic snapshot GTM Asia 27 Unemployment rate Harmonized rate, seasonally adjusted 13% Recession Consumer confidence* and retail sales Year-over-year change, 3-month moving average 5% Retail sales 4% 3% Global economy 12% 11% 1 2% 1% -1% -2% -3% -4% Consumer confidence '09 '10 '11 '12 '13 '14 '15 '16 '17 ' % 8% 7% 01/2018: 8.6% Businesses and investment Business confidence y/y change fixed asset investment lagged 1Q 2% 1 Eurozone business confidence 1% 5% -1% -5% -2% 6% '01 '03 '05 '07 '09 '11 '13 '15 '17-3% Fixed investment -4% '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 ' % Source: Eurostat, FactSet, J.P. Morgan Asset Management; (Top and bottom right) European Commission. *Eurozone consumer confidence as reported by the European Commission, which measures the level of optimism that consumers have about the economy. 27

28 Eurozone: Inflation and lending GTM Asia 28 Eurozone CPI inflation Contribution to headline inflation, year-over-year change 3. Eurozone bank lending Year-over-year change 15% 2.5% 1 Corporate Global economy % 1. ECB inflation target: 2% 5% Household -5% '06 '08 '10 '12 '14 '16 '18 0.5% Corporate lending rates to smaller companies Interest rate**, non-financial corporations 7% 0. 6% Spain -0.5% -1. Food, alcohol, tobacco Core rate* Energy CPI 5% 4% 3% Germany France Italy 2% -1.5% 1% '12 '13 '14 '15 '16 '17 '18 '06 '08 '10 '12 '14 '16 '18 Source: ECB, FactSet, J.P. Morgan Asset Management; (Left) Eurostat. *Core rate is CPI inflation (HICP) excluding energy, food, alcohol and tobacco. **Interest on new business lending up to 1 million, on a 1-5 year maturity. 28

29 Global and Asia equity market returns GTM Asia yrs ('08 - '18) Q '18 Ann. Ret. Ann. Vol. India Japan India ASEAN U.S. HK U.S. India Japan Taiwan China Taiwan U.S. India 73.1% -29.1% 102.8% 32.4% % 32.6% 23.9% 9.9% 19.6% 54.3% 5.7% 9.5% 29.1% China U.S. Taiwan Korea ASEAN India Japan U.S. U.S. U.S. Korea ASEAN HK Korea 66.2% -37.1% 80.2% 27.2% -6.1% % 13.4% 1.3% 11.6% 47.8% 1.9% 7.4% 26.9% HK Taiwan ASEAN HK Europe China Europe Taiwan HK Korea India China Taiwan China Equities 41.2% -45.9% % -10.5% 23.1% % -0.5% 9.2% 38.8% 1.8% 6.4% 24.3% ASEAN Europe APAC APAC APAC Taiwan Korea ASEAN HK China Europe ex-jp ex-jp ex-jp Japan China Taiwan 39.2% -46.1% 73.7% 22.7% -11.8% 22.8% 11.1% 8.3% -2.3% 7.1% 37.3% % 21.6% APAC APAC APAC ASEAN Korea India Japan Taiwan ASEAN India ASEAN HK Korea ASEAN ex-jp ex-jp ex-jp 37.2% -47.6% 72.1% 20.9% -14.2% 22.6% 9.8% 6.4% -6.1% 6.2% 36.2% -0.4% 5.8% 21.4% Korea China China APAC APAC APAC APAC Korea Korea HK Korea Japan ASEAN ex-jp ex-jp ex-jp ex-jp HK 32.6% -50.8% 62.6% 18.4% -15.4% 21.5% 4.2% 5.1% -6.3% 2.7% 30.1% -0.6% 5.4% 21.2% Europe HK HK Japan HK Europe China APAC ex-jp China HK Taiwan U.S. Korea ASEAN 14.4% -51.2% 60.2% 15.6% % % -7.6% 2.3% 28.5% -0.6% 5.4% 20.3% Taiwan APAC APAC APAC Europe U.S. China Taiwan Japan ex-jp ex-jp ex-jp China Europe HK Japan Europe 9.1% -51.6% 36.8% 15.4% -18.2% 17.7% 3.7% -3.7% -9.1% 1.1% 26.2% -1.4% 4.3% 20.2% U.S. Korea U.S. China Taiwan U.S. India Europe Taiwan Europe Japan Europe India Japan % 27.1% 4.8% -20.2% 16.1% -3.8% -5.7% % 24.4% -1.9% % Japan India Japan Europe India Japan ASEAN Korea ASEAN India U.S. India Europe U.S. -4.1% -64.6% 6.4% 4.5% -37.2% 8.4% -4.5% -10.7% -18.4% -1.4% 21.9% % 15.1% Source: FactSet, MSCI, J.P. Morgan Asset Management. Returns are total returns based on MSCI indices in U.S. dollar terms. 10-yr total (net) return data is used to calculate annualized returns (Ann. Ret.) and 10-yr price return data is used to calculate annualized volatility (Ann. Vol.) and reflect the period 31/3/08 31/3/18. Past performance is not a reliable indicator of current and future results. 29

30 Global equities: Earnings expectations and returns GTM Asia 30 Forward earnings per share Index, U.S. dollar, Jan = Return composition Last 12 months, U.S. dollar 3 25% 25% Total return Currency return Multiple expansion EPS growth outlook* Dividend yield Equities Asia Pacific ex-japan U.S. Japan EM 2 15% 1 21% 15% 15% 14% 80 5% 60 Europe 40-5% 20 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18-1 EM Asia Pacific ex-japan World Europe U.S. Source: FactSet, MSCI, Standard & Poor s, J.P. Morgan Asset Management. *EPS growth outlook is based on next 12 month aggregate (NTMA) earnings estimates. Past performance is not a reliable indicator of current and future results. 30

31 Global equities: Valuations GTM Asia 31 Equity market valuations Price to earnings Forward P/E ratios 30x yr. range 15-yr. average Latest 20x 10x Equities 0x Equity market valuations Price to book Trailing P/B ratios 5x 4x S&P 500 Europe ex-uk Asia Pac ex-japan Asia Pacific Emerging markets ASEAN Australia China A (CSI 300) China Hong Kong India Japan Korea Taiwan Russia Mexico Brazil Turkey yr. range 15-yr. average Latest 3x 2x 1x x S&P 500 Europe ex-uk Asia Pac ex-japan Asia Pacific Emerging markets ASEAN Australia China A (CSI 300) China Hong Kong India Japan Korea Taiwan Russia Mexico Brazil Turkey Source: Bloomberg Finance L.P., China Securities Index, FactSet, MSCI, Standard & Poor s, J.P. Morgan Asset Management. Price-to-earnings (P/E) and price-to-book (P/B) ratios are in local currency terms. China A valuations based on the CSI300 Index and use 10 years of data due to availability. China H valuations are based on the MSCI China. 15-year range for P/E and P/B ratios are cut off to maintain a more reasonable scale for some indexes. Past performance is not a reliable indicator of current and future results. 31

32 Global equities: Profit margins GTM Asia 32 Equities MSCI World EPS and developed market inflation Change year-on-year 12% PPI Inflation* 8% 4% Earnings per share U.S. labor share of income and profit margins** 59% 11% 58% Recession Profit margin 1 57% 9% 56% 8% 55% 7% 54% 53% 6% 52% 5% 51% 4% Labor share 5 3% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Europe vs. U.S. operating profit margins %, earnings per share / sales per share 12% -4% -2 11% 1 S&P 500-8% % -5 6% '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Source: FactSet, J.P. Morgan Asset Management; (Left) J.P. Morgan Economic Research; (Top right) U.S. Bureau of Economic Analysis; (Bottom right) Standard & Poor s. (Left and bottom right) MSCI. *PPI is producer price index. **Employee compensation % nominal GDP, after-tax corporate profits with inventory & valuation adjustment % nominal GDP, seasonally adjusted annualized rate. 9% 8% 7% MSCI Europe 32

33 Global equities: High dividend GTM Asia 33 MSCI AC Asia Pacific ex-japan: Performance by dividend yield* USD cumulative total return by tertile with quarterly rebalancing (Jan = 100) Top tertile 2 nd tertile 600 All stocks 500 Bottom tertile Equities 0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Composition of MSCI High Dividend Equity Indices** Defensives Cyclicals Financials MSCI AC World 40.4% 43.8% 15.8% MSCI World (DM) 44.2% 42.2% 13.6% MSCI EM 22.8% 44.7% 32.4% MSCI AC Asia Pacific ex-japan 33.6% 33.1% 33.3% Number of companies yielding greater than 3% by region Constituents of MSCI AC World Index Asia Pac. ex- Japan Europe EM ex-asia U.S. Japan 55 Source: FactSet, MSCI, J.P. Morgan Asset Management; (Top) CLSA. *Total returns based on MSCI indices in U.S. dollar terms. **Sector weight data as of 28/2/18. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results. 33

34 Emerging market equities: Performance drivers GTM Asia 34 EM vs. DM growth and equity performance %, next 12 months growth estimates (LHS); index level (RHS) 5% EM minus DM GDP growth 160 EM equity relative performance and commodities Relative index level, Dec = MSCI EM / MSCI DM 240 Index level 500 Equities 4% 3% 2% 1% EM growth & equity outperformance EM growth & equity underperformance Bloomberg Commodity Index '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 Relative index level, Dec = 100 Index level MSCI EM / MSCI DM MSCI EM / MSCI DM USD REER (inverted)* -1% '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 ' Relative EM / DM equity performance and USD REER Source: FactSet, MSCI, J.P. Morgan Asset Management; (Left) J.P. Morgan Economic Research; (Top right) Bloomberg Finance L.P. *REER is the real effective exchange rate. Past performance is not a reliable indicator of current and future results. 34

35 APAC ex-japan and U.S. equities MSCI AC Asia Pacific ex-japan and S&P 500 Index January 1997 = 100, U.S. dollar, price return 400 P/E 15-yr avg. Div. yield 15-yr. avg. 350 S&P x 14.7x 1.8% 1.9% MSCI AC APxJ 12.9x 12.5x 2.4% 2.7% 300 GTM Asia /3/18 P/E (fwd.) = 16.4x Equities % 31/10/00 P/E (fwd.) = 24.4x -49% +101% 31/10/07 P/E (fwd.) = 15.2x 31/10/07 P/E (fwd.) = 16.9x -57% 31/3/18 P/E (fwd.) = 12.9x % 31/12/99 P/E (fwd.) = 17.4x +359% -65% +175% 50-51% 0 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 Source: FactSet, MSCI, Standard & Poor s, J.P. Morgan Asset Management. Forward price-to-earnings ratio is a bottom-up calculation based on the most recent index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on price movement only, and do not include the reinvestment of dividends. Past performance is not a reliable indicator of current and future results. 35

36 APAC ex-japan: Equities snapshot Earnings by sector Next 12-month consensus earnings per share, USD, Jan = Tech 180 MSCI AC Asia Pacific ex-japan P/B ratio Trailing P/B ratio 3.0x 2.5x GTM Asia Health care 2.0x +1 SD: 2.0x Average: 1.8x Equities Energy Staples 0 '11 '12 '13 '14 '15 '16 '17 '18 Financials Utilities Telecom Discr. Indust. Materials 1.5x -1 SD: 1.5x 3/2018: 1.7x 1.0x '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Growth in nominal exports and earnings per share USD, year-over-year change 8 Source: FactSet, MSCI, J.P. Morgan Asset Management; (Bottom right) CEIC, national statistics agencies. Earnings per share (EPS) used is next 12 months aggregate estimate. *EM Asia ex-china includes Hong Kong, Korea, Malaysia, Singapore, Taiwan, Thailand and Vietnam. Overall exports aggregate is GDP-weighted. Past performance is not a reliable indicator of current and future results MSCI AC Asia Pacific ex-jp EPS EM Asia ex-china exports* -6 '01 '03 '05 '07 '09 '11 '13 '15 '17 36

37 APAC ex-japan: Cyclicals versus defensive equities GTM Asia 37 Cyclicals ex-energy vs. defensive valuations* MSCI AC APxJ cyclicals ex-energy / defensives fwd. P/E ratio, z-score 4 Cyclicals vs. defensives relative performance and rates** MSCI AC APxJ cyclical / defensive performance 10-year U.S. Treasury yield % Cyclicals vs. defensives 10-year UST 3 Cyclicals expensive relative to defensives % Equities % % Cyclicals cheap relative to defensives Current: '00 '02 '04 '06 '08 '10 '12 '14 '16 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 ' % Source: FactSet, MSCI, J.P. Morgan Asset Management. *Cyclical sectors include Consumer Discretionary, Information Technology, Industrials, Financials and Materials. REITs are excluded from this analysis. It is more appropriate to value a REIT by looking at its price relative to its funds from operations (FFO), an income measure that excludes depreciation. Price-to-earnings (P/E) ratios look at price relative to net income, a measure that includes depreciation, making the comparison of valuations across sectors inappropriate. Defensive sectors include Telecommunications, Health Care, Utilities and Consumer Staples. Sector valuations are equal weighted. **Cyclicals represent the MSCI AC Asia Pacific ex- Japan Cyclical Sector index and defensives represent the MSCI AC Asia Pacific ex-japan Defensive Sector index. Past performance is not a reliable indicator of current and future results.

38 APAC ex-japan: Sector returns and valuations GTM Asia 38 Financials Real Estate Health Care Cons. Staples Cons. Discr. Industrials Materials Energy Telecom Utilities Technology APAC ex-jp APAC ex-jp Weights 26.3% 6.2% 3.8% 5.1% 7.8% 6.5% 6.8% 4.6% 3.5% 2.8% 26.7% 10 Weights 1Q18 return Equities 2017 return From peak (October 2007) From trough (March 2009) Beta to APAC ex-jp 1.09x 1.09x 0.50x 0.58x 0.95x 1.06x 1.13x 1.22x 0.74x 0.59x 0.99x 1.00x Return β Correl to int rates* ρ Forward P/E Ratio 10.4x 11.3x 28.8x 21.7x 15.4x 13.5x 12.3x 11.3x 14.1x 14.4x 13.9x 12.9x 10-yr avg. 11.1x 12.3x 21.1x 17.4x 11.7x 13.8x 12.7x 12.0x 13.8x 14.3x 14.1x 12.4x Trailing P/B Ratio 1.4x 1.0x 5.4x 3.2x 2.0x 1.4x 1.6x 1.3x 1.7x 1.4x 2.9x 1.7x 10-yr avg. 1.4x 0.9x 4.3x 2.6x 1.8x 1.5x 1.8x 1.6x 2.1x 1.5x 2.2x 1.7x Dividend Yield 3.1% 3.2% 0.9% 2.3% 1.5% 2.2% 2.7% % 4.5% 1.3% 2.4% 10-yr avg. 3.5% 3.6% 1.5% 2.9% 2.3% 2.4% 2.4% 2.3% 4.1% 2.9% 2.1% 2.8% Source: FactSet, MSCI, J.P. Morgan Asset Management. *Correlation to interest rates is calculated using daily sector returns and daily 10-year U.S. Treasury yield over the last 10 years. Returns are total (gross) returns in U.S. dollar terms. Past performance is not a reliable indicator of current and future results. Div P/B P/E 38

39 China A-shares versus H-shares: Earnings and valuations GTM Asia 39 Equities A-share vs. H-share earnings Next 12-month consensus earnings per share, USD, Jan = CSI 300 (A-share) 110 MSCI China (H-share) Relative sector weights: A-share H-share 80 Cyclicals 43.3% 60.2% Defensives 18.6% 11.5% 70 Financials** 38.1% 28.3% '12 '13 '14 '15 '16 '17 '18 A-share vs. H-share premium Index*, price disparity between shares listed as A vs. H 160 A-shares more 150 expensive H-shares more expensive 80 '10 '11 '12 '13 '14 '15 '16 '17 '18 A-share, H-share correlation with global equity market Rolling 6-month correlation, daily returns Average: 114 H-share correlation A-share correlation -0.1 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 39 Source: J.P. Morgan Asset Management; (Left and bottom right) FactSet, MSCI; (Top right) HSI Services Limited. *The Hang Seng Stock Connect China AH Premium Index ( HSAHP ) tracks the average price difference of A-shares over H-shares for the most liquid Chinese companies with both A-share and H-share listings ( AH Companies ), which are eligible for Northbound and Southbound trading under the Stock Connect Scheme. An index value of 100 means prices are equal.**both Financials and Real Estate are classified as financials sectors and all constituent securities from these two sectors are included accordingly. Past performance is not a reliable indicator of current and future results.

40 Japan: Earnings, currency and equities GTM Asia 40 Corporate profits and return on equity 16% Corporate profits % of nominal GDP 14% 11% 1 Nikkei 225 and Japanese yen Index 26,000 Nikkei 225 USD / JPY 130 USD / JPY 12% 1 8% 6% 4% MSCI Japan ROE 9% 8% 7% 6% 5% 4% 24,000 22,000 Weaker yen Equities 2% '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Domestic demand and corporate profits JPY trillions 800 Domestic demand Ordinary profits 3% ,000 18,000 16,000 Stronger yen 1/15-3/18 Correlation*: '80 '84 '88 '92 '96 '00 '04 '08 '12 ' ,000 1/15 7/15 1/16 7/16 1/17 7/17 1/18 95 Source: FactSet, J.P. Morgan Asset Management; (Top Left) Japan Cabinet Office, MSCI; (Bottom Left) Economic and Social Research Institute, Ministry of Finance; (Right) Nikkei. *Correlation based on the daily change between the currency and the Nikkei 225 index. Past performance is not a reliable indicator of current and future results. 40

41 United States: Earnings and valuations GTM Asia 41 Equities S&P 500 earnings per share Quarterly operating earnings (USD) 43 S&P consensus analyst estimates* Forecast 39 4Q 2017* USD Q 2018 USD Q 2018 USD Q 2018 USD Q 2018 USD '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Geographical sources of revenue Shiller S&P 500 price earnings (P/E) ratio** 50x 45x 40x 35x 30x 25x 20x 15x 10x 5x 9% 7% 11% 6% 7% 11% 7 +1 SD: 24.9x 8 S&P 500 S&P Small Cap 600 Avg.: 17.3x Others Asia Pacific Europe U.S. -1 SD: 9.8x 3/2018: 32.8x 0x '20 '30 '40 '50 '60 '70 '80 '90 '00 '10 41 Source: FactSet, Standard & Poor s, J.P. Morgan Asset Management; (Left) Compustat; (Bottom right) Yale University Department of Economics. EPS levels are based on operating earnings per share. *4Q earnings estimates are Standard & Poor s (S&P) consensus analyst expectations, based on actual earnings for the 99% of (S&P) companies that have reported and earnings estimates for the remaining 1% of companies. **Shiller P/E is a valuation measure applied to the U.S. S&P 500 equity market, which is based on the average inflation-adjusted earnings from the previous 10 years. Past performance is not a reliable indicator of current and future results.

42 United States: Bear markets and subsequent bull returns GTM Asia 42 S&P 500 Composite declines from all-time highs market decline* Recession Equities Characteristics of bull and bear markets Mkt. Peak Bear markets Macro environment Bull markets Bear return Duration (months) Recession Commodity spike Aggressive Fed Extreme valuations Bull begin date Market corrections 1 Crash of excessive leverage, irrational exuberance Sep % 32 Jul % Fed tightening - premature monetary tightening Mar Mar Post WWII crash - post-war demobilisation, recession fears May Apr Flash crash of flash crash, Cuban Missile Crisis Dec Oct Tech crash of economic overheating, civil unrest Nov Oct Stagflation - OPEC oil embargo Jan May Volcker tightening - whip inflation now Nov Mar crash - programme trading, overheating markets Aug Aug Tech bubble - extreme valuations, dotcom boom/bust Mar Oct Global financial crisis - leverage/housing, Lehman collapse Oct Oct Current cycle Mar Averages - -45% % 54 Bull return Duration (months) 42 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 the NBER s business cycle dates. Commodity spike is defined by a significant upward movement in oil prices. Periods of extreme valuation are defined as periods where the forward P/E multiple on the S&P 500 were approximately two standard deviations above the long-run average. Aggressive Fed tightening is defined as Federal Reserve monetary tightening that was unexpected and/or significant in magnitude. Past performance is not a reliable indicator of current and future results.

43 United States: Interest rates and equities GTM Asia 43 Correlations between weekly stock returns and interest rate movements Weekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, May 1963 March Positive relationship between yield movements and stock returns Equities Correlation coefficient Negative relationship between yield movements and stock returns % 4% 6% 8% 1 12% 14% 16% 10-year Treasury yield Source: FactSet, Federal Reserve System, Standard & Poor s, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Markers represent monthly 2-year correlations only. Past performance is not a reliable indicator of current and future results. 43

44 Europe: Earnings and currencies GTM Asia 44 Euro area yearly earnings trend* Earnings per share, January of each year = Euro area earnings vs. the euro Last 12 months earnings per share 25 MSCI EMU EPS EUR / USD 1.7 EUR EUR / USD / USD Equities Jan Feb Apr Jun Aug Oct Dec 0 '00 '02 '04 '06 '08 '10 '12 '14 '16 ' Source: MSCI, J.P. Morgan Asset Management; (Left) Thomson Reuters; (Right) FactSet. *Euro area is represented by the MSCI EMU index. Past performance is not a reliable indicator of current and future results. 44

45 Global fixed income: Yields and returns GTM Asia 45 Fixed income Global bond opportunities Asia Corporate HY Local EMD U.S. Corporate HY USD EMD USD Asian Bond Europe HY U.S. Corporate IG U.S. Treasury DM Government Bond Cash YTM Duration* (years) Correl. to 10-year UST** 7.2% % % % % % % % Fixed income sector returns 5-yrs Q '18 Ann. Ret. Europe HY Europe HY USD Asian Asia HY U.S. HY Europe HY Local EMD Asia HY 30.5% 14.9% 8.3% 5.8% 17.1% % 5.9% Asia HY U.S. HY U.S. IG USD Asian Local EMD Local EMD DM Gov't Europe HY 25.4% 7.4% 7.5% 2.8% 11.4% 15.4% 2.2% 5.3% Local EMD Asia HY Asia HY USD EMD Asia HY USD EMD Europe HY U.S. HY 19.9% 4.3% 5.5% 1.2% 11.4% 9.3% 2.2% 5. USD EMD Cash USD EMD U.S. Treas USD EMD U.S. HY Cash USD Asian 18.5% % 0.8% 10.2% 7.5% 0.3% 3.9% U.S. HY USD Asian U.S. Treas Cash U.S. IG DM Gov't U.S. HY USD EMD 15.8% -1.4% 5.1% % 6.8% -0.9% 3.9% USD USD U.S. IG U.S. HY U.S. IG U.S. IG Asia HY U.S. IG Asian Asian 14.3% -1.5% 2.5% -0.7% 5.8% 6.4% -0.9% 3. U.S. IG U.S. Treas DM Gov't DM Gov't Europe HY Asia HY U.S. Treas DM Gov't 9.8% -2.7% 0.7% -2.6% 3.4% 6.2% -1.2% 1.3% U.S. Treas DM Gov't Cash U.S. HY DM Gov't USD Asian USD Asian U.S. Treas % % 1.6% 5.8% -1.4% 1.1% DM Gov't Local EMD Europe HY Europe HY U.S. Treas U.S. Treas USD EMD Cash 1.3% -5.5% % % -1.8% 0.3% Cash USD EMD Local EMD Local EMD Cash Cash U.S. IG Local EMD 0.1% -6.6% -6.1% % 0.8% -2.3% -0.4% 45 Source: Bloomberg Finance L.P., FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on Bloomberg Barclays U.S. Aggregate Credit - Corporate High Yield Index (U.S. Corporate HY), Bloomberg Barclays U.S. Aggregate Credit Corporate Investment Grade Index (U.S. Corporate IG), J.P. Morgan Government Bond Index EM Global (GBI-EM) (Local EMD), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Asia Credit Index (JACI) (USD Asian), Bloomberg Barclays Pan European High Yield (Europe HY), J.P. Morgan Government Bond Index Global Traded (DM Gov t), J.P. Morgan Asia Credit Index Non-investment Grade Corporate (Asia Corporate HY), Bloomberg Barclays Global U.S. Treasury Bills (3-5 years) (U.S. Treasury) and Bloomberg Barclays U.S. Treasury Bills (1-3 months) (Cash). 5-year data is used to calculate annualized returns (Ann. Ret.). Returns are in USD and reflect the period from 31/3/13 31/3/18. *Duration is a measure of the sensitivity of the price (the value of the principal) of a fixed-income investment to a change in interest rates and is expressed as number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. **Correlation to the 10-year U.S. Treasury is a measure over 10 years of data. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.

46 Global fixed income: Interest rate risk GTM Asia 46 Illustration of the impact a 1% rise in interest rates may have on selected indices Assumes a parallel shift in the yield curve and spreads are maintained 4% Price return + coupon Price return -4% Fixed income -8% -12% U.S. Treasury 1-3 years 5-7 years 7-20 years USD Asian credit Global investment grade credit Global high yield EMD USD sovereign EMD USD corporate EMD local cur. sovereign 46 Source: Barclays, Bloomberg Finance L.P., FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on Bloomberg Barclays U.S. Treasury indices (U.S. Treasury, 1-3 years, 5-7 years, 7-20 years), J.P. Morgan Asia Credit Index (JACI) (USD Asia Credit), Barclays Global Aggregate Corporates (Global Investment-grade credit), Barclays Global High Yield (Global High Yield), Barclays Emerging Markets Sovereign (EMD USD sovereign), Barclays Emerging Markets Corporate (EMD USD corporate), Barclays Emerging Markets Local Currency Government (EMD local cur. sovereign). For illustrative purposes only. Change in bond price is calculated using both duration and convexity. Past performance is not a reliable indicator of current and future results.

47 Basis points 1,500 2,200 Global fixed income: Valuations Spread to worst across fixed income sub-sectors GTM Asia yr. range 10-yr. average Latest 1, Fixed income U.S. high yield U.S. investment grade Euro high yield Euro investment grade USD Asian credit USD Asian high yield EMD USD sovereign 250 EMD USD corporate EMD local cur. sovereign 47 Source: BofA/Merrill Lynch, iboxx, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on J.P. Morgan Domestic High Yield Index (U.S. High Yield), J.P. Morgan U.S. Liquid Index (JULI) (U.S. Investment Grade), BofA/Merrill Lynch Euro Non- Financial High Yield Constrained (Euro High Yield), iboxx EUR corporates (Euro Investment Grade), J.P. Morgan Asia Credit Index (JACI) (USD Asian Credit), J.P. Morgan Asia Credit High Yield Index (USD Asian High Yield), J.P. Morgan EMBI+ (EMD USD Sovereign), J.P. Morgan Corporate Emerging Markets Bond Index CEMBI (EMD USD Corporate), J.P. Morgan GBI-EM (EMD Local Cur. Sovereign). Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.

48 Global fixed income: U.S. business cycles and yield curve GTM Asia 48 Fixed income Yield curve spread The spread between the 2-year and 10-year U.S. Treasury yields 3.5% 3. Recessions 2.5% % % % % Yield curve inversions and recessions Number of months Yield curve inversion date From curve inversion to S&P 500 peak From S&P 500 peak to start of recession From curve inversion to recession Dec Mar Nov Aug Dec Mar Aug % '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 Median Average Source: J.P. Morgan Economics Research, J.P. Morgan Asset Management; (Left) FactSet, Federal Reserve; (Right) Standard & Poor s. Past performance is not a reliable indicator of current and future results. 48

49 Global fixed income return composition GTM Asia 49 Debt return composition Last 12 months 12% 1 Total return Income return Price return Currency return 8% 6% 4% 2% Fixed income -2% -4% -6% EM sovereigns (Local) DM sovereigns (Local) EM sovereigns (USD) U.S. high yield (USD) DM high yield (USD) EM corporates (USD) Asia high yield (USD) Asia corporates (USD) Source: J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on J.P. Morgan Developed Market HY (DM USD high yield), J.P. Morgan Domestic High Yield (U.S. USD High Yield), J.P. Morgan EMBI+ (EM USD sovereigns), J.P. Morgan CEMBI (EM USD corporates), JACI Asia HY (Asian USD high yield), J.P. Morgan GBI-EM (EM local cur. sovereigns), JACI Asia Credit (Asian USD corporates), J.P. Morgan GBI-DM (DM local cur. sovereigns). Past performance is not a reliable indicator of current and future results. 49

50 Global government bonds 10-year government bond yields 18% 16% 14% Average since 1970* Latest U.S. 6.5% 2.7% Germany 5.6% 0.5% Japan 2.4% 0. Correlation Correlation** between U.S. Treasury and German Bund yields yr. bonds GTM Asia 50 Fixed income 12% 1 8% 6% 4% 2% yr. bonds '10 '11 '12 '13 '14 '15 '16 '17 '18 Inflation expectations and bond yields Year-to-date change in 10-year UST yield by driver, basis points Change from other*** -2% '70 '75 '80 '85 '90 '95 '00 '05 '10 ' Change from inflation expectations # of trading days Source: FactSet, U.S. Federal Reserve, J.P. Morgan Asset Management; (Left) Bank of Japan; (Left and top right) European Central Bank. *Data begins, and averages calculated from, 1/1/70 for U.S. Treasuries, 2/10/72 for German Bunds and 3/2/86 for Japanese Government Bonds. **Rolling six-month correlation of weekly change in yield. ***Other drivers of changes in the 10-year U.S. Treasury include: changing expectations for growth, currency, rates and investor repositioning. Past performance is not a reliable indicator of current and future results. 50

51 U.S. high yield bonds GTM Asia 51 U.S. high yield spread and default rate* 2 10-yr average Latest Default rate HY spread to worst 650bps 410bps 16% HY spread to worst (ex-energy) 646bps 395bps HY spread to worst (energy) 664bps 493bps 12% HY default rate 2.6% 2.2% Spread to worst 2,000 1,600 1,200 8% 800 4% 400 '90 '95 '00 '05 '10 '15 0 Fixed income U.S. high yield leverage measures Net leverage** and interest coverage ratio*** 5.0x 4.5x 4.0x 3.5x 3.0x Net leverage Interest coverage ratio '12 '13 '14 '15 '16 '17 Sector breakdown across high yield indices 10 6% 11% 13% 8 21% 19% 12% 7% 6 2 4% 23% 5% 4% 1 5% 4% 4 7% 13% 13% 2 7% 31% 31% 24% 8% U.S. Europe EM Other TMT Commodities Real estate Industrial Health care Financial Consumer 51 Source: J.P. Morgan Economic Research, J.P. Morgan Asset Management. *Default rate is defined as the par value percentage of the total market trading at or below 5 of par value and includes any Chapter 11 filing, prepackaged filing or missed interest payments. Spreads indicated are benchmark yield-to-worst less comparable maturity Treasury yields. **Net leverage is net debt divided by adjusted earnings before interest, tax, depreciation and amortization (EBITDA). ***Interest coverage ratio is EBITDA over interest expense. U.S. corporate high yield is represented by the J.P. Morgan Domestic High Yield Index. Europe corporate high yield is represented by J.P. Morgan Euro High Yield Index. EM corporate high yield is represented by J.P. Morgan CEMBI NON-IG Index. TMT represents Telecommunications, Media & Technology. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.

52 Emerging market debt: Fundamentals GTM Asia 52 Fixed income Emerging market debt yields 14% Average 3/2018 Local cur. sovereigns 6.8% 6. 12% USD sovereigns 6.2% 6.2% USD corporates 6.1% 5.1% 1 8% 6% 4% Inflation Year-over-year change 18% Fiscal positions Russia Latin America* EM Asia 12% 1 8% 6% 4% 2% '06 '08 '10 '12 '14 '16 '18 Nominal deficit, % of GDP -1% Forecast** -2% -3% -4% -5% -6% EM Asia -7% EM Europe 2% -8% EM Latin America '06 '08 '10 '12 '14 '16 '18 '06 '08 '10 '12 '14 '16 '18 '20 '22 16% 14% Source: J.P. Morgan Asset Management; (Left and top right) J.P. Morgan Economic Research; (Bottom right) IMF. Based on J.P. Morgan GBI-EM (EMD local cur. sovereign), J.P. Morgan EMBI+ (EMD USD sovereign), J.P. Morgan CEMBI (EMD USD corporate). Yield to worst is shown for EM sovereign (USD) and EM corporate (USD) indexes. *Latin America index excludes Argentina, Ecuador and Venezuela. **Forecasts are from the IMF World Economic Outlook. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results. 52

53 Asia fixed income markets GTM Asia 53 Bond market comparisons USD trillion 30 Bond market outstanding* Bond market to GDP Ratio 3.0x Annualized returns** Daily data from the period April 2008 through March % 9.5% x 8% 6% 5.4% 5.8% 6.8% 4% x 2% x JACI IG AC Asia ex-jp JACI China (USD) JACI HY S&P 500 Fixed income U.S China Japan 1.7 Korea 1.2 Australia Malaysia Thailand Singapore Indonesia Taiwan 1.0x 0.5x 0.0x China s bond market: Onshore vs. offshore Yield to worst % % % Onshore corporate bond yield*** 3. '15 '16 '17 Offshore corporate bond yield*** 53 Source: J.P. Morgan Asset Management; (Left) IMF; (Left and bottom right) Bloomberg Finance L.P.; (Left and top right) FactSet; (Top and bottom right) J.P. Morgan Economic Research. *Bond market outstanding refers to the total U.S. dollar value of bonds (corporate and government) in the market and does not reflect mandatory prepayment. **Based on total returns of the MSCI All Country Asia ex-japan Index (AC Asia ex JP), S&P 500 Index (S&P 500), J.P. Morgan Asia Corporate Credit Index (JACI IG), J.P. Morgan Asia Corporate Credit High Yield Index (JACI HY) and J.P. Morgan China Credit Index (JACI China (USD). ***ChinaBond Inter-bank fixed-rate corporate bond (AA) 5-year used as a proxy for onshore corporate bond yield while J.P. Morgan Corporate Emerging Markets Subindex China is used as a proxy for offshore corporate bond yield. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results. Guide to the Markets Asia. Data reflect most recently available as of 31/3/18.

54 Asset class returns GTM Asia yrs ('08 - '18) Q '18 Ann. Ret. Ann. Vol. Other asset classes EM ex- Asia Global Bonds EM ex- Asia U.S. REITs U.S. REITs APAC ex-jp DM Equities U.S. REITs 41.1% 4.8% 91.3% 28.5% 8.7% 22.6% 27.4% 30.4% 2.8% 27.1% 37.3% % 26.5% APAC ex-jp Cash APAC ex-jp APAC ex-jp EMD Global Corp HY Global Corp HY Asian Bonds Asian Bonds U.S. REITs 37.2% 1.8% 73.7% 18.4% 8.5% 18.9% 8.4% 8.3% 2.5% % 1.4% 6.8% 25.3% Diversified Asian Bonds Global Corp HY EM ex- Asia Global Bonds EM ex- Asia Global Corp HY EMD Diversified EMD EMD EMD 13.5% -9.8% 63.9% 16.6% 5.6% 18.5% 5.6% 5.5% 1.2% 10.2% 20.3% 0.3% 6.5% 21.4% DM Equities EMD Diversified Global Corp HY Asian Bonds U.S. REITs APAC ex-jp DM Equities APAC ex-jp DM Equities EM ex- Asia Cash U.S. REITs Diversified EM ex- Asia Global Bonds Cash Global Corp HY Global Corp HY EMD DM Equities U.S. REITs 9.6% -10.9% % 4.1% 17.8% 3.7% 5.5% % % 6.3% 16.3% Global Bonds Global Corp HY DM Equities Diversified Global Corp HY EM ex- Asia U.S. REITs Diversified DM Equities Diversified 9.5% -27.9% 30.8% 13.1% 2.6% % 4.1% -0.3% 8.3% 10.3% -0.6% 6.3% 12.4% EMD Diversified U.S. REITs DM Equities Cash DM Equities Cash APAC ex-jp Global Bonds DM Equities Global Corp HY APAC ex-jp Asian Bonds EMD Diversified Diversified 6.3% -27.9% 28.6% 12.3% 0.1% 16.5% % -3.2% 8.2% 9.3% -0.8% 5.6% 11.6% Asian Bonds U.S. REITs Asian Bonds EMD Diversified Diversified Asian Bonds Global Bonds Diversified 5.4% % % 15.9% -1.4% 0.6% -3.2% 7.1% 7.4% -1.2% 5.4% 8.9% Cash DM Equities EMD Asian Bonds DM Equities Asian Bonds Global Bonds 4.8% -40.3% 28.2% 10.6% % -2.6% 0.2% -4.9% 5.8% 5.8% -1.4% 2.6% 7.4% Global Corp HY APAC ex-jp Global Bonds Global Bonds APAC ex-jp Global Bonds EMD Global Corp HY Cash Global Corp HY APAC ex-jp APAC ex-jp Asian Bonds Global Bonds Global Bonds Asian Bonds DM Equities Asian Bonds APAC ex-jp Global Bonds U.S. REITs EMD Cash 2.6% -51.6% 6.9% 5.5% -15.4% 4.3% -6.6% % 2.1% 5.1% -1.8% 0.3% 5.7% U.S. REITs EM ex- Asia Cash Cash EM ex- Asia Cash EM ex- Asia EM ex- Asia EM ex- Asia Cash Cash U.S. REITs -16.8% -57.2% 0.1% 0.1% -21.2% 0.1% -8.5% -20.2% -22.7% 0.3% 0.8% -8.1% -1.7% 0.1% EM ex- Asia EM ex- Asia U.S. REITs APAC ex-jp DM Equities Diversified Global Corp HY EMD Asian Bonds Global Bonds Cash 54 Source: Bloomberg Finance L.P., Dow Jones, FactSet, J.P. Morgan Economic Research, MSCI, J.P. Morgan Asset Management. The Diversified portfolio assumes the following weights: 2 in the MSCI The World Index (DM Equities), 2 in the MSCI AC Asia Pacific ex-japan (APAC ex-jp), 5% in the average of the MSCI EM Latin America and MSCI EM EMEA Indices (EM ex-asia), 1 in the J.P. Morgan EMBIG Index (EMD), 1 in the Bloomberg Barclays Aggregate (Global Bonds), 1 in the Bloomberg Barclays Global Corporate High Yield Index (Global Corporate High Yield), 15% in J.P. Morgan Asia Credit Index (Asian Bonds), 5% in MSCI U.S. REITs Index (U.S. REITs) and 5% in Bloomberg Barclays U.S. Treasury Bills (1-3 months) (Cash). Diversified portfolio assumes annual rebalancing. All data represent total return in U.S. dollar terms for the stated period. 10-year total return data is used to calculate annualized returns (Ann. Ret.) and 10-year price return data is used to calculate annualized volatility (Ann. Vol.) and reflects the period 31/3/08 31/3/18. Please see disclosure page at end for index definitions. Past performance is not a reliable indicator of current and future results.

55 Volatility GTM Asia 55 Vix index* Recession 0 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 ' Other asset classes VIX index* VIX breaks 35 in six months** Related event S&P 500 Performance On the day After 1 month After 3 months After 12 months Source: FactSet, J.P. Morgan Asset Management. *The VIX-CBOE Volatility Index measures market expectations of near-term volatility conveyed by S&P 500 Index (SPX) option prices. **First day when VIX breaks 35; subsequent spikes above 35 within the next six months are not included. ***Number of days for VIX to return to its long-term average of 19.3 after initial VIX spikes above 35. Past performance is not a reliable indicator of current and future results. VIX returns to longterm average*** (days) 1 6-Aug-90 Recession - oil price shock, central banks tightening % -5.9% 16.8% Oct-97 Asian crisis -1.7% 7.5% 9.1% 21.6% Aug-98 Long-Term Capital Management -3.8% 0.6% 13.8% 29.3% Sep-01 Recession - collapse of the dot-com bubble, 9/11 attack -4.9% 2.9% 9.2% -15.9% Jul-02 Enron accounting scandal -0.4% 1.3% -8.3% Sep-08 Recession - Lehman crisis, Global financial crisis -4.7% -14.8% -21.8% -7.9% May-10 Greek government debt crisis -1.5% % Aug-11 Fears of contagion of European sovereign debt crisis -6.7% 5.9% 12.7% 25.2% Aug-15 Chinese yuan devaluation -3.9% 2.1% 10.2% 15.5% Feb-18 Worries about rising inflation and pace of interest rate hikes -4.1% 3.4% N/A N/A 9 Median -3.9% 1.7% 9.1% 16.8% Average -3.5% % 12.8% Median ex-recession -3.8% 2.1% 9.6% 21.4% Average ex-recession -3.2% 2.3% 6.4% 20.3% 55

56 Correlations GTM Asia 56 Correlations between stocks and sovereign bonds Weekly rolling six-month correlation of equities and sovereign bond yields* 0.8 Stocks and bonds moving MSCI AC World / Global government bonds* 0.6 in the same direction 0.4 S&P 500 / U.S. government bonds* Stocks and bonds moving -1.0 in the opposite direction '01 '03 '05 '07 '09 '11 '13 '15 '17 Correlations between Asian equity markets Daily rolling six-month equity markets correlation** Other asset classes 0.4 Average: /3/18: '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 56 Source: FactSet, MSCI, J.P. Morgan Asset Management; (Top) Barclays, Standard & Poor s. *Rolling six-month pairwise correlations between weekly returns in equity (S&P 500 and MSCI All Country World Index price indexes) and bond (Bloomberg Barclays U.S. Aggregate Government and Bloomberg Barclays Global Aggregate Government price indexes) markets. **Rolling six-month pairwise correlation between daily price returns in USD of the MSCI China, Korea, Taiwan, Indonesia, Hong Kong, India, Thailand, Philippines, Malaysia, Singapore, Japan and Australia equity indices. Past performance is not a reliable indicator of current and future results.

57 Treasury yield and asset class performance Total return in a rising yield environment* Annualized average of rolling 3-month total return (USD), * High div. EM equities EM equities High div. Asia Pac. ex-jp equities Asia Pac. ex-jp equities Asia Pac. equities DM equities High div. DM equities 4.7% 4.2% 6.5% 6.5% 5.7% 8.5% 7.9% USD rising and U.S. 10-year yield rising** 35% 3 25% 2 15% 1 5% -5% -1 GTM Asia month rolling return 3-month rolling return annualized DM equity EM equity U.S. aggregate U.S. high yield Gold Convertible bonds U.S. REITs 2.4% 4.1% USD flat/falling and U.S. 10-year yield rising** 35% U.S. high yield EMD (USD) % 3 25% 12-month rolling return 3-month rolling return annualized Other asset classes EMD (LLC) 0.8% IG corporate -0.8% U.S. aggregate -0.9% U.S. 10-year Treasury -3.4% -6% -4% -2% 2% 4% 6% 8% % 1 5% DM equity EM equity U.S. aggregate U.S. high yield Gold 57 Source: Barclays, Bloomberg Finance L.P., FactSet, MSCI, J.P. Morgan Asset Management. Based on MSCI World Index (DM Equity), MSCI World High Dividend Index (High div. DM Equity), MSCI Emerging Market Index (EM Equity), MSCI Emerging Market High Dividend Index (High div. EM Equity), MSCI AC Asia Pacific ex-japan Index (Asia Pac. ex-jp), MSCI AC Asia Pacific Index (Asia Pac.), MSCI U.S. REIT Index (U.S. REITs), Bloomberg Barclays U.S. Aggregate Index (U.S. Agg.), Bloomberg Barclays U.S. Aggregate Credit High Yield Corporate Index (U.S. HY), Bloomberg Barclays U.S. Aggregate Credit Investment Grade Index (IG corporate), J.P. Morgan Government Bond Index EM Global (GBI-EM) (EMD LLC), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (EMD USD), Gold NYM $/ozt (Gold). *Trigger to count returns is if the 10-year yield rose more than 25bps in prior 3 months. **Trigger to count returns is if the US dollar real effective exchange rate rose more than 2% in prior 12 months and the 10-year yield rose more than 50bps in prior 12 months. Returns are based on monthly returns from 31/1/94 31/3/18. Past performance is not a reliable indicator of current and future results.

58 Currencies GTM Asia 58 U.S. dollar performance 130 Real trade-weighted exchange rate index (REER)* U.S. Dollar Index (DXY)** Fed hiking cycle 3/2018: /2018: '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Currency deviation from 10-year average in real effective exchange rate* terms Number of standard deviations away from average 4 FX above long-term average Other asset classes Max Current 1.0 Min FX below long-term average 58 Source: FactSet, J.P. Morgan Asset Management; (Top) Bloomberg Finance L.P., U.S. Federal Reserve; (Bottom) J.P. Morgan Economic Research. *The real trade-weighted exchange rate index is the weighted average of a market s currency relative to a basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one market s currency, with other markets within the basket. **The Dollar Index is a trade-weighted index calculated using seven major U.S. trade partners currencies Australian dollar, British pound, Canadian dollar, euro, Japanese yen, Swedish kroner and Swiss franc. Past performance is not a reliable indicator of current and future results.