MARKET INSIGHTS. Guide to the Markets. Asia 2Q 2015 As of March 31, 2015

Transcription

1 MARKET INSIGHTS Guide to the Markets Asia 2Q 2015 As of March 31, 2015

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 James C. Liu, CFA Chicago Julio C. Callegari São Paulo David M. Lebovitz New York Gabriela D. Santos New York Ainsley E. Woolridge New York Hannah J. Anderson New York Abigail B. Dwyer New York Stephanie H. Flanders London Dr. David Stubbs London Maria Paola Toschi Milan Vincent Juvyns Luxembourg Manuel Arroyo Ozores, CFA Madrid Tilmann Galler, CFA Frankfurt Lucia Gutierrez Madrid Kerry Craig, CFA London Alexander W. Dryden London Nandini Ramakrishnan London Tai Hui Hong Kong Yoshinori Shigemi Tokyo Grace Tam, CFA Hong Kong Ian Hui Hong Kong Ben Luk Hong Kong Akira Kunikyo Tokyo Past performance is no guarantee of comparable future results. For China and Australia distribution, please note this communication is for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the full disclaimer at the end. Unless otherwise stated, all data is as of March 31, 2015 or most recently available.

3 3 Page Reference Regional and Local Economy 4. ASEAN-5: GDP and Markets 5. ASEAN: Key Indicators 6. China: Economic Fundamentals 7. China: Cyclical Indicators 8. China: Credit Conditions 9. India: Economic Snapshot 10. India: Investment Flows and Balance of Payments 11. Japan: Economic Snapshot 12. Japan: Abenomics 13. Japan: Government Pension Investment Fund and Investment Trends 14. North Asia: Exports and Current Account Global Economy 15. Global Growth 16. Global Inflation 17. Global Growth and Policy Divergence 18. Global Policy Rates and Inflation Expectations 19. Global Purchasing Managers Index (PMI) 20. DM Trade Connections to EM 21. United States: Economic Snapshot 22. United States: Cyclical Indicators 23. United States: The Fed and Labor Market 24. Europe: Economic Snapshot 25. Europe: Monetary Policy Equities 26. Global and Asia Equity Markets: Returns 27. Global Equity Markets: Valuations 28. Global Equities: Relative Valuations 29. Global Earnings Momentum 30. Global Long-term EPS and DPS Growth 31. United States: Sources of Earnings and Valuations 32. United States: S&P 500 Index at Inflection Points 33. Europe: Earnings and Valuations 34. Europe: Dividends 35. Asia and Emerging Markets: Exports and Earnings Momentum 36. APAC ex-japan and Emerging Markets: Price-to-Book Valuations 37. APAC ex-japan and Emerging Markets: Valuation Analysis 38. Emerging Markets: Returns 39. Emerging Markets: Index Composition 40. China: A vs. H- shares 41. The Compounding Effect 42. High Dividend Equities 43. Asia and EM Dividend Income GTM Asia 3 Fixed Income 44. Global Fixed Income: Yields and Returns 45. Global Fixed Income: Supply and Demand Dynamics 46. Global Fixed Income: High Yield Bonds 47. United States: High Yield Bonds 48. United States: Sources of Bond Returns 49. Asia: Sovereign Debt and Credit Markets 50. Emerging Markets and Asia: Reserves Position and Credit Ratings 51. Emerging Markets: Current Account, Oil and Currencies 52. Emerging Markets Debt: Market Size and Spread Comparisons Other Assets and Investor Behavior 53. Asset Class Returns 54. Portfolio Construction, Asset Class Returns and Volatility 55. Asset Class Correlations 56. Rate Rise Impact on Different Asset Classes 57. Normalization of Monetary Policy and EM Equity Performance 58. Dollar Exchange Rate 59. Asset Class Returns in Different Inflation Environments 60. Alternatives: Returns 61. Alternatives: Real Assets and Infrastructure 62. Alternatives: REITs and Real Estate 63. Commodities: Returns 64. Commodities: Oil Supply and Demand Dynamics 65. Commodities: Oil Price s Impact on Emerging Markets 66. Global Households Financial Asset Allocation by Region 67. Investors Market Timing 68. Annual Returns and Intra-year Declines 69. Real Return on Cash and Home Bias 70. Global and Asian Retirement Trends 71. Fund Flows

4 ASEAN-5: GDP and Markets GTM Asia 4 Regional and Local Economy Real GDP Growth Comparison Year-over-year % change 15% 1 5% -5% yr. range 8-yr. average Latest China India ASEAN Korea Hong Kong Taiwan GDP and Market Share Comparison* % % 1 Share of ASEAN-5 GDP 18% 2 9% 33% Share of MSCI South East Asia market cap Indonesia Malaysia Philippines Singapore Thailand ASEAN-5 Valuation Table MSCI Indices Forward P/E 5-year Avg. Forward P/E Trailing P/B 5-year Avg. Trailing P/B Earnings Growth Expectations 2014 Earnings Growth Expectations 2015 Dividend Yield Indonesia 15.9x 13.9x 3.4x 3.7x % 2.3% Malaysia 15.9x 15.0x 2.0x 2.2x -5.1% 6.8% 3.1% Philippines 20.3x 16.8x 3.2x 2.7x 5.5% 12.1% 2. Singapore 13.7x 13.7x 1.4x 1.6x 9.5% Thailand 13.7x 11.8x 2.2x 2.2x -6.3% % Source: MSCI, Credit Suisse, I/B/E/S, FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top Right) Total may not sum to 10 due to rounding. * GDP share as of 4Q 2014, market share as of 1Q Positive yield does not imply positive return. 4

5 ASEAN: Key Indicators GTM Asia 5 Regional and Local Economy Malaysia YoY % change, 3MM Exports YoY % change 10 Crude Palm Oil Price 6 2 Thailand Tourist Arrivals Thousands 3,000 2,500 2,000 1, ,000-2 '06 '07 '08 '09 '10 '11 '12 '13 '14 ' '09 '10 '11 '12 '13 '14 '15 Indonesia CPI Inflation and Policy Rate Year-over-year % change 1 Reference Rate 2 Inflation /2015: 7.5% 8% 1 8% 2/2015: 6.3% '06 '08 '10 '12 '14 Singapore Consumption and Industrial Production Year-over-year % change, 3MMA Industrial Production Retail Sales -4 '06 '07 '08 '09 '10 '11 '12 '13 '14 ' % - -8% Source: Malaysian Department of Statistics, World Bank, Statistics Indonesia, Statistics Singapore, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q

6 China: Economic Fundamentals GTM Asia 6 Regional and Local Economy Share of GDP by Industry and Real GDP Growth Primary Secondary Tertiary YoY % change (RHS) Credit and Nominal GDP Growth Year-over-year % change Nominal GDP Total Social Financing ex-equity Financing 2 8% 1 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 RMB Bank Loans '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Urban Employment Number of new jobs, millions Employment Target: 10 Million '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 CPI and PPI Inflation Year-over-year % change 1 5% CPI 2/2015: 1. -5% PPI 2/2015: -4.8% -1 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 Source: National Bureau of Statistics of China, FactSet, Ministry of Human Resources & Social Security, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top Left) China s latest share of GDP based on Primary industry produces raw materials and makes use of natural resources, secondary is the manufacturing industry and tertiary is concerned with the framework and foundations of business and the provision of services. 6

7 China: Cyclical Indicators GTM Asia 7 Regional and Local Economy Merchandise Trade Growth Year-over-year % change, 3-month moving average Imports Exports -2 '11 '12 '13 '14 '15 Top 100 Cities Property Prices and Housing Inventory Month-over-month % change # of Months 1% -1% 2 nd Tier Cities Property Price 3 rd Tier Cities 1 st Tier Cities '11 '12 '13 '14 ' Retail and Auto Sales Year-over-year % change, 3-month moving average 2 Retail Sales Auto Sales 6 Fixed Asset Investment (FAI) Year-over-year % change, 3-month moving average 7 Infrastructure Manufacturing Real Estate % '06 '07 '08 '09 '10 '11 '12 '13 '14 '15-1 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: National Bureau of Statistics of China, CEIC, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q

8 China: Credit Conditions GTM Asia 8 Regional and Local Economy Total Social Financing Breakdown Monthly new incremental loans (RMB Billions) 3,000 2,500 2,000 1,500 1, RMB Bank Loans 131.7% Corporate Bonds 16. Entrusted Loans 14. Banker s Acceptance Bills 11.7% FX Loans 8. Trust Loans 8.3% Credit as % of GDP (2014) 190.8% 0 01/13 07/13 01/14 07/14 01/15 Short-Term Funding Rates 1 1 8% 31/3/15 Lending (1-year) 5.35% SHIBOR (1-week) 3.89% Deposit (1-year) 2.5 Deposit Rate (1-year) Bank Lending Rate (1-year) SHIBOR (1-week) '08 '09 '10 '11 '12 '13 '14 '15 RMB Reference and Closing Rate USD/RMB Ceiling of Daily Trading PBoC Reference Rate Closing Rate Interbank Rates vs. Weighted Average Lending Rates 9% Nominal Weighted Average Lending Rate Floor of Daily Trading 6.0 '12 '13 '14 '15 Source: People s Bank of China, National Bureau of Statistics of China, CEIC, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top Left) Numbers refer to the total outstanding credit as % of GDP as of December % Real Weighted Average Lending Rate 3-month SHIBOR '09 '10 '11 '12 '13 '14 '15 8

9 India: Economic Snapshot GTM Asia 9 Regional and Local Economy Real GDP Growth Year-over-year % change 2 15% 1 5% 15-yr Avg. 4Q14 Real GDP Growth % -5% '98 '00 '02 '04 '06 '08 '10 '12 '14 New Project Announcements Rupee Billions 9,000 7,500 6,000 4,500 3,000 1,500 0 Government Private Sector Latest Government 2,208 Private Sector 364 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Inflation and Repo Rate /3/15 CPI 5. Repo Rate 7.5% WPI -2.1% Consumer Price Index Auto Sales Year-over-year % change, 3-month moving average 3 Commercial Vehicle Sales 2 Repo Rate Wholesale Price Index -2 Passenger Vehicle Sales - '05 '07 '09 '11 '13 '15-3 '11 '12 '13 '14 '15 Source: J.P. Morgan Economics, Ministry of Statistics and Programme Implementation, Reserve Bank of India, Society of Indian Automobile Manufacturers, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Bottom Left) Wholesale Price Index (WPI) value shown is year-over-year % change. Consumer Price Index series starts in January

10 India: Investment Flows and Balance of Payments GTM Asia 10 Regional and Local Economy Foreign Institutional Fund Flows USD Billions Foreign Institutional Investment (Equity) 35 Foreign Institutional Investment (Debt) '00 '02 '04 '06 '08 '10 '12 '14 YTD 15 Current Account and Fiscal Balance % of GDP Current Account Balance 3Q14: -1.3% % Fiscal Balance 3Q14: '97 '99 '01 '03 '05 '07 '09 '11 '13 Domestic Equity Fund Flows USD Billions 2.5 Domestic Institutional Investment 1.5 Domestic Mutual Fund Flows Exports and Imports Year-over-year % change, 3-month moving average 8 Imports Exports -4 '01 '03 '05 '07 '09 '11 '13 '15 Source: Ministry of Statistics and Programme Implementation, Office of the Economic Advisor - Ministry of Commerce and Industry, Bloomberg, Securities and Exchange Board of India, IMF, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q

11 Japan: Economic Snapshot GTM Asia 11 Regional and Local Economy Real GDP and CPI Inflation QoQ % change, annualized YoY % change, monthly 1 8% Consumption Tax Hike (from 3% to 5%, Apr 97) CPI ex-fresh Food Department Store Sales YoY % change, 3MMA 1 8% Consumption Tax Hike (from 3% to 5%, Apr 97) Nationwide Consumption Tax Hike (from 5% to 8%, Apr 14) - -8% GDP -1 '96 '98 '00 '02 '04 '06 '08 '10 '12 ' % Tokyo Area -1 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 Wage and Unemployment YoY % change 8% CPI ex-fresh Food Unemployment Rate Tokyo Housing Starts and Condominium Price YoY % change Thousands of units, 3MMA Nominal Wage (3-month moving average) -8% '96 '98 '00 '02 '04 '06 '08 '10 '12 '14-8 Condominium Price Housing Starts -1 4 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: Japanese Cabinet Office, Ministry of Internal Affairs and Communications, Japan Department Stores Association, Bank of Japan, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top Left) Real GDP growth rates for 4Q 2008 and 1Q 2009 were -12.5% and -15., respectively. 11

12 Japan: Abenomics GTM Asia 12 Regional and Local Economy Monetary and Fiscal Expansions JPY Trillions Public Demand 105 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 M0 JGB held by BoJ Projections TOPIX and Japanese Yen Index 1,800 1,500 1,200 TOPIX 1/2004 3/2015 Correlation: 0.91 USD/JPY 900 1/ /2003 Correlation: '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 USD/JPY Japanese Prime Ministers Approval Rating 9 6 Mori Koizumi Abe Fukuda Aso Hato yama Kan Noda Abe Corporate Tax Comparison % in /2015: % % 17% 17% '00 '02 '04 '06 '08 '10 '12 '14 Source: Japanese Cabinet Office, Ministry of Internal Affairs and Communications, Ministry of Health, Labor and Welfare, KPMG, NHK, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top Left) Public demand includes government consumption, public investment and changes in public inventories and is seasonally adjusted and annualized target of JGB held by BoJ is JPY 280 trillion and that of M0 is JPY 355 trillion. Both forecasts as projected by BoJ. 12

13 Japan: Government Pension Investment Fund and Investment Trends GTM Asia 13 Regional and Local Economy Pension Fund Equity Weighting % of Japan pension funds held in equities 35% 25% 15% Corporate Pensions GPIF 5% FY2001 FY2003 FY2005 FY2007 FY2009 FY2011 FY2013 Japanese Retail Investors Foreign Investment JPY Trillions, Cumulative Monthly Net Subscriptions Foreign Bonds Foreign REITs Foreign Equities FY2013: 16.5% FY2013: 14.5% -2 '10 '11 '12 '13 '14 '15 Government Pension Investment Fund Asset Allocation Asset Allocation as of Dec 2014 vs. Target Asset Allocation International Stocks, 19. International Stocks (+/-8%), 25% Short-term Assets, 4.3% Domestic Stocks, 19.8% Domestic Stocks (+/-9%), 25% Domestic Bonds, 43.1% Domestic Bonds (+/-1), 35% International Bonds, 13.1% Asset Allocation as of Dec 2014 Target Asset Allocation International Bonds (+/-), 15% Source: Japanese Cabinet Office, Japan Investment Trust Association, Government Pension Investment Fund, Pension Fund Association, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Right) The Government Pension Investment Fund has JPY 137 trillion of assets under management as of September

14 North Asia: Exports and Current Account GTM Asia 14 Regional and Local Economy North Asia Exports to and Europe YoY % change, 3-month moving average 6 China 4 Korea 2 Taiwan -2-4 '04 '06 '08 '10 '12 '14 Taiwan: Tech and Non-Tech Export Growth YoY % change, 3-month moving average % of total exports Non-Tech Tech Tech as % of Total -4 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 ' Current Account Comparison (2014 IMF Forecasts) % of GDP* 1 North Asia 8% EM - -8% -3.5% %-1.9% -5.8%-5.7% 5.8% 1.8% 2.9% 4.1% 4.3% % Korea vs. Japan: Currencies and Exports KRW per JPY Difference in Share of World Exports 16 Japan Korea s Share of World Export JPY/KRW 6 '00 '02 '04 '06 '08 '10 '12 '14 Source: Taiwan Ministry of Finance, CEPD, Korea Customs Service, Korea Ministry of Trade, WTO, CEIC, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q *Current account balances are based on 2014 forecasts from IMF s October 2014 World Economic Outlook. 14

15 Global Growth Emerging Market Real GDP Growth YoY % change 1 8% Historical IMF Forecast GTM Asia 15 Global Economy - EM China India Indonesia Turkey Brazil Korea Russia Mexico Developed Market Real GDP Growth YoY % change 1 Historical IMF Forecast % - DM Australia Canada UK Euro area Germany Italy Japan Source: IMF, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Forecasts are from the IMF s January 2015 World Economic Outlook. 15

16 Global Inflation 16 GTM Asia 16 Monthly Inflation Trend YoY % change Rising Inflation Unchanged Falling Inflation Global Economy Country Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014 Aug 2014 Sep 2014 Oct 2014 Nov 2014 Dec 2014 Jan 2015 Feb 2015 Central Bank Target / Forecast Central Bank Policy Rate* China ( 02/2015) India ( 02/2015) Indonesia ( 02/2015) Japan ( 10/2010) Korea ( 03/2015) Malaysia ( 07/2014) Taiwan ( 06/2011) Thailand ( 03/2015) ( 12/2008) Eurozone ( 09/2014) UK ( 03/2009) 16 Source: FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q All data shown above are headline CPI inflation. *The arrows and dates in the Central Bank Policy Rate column indicate the direction and date of last change, respectively. The central bank s policy rate for each country includes the one-year benchmark lending rate (China), RBI policy repo rate (India), BI benchmark policy rate (Indonesia), BoJ uncollateralised overnight call rate (Japan), BoK base rate (Korea), overnight policy rate (Malaysia), discount rate (Taiwan), 1-day repurchase rate (Thailand), Fed fund rate (), Eurozone main refinancing operations rate (Eurozone) and BoE official bank rate (UK).

17 130 Global Growth and Policy Divergence Nominal GDP Index, rebased 4Q 2007 = 100 Central Bank Balance Sheets % of Nominal GDP 9 GTM Asia 17 Projections Global Economy UK BoJ 100 Euro Area 4 3 ECB 90 Japan 80 '06 '07 '08 '09 '10 '11 '12 '13 '14 2 Fed 1 BoE '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 17 Source: European Central Bank, Bank of England, Bank of Japan, Federal Reserve System, J.P. Morgan Economics, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Right) Balance sheet forecasts are based on central bank s stated economic intentions, i.e. assumptions are that the BoJ will expand its balance sheet at an annual rate of JPY80 trillion; the ECB will expand its balance sheet at a monthly rate of EUR60 billion, BoE and Fed both will keep their balance sheets at their current levels). Nominal GDP growth forecasts provided by J.P. Morgan Investment Bank Macro Research.

18 Global Policy Rates and Inflation Expectations GTM Asia 18 Global Economy Central Bank Key Policy Rates 7% 5% 3% Federal Funds Rate (Fed) BoE Official Bank Rate (BoE) 31/3/15 BoE 0.5 Fed 0.25% BoJ 0.1 ECB 0.05% Eurozone Main Refinancing Operations Rate (ECB) and Europe: Medium-term Inflation Expectations 5-year 5-year Breakeven Inflation Expectation 3.5% % % '11 '12 '13 '14 ' Europe and Germany Bond Yield Correlation 52-week Rolling Correlation 10-year 1% 0.6 BoJ Uncollateralized Overnight Call Rate (BoJ) -1% '00 '02 '04 '06 '08 '10 '12 ' year '98 '00 '02 '04 '06 '08 '10 '12 '14 Source: FactSet, Bloomberg, COBE, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top Right) The 5-year 5-year breakeven inflation rate is the difference between the 5-year Treasury constant maturity rate and the yield on an inflation-protected security with 5 years remaining to maturity. The differential, representing the rate of inflation necessary for TIPS to outperform their nominal counterparts, acts as a rough gauge of where inflation might be headed over the coming 5 years. 18

19 Global Purchasing Managers Index (PMI) 19 GTM Asia 19 Global Purchasing Managers Index for Manufacturing May'13 Jun'13 Jul'13 Aug'13 Sep'13 Oct'13 Nov'13 Dec'13 Global Economy Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14 Jul'14 Aug'14 Sep'14 Oct'14 Nov'14 Dec'14 Jan'15 Feb'15 Mar'15 Global UK Euro Area Germ any France Spain Greece Australia Japan China China (NBS) Indonesia Korea Taiw an India Brazil Mexico Source: Markit, National Bureau of Statistics of China, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Heatmap colors are based on PMI relative to 50, which indicates contraction (below 50) or expansion (above 50) of the sector. 19

20 DM Trade Connections to EM GTM Asia 20 Global Economy 20 Exports as a % of GDP Goods exports Japan EU Brazil India China Russia* Australia Korea ASEAN Taiwan % 14.5% 19.8% 16.8% 16.8% % EU Japan China Others % EM Exports Breakdown China Czech Korea Taiwan Hungary Hong Kong Poland Turkey Mexico Philippines Thailand Vietnam Singapore Malaysia India Ukraine S. Africa Brazil Indonesia Argentina Colombia Peru Russia Saudi Arabia Chile Venezuela Nigeria Commodity exports as % of merchandise exports 2013 Source: World Trade Organization (WTO), World Bank, IMF, CEIC, J.P. Morgan Asset Management Guide to the Markets Asia 2Q * 2012 figure due to data availability. (Left) EU exports as a % of GDP excludes intra EU-trade as the European Union is considered as one regional economy. (Right) EM exports breakdown based on WTO classifications, which are broken down into 3 components including: 1.Manufactured goods, 2.Commodities (Agricultural) and 3.Commodities (Fuel and Mining). Total may not sum to 10 due to miscellaneous items not covered by WTO. Manufactured exports as % of merchandise exports 2013 Asian countries Other EM countries

21 United States: Economic Snapshot GTM Asia 21 Global Economy Real GDP Growth QoQ annualized seasonally adjusted, % change 8% % Components of GDP $639 bn of output lost over 6 quarters 4Q14 Consumption 68% Government Spending 18% Investment ex-housing 13% Housing 3% Net Exports -3% 20-yr Avg. 4Q14 Real GDP Growth 2.5% 2. $654 bn of output recovered over 8 quarters -1 '00 '02 '04 '06 '08 '10 '12 '14 Inflation YoY % change 18% 15% 1 9% 3% Avg. since 1965 Avg. since /2015 Headline CPI % -0.1% Core CPI 4.1% % -3% '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 Fed s March 2015 Summary of Economic Projections Percent Longer Run Change in Real GDP, Q4 to Q December 2014 Forecast Unemployment Rate, Q December 2014 Forecast PCE Inflation, Q4 to Q December 2014 Forecast Federal Funds Rate, end of year December 2014 Forecast Source: Federal Reserve, Bureau of Economic Analysis, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Left) Net exports are the difference between a country s total value of exports and imports. Hence, a negative value implies a country is importing more than it exports. (Bottom Right) Real GDP, unemployment rate and PCE inflation are midpoints based on the Federal Reserve s summary of economic projections. The Federal Funds rate is the median point based on the Fed s expected rate path. 21

22 United States: Cyclical Indicators GTM Asia 22 Light Vehicle Sales Millions, seasonally adjusted annualized rate /2015: 16.2 Households Debt and Personal Income USD Billions 1,500 1,000 Total Debt / Disposable Personal Income Global Economy Average: '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 ' Change in Total Debt (YoY change) '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 ' Housing Starts Thousands, seasonally adjusted annualized rate 2,400 2,000 1,600 1, Average: 1,345 0 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 02/2015: 897 Real Capital Goods Orders Non-defense capital goods orders ex. aircraft, USD Billions, seasonally adjusted Average: /2015: 59.2 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 Source: Federal Reserve, Bureau of Economic Analysis, Census Bureau, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Bottom Right) Capital goods orders deflated by producer price index for capital goods. 22

23 United States: The Fed and Labor Market GTM Asia 23 Global Economy Market vs. FOMC Rates Expectation (Based on Fed Summary of Economic Projections) 5% 3% FOMC Median Forecasts Fed Funds Future Unemployment Rate and Average Hourly Earnings 1 1 8% Unemployment Rate 02/2015: 5.5% 02/2015: 1. Hourly Earnings (YoY % change) '85 '90 '95 '00 '05 '10 '15 1% Employment Cost Index (ECI) and Unemployment Rate % ECI (YoY% change) 3% 23 End of 2015 End of 2016 End of 2017 Longer Run 1% 3% 5% 7% 8% 9% 1 11% U-3 Unemployment Rate Source: Federal Reserve, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Left) Each dot represents where an FOMC member sees the federal funds rate at the end of each year. The futures rate is a measure of the market s prediction for the monthly average effective federal funds rate, after allowing for the possibility of a non-zero risk premium. In general, the federal funds futures market is used as an indication of when the market anticipates a change in Fed policy. (Bottom Right) The Employment Cost Index (ECI) is produced by the Department of Labor, which measures the growth of employee compensation (wages and benefits). The ECI tracks movement in the cost of labor, including wages, fringe benefits and bonuses for employees at all levels of a company.

24 Europe: Economic Snapshot GTM Asia 24 Euro Area Real GDP QoQ % change, annualized 8% Euro Area Consumer and Business Confidence Index Global Economy - -8% Average: 1. 12/2014: 1.3% -1 '96 '98 '00 '02 '04 '06 '08 '10 '12 ' Consumer Business -40 '98 '00 '02 '04 '06 '08 '10 '12 ' Euro Area Inflation YoY % change 5% Headline Inflation 3% 02/2015: 0.7% 1% Core Inflation 02/2015: -0.3% -1% '98 '00 '02 '04 '06 '08 '10 '12 '14 Europe Unemployment Rate 2 15% 1 Latest PIIGS 17. Euro Area 11.3% Germany, UK, France 7.5% PIIGS* (Simple Average) Euro Area Germany, UK, France (Simple Average) 5% '98 '00 '02 '04 '06 '08 '10 '12 '14 Source: ECB, Eurostat, Bloomberg, FactSet, CEIC, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top Right) Euro Area consumer and business confidence as reported by the European Commission, which measures the level of optimism that consumers and businesses have about the economy. *PIIGS includes Portugal, Italy, Ireland, Greece and Spain. 24

25 Europe: Monetary Policy GTM Asia 25 Global Economy ECB Balance Sheet and Euro REER EUR Trillions Real broad effective exchange rate (REER) Forecast 3.5 ECB Balance Sheet 3.0 Weaker 2.5 Euro Euro REER Stronger 0.5 (inverted scale) Euro 0.0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 ' ECB Bank Lending Survey Supply and Demand Net % of banks reporting positive credit demand / supply Stronger Demand / Tightening Credit Weaker Demand / Loosening Credit Household Credit Demand Household Credit Standards Corporate Credit Demand Corporate Credit Standards -6 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Sovereign Funding Costs 10-year benchmark bond yields (%) 1 1 8% 31/3/15 31/3/15 Greece 11.5% Italy 1. Portugal 1.7% Spain % France 0.5% UK 1. Germany 0. 0 '12 '13 '14 '15 Eurozone Bank Lending YoY % change 15% 1 9% 3% -3% Total Households Corporates - '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: ECB, Bloomberg, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Bottom Left) Greece s 10-year benchmark bond yield reached a peak of 3 in January 2012 and is cut off to maintain a more reasonable scale. 25

26 Global and Asia Equity Markets: Returns GTM Asia yrs ('05 - '14) Q '15 Ann. Ret. Ann. Vol. Korea China India Japan India ASEAN HK India Japan China India % 73.1% % % 31.8% 23.9% % % % India India China Taiwan Korea ASEAN India Japan China ASEAN Korea % - 6.3% % 8. 1% % % Japan ASEAN HK Europe Australia HK Australia China Europe Taiwan HK India China 25.5% % China Europe ASEAN Taiwan ASEAN Taiwan Europe ASEAN HK China India HK Australia Equities 19.8% 33.7% % % -11.1% 22.5% 11.1% % Australia Australia Korea ASEAN Korea India Korea Australia Taiwan ASEAN Korea Korea Taiwan % 31.9% % 71.3% 20.9% % 9.1% % ASEAN HK Australia Australia China Japan Japan Korea Australia HK Taiwan Australia HK 10.7% % % 62.3% % % % 3.9% 7.8% 21. Europe Taiwan Europe China HK HK Europe Korea Australia Europe ASEAN % % % % 3.9% % % HK Taiwan HK Europe Australia China Taiwan China Japan Australia Taiwan Europe % % 14.5% % % 5.9% 20. Taiwan Korea Korea China Taiwan India Europe Europe Japan % 26.3% % 15.3% -3.8% % Japan Japan India Japan Europe India Japan ASEAN Korea ASEAN Japan 5.1% % 3.9% % % 0. 6 % 2.3% % Source: MSCI, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Returns are total (net) returns based on MSCI indices in 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 31/12/04 31/12/14. 26

27 Global Equity Markets: Valuations GTM Asia 27 Equity Market Valuations Price to Earnings Forward P/E ratios 30x yr. range 10-yr. average Latest 20x 10x Equities 0x S&P 500 Europe ex- UK Asia ex- Japan Emerging Markets ASEAN Australia China A (CSI 300) Equity Market Valuations Price to Book Trailing P/B ratios 5x 6.2 China Hong Kong India Japan Korea Taiwan Brazil Mexico Turkey 10-yr. range 10-yr. average Latest 4x 3x 2x 1x x S&P 500 Europe ex- UK Asia ex- Japan Emerging Markets ASEAN Australia China A (CSI 300) China Hong Kong India Japan Korea Taiwan Brazil Mexico Turkey Source: Standard & Poor s, MSCI, China Securities Index, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q P/E and P/B ratios are in local currency terms. China A valuations based on the CSI300 Index and China valuations based on the MSCI China. 10-year range for P/E and P/B ratios are cut off to maintain a more reasonable scale. 27

28 Global Equities: Relative Valuations GTM Asia S&P 500 Earnings Yield 10-yr Treasury Yield S&P 500 Dividend Yield Europe 1 1 MSCI Europe Earnings Yield German 10-yr Bund Yield MSCI Europe Dividend Yield 1 1 8% 8% Equities '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Asia ex-japan MSCI Asia ex-japan Earnings Yield J.P. Morgan Asia Credit Index Yield (Sovereign) MSCI Asia ex-japan Dividend Yield '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Emerging Markets MSCI Emerging Markets Earnings Yield J.P. Morgan Emerging Markets Bond Index Global MSCI Emerging Markets Dividend Yield 8% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 8% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Source: MSCI, Standard & Poor s, FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q

29 Global Earnings Momentum GTM Asia 29 Global Equities Earnings Momentum Earnings Revision (Upward Revision Downward Revision / Total Revision), 3-month moving average 0.4 Earnings Revision Since Jan 2013 Latest 5 Observations Equities -0.4 S&P 500 TOPIX Europe Asia ex-japan EM Forward Return on Equity (%) 2 Global Net Margins (%) 1 1 8% Asia ex-japan Europe EM 1 1 8% EM Europe Asia ex-japan Japan Japan '07 '08 '09 '10 '11 '12 '13 '14 '15 - '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: S&P, MSCI, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top) Earnings revision is calculated by taking the difference between the number of analyst upgrades and analyst downgrades, divided by the total number of analyst revisions on a monthly basis. Earnings revision above 0 would mean that there were more upgrade revisions than downgrade revisions. 29

30 Global Long-term EPS and DPS Growth GTM Asia 30 Earnings Per Share (Forward) by Region Index, rebased 2003 = 100 Dividends Per Share by Region Index, rebased 2003 = Emerging Markets 350 Emerging Markets AC Asia Pacific ex-japan Equities 250 AC Asia Pacific ex-japan Japan 200 Europe Europe Japan 50 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 50 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: MSCI, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Earnings Per Share (EPS) is Forward EPS (Next 12 Months) in local currency terms. Dividends Per Share (DPS) is Trailing DPS (Last 12 Months) in local currency terms. Positive dividends per share does not imply positive return. 30

31 United States: Sources of Earnings and Valuations GTM Asia 31 GDP and S&P 500 Year-over-Year EPS Growth Growth broken into revenue growth and margin expansion, quarterly 5 Margin Share of EPS Growth Revenue Share of EPS Growth Profit margin % 8% -25% Equities -5 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 S&P 500 Sector Forward EPS Growth* EPS Growth (%) as of 3/ S&P 500 Sector Valuations, ** Historical P/E ratios 31/3/2015 Avg. Min. Max. Health Care 24.4x 19.3x 9.9x 36.7x Cons. Disc. 21.8x 25.4x 13.3x 395.3x Cons. Staples 20.6x 18.5x 11.8x 24.7x I.T. 19.1x 28.0x 11.7x 77.0x Materials 18.6x 19.8x 8.5x 40.3x Industrials 17.9x 18.6x 7.3x 26.3x Utilities 17.1x 14.8x 9.2x 19.3x Financials 15.1x 17.0x 10.9x 173.5x Telecom 14.9x 18.4x 10.1x 36.1x Energy 14.0x 14.2x 6.2x 26.0x - Source: FactSet, Standard & Poor s, BEA, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top) EPS based on operating earnings per share. 3Q14 figures are Standard & Poor s estimates and based on company filings as of 30/9/14. 2Q09, 2Q10 and 3Q10 reflect -101%, 9 and 51% growth, respectively, in operating earnings and are cut off to maintain a more reasonable scale. *Operating EPS based on Standard & Poor s estimates. ** Monthly data between January 2000 and March

32 United States: S&P 500 Index at Inflection Points GTM Asia 32 S&P 500 Index Index 2,200 2,000 Characteristic Mar 2000 Oct 2007 Mar 2015 Index level 1,527 1,565 2,068 P/E ratio (fwd.) 25.6x 15.2x 17.0x EPS (fwd.) Dividend yield 1.1% 1.8% 2.1% 10-yr Treasury % 1.9% Mar. 31, 2015 P/E (fwd.) = 17.0x Index level: 2,068 EPS (fwd.) = ,800 1,600 Mar. 24, 2000 P/E (fwd.) = 25.6x Index level: 1,527 EPS (fwd.) = 59.6 Oct. 9, 2007 P/E (fwd.) = 15.2x Index level: 1,565 EPS (fwd.) = Equities 1,400 1,200 1, % +101% -57% +205% 800 Dec. 31, 1996 P/E (fwd.) = 16.0x Index level: 741 EPS (fwd.) = 46.3 Oct. 9, 2002 P/E (fwd.) = 14.1x Index level: 777 EPS (fwd.) = '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: Standard & Poor s, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Positive yield does not imply positive return. Mar. 9, 2009 P/E (fwd.) = 10.3x Index level: 677 EPS (fwd.) =

33 Europe: Earnings and Valuations GTM Asia 33 Equities and European Operating Profit Margins Earnings/sales for MSCI Europe and S&P % 1 9% 8% 7% MSCI Europe and : Dividend Yields Europe '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Economic Growth and Revenue Growth YoY % change Index, adv. 12 months MSCI Europe Revenue Growth Eurozone Manufacturing PMI '03 '05 '07 '09 '11 '13 '15 MSCI Europe and : Relative Valuations 1.2x % Europe 3/2015: x Europe / Forward P/E Europe relatively more expensive compared to 3% Average: 0.86x 1% 3/2015: 1.9% 0.8x Europe relatively cheaper compared to 3/2015: 0.95x '98 '00 '02 '04 '06 '08 '10 '12 '14 0.6x '98 '00 '02 '04 '06 '08 '10 '12 '14 Source: MSCI, Standard & Poor s, Morgan Stanley, Markit, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Positive yield does not imply positive return. 33

34 Europe: Dividends GTM Asia 34 Equities Relative Valuation of High Dividend Yielding Equities Valuation vs. long-term average, 3-month moving average Europe Emerging Markets 80 '00 '02 '04 '06 '08 '10 '12 '14 Europe Yield Comparison* 8% 7% 5% 3% 1% '09 '10 '11 '12 '13 '14 '15 Europe Dividend Comparison 12-month forward DPS 7 Core 6 Periphery Corporate Bond Yield Dividend Yield Sovereign Bond Yield 0 '00 '02 '04 '06 '08 '10 '12 '14 34 Source: IBES, Compustat, MSCI, FactSet, Barclays, J.P. Morgan Asset Management Guide to the Markets Asia 2Q *Corporate bond yield represented by Barclays Euro Aggregate Corporate Index, dividend yield represented by MSCI Europe dividend yield, sovereign yield represented by German 10-year Benchmark bond yields. (Bottom right) Core represents an average of France and Germany while periphery represents an average of Portugal, Ireland, Italy, Greece and Spain. Positive yield does not imply positive return.

35 Asia and Emerging Markets: Exports and Earnings Momentum GTM Asia 35 MSCI Asia ex-japan & EM - Earnings and Exports Year-over-year % change Asia ex-japan Earnings EM Earnings Forward Earnings per Share Index, rebased 2008 = EM EMEA 100 EM Asia EM Equities -2 Asian Equities Earnings Momentum Earnings revision (upward revision downward revision / total revision) EM Exports Asia ex-japan Exports -4 '02 '04 '06 '08 '10 '12 ' EM Latin America 40 '08 '09 '10 '11 '12 '13 '14 '15 China Taiwan Hong Kong Korea India Thailand Indonesia Malaysia Singapore Philippines 2Q14 3Q14 4Q14 1Q15 Source: FactSet, CEIC, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Bottom) Earnings revision is calculated by taking the difference between the number of analyst upgrades and analyst downgrades, divided by the total number of analyst revisions on a monthly basis. Earnings revision above 0 would mean that there were more upgrade revisions than downgrade revisions. 35

36 APAC ex-japan and Emerging Markets: Price-to-Book Valuations GTM Asia 36 MSCI AC Asia Pacific ex-japan P/B Ratio Trailing P/B ratio Asia Pacific ex-jp vs. Developed Markets Relative P/B Relative MSCI AC APxJ/MSCI World P/B 3.0x 2.5x +1 SD: 2.23x 1.4x 1.0x APxJ relatively more expensive compared to DM 2.0x Average: 1.90x Equities 1.5x 1.0x '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 MSCI Emerging Markets P/B Ratio Trailing P/B ratio 3.2x 2.8x 2.4x 2.0x +1 SD: 2.19x -1 SD: 1.57x 3/2015: 1.5x Average: 1.8x 0.6x APxJ relatively cheaper compared to DM 3/2015: 0.73x 0.2x '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 Emerging Markets vs. Developed Markets Relative P/B Relative MSCI EM/MSCI World P/B 1.4x 1.0x EM relatively more expensive compared to DM EM relatively cheaper compared to DM 1.6x 1.2x -1 SD: 1.43x 3/2015: 1.5x 0.8x '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 0.6x 0.2x '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 3/2015: 0.70x Source: MSCI, I/B/E/S, FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q

37 APAC ex-japan and Emerging Markets: Valuation Analysis GTM Asia 37 Equities MSCI Emerging Markets Trailing P/B Valuation Analysis Subsequent 12-month Performance % 49% 49% 6 33% 1 1% 11% 3% x x x x x x x x x x 2.8x + MSCI Emerging Markets Trailing P/B MSCI AC Asia Pacific ex-japan Trailing P/B Valuation Analysis Subsequent 12-month Performance P/B (3/2015): 1.5x P/B (3/2015): 1.5x 8% 9% 1% x x x x x x x x x x MSCI AC Asia Pacific ex-japan Trailing P/B 37% 15% Average Return Subsequent 12-month Returns Range -2 Average Return Subsequent 12-month Returns Range -28% -5-47% Source: MSCI, I/B/E/S, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q The total sampling size since September 1995, data permitting, included in the analysis is 223 months. 37

38 Emerging Markets: Returns GTM Asia 38 Equities 10-yrs ('05 - '14) Q '15 Ann. Ret. Ann. Vol. Russia China Brazil South South Brazil Africa Africa Indonesia Turkey China Indonesia Russia Indonesia Turkey 73.1% 82.9% % 128.1% % 38. Brazil Indonesia Turkey Mexico Indonesia Indonesia Mexico Mexico Asia e x- Japan India China China Russia % 74.1% % % % 29.1% 3.1% 23.9% 8.1% % 34 7 South Turkey Russia India China Russia Mexico India Russia Turkey India India Brazil Africa 56.1% % -50.8% % 18.7% % Mexico India China Asia ex- Asia ex- Asia e x- India India China Mexico China Japan Japan Japan Mexico India 49.1% % 20.9% -17.3% 22.7% % % % India Brazil Indonesia EME Turkey Turkey China Asia ex- South South Asia e x- EME Japan Africa Africa Japan Indonesia % % 97.5% 20.8% EME Mexico Asia ex- Japan Brazil EME Asia ex- Japan EME South Africa India Asia e x- Japan Indonesia Brazil China % % % % - 3.8% 4.8% South Africa Asia ex- Japan EME Indonesia Asia ex- Japan Russia Russia EME 28.3% 33.3% % 72.1% 19.1% % Asia ex- Japan EME Russia Turkey China EME Brazil Russia Brazil Mexico Mexico EME Mexico 22.7% 32.1% 24.5% -62.3% 62.3% 18.9% -21.8% 13.7% % -1.9% % China South South South India Africa Africa Africa Brazil Turkey Indonesia Indonesia Brazil Brazil Turkey EME 19.8% 20.5% 18.1% % 6.5% % % 23.7% Indonesia Turkey Mexico Russia Mexico China India Brazil Turkey Russia Turkey Russia Asia e x- Japan 15.1% % % % % 0.5% 22.5% South Africa EME EME South Africa South Africa Source: MSCI, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Returns are total (net) returns based on MSCI indices in dollar terms. 10-year total (net) return data are used to calculate annualized returns (Ann. Ret.) and 10-year price return data is used to calculate annualized volatility (Ann. Vol.) and reflect the period 31/12/04 31/12/14. 38

39 Emerging Markets: Index Composition GTM Asia 39 Emerging Markets Asia ex- Japan Brazil China China A Russia India South Africa Turkey Indonesia Mexico Country Cons. Discr % 11.8% n/a 8.8% % Cons. Staples 8.1% 5.5% 20.1% % 11.5% % Ene r gy % 10.5% 9.9% 3.3% 57.7% % n/a Equities Financials 28.5% 32.5% 35.1% % 31.1% % Health Care % 0.8% 2.1% 4. n/a 10.3% 6.9% n/a 2.8% 0. Industrials 6.8% 8.8% n/a % 13.1% 3.7% 9.5% Technology 19.1% 19.3% n/a 23. n/a n/a n/a n/a Materials 7.1% % 7.1% % % Telecom % 2.8% % 6.3% % % Utilities 3.3% 3.8% 4.8% 3.8% % 2.7% n/a n/a 3.8% n/a Forw ard P/E 11.9x 12.3x 12.2x 10.5x 12.6x 5.4x 17.7x 16.9x 9.7x 15.9x 18.6x Dividend Yield 2.7% % 2.9% % % % 1. Trailing P/B 1.5x 1.5x 1.3x 1.5x 1.8x 0.5x 3.1x 2.7x 1.5x 3.4x 2.6x ROE % 9.1% 14.5% % 10. β β ROE P/B Div P/E Sector Weights Source: MSCI, FactSet, Bloomberg, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Index weights are based on MSCI indices except for China A, which is CSI 300. Beta is calculated against MSCI AC World Index with a 10-year history using monthly data. Please see disclosure page at end for index definitions. 39

40 China: A vs. H-Shares GTM Asia 40 Hang Seng China A-H Premium Index* Forward P/E 30.0x 25.0x Equities '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 A-share Investment Accounts Opening Thousands 7,000 2,000 6,000 5,000 4,000 SHCOMP Index 3,000 2,000 1,000 0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 3/2015: /3/2015: 1,669,000 Weekly Incremental Investment Accounts Opened 27/3/2015: 3,691 1,500 1, x CSI x 10.0x MSCI China H Average (9.5x) 5.0x MSCI China H 0.0x '08 '09 '10 '11 '12 '13 '14 CSI 300 Average (12.0x) SH-HK Connect Quota Utilisation (Aggregate) RMB billions 150 Northbound** (HK to SH) Southbound* (SH to HK) 0 11/14 12/14 01/15 02/15 03/15 Exchange Quota (RMB, bn) Utilisation (RMB, bn) Utilisation Rate (%) Northbound % Southbound Source: Bloomberg, CICC, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top left) * The Hang Seng China A-H Premium Index tracks the average price difference of A shares over H shares for the largest and most liquid Chinese companies with both A-share and H-share listings. (Top right) MSCI China H Index is a subset of MSCI China Index by regrouping all large and mid-cap H shares which are incorporated on the mainland and traded in Hong Kong. (Bottom right) **Northbound: Hong Kong and overseas investors are allowed to trade certain stocks listed on the Shanghai Stock Exchange. Southbound: Mainland institutional investors and certain eligible individual investors are allowed to trade certain stocks listed on the Hong Kong Stock Exchange.

41 The Compounding Effect MSCI World Index: Performance Under Different Scenarios Index 100 = 1970 GTM Asia 41 Relative Difference 6,000 4,000 2,000 annualized Return Total Return (Dividends Received and Reinvested Back into Equities) 9.7% Total Return (Dividends Received and Reinvested in Cash)* 8.8% Total Return (Dividends Received but Not Reinvested) 7.3% Price Return 6.5% +45.1% % Equities 0 '70 '74 '78 '82 '86 '90 '94 '98 '02 '06 '10 '14 Total Return**: Dividends vs. Capital Appreciation Average annualized returns over 10 years 25% 15% 5% % % % Dividends with Compounding Capital Appreciation Asia Pacific 9.8% Other EM Regions % 5.9% % % % % 3.3% % 5.7% 7.1% % 3.5% 4.5% 5.3% 5.8% 5.9% 6. -5% Japan Taiwan Korea Australia Singapore Hong Kong Malaysia Thailand China Indonesia Philippines -0.5% -0. Russia Poland Turkey Brazil Mexico South Africa Europe (S&P 500) EM (Emerging Markets) AC Asia Pacific ex- Japan Source: MSCI, J.P. Morgan Asset Management Guide to the Markets Asia 2Q * Reinvestment in cash based on the average 3-month Treasury bill (secondary market) yield since 1970, which is 5.1% per annum. ** Returns are total (gross) returns based on MSCI indices in dollar terms. 41

42 High Dividend Equities GTM Asia 42 MSCI AC Asia Pacific ex-japan: Performance by Dividend Yield USD cumulative total return of quintiles with quarterly rebalancing (Jan base = 100) Top Quintile 2 nd Quintile 3 rd Quintile 4 th Quintile Bottom Quintile All Stocks Equities 0 '00 '02 '04 '06 '08 '10 '12 '14 Risk and Return Profile: High Dividend vs. Broad Index MSCI Indices annualized Return annualized Volatility Sharpe Ratio Asia Pacific ex-japan EM Source: FactSet, MSCI, CLSA, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top) Total returns based on MSCI indices in dollar terms. (Bottom) High dividend indices represented by each region s respective MSCI High Dividend Indices include data since 1999 for Asia Pacific ex- Japan, 2001 for emerging markets and 1995 for developed markets. DM HD Broad HD Broad HD Broad 11.5% 9.7% % % 19.1% 21.3% 21.7% 22.9% % Long-term Comparison: High Dividend vs. Broad Index Average rolling relative cumulative return of high dividend over broad index % 17% 1 7% 29% 5 1-year Return 3-year Return 5-year Return 5% Asia Pac ex-japan EM DM 1 42

43 Asia and EM Dividend Income GTM Asia 43 Equities Dividend Payout Ratio and Yield % 3.5% 2.5% Dividend Yield (RHS) Dividend Payout Ratio (LHS) Equity Dividend Yield by Sectors 5% 3% 1% Asia Pacific ex-japan EM DM Dividend Yield and Earnings Growth 3-year average Dividend Yield 5% 3% Poland Russia Australia Europe Singapore Hong Kong China Thailand Taiwan Malaysia APxJ South Africa Turkey EM Brazil Indonesia Asia Pacific Countries Other EM Countries Regions Japan 1.5% Philippines Korea Mexico 0.5% India 1% -5% 5% 1 15% 2 25% 3 Forward Earnings Growth Source: MSCI, FactSet, Standard & Poor s, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top left) Dividend yield is trailing (last 12 months) yield and dividend payout ratio is expected for Both yields and payout ratios are from respective MSCI indices, except the U.S, for which S&P 500 is used. (Right) Dividend yield and EPS growth are average values over the last 3 years from respective MSCI indices. Positive yield does not imply positive return. 43

44 Global Fixed Income: Yields and Returns GTM Asia 44 Fixed Income Global Bond Opportunities Asia Corporate HY Local CCY EMD Corporate HY USD EMD EM Corporates USD Asian Bond Europe HY DM Government Bond YTM 7.5% % 4.5% % Duration* (Years) Correl. to 10-year UST Fixed Income Sector Returns 5-yrs ('10 - '14) Q '15 Ann. Ret. Europe HY Asia HY Treas Europe HY Europe HY USD Asian Europe HY Europe HY 86.7% % 9.8% 28.5% 9.9% 8.3% 4.7% 11. Asia HY Europe USD Local Europe HY HY EMD EMD HY EM Corp Asia HY 74.3% % 19.9% HY HY DM Gov't USD EMD Asia HY Asia HY HY HY % % 4.3% 5.5% 2.5% 9. EM Corp Local EMD HY EM Corp Cash USD EMD USD Asian USD EMD 41.7% 13.1% % % 2.3% 7.3% USD Asian EM Corp USD Asian HY USD Asian Treas Asia HY USD Asian 28.3% 13.1% 4.1% 15.8% % % USD EMD USD EMD EM Corp USD Asian EM Corp EM Corp USD EMD EM Corp % 14.3% % 2.1% 6.8% Local EMD USD Asian Cash Asia HY Treas HY Treas Treas % % - 2.7% 2.5% % DM Gov't DM Gov't Europe HY Treas DM Gov't DM Gov't Cash Local EMD 1.9% % 0.8% % Treasury Cash 1.3% Cash Treas Asia HY Cash Local EMD Cash DM Gov't DM Gov't 0.1% 5.9% -5.9% 0.1% - 5.5% Local USD Local Local Cash DM Gov't Cash Treas EMD EMD EMD EMD % % % 44 Source: Bloomberg, Barclays Capital, J.P. Morgan, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Based on Barclays Aggregate Credit - Corporate High Yield Index ( HY), J.P. Morgan Government Bond Index EM Global (GBI-EM) (Local CCY EMD), J.P. Morgan Corporate Emerging Market Bond Index (CEMBI) (EM Corp), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Asia Credit Index (JACI) (USD Asian), Barclays Pan European High Yield (Europe HY), J.P. Morgan Government Bond Index Global Traded (DM Gov t), J.P. Morgan Asia Corporate High Yield Index (Asia HY), Barclays Global Treasury Bills (3-5 years) ( Treasury) and Barclays Treasury Bills (1-3 months) (Cash). 5-year data is used to calculate annualized returns (Ann.). Returns are in USD and reflect the period from 31/12/09 31/12/14. (Left) 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. Duration is expressed as number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. 10-year data is used to calculate the correlation to the 10-year UST. Positive yield does not imply positive return.

45 Global Fixed Income: Supply and Demand Dynamics GTM Asia 45 Estimated Annual Global Bond Demand USD trillions Pension and Insurance Retail Bond Funds G4 Commercial Banks Foreign Officials G4 Central Banks Total Forecast Estimated Annual Global Bond Supply USD trillions Other Government Total Forecast '07 '08 '09 '10 '11 '12 '13 '14 '15-1 '07 '08 '09 '10 '11 '12 '13 '14 '15 Fixed Income Real and Nominal Yields 9% 7% 5% 3% 1% -1% -3% 0.1% -0.1% % % -0.5% -2.5% 0.5% Nominal Yield (DM) Nominal Yield (EM) Real Yield % % % 2.7% 3.7% 5.9% 7.5% 7.8% 7.8% 8.3% % % -0.5% 0.5% % % 2.1% 1.3% 1.9% % Source: ICI, Bloomberg, J.P. Morgan Estimates, IMF, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Bottom) Real yield based on the last 12-month average CPI for each respective country. Nominal yields are the 10-year government bond yield for each respective country. 45

46 Global Fixed Income: High Yield Bonds Corporate High Yield Spread Comparison Spread to Worst, basis points 1, Average Since 2012 June 2014 Dec 2014 Mar 2015 Global High Yield High Yield European High Yield Asian High Yield EM High Yield Global High Yield Index Index Breakdown by Region GTM Asia 46, 7 Other, Europe, 1 Asia, 3% EM ex- Asia, 8% Fixed Income '12 '13 '14 '15 Sector Breakdown Across High Yield Indices 10 8% 7% 1 11% % 8 19% 7% 21% 1 15% % 5% 5% 7% 29% 2 13% % 1 1 8% 1 9% 7% 13% 2 23% 2 19% 2 18% 9% 5% Global Europe EM Asia Other TMT Energy Real Estate Industrial Healthcare Financial Consumer 46 Source: FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Left) Spreads indicated are benchmark yield-to-worst less comparable maturity Treasury yields. Asia corporate high yield is represented by the J.P. Morgan Asia Credit Corporate High Yield Index. 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. Global corporate high yield is represented by J.P. Morgan Global High Yield Index. Positive yield does not imply positive return. Data reflect most recently available as of 31/3/15.

47 United States: High Yield Bonds GTM Asia 47 High Yield Spreads and Defaults Average 3/2015 HY Spreads 5.9% 5.5% HY Defaults 3.9% 3. Maturity Profile USD billions % '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 ' or later Fixed Income Impact of Energy on High Yield Spread to worst HY ex-energy HY HY Energy 300 '10 '11 '12 '13 '14 '15 Use of High Yield Issuance % of total high yield issuance Refinancing Acquisition/LBO General Corporate Source: BofA Merrill Lynch, S&P, Moody s Investors Service, Markit, J.P. Morgan Economics, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top left) 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. Spreads indicated are benchmark yield-to-worst less comparable maturity Treasury yields. Yield-to-worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder. (Bottom right) Latest data as of 27/3/2015. Positive yield does not imply positive return.

48 United States: Sources of Bond Returns GTM Asia 48 Treasury Base Rate Return A Spread to Treasury Return B Coupon Return C Total Return A + B + C 5-yr. 1.3% % 1.7% 5-yr. 10-yr % 2015 YTD % 10.7% yr. 30-yr % % 30-yr. HY -3.3% -0.1% -1.1% % 1.7% 2.5% 2.5% HY Fixed Income EM (USD) IG Corp. MBS 0.3% 3.7% % 1.1% 0.7% % % 0.23% % % 4.8% 7.5% 6.1% 2.3% 2.3% 1.1% EM (USD) IG Corp. MBS Agg. 2.7% % % Agg Source: Federal Reserve, Barclays, J.P. Morgan Asset Management Guide to the Markets Asia 2Q All returns reflect year-to-date returns. Treasury base, spread and coupon returns based on Barclays and J.P. Morgan Asset Management estimates. The sum of charts A and B equate to price return for each sector and the sum of charts A, B and C do not add up to the total return due to rounding. Indices used include Barclays Treasury Bellwethers (10Y), Barclays Aggregate, Barclays Aggregate Credit Corporate Investment Grade, Barclays Aggregate Credit Corporate High Yield, Barclays MBS Index, Barclays Floating Rate Index, and Barclays Emerging Markets USD.

49 Asia: Sovereign Debt and Credit Markets GTM Asia year Government Bond Yields % Yield-to-Maturity Country (31/3/15) India 7.8% Indonesia 7.5% Malaysia 3.9% China 3.7% Philippines 4. Thailand 2.7% Australia 2.3% Korea % Asian Corporate Bond Index Breakdown Index breakdown % Index Breakdown (LHS) Index Breakdown (LHS) Yield-to-Maturity (RHS) 2 67% 33% IG HY Corp. Sov. Asian Currencies annualized Volatility Yield-to-maturity 1 8% Fixed Income % 7.5% % % % 11.7% 10.7% '09 '10 '11 '12 '13 '14 '15 1.7% % HKD RMB TWD PHP THB SGD IDR MYR KRW INR AUD NZD 49 Source: FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Right) Spreads indicated are benchmark yield-to-worst less comparable maturity Treasury yields. Asia corporate high yield is represented by the J.P. Morgan Asia Credit Corporate High Yield Index. corporate high yield is represented by the J.P. Morgan Domestic High Yield Index. Europe corporate high yield is represented by J.P. Morgan Europe High Yield Index. (Bottom right) 10-year currency data against the dollar is used to calculate the annualized volatility. Positive yield does not imply positive return.

50 Emerging Markets and Asia: Reserves Position and Credit Ratings GTM Asia 50 Short-term External Debt and Current Account Balance as % of Foreign Reserves (Excluding Gold) Threshold 1 11% % 8 108% 15% % 158% % 35% 29% China India Malaysia Turkey Mexico Thailand Brazil Philippines Indonesia South Africa Korea % % 33% EM and Asia Credit Ratings on Foreign Currency Long-Term Debt 2000 Fixed Income AAA Current AA A+ Asia Non-Asia A- Investment-grade BBB Threshold BB+ BB- B Singapore China Korea Malaysia Thailand Philippines India Indonesia Poland South Africa Mexico Brazil Turkey Source: Standard & Poor s, J.P. Morgan Economics, Federal Reserve, Bloomberg, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q

51 Emerging Markets: Current Account, Oil and Currencies GTM Asia 51 Current Account, Oil Trade Balance and Currency Performance FX return against USD YTD Currency Performance (LHS) 2014 Currency Performance (LHS) 2013 Currency Performance (LHS) Rolling Last 12M Current Account Balance as % of GDP (RHS) Net Oil Exports as % of GDP, 2014 IMF Estimates (RHS) As % of GDP 2 15% 1 5% -1-5% Fixed Income Russia (RUB) Brazil (BRL) Turkey (TRY) South Africa (ZAR) Indonesia (IDR) Malaysia (MYR) Mexico (MXN) India (INR) Singapore (SGD) Philippines (PHP) Taiwan (TWD) Thailand (THB) Korea (KRW) China (CNY) -1-15% -2-25% % RUB BRL TRY ZAR IDR MYR MXN INR SGD PHP TWD THB KRW CNY FX Return (2015 YTD) FX Return (2014) FX Return since CA as % of GDP Net Oil Exports as % of GDP Source: IMF, Reuters, FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q For China, the current account data are as of December

52 Emerging Markets Debt: Market Size and Spread Comparisons GTM Asia 52 Size of the Global Bond Market USD Trillions June EM and Corporate Investment-grade Comparison* (6) 15.7 (4) 35.0 (3) DM ex- 4.7 (39%) 16.8 (5) 48.0 (49%) EM 0.1 (1%) 1.3 () 14.4 (15%) World EM Average: 47bps 3/2015: 88bps '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 50 DM ex- GBI-EM (Loc. Cur. Sovereign) Spread over Treasuries** Fixed Income SD: 542bps 3/2015: 486bps Average: 422bps SD: 303bps 0 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 ' '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: BIS, FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Left) Latest data provided by the BIS as of 30/6/2014. *CEMBI Broad IG and JULI BBB Corporate Indices used for spread comparison. ** Spread calculation based on GBI-EM Global Diversified Index and 5-year Treasury due to similar duration comparison. Positive yield does not imply positive return. 52

53 Asset Class Returns GTM Asia 53 Other Assets and Investor Behavior 10-yrs ('05 - '14) Q '15 Ann. Ret. Ann. Vol. EM EM EM Asia DM Asia Asia EM REITs REITs REITs REITs ex- Asia ex-asia Bonds ex-asia ex- Japan Equities ex- Japan ex- Japan ex-asia 47.8% 35.9% 41.1% % 28.5% 8.7% 22.7% % 9.7% 27. Asia ex-japan EM ex-asia Asia ex-japan Cash Asia ex-japan Asia ex-japan EMD EMD High Yield Bonds REITs REITs REITs % 40.5% 1.8% 72.5% 19.9% 8.5% 18.5% % 8.3% 25.9% Asia High High High Asia Cmdty Diversified EMD Cmdty REITs Diversified EMD ex-japan Yield Bonds Yield Yield ex-japan % % % -10.9% % 7.8% 17.8% % 2.5% 7.7% 22.5% Diversified Diversified Cmdty High Yield Diversified EM ex-asia High Yield EM ex- Asia Asia ex- Japan DM Equities DM Equities % % 11.1% % % 5.5% 2.3% 7.7% 18.1% DM DM DM High DM Asia DM REITs Diversified Cash REITs EMD Diversified Equities Equities Equities Yield Equities ex- Japan Equities 12.1% 20.7% % 15.1% 0.1% 16.5% 2.5% 5.1% 2.1% 6.8% % EMD High Yield Bonds Cmdty REITs Diversified Diversified High Yield Cash High Yield Bonds EMD DM Equities Cmdty Diversified 10.7% 11.8% % % 15.8% % % DM DM DM EM High EMD EMD REITs EMD Diversified Dive rsified Dive rsified Equities Equities Equities Bonds ex- Asia Yield % 6.3% % % % 6.5% 11. Cash Cash Cash DM Equities Cmdty EMD Cmdty Bonds EMD Cash Cash % 4.8% % 18.7% % 8.8% High High Asia Asia EM EM Cash Cmdty Cash Yield Bonds Yield ex-japan Bonds Bonds ex- Japan ex- Asia ex- Asia Bonds 2.7% 4.3% 1.9% % 6.5% % 0.1% - 8.5% % 1.5% 3. Bonds Cmdty REITs EM ex-asia Cash Cash EM ex-asia Cmdty Cmdty EM ex- Asia Bonds EMD Cmdty Cmdty Cash % % % 0.1% % % - 3.3% 0.1% 53 Source: MSCI, Dow Jones, Standard and Poor s, Barclays Capital, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q The Diversified portfolio assumes the following weights: 2 in the MSCI The World Index (DM Equities), 15% in the MSCI AC Asia ex-japan (Asia ex-japan), 15% 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 Barclays Capital Aggregate ( Bonds), 1 in the Barclays Corporate High Yield Index ( High Yield), 5% in the DJ UBS Commodity Index (Cmdty), 1 in MSCI REITs Index ( REITs) and 5% in Barclays Treasury Bills (1-3 months) (Cash). Diversified portfolio assumes annual rebalancing. All data except commodities represent total return in 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 31/12/04 31/12/14. Please see disclosure page at end for index definitions.

54 Portfolio Construction, Asset Class Returns and Volatility GTM Asia 54 Annualized Returns and Volatility Total returns in USD, 3/2000 3/2015 Hypothetical Portfolio Construction (Breakdown of equities and alternatives / bonds and cash) 15% 1 High Dividend (HD) Equities Equities and Alternatives Bonds and Cash Portfolios AxJ HD APxJ HD EM HD REITs Balanced (5 / 5) EMD 15% REITs 1 DM 3 Annualized Returns 9% EMD Asian Bonds HY Balanced Bonds Conservative Aggressive APxJ DM HD Europe DM EM AxJ REITs 2 EMD 5% Bonds 5% HY 1 DM 2 EM 4 Cash 1 Bonds 1 HY 15% EM 1 Aggressive (8 / 2) EMD 1 REITs 5% DM 2 Other Assets and Investor Behavior 3% Cash Cmdty 5% 1 15% 2 25% Annualized Volatility Conservative (2 / 8) Cash 3 Bonds 2 EM 5% HY 1 Source: MSCI, Dow Jones, Standard and Poor s, Barclays Capital, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Hypothetical portfolios were created to illustrate different risk/return profiles and are not meant to represent actual asset allocation. USD total return calculations are based on MSCI Total Return, Barclays and J.P. Morgan indices. AxJ stands for MSCI AC Asia ex-japan and APxJ stands for MSCI AC Asia Pacific ex-japan. 54

55 Asset Class Correlations GTM Asia 55 Asia ex- Japan EM Equities Equities USD Asian Bond 10-year Correlations USD EMD EM Corp European High Yield High Yield Aggregate Dollar (DXY) Brent Cude Oil Asia ex-japan Gold Global REITs EM Equities Equities USD Asian Bond USD EMD EM Corp European HY HY Aggregate Dollar (DXY) Other Assets and Investor Behavior 55 Brent Crude Oil Gold Global REITs year Correlations Source: FactSet, Bloomberg, MSCI, Standard & Poor s, Barclays Capital, DJ UBS, J.P. Morgan Economics, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Correlations based on MSCI AC Asia ex-japan (Asia ex-japan), MSCI Emerging Markets (EM Equities), S&P 500 ( Equities), J.P. Morgan Asia Credit Index (JACI) (USD Asian Bond), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Corporate Emerging Market Bond Index (CEMBI) (EM Corp), Barclays Pan European High Yield Index (European High Yield), Barclays Corporate High Yield Index ( High Yield), Barclays Capital Aggregate ( Agg), Dollar DXY Index ( Dollar), Brent Crude Oil Price (USD/bbl) (Brent Crude Oil), London Gold PM Price Fixing (USD/oz) (Gold) and FTSE EPRA/NAREIT Developed REITs Index (Global REITs). 10-year correlations are based on monthly returns from 31/3/05 31/3/15, except for REITs as data were unavailable prior to April 2006 and 3-year correlations from 31/3/12 31/3/15.

56 Rate Rise Impact on Different Asset Classes GTM Asia 56 Other Assets and Investor Behavior Total Return Impact in a Rising Yield Environment Asset classes, rolling 3-month average total return (USD), YTD High Div. EM Equities EM Equities High Div. Asia Pac. ex-jp Equities Asia Pac. ex-jp Equities DM Equities High Div. DM Equities Convertible Bonds REITs High Yield Asian Bonds (USD) EMD (USD) EMD (LLC) IG Corporate Aggregate 10-year Treasury -3.1% -0.7% -0.7% % % 4.7% % % % 3% 9% 8.9% 8.8% Sectors Relative Total Return Impact in a Rising Rates Environment Rolling 3-month average total return (USD) relative to MSCI AC World broad index, YTD IT Material Energy Con. Disc. Industrials Financials Telecom Con. Stap. Health Care Utilities Composition of MSCI High Dividend Equity Indices Defensives Cyclicals Financials MSCI AC World % 16.7% MSCI World (DM) % 12.9% MSCI EM 21.7% 40.7% 37. MSCI AC Asia Pacific ex-japan % % -0.5% % 2.1% 1.5% 1.1% % 30.9% 56 Source: Barclays, MSCI, J.P. Morgan, BoA Merrill Lynch, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Left) Periods of rising yields are defined as rolling 3-month periods when the 10-year Treasury yields increased more than 25bps from January 1994 to March 2015, data permitting. Returns are total returns in dollar terms. Asset classes shown above include MSCI Emerging Markets High Dividend Index (data since 2001), MSCI World High Dividend Index (data since 1995), MSCI AC Asia Pacific ex-japan High Dividend Index (data since 1999), MSCI World Index, MSCI Emerging Market Index, MSCI AC Asia Pacific ex-japan Index, MSCI REIT Index (data since 1996), Barclays Treasury (10-year) Bellwethers Index, Barclays Corporate High Yield Index (data since 2002), Barclays Investment Grade Credit Index, Barclays Aggregate Index, J.P. Morgan EMBI Global Index, J.P. Morgan GBI-EM Broad Composite Index, J.P. Morgan Asia Credit Index (data since 1999) and BofA Merrill Lynch Convertibles Index.

57 Normalization of Monetary Policy and EM Equity Performance GTM Asia 57 Federal Funds Rate and MSCI EM Price Index Index 1,400 1,200 1, MSCI EM Fed Funds Rate 0 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 1 8% EM Equity Performance Around the First Fed Rate Hike Index, rebased first rate hike = /2/ /6/ /6/2004 Average # of trading days before and after the first rate hike Other Assets and Investor Behavior Relative EM / DM Equity Performance and USD REER Index, rebased 1993 = MSCI EM / MSCI The World (DM) USD REER 20 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 Source: FactSet, MSCI, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Bottom left) The Real Effective Exchange Rate (REER) is the weighted average of a country 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 country s currency, with other countries within the basket Equity Performance After the First Fed Rate Hike 1-month 3-month 6-month 12-month 4/2/ % /6/ % -5.5% 17.7% 7.7% 30/6/ % % 30.8% Average % 12.3% 6.3% 57

58 Dollar Exchange Rate GTM Asia 58 Other Assets and Investor Behavior Dollar Performance Index '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 ' Real Trade Weighted Exchange Rate Index (REER) Current Account Balance USD billions Value Dollar Index (DXY) % of GDP -250 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 ' % Currency Performance vs. USD % since the beginning of the USD uptrend in April 2011 China Korea Philippines Thailand Taiwan Singapore UK Malaysia Mexico Canada Europe India Australia Japan Indonesia Turkey South Africa Brazil Russia Argentina Asian Countries Other EM Countries -3. DM Countries % -8.5% -10.9% % -25.1% % % -34.5% -41.5% % -52.9% -53.7% 4.7% Source: Federal Reserve, Bureau of Economic Analysis, Reuters, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top left) The Real Trade Weighted Exchange Rate Index is the weighted average of a country 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 country s currency, with other countries within the basket. The Dollar Index is a trade-weighted index calculated using six major world currencies.

59 Asset Class Returns in Different Inflation Environments GTM Asia 59 High and Rising Inflation Occurred in 14 years since 1972 Rising inflation scenarios High and Falling Inflation Occurred in 7 years since 1972 Falling inflation scenarios Average Inflation: % 13% 20 7% 7% % % Average Inflation: 5.7% 13% na -8% 1 Other Assets and Investor Behavior Low and Rising Inflation Occurred in 7 years since % % 13% Low and Falling Inflation Occurred in 15 years since % 3% Average Inflation: 2. Average Inflation: % 8% 9% Median Inflation: Source: Bloomberg, Barclays Capital, Federal Reserve, NCREIF, Dow Jones, Strategas/Ibbotson, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Period returns are the arithmetic average of the nominal annual returns for the years specified by category. High or low inflation distinction reflects whether inflation was above or below the median from *High yield returns based on the period **Hedge funds based on the period Rising or falling inflation distinction is relative to the previous year. Commodities returns are based on GSCI, equities on the S&P 500 total return index, govt bonds are the Barclays Aggregate US Treasury Index, high yield is the Barclays US Corporate High Yield Index, real estate is based on NCREIF Total Property Index and hedge funds on the Credit Suisse Hedge Fund index.

60 Alternatives: Returns GTM Asia 60 Other Assets and Investor Behavior Q '15 Ann. Return Ann. Volatility Private Real Private Glb. Real Real Global Private Real MLPs MLPs MLPs MLPs Equity Estate Equity Macro Estate Estate Equity Equity Estate 28.3% % 4.7% % 13.9% % Global Private Eq. Mkt. Global Real Private Global Global Global Real MLPs MLPs MLPs Equity Equity Ntrl. Equity Estate Equity Equity Equity Equity Estate % 12.7% % % % % 18.8% Real Glb. Mrgr. Real Private Real Private Private Glb. Glb. Real Private MLPs Estate Macro Arb. Estate Equity Estate Equity Equity Macro Macro Estate Equity 13.7% 26.1% % % 5.8% % Distrsd. Global Equity HF Agg. Re l. Val. Re l. Val. Re l. Val. Mrgr. Arb. Re l. Val. Distrsd. Re l. Val. Mrgr. Arb. Global Equity % % 2.3% 9.7% 15. 1% 5.3% 2.3% % Distrsd. HF Agg. Distrsd. Re l. Val. HF Agg. Distrsd. Distrsd. Re l. Val. Distrsd. HF Agg. MLPs HF Agg. Rel. Val. Global Equity 9. 1% % % % % 8.5% % 1.7% % Mrgr. Mrgr. Global MLPs Distrsd. HF Agg. Distrsd. MLPs Re l. Val. HF Agg. Re l. Val. Distrsd. HF Agg. Arb. Arb. Equity 6.3% % % % % 7.5% 4.3% 1. 0 % % Eq. Mkt. Global Private Private Glb. Eq. Mkt. Eq. Mkt. Eq. Mkt. HF Agg. HF Agg. HF Agg. HF Agg. Rel. Val. Ntrl. Equity Equity Equity Macro Ntrl. Ntrl. Ntrl. 6.1% 13.3% 7.7% % - 0.7% % 6.9% Glb. Mrgr. Mrgr. Eq. Mkt. Eq. Mkt. Mrgr. Mrgr. Mrgr. Glb. Re l. Val. Distrsd. MLPs Distrsd. Macro Arb. Arb. Ntrl. Ntrl. Arb. Arb. Arb. Macro 6.1% % 6.8% % 11.9% % 3.1% 5.3% 1.9% - 0.7% 4.9% 4.5% Mrgr. Arb. Glb. Macro Eq. Mkt. Ntrl. Real Estate Glb. Macro Glb. Macro HF Agg. Mrgr. Arb. Glb. Macro Distrsd. MLPs 10-yrs ('05 - '14) Glb. Macro 5.5% % % 6.9% % 0.1% % Eq. Mkt. Ntrl. Eq. Mkt. Real Global Eq. Mkt. Eq. Mkt. Global Glb. Real Private Private Eq. Mkt. Mrgr. Re l. Val. Ntrl. Estate Equity Ntrl. Ntrl. Equity Macro Estate Equity Equity Ntrl. Arb. 5.3% % % 2.5% % - 0.5% % 3.5% 60 Source: Standard & Poor s, Alerian, HFRI, MSCI, Cambridge Associates, NAREIT, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Hedge fund indices include distressed and restructuring (Distrsd.), relative value (Rel. Val.), global macro (Glb. Macro), merger arbitrage (Mrger. Arb.), equity market neutral (Eq. Mkt. Ntrl.) and the aggregate (HF Agg.). MLPs stand for Master Limited Partnerships. 4Q14 and 1Q15 private equity data is unavailable and provided by Cambridge Associates. Real estate returns reflect the NAREIT Real Estate 50 Index and global equity returns reflect the MSCI AC World Index. Annualized volatility is calculated from quarterly data between 31/12/04 and 31/12/14, except for private equity, which reflect the period from 31/12/03 31/12/13 due to data availability.

61 Alternatives: Real Assets and Infrastructure GTM Asia 61 Income Comparison* 9% % % Breakdown of Infrastructure Deals Number of deals 1, YTD % 2.1% % Fixed Income Equities Global REITs Core RE Core+ RE OECD Core/Core+ Infra RE Mezzanine Debt 600 Other Assets and Investor Behavior Average Allowed Infrastructure Returns 1 1 8% Natural Gas Allowed ROE Electric Allowed ROE 10-year Treasury Rate Utility Bond Yields Recession Periods Region Sector 61 Source: Regulatory Research Associates, Preqin, J.P. Morgan Asset Management Global Real Assets, J.P. Morgan Asset Management Guide to the Markets Asia 2Q *Financial assets data is as of 31/3/15, and real assets data is as of 31/12/14. Barclays Capital Agg Yield-to- Worst, S&P 500 Dividend Yield, FTSE/EPRA NAREIT Global Developed REITs Dividend Yield, J.P. Morgan Core RE strategy trailing 12-month income return, J.P. Morgan Core-plus RE strategy trailing 12-month income return, J.P. Morgan OECD Infrastructure strategy trailing 12-month cash yield, J.P. Morgan Real Estate Mezzanine strategy trailing 12-month income yield. (Right) Other includes defense, waste management, logistics, government buildings, healthcare / medical facilities and telecommunications. Data as of 30/9/14.

62 Alternatives: REITs and Real Estate GTM Asia 62 REITs Market Composition Australia & New Zealand 7% Japan Asia ex-japan 7% Canada RoW 3% Europe 1 61% Market Cap (USD billions) 825 Europe 169 Asia ex- Japan 98 Japan 84 Australia & New Zealand 89 Canada 56 Rest of World (RoW) 40 Real Estate Unlevered property appreciation vs. NOI growth 1 8% - -8% Net Operating Income Growth Property Appreciation '10 '11 '12 '13 '14 Other Assets and Investor Behavior REIT Dividend Yield 10-year Government Bond Yield Yield Spreads Across Class-A Office Properties 5.5% 5. 8% Spread % % 3.3% year Benchmark Bond Yield % % 1.5% % 2.8% 3.7% % 2.3% 0.3% 1.9% 1.8% % Source: EPRA, BoA Merrill Lynch, MSCI, Bloomberg, FactSet, MacData, NCREIF, Jones Lang LaSalle, J.P. Morgan Asset Management Global Real Assets, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top right) NOI growth calculated from JPMAM-GRA and NCREIF, data as of 30/9/14. (Bottom left) Yields shown are for the appropriate FTSE NAREIT REIT index, which excludes property development companies. Total may not sum to 10 due to rounding. Positive yield does not imply positive return. 62

63 Commodities: Returns GTM Asia 63 Other Assets and Investor Behavior 10-yrs ('05 - '14) Q '15 Ann. Ret. Crude Oil Metals Crude Oil Gold Copper Iron Ore Gold Gold Energy (E) Gold Gold Gold 40.5% 53.9% % % 10.1% 7.1% 10.8% % 10. Copper Copper Metals & Mining (E) Gold (E) Metals Gold (E) Crude Oil Iron Ore Crude Oil Metals Gold (E) Copper 39.5% % % 32.7% % Metals & Metals & Energy Metals & Energy Energy Cmdty. Copper Metals Copper Gold (E) Mining (E) Mining (E) (E) Mining (E) (E) (E) Metals 36.8% % % 4. Gold (E) Gold Gold Energy Metals & Crude Oil Gold Cmdty. Copper Iron Ore Copper Copper (E) Mining (E) 29.3% % % % % 3.9% Energy Energy Metals & Energy Metals & Energy Gold (E) Metals Iron Ore Metals Iron Ore Metals (E) (E) Mining (E) (E) Mining (E) (E) % % 23.8% -17.1% 2.3% -8.5% -15.7% % Metals Gold (E) Cmdty. Crude Oil Gold (E) Metals & Energy Gold (E) Mining (E) (E) Cmdty. Cmdty. Metals Crude Oil % 11.1% % 32.5% % % Gold Crude Oil Copper Copper Energy Metals & Metals & Cmdty. Copper Cmdty. (E) Mining (E) Mining (E) Cmdty. Iron Ore 17.9% % % 16.7% % - 1.1% % - 5.9% 1.1% Cmdty. Cmdty. Metals Metals & Mining (E) Gold Crude Oil Metals Crude Oil Gold Crude Oil Crude Oil Gold (E) 17.5% -2.7% -8.3% -56.1% % -21.5% -7.1% -28.3% -45.9% % Note: Iron Ore data Energy Metals & Cmdty. unavailable prior to (E) Mining (E) Gold (E) Gold (E) Iron Ore Iron Ore Cmdty. 18.7% 9.1% % % -47.1% -27.9% -3.3% 63 Source: Bloomberg, MSCI, Dow Jones, Standard and Poor s, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (E) represents equity indices, while the rest represent spot price indices. Based on Crude Spot (WTI Cushing) (Crude Oil), LME Copper 3-Month Futures (Copper), Iron Ore Delivered to Qingdao China 6 Ferrous Content (USD/dry metric ton) (Iron Ore), Gold Spot (Gold), London Metal Exchange (LME) LMEX Metals Index (Metals), MSCI AC Metals and Mining Index (Metals & Mining (E)), MSCI AC Energy (Energy (E)), HSBC Global Mines Gold Mines Index (Gold (E)) and DJ UBS Commodity Index (Cmdty.). 10-yr data are used to calculate annualized returns (Ann. Ret.). These returns reflect the period from 31/12/04 31/12/14, except for Iron Ore where returns reflect the period from 31/12/08 31/12/14 due to data availability.

64 Commodities: Oil Supply and Demand Dynamics GTM Asia 64 Brent Crude and WTI Prices USD 120 Brent Crude Oil (USD/bbl) 90 Global Petroleum and Other Liquids Supply and Demand Annual change, million barrels per day World Consumption World Production 4 Net Demand* 2 60 WTI Crude Oil (USD/bbl) 0-2 EIA Forecast 30 '09 '10 '11 '12 '13 '14 '15-4 '09 '10 '11 '12 '13 '14 '15 '16 Other Assets and Investor Behavior Weekly Crude Oil and Petroleum Ending Inventory Million barrels, exclude Strategic Petroleum Reserve 1,240 1,200 1,160 1,120 1,080 1, Range ,000 Jan Mar May Jul Sep Nov Oil Exporters Production and Fiscal Breakeven Price Oil Production, 2013 (Million Barrels / Day) Brent Crude Oil Price (31/3/2015) USD 56/bbl Kuwait Saudi Arabia Russia UAE Iraq Iran Qatar Algeria Libya Oman Bahrain Yemen IMF 2015 Forecast Fiscal Breakeven Oil Price Source: EIA, IEA, IMF, Deutsche Bank, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top right) Net demand is world consumption minus world production. (Bottom right) Fiscal breakeven oil price is the country s 2015 breakeven oil price at which the fiscal balance is zero as estimated by the IMF, except Russia, which was estimated by Deutsche Bank, and Yemen s latest available data is

65 Commodities: Oil Price s Impact on Emerging Markets GTM Asia 65 Oil Imports Net imports (imports minus exports) as % of GDP, 2014 IMF estimates Brent Crude Oil Price and EM CPI Inflation Year-over-year % change Other Assets and Investor Behavior Thailand Korea Singapore Turkey Taiwan Hong Kong Hungary Philippines India South Africa Japan Indonesia New Zealand China Brazil Australia Mexico Malaysia Vietnam Iran Russia UAE Saudi Arabia -39.7% Asia Pacific Emerging Markets -27.1% % % % % % % % Brent Crude Oil Price EM CPI Inflation EM Asia CPI Inflation -8 '02 '04 '06 '08 '10 '12 '14 1 8% Source: IMF, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q

66 Global Households Financial Asset Allocation by Region GTM Asia 66 Households Financial Asset Class Breakdown Cash and Deposits Fixed Income Equities Mutual Funds Insurance and Pensions Others 3% 3 11% 1 11% % 9% 2 28% % 17% 31% 9% 1% 9% 1 7% 7% 3% 1% United States Eurozone United Kingdom Japan Australia Other Assets and Investor Behavior 7% 11% 7% 7 China 1 7% 45% % 8% 8% 21% 9% 1% 5% Hong Kong Singapore Taiwan Korea 23% 5% 45% 66 Source: OECD, Hong Kong Securities and Futures Commission, Statistics Singapore, Central Bank of the Republic of China (Taiwan), CEIC, Goldman Sachs Global Investment Research, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Eurozone includes Austria, Belgium, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Slovakia, Slovenia and Spain due to data availability. Hong Kong data are based on Stock Investor Survey (2006) by the Hong Kong Securities and Futures Commission, insurance are included in Others and pension are not included due to data availability. Equities and fixed income in total made up of 15% of Singapore households financial assets, simple 50/50 is taken for illustration purpose. China data are based on OECD, CEIC and Davies et al. (2009) paper, which was provided by Goldman Sachs Global Investment Research. Total may not sum to 10 due to rounding.

67 Investors Market Timing Market Timing of Retail Investors Rolling 3-month equity flows (USD billions) S&P 500 Index Mutual Fund + ETF Flows S&P 500 2,200 2,000 1,800 1,600 1,400 1,200 GTM Asia 67 S&P 500 Cumulative Price Return Since 1980* Hypothetical investment of $100,000 Implied Compounding Loss 2,000,000 Actual Loss from Missing Days 191,333 11,581 1,600, , ,883 1,121,587 1,200,000 45,465 1,955,068 75,780 1,752, , ,862 Other Assets and Investor Behavior '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 1, ,000 0 Stay Invested Missed Top 1 Day 1,197,563 Missed Top 5 Days 943,404 Missed Top 10 Days Under Different Scenarios 731,619 Missed Top 15 Days Source: FactSet, Standard & Poor s, Investment Company Institute, Lipper, J.P. Morgan Asset Management Guide to the Markets Asia 2Q * More than 9,000 trading days used to calculate the total cumulative price return of the S&P 500 index since 1/1/80. 67

68 Annual Returns and Intra-year Declines GTM Asia 68 MSCI AC Asia ex-japan Intra-year Declines vs. Calendar Year Returns Calendar Year Return Intra-year Decline Other Assets and Investor Behavior YTD '88 '89 '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 Source: FactSet, MSCI, J.P. Morgan Asset Management Guide to the Markets Asia 2Q Returns are price returns based on MSCI AC Asia ex-japan Index in dollar terms. Intra-year decline is the largest peak to trough decline during the respective year. 68

69 Real Return on Cash and Home Bias Average Annual Real Deposit Rate Based on respective country s deposit rate less year-over-year inflation GTM Asia % -3% - 3.3% 2.5% % % 0.3% % % -1.5% -1.7% % Korea Japan Taiwan China Thailand Malaysia India Singapore Hong Kong Institutional Investors Asset Allocation by Geography Other Assets and Investor Behavior Other Asia 8% Europe 13% North America North America 75% North America 2 Other Asia 13% Europe Europe 61% Europe 5% North America Other Asia Asia 8 69 Source: Ipreo, BNY Mellon, UN, CSIS The Future of Retirement in East Asia, IMF, FactSet, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top) Inflation based on the IMF s October 2014 World Economic Outlook. (Bottom) Investors Asset Allocation by Geography is based on BNY Mellon s Asia s Evolving Investment Landscape Considering Hong Kong, Mainland China and Singapore as Investment Sources survey, which depicts the asset allocation pattern of institutional clients around the world. Asian investor portfolio covers only Hong Kong, Singapore and Mainland China institutional investors.

70 Global and Asian Retirement Trends GTM Asia 70 Pension Investors Allocation in EMD and HY 2 15% EMD 18% % of Pension Plans with an Allocation to EMD or HY Average Allocation (%) 15% HY Aging Population % of population over % 5% 5% 5% 5% Japan Hong Kong Taiwan Korea Singapore China India Other Assets and Investor Behavior Perceived Retirement Savings Shortfall # of years Years of Savings Expected to Last After Retirement Years of Perceived Savings Shortfall After Retirement Preference on Benefit Allotment % of respondents Monthly Payments Lump Sum Payment Singapore Hong Kong Korea Taiwan China 70 Source: ICI, Bloomberg, J.P. Morgan Estimates, IMF, Mercer, HSBC Insurance, Cicero Consulting, UN, CSIS, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Top left) Based on Mercer s 2008, 2011 and 2014 European Institutional Market Place Overview Asset Allocation Survey with more than 1,200 institutional respondents across 14 European countries. (Bottom left) Based on HSBC s The Future of Retirement: A New Reality, with respondents from Australia, Brazil, Canada, China, Egypt, France, Hong Kong, India, Malaysia, Mexico, Singapore, Taiwan, UAE, United Kingdom and United States. It is based on the number of years people expect their savings to run out after retirement and how many years of perceived savings shortfall is needed after their savings are all consumed. (Bottom right) Response to the CSIS survey of non-retired respondents on their preference of how the benefit should be paid when they retire. Total does not sum up to 10 as some respondents did not see a change.

71 Fund Flows Cumulative Global Flows into Stock & Bond Funds USD billions, includes both mutual funds and ETFs since ,000 1,600 GTM Asia 71 Monthly and International Fund Flows USD billions, difference between stock and bond mutual fund flows Equities Exceed Bonds 1/2015: USD 2bn 1,200 Global Stocks -50 Bonds -75 Exceed -100 Equities '09 '10 '11 '12 '13 '14 '15 Other Assets and Investor Behavior Global Bonds 0 '03 '05 '07 '09 '11 '13 '15 Net Foreign Equity Flows into Asian Stock Market USD billions, net foreign equity flow India Indonesia Philippines South Korea Taiwan Thailand Source: Bloomberg, Investment Company Institute (ICI), Lipper, EPFR, J.P. Morgan Asset Management Guide to the Markets Asia 2Q (Left) Data include both mutual fund and ETFs. (Top right) Data include mutual funds but exclude ETFs. ICI data are subject to periodic revisions. (Bottom right) Equity flows are defined as net equity purchase (non-derivatives, non-etfs) by foreign investors registered in stock exchange in individual country, except for Taiwan, which includes ETFs. Countries include India, Indonesia, Philippines, South Korea, Taiwan and Thailand. Data reflect most recently available as of 31/3/ Q

72 J.P. Morgan Asset Management Index Definitions GTM Asia All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The S&P 500 Index is widely regarded as the best single gauge of the equities market. This worldrenowned index includes a representative sample of 500 leading companies in leading industries of the economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. The Tokyo Stock Price Index ('TOPIX') is a composite index of all common stocks listed on the First Section of Tokyo Stock Exchange (TSE).The index is basically a measure of the changes in aggregate market value of TSE common stocks. The base for the index is the aggregate market value of its component stocks as of the close on January 4, The aggregate market value is calculated by multiplying the number of listed shares of each component stock by its price and totaling the products derived there from. The Bombay Exchange Sensitive Index ( SENSEX), first compiled in 1986, was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing large, well-established and financially sound companies across key sectors. The base year of SENSEX was taken as SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. It is scientifically designed and is based on globally accepted construction and review methodology. Since September 1, 2003, SENSEX is being calculated on a free-float market capitalization methodology. The Korea Composite Stock Price Index ( KOSPI) is market capitalization based index on all common stocks listed on the Stock Market Division of the Korea Exchange (KRX) and excludes preferred stocks. The stock price index is calculated using the actual price traded on the market and not the base price used for market management such as establishment of price change limits. When no market price is available for issues that are not being traded or have halted trading, the latest closing price is used. KOSPI was a assigned a base index of 100 set to January 4, The China Shenzhen Composite Index is an actual market-cap weighted index that tracks the stock performance of all the A-share and B-share lists on Shenzhen Stock Exchange. The index was developed on April 3, 1991 with a base price of 100. 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 2007, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWI consisted of 45 country indices comprising 23 developed and 22 emerging market country indices. The 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 2007, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Pacific 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 2007, the MSCI Pacific Index consisted of the following 5 Developed Market countries: Australia, Hong Kong, Japan, New Zealand, and Singapore. The MSCI Europe ex UK Index SM is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe, excluding the United Kingdom. The MSCI Europe ex UK Index consists of the following 15 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland. The MSCI Pacific ex Japan Index SM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region, excluding Japan. As of June 2007, the MSCI Pacific Index consisted of the following 4 Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore. The MSCI USA Index SM is designed to measure the performance of the large and mid cap segments of the market. With 586 constituents, the index covers approximately 8 of the free float-adjusted market capitalization in the. The MSCI USA Index was launched on Dec ember 31, The MSCI China Index SM captures large and mid cap representation across China H shares, B shares, Red chips and P chips. With 148 constituents, the index covers about 8 of this China equity universe. The MSCI China Index was launched on December 31, The MSCI Indonesia Index SM is designed to measure the performance of the large and mid cap segments of the Indonesian market. With 25 constituents, the index covers about 8 of the Indonesian equity universe. The MSCI Indonesia Index was launched on December 31, The MSCI Korea Index SM is designed to measure the performance of the large and mid cap segments of the South Korean market. With 105 constituents, the index covers about 8 of the Korean equity universe. The MSCI Korea Index was launched on December 31, The MSCI India Index SM is designed to measure the performance of the large and mid cap segments of the Indian market. With 71 constituents, the index covers about 8 of the Indian equity universe. The MSCI India Index was launched on December 31, The MSCI Japan Index SM is designed to measure the performance of the large and mid cap segments of the Japan market. With 315 constituents, the index covers approximately 8 of the free float-adjusted market capitalization in Japan. The MSCI Japan Index was launched on December 31, The MSCI Hong Kong Index SM is designed to measure the performance of the large and mid cap segments of the Hong Kong market. With 42 constituents, the index covers approximately 8 of the free floatadjusted market capitalization of the Hong Kong equity universe. The MSCI Hong Kong Index was launched on December 31, The MSCI Taiwan Index SM is designed to measure the performance of the large and mid cap segments of the Taiwan market. With 113 constituents, the index covers approximately 8 of the free float-adjusted market capitalization in Taiwan. The MSCI Taiwan Index was launched on December 31, West Texas Intermediate (WTI) is the underlying commodity for the New York Mercantile Exchange's oil futures contracts. The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents nineteen separate commodities traded on exchanges, with the exception of aluminum, nickel, and zinc. The Dow Jones-UBS Commodity Subindexes represent commodity groups and sectors, as well as single commodities, that make up the Dow Jones-UBS Commodity Index. The subindexes track exchange-traded futures of physical commodities, and the commodity groups and sectors, like in the case of the broad index, are weighted to account for economic significance and market liquidity. The different subindexes are Energy, Livestock, Grains, Industrial Metals, and Precious Metals. 72

73 J.P. Morgan Asset Management Index Definitions, Risks and Disclosures GTM Asia Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. Price to book value compares a stock's market value to its book value. Price to cash flow is a measure of the market's expectations of a firm's future financial health. Price to dividends is the ratio of the price of a share on a stock exchange to the dividends per share paid in the previous year, used as a measure of a company's potential as an investment. Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise. The price of equity securities may rise, or fall because of changes in the broad market or changes in a company s financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. Equity securities are subject to stock market risk meaning that stock prices in general may decline over short or extended periods of time. Small-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies since smaller companies generally have a higher risk of failure. Historically, smaller companies' stock has experienced a greater degree of market volatility than the average stock. Mid-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies. Historically, mid-cap companies' stock has experienced a greater degree of market volatility than the average stock. Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies can raise or lower returns. Also, some markets may not be as politically and economically stable as other nations. Investments in emerging markets can be more volatile. The normal risks of international investing are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property. Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss. Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns. There is no guarantee that the use of long and short positions will succeed in limiting an investor's exposure to domestic stock market movements, capitalization, sector swings or other risk factors. Investing using long and short selling strategies may have higher portfolio turnover rates. Short selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions. 73

74 J.P. Morgan Asset Management Risks and Disclosures GTM Asia The Market Insights program 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 program 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. 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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. Prepared by: David Kelly, Tai Hui, Yoshinori Shigemi, Grace Tam, Ian Hui, Ben Luk and Akira Kunikyo. MI-GTMASIA-E April JPMorgan Chase & Co. Brazilian recipients: 74