www.jpmorganassetmanagement.com/insight
Europe Economy
3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Eurozone GDP and Inflation European Manufacturing PMIs European Unemployment European Structural Imbalances European Bank Lending and Credit Growth European Government Interest Rates European Bank Exposure Euro Exchange Rate Cash Accounts Sentiment Indicators European Economic Indicators
Global Economy
14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. Global Debt and Deficits Central Bank Monetary Stimulus and Inflation Expectations Global Trade: The Importance of Exports US GDP and Inflation US Cyclical Indicators US Consumer Finances US Housing and Labour Markets Federal Finances Japan GDP and Inflation Japan Indicators Emerging Market GDP Growth and Inflation China Economic Growth China Cyclical and Monetary Indicators Emerging Markets: China Auto Consumption Global Monetary Policy World Consumption and Growth Oil and the Economy
35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50.
Earnings and Valuations by Style Emerging Market Returns Income: Equities, REITS, and Fixed Income World Sector Returns Equity Dividends and Valuation Equity Correlations and Volatility Earnings Revisions Developed Market Equity Valuations by Country Emerging Market Equity Valuations by Country Europe Equity Valuations Sources of Earnings per Share Growth US Equity Valuations Japan TOPIX and Exchange Rate Emerging Market Equity Performance Emerging Market Dividends, Earnings Growth and Volatility Emerging Market Equity and Debt Composition
Fixed Income
51. 52. 53. 54. 55. 56. 57. 58. Fixed Income Returns Fixed Income Yields Investment Grade and High Yield Bond Spreads Convertible Bonds and Leveraged Loans Fixed Income Market Data Government Bond Yields Yield Curves and Real Interest Rates Credit and Money Supply Growth
Equities
31. 32. 33. 34. World Stock Market Returns MSCI Europe Index at Inflection Points European Indices US S&P 500 at Inflection Points
Europe Economy
3Q 2012 -0,6%
Eurozone inflation
Change year on year
5
Headline CPI
Core CPI
2,2%
1,6%
2,2%
1,4%
-2
-4
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
Europe Economy
2011 May Aug Nov Dec Sep Mar Feb Jun Jan Apr Oct Jul
Switzerland Sweden Germany Austria France UK Denmark Netherlands Italy Spain Ireland Norway Greece
61,9 60,6 59,9 62,2 59,5 58,5 58,1 54,2 53,8 52,0 49,3 47,7 45,6 49,1 47,3 49,0 51,1 46,9 45,4 48,1 48,6 46,7 43,6 46,1 48,5 61,3 60,2 61,5 60,9 58,6 59,8 56,1 52,9 50,1 48,7 48,1 49,8 47,6 48,9 51,4 50,3 50,2 50,2 49,0 48,4 50,6 45,1 44,7 43,1 43,2 58,1 60,7 60,5 62,7 60,9 62,0 57,7 54,6 52,0 50,9 50,3 49,1 47,9 48,4 51,0 50,2 48,4 46,2 45,2 45,0 43,0 44,7 47,4 46,0 46,8 55,2 57,7 60,3 61,9 60,6 57,0 55,6 53,0 50,8 50,1 48,7 48,0 47,6 49,0 51,8 52,0 51,5 51,2 50,2 50,1 47,4 46,7 45,1 44,8 49,3 57,9 57,2 54,9 55,7 55,4 57,5 54,9 52,5 50,5 49,1 48,2 48,5 47,3 48,9 48,5 50,0 46,7 46,9 44,7 45,2 43,4 46,0 42,7 43,7 44,5 59,4 58,2 59,1 58,8 55,1 54,0 52,5 51,7 49,9 49,7 51,1 48,6 48,1 49,9 51,6 50,8 51,5 50,0 46,1 48,4 45,1 49,6 48,8 47,3 49,1 55,5 63,1 58,0 61,2 62,4 62,8 59,0 58,2 58,2 54,6 63,0 42,9 47,5 59,3 53,1 54,8 51,0 63,4 52,4 52,1 47,0 50,6 50,0 55,6 56,7 56,5 57,5 57,5 60,7 58,1 59,2 55,1 52,1 51,4 50,7 48,9 48,0 46,0 46,2 49,0 50,3 49,6 49,0 47,6 48,9 48,9 49,7 50,7 48,9 48,2 51,2 52,2 55,8 56,7 55,7 56,0 51,8 49,8 48,2 49,7 47,3 50,1 48,5 48,6 48,3 49,7 51,5 50,1 51,2 53,1 53,9 50,9 51,8 52,1 52,4 50,0 51,5 52,0 52,1 51,6 50,6 48,2 47,3 45,6 45,3 43,7 43,9 43,8 43,7 45,1 45,0 44,5 43,5 42,0 41,1 42,3 44,0 44,5 43,5 45,3 51,2 52,2 55,8 56,7 55,7 56,0 51,8 49,8 48,2 49,7 47,3 50,1 48,5 48,6 48,3 49,7 51,5 50,1 51,2 53,1 53,9 50,9 51,8 52,1 52,4 55,7 54,4 55,2 57,9 57,2 55,6 56,9 56,1 56,5 54,9 53,8 50,2 49,1 46,8 54,6 56,1 59,1 52,8 54,0 46,3 50,0 48,8 49,2 49,0 50,1 43,9 43,1 42,8 42,8 45,4 46,8 44,5 45,5 45,2 43,3 43,2 40,5 40,9 42,0 41,0 37,7 41,3 40,7 43,1 40,1 41,9 42,1 42,2 41,0 41,8
Note: Heatmap colours are based on PMI relative to the 50 level, which indicates expansion or contraction of the sector, for the time period shown. Source: Markit, J.P. Morgan Asset Management.
Europe Economy
Unemployment rate
22
%
20
18
Italy Germany
16
14
Greece
Ireland
62
63 61 69 64 66 62 66 64
39
50 38 65 56 48 45 72 57
45
55 47 60 70 60 52 72 65
44
29 29 8 8 30 46 23 21
12
Italy
10
Japan Netherlands
International
Portugal
6
Spain Sweden
UK
2 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
US
65
60*
62
17
(Left) Note: Greece, Ireland, and Spain unemployment rate is average of each countrys harmonised unemployment rate. Source: Eurostat, FactSet, J.P. Morgan Asset Management. (Right) Note: *2010 figure. Effective retirement age is the male average retirement age over the period 2006 2011. Official retirement age listed in parenthesis, subject to variations between public and private sectors, length of service etc. Youth unemployment is those aged less than 25 years. Source: OECD, Eurostat J.P. Morgan Asset Management.
Europe Economy
-3
Dec 00
Dec 10
Dec 95
Dec 00
Dec 05
Dec 10
(Left) Note: Latest data August 2012. Source: IMF, J.P. Morgan Asset Management. (Right) Note: Latest data 3Q 2012. Data rebased to 100 at 4Q 1998. Unit labour cost measures the average cost of labour per unit of output and is calculated as the ratio of total labour cost to real output. Source: ECB, J.P. Morgan Asset Management.
Europe Economy
Bank reserves
Trillions 1,0 EUR ECB current account (lhs) ECB deposit facility (lhs) 0,8 US bank excess reserves (rhs) 1,2 1,6 USD
Spain
300 Italy
0,6
0,8 0,4
200
0,4 0,2
100
0,0 Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
0,0 Dec 12
0 Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Europe Economy
%
30
Euro launch
25
20
15
LTRO
International
10
OMT
Europe Economy
200
Germany
UK
2Q 2008 UK oya Country of issuance 2Q 2012 UK now Italy Spain Portugal US oya 2Q 2008 Ireland Greece
100
50
US
2Q 2012 US now
0
100 200 300 400 500 600 700 800 900 1000
0 Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
(Left) Source: BIS, J.P. Morgan Asset Management. (Right) Note: The price of a credit default swap (CDS) measures the cost of insuring a bond against default. For example, for a five year CDS a price of 100 basis points means it costs the insurer of the bond EUR 10.000 per year to insure EUR 1.000.000 for five years. Source: Markit, Bloomberg, J.P. Morgan Asset Management.
Europe Economy
1,6
1,5
120
1,4
1,3
110
1,2
1,1
100
1,0
0,9
90
0,8
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
10
Europe Economy
%
60
EUR
Income
Inflation (y/y)
58 56
4.000
54 52
3Q 2012: 49,0%
50
48 46
44 42 Dec 01
0
Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
11
(Left) Note: Excess means the amount above the December 2006 value. Source: European Central Bank, Eurostat, J.P. Morgan Asset Management. (Right) *Blue marker points represent year on year inflation for that year and illustrates how the value of income that would have been eroded due to inflation in that year. Inflation is realised inflation from 2000-2006, expected annual inflation thereafter. Source: Bloomberg, Eurostat, J.P. Morgan Asset Management.
Europe Economy
Industrial confidence
30
115
20
110
10
105 100
0
95
-10
90
-20
85
-30
(Left) Note: Exponential moving average. Source: CESIfo Group, FactSet, J.P. Morgan Asset Management. (Right) Last data November 2012. Source: Eurostat, FactSet, J.P. Morgan Asset Management.
12
Europe Economy
GDP (y/y) Country Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland 3Q 2012 0,7% -0,3 -0,3 -1,1 0,0 0,4 -6,9 0,8 -2,4 -1,5 1,2 -3,5 -1,6 0,7 1,4 3Q 2011 1,8% 1,4 -0,1 3,1 1,5 2,6 -4,0 1,0 0,4 0,9 4,2 -1,8 0,6 4,2 1,5
Inflation (y/y) Nov 2012 2,8% 2,3 2,3 2,2 1,4 1,9 1,0 0,8 2,5 2,8 1,1 1,9 2,9 -0,1 -0,3 Nov 2011 3,6% 3,8 2,6 3,4 2,5 2,4 2,9 2,9 3,3 2,3 1,2 3,9 2,9 2,5 -0,6
Unemployment rate Nov 2012* 4,3% 7,5 7,7 7,9 10,7 5,4 24,4 14,7 11,1 5,6 3,0 16,3 26,2 8,1 3,1 Nov 2011 4,3% 7,2 7,9 7,6 9,8 5,6 20,7 15,0 9,4 4,9 3,4 14,1 23,0 7,4 2,8
*Unemployment rate is November 2012 or latest available. Source: Eurostat, ONS, FactSet, J.P. Morgan Asset Management.
13
Global Economy
8 Ireland
India (2006)
Mexico (2009)
Germany
Ice.
Portugal
Italy
2
China (2010)
-8
20
40
60
180 220
200 240
220 260
20
40
60
140
160
180
14
Note: The chart on the left uses gross debt (% of GDP) as this is one of the three criteria stipulated in the Maastrict Treaty. The chart on the right uses the 2012 estimate of net debt (% GDP). Net debt is calculated as gross debt minus financial assets corresponding to debt instruments. The peak is taken as the highest gross debt as % of GDP in the period 2006 to 2012 with the corresponding deficit (% of GDP) figure for that year. Peak is 2012 unless otherwise stated. Ice. is Iceland with peak debt to GDP ratio in 2011. Source: IMF WEO October 2012 edition, Tullet Prebon, FactSet, J.P. Morgan Asset Management.
Global Economy
3,0
UK US
2,5
1 Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
1,0 May 07
May 08
May 09
May 10
May 11
May 12
15
(Left) *This is M0, or the total amount of a currency that is either circulated in the hands of the public or in commercial bank deposits held in the central bank's reserves. Source: US Federal Reserve, Bank of England, ECB, J.P. Morgan Asset Management. (Right) Note: Ten-year zero-coupon inflation swaps. Source: Bloomberg, J.P. Morgan Asset Management.
Exports as % of GDP
Latest 12 months, goods and services exports
9,8%
5,0
US
13,7%
18,1
Global Economy
9,5
1,7
27,8%
12
2,4
7,1
1,0
20,2
30,6%
3 1984
1989
1994
1999
2004
2009
7,3
13,7%
9,4
14,4%
22,2% 24,7%
12,9
1,7
8,5
2.000
12,9 2,1 12,2
32,5%
18,3
3,3
16,0
4,9
42,6%
10
20
30
40
500 Dec 84
Dec 89
Dec 94
Dec 99
Dec 04
Dec 09
16
(Left) Source: IMF, MDIC, Indian Ministry of Commerce & Industry, China Customs, Bank of Russia, BEA, Japan Customs, ONS, French Ministry of Economy, Finance & Industry, ISTAT, German Federal Statistics Office, FactSet, J.P. Morgan Asset Management. (Top Right): Source: WTO, J.P. Morgan Asset Management. (Bottom Right) Note: The Baltic Dry Index measures changes in the cost of transporting raw materials by sea for different geographical routes and ship sizes. The index may be used as an indicator of demand for raw materials and leading indictor of economic growth. Source: Bloomberg, J.P. Morgan Asset Management.
Real GDP
Change quarter on quarter, SAAR
10
Q3 2012 3,1%
Inflation
Change year on year
15
Global Economy
8
12
6 4
9
2 0 -2 -4 -6
0 6
-8
-3 1964
1969
1974
1979
1984
1989
1994
1999
2004
2009
Note: SAAR is seasonally adjusted annual rate. Source: BEA, J.P. Morgan Asset Management.
17
Global Economy
Dec 09
Dec 09
Housing starts
Thousands, seasonally adjusted annualised rate
2.400 2.000 1.600 1.200 800
Average: 1.433
60 55 50
Average: 57,3
18
(Top left) Source: BEA, J.P. Morgan Asset Management. (Top right) Source: Census Bureau, J.P. Morgan Asset Management. (Bottom left) Source: Census Bureau, J.P. Morgan Asset Management. (Bottom right) Note: Capital goods orders deflated using the producer price index for capital goods. Source: Census Bureau, J.P. Morgan Asset Management.
Global Economy
14
3Q07: 14,1%
4 2
13 -5
0 Dec 59
Dec 69
Dec 79
Dec 89
Dec 99
Dec 09
Household Assets
-10 12 USD trillions 90 Total assets: 4% below 2007 peak
75
30 Dec 99
19
(Left) Note: Latest DSR data September 2012 Source: US Federal Reserve, J.P. Morgan Asset Management. (Top right) Note: Personal savings rate is calculated as personal savings (after tax income personal outlays) divided by after tax income. Employer and employee contributions to retirement funds as included in after tax income but not in personal outlays, and thus are implicitly included in personal savings. Source: BEA, J.P. Morgan Asset Management. (Bottom Right) Source: FRB, FactSet, J.P. Morgan Asset Management.
100
1957
1999
2001
Global Economy
98
140 6,0 130
5,5
Employment level
2008 96
5,0
120
94
92
3,0 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 90
12
24
36
48
60
20
(Left) Note: Latest data October 2012 for Case-Shiller price index and November 2012 for existing home sales. Case-Shiller price index and median sales price rebased to 100 at December 1999. Source: Robert Shiller, J.P. Morgan Asset Management. (Right) Note: *US Non-Farm Private Payrolls. Latest data November 2012. Source: BEA, J.P. Morgan Asset Management.
Global Economy
0 22 -2
2012: 22,8%
-4
20
Average: 20,5%
-6 Fiscal cliff scenario -8 New Years compromise 16 -10 18 Average: 17,9% 2012: 15,8%
-12 1990 1994 1998 2002 2006 2010 2014 2018 2022
(Left) Note: 2012 numbers are actuals. Years shown are fiscal years (1 October through 30 September). Source: CBO, J.P. Morgan Asset Management. (Right) Source: US Treasury, CBO, J.P. Morgan Asset Management.
21
Real GDP
Change year on year
6
Q3 2012 0,5%
Inflation
Change year on year
3
Global Economy
4
2
2
1
-2
-4
-1
-6
-2
-8
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
Source: Ministry of Internal Affairs and Communications, Economic & Social Research Institute, FactSet, J.P. Morgan Asset Management.
22
Global Economy
2012*: 1,6%
15 0 -15
Sep 2012: 8
3 2
Non-manufacturing index
Sep 2012: -3
-30
1 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
TOPIX Index
100
75 Dec 87
Dec 92
Dec 97
Dec 02
Dec 07
Dec 12
(Top Left) Note: *IMF estimate. Source: IMF WEO October 2012 edition, FactSet, J.P. Morgan Asset Management. (Bottom Left) Source: TOPIX, FactSet, J.P. Morgan Asset Management. (Bottom Right): Note: REER is the real effective exchange rate of a currency against a basket of its main trading partners currencies. Source: FactSet, J.P. Morgan Asset Management.
23
Brazil
15 18
Russia
15 18
GDP %
12 9
Inflation %
15 12 9 6 3 0 -3
GDP %
12 9 6
Inflation %
15 12 9 6
Global Economy
Average: 3,5%
Average: 5,4%
3 0 -3
India
18 15
China
15 12 9 6 18
GDP %
15 12 9 6 3 0 -3 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07
Inflation %
12
Average: 7,2%
Inflation %
15 12 9 6
9 6
3
0
3 0 -3
0
-3
-3 Dec 09 Dec 11
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
Note: Real GDP growth and inflation are year on year change. Source: IBGE, India Central Statistics Organisation, Press Information Bureau of India, National Bureau of Statistics, Federal Service of State Statistics, FacSet, J.P. Morgan Asset Management.
24
Real GDP
Change year on year
15
Q3 2012 7,4%
0,4%
Global Economy
12
4,2% -0,4%
-4 2011 2012*
11 % 10 9 8
10,0%
9,1%
10,4%
10,0%
9,1% 8,2% 7,0%
7 6
6,1%
5
4
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
4q10
2q11
4q11
2q12
Note: Latest data September 2012. *2012 is year to date GDP through Q3 2012. Source: National Bureau of Statistics of China, J.P. Morgan Asset Management.
25
Manufacturing PMIs
Index level, level above 50 indicates expansion 60
Global Economy
55
50
45 Dec 09
Jun 10
Dec 10
Jun 11
Dec 11
Jun 12
Dec 12
-60 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
Avg since 1999 Nov 2012 Headline CPI Ex Food CPI 2,3% 0,8% 2,0% 1,6%
%
20
%
7,5 7,0
%
8 6 4 2 0
15
6,5 6,0
10 5,5
-2
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
26
Note: NBS Mfg PMI covers approximately 800 companies with a bias toward state-owned and large enterprises, while the Markit Mfg PMI includes 400 companies with a bias toward small and medium-sized companies. Source: National Bureau of Statistics of China, Markit, The Peoples Bank of China, China Economic Information Network, FactSet, J.P. Morgan Asset Management.
Auto Sales
Millions of units, seasonally adjusted annualised rate 25 20 United States China
Global Economy
15
10
5 0 Dec 00
Dec 02
Dec 04
Dec 06
Dec 08
Dec 10
Source: BEA, China Automotive Information Net, World Bank, J.P. Morgan Asset Management.
27
Global Economy
7,5
6,0
4,5
3,0
5
1,5
4
0,0
3
China Brazil
India
UK
US
-3,0
Developed
Emerging
2 Dec 00
Dec 02
Dec 04
Dec 06
Dec 08
Dec 10
Dec 12
28
(Left) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shown year on year change in CPI inflation for latest month. Real policy rates are short-term target interest rates less the year on year change in inflation. Source: BOE, Federal Reserve, ECB, BOJ, Central Bank of Mexico, Banco Central do Brasil, South African Reserve Bank, Reserve Bank of India, Bank of Korea, Bank of Russia, Peoples Bank of China, FactSet, J.P. Morgan Asset Management. (Right) Source: FactSet, J.P. Morgan Asset Management.
Developed
Global Economy
90
80 52% 70 68% 60 64%
45 45%
40
35
50 40 30 48% 20 32% 36% 20 30
55%
25
10
0 1980's 1990's 2000's 2010-2017 15 1990
1994
1998
2002
2006
2010
(Left) Source: IMF, United Nations, J.P. Morgan Asset Management. (Right) Note: Share of global consumption based on household consumption and does not include government consumption. Source: IMF, United Nations, Factset, J.P. Morgan Asset Management.
29
China
Canada
Global Economy
Libya 0,6%
Egypt 0,8%
Saudi Arabia 12,8% Strait of Hormuz 17,0% UAE 3,6% Bab el-Mandeb 3,4%
Sudan 0,5%
14 12 10
Selected producers
% of global total, 2011
Selected consumers % of global total, 2011 5% US 5% China 22% India 10% Russia 5% Saudi Arabia 4% 3% 3%
2 0 Dec 12
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
30
(Top Left) Source: World Bank, J.P. Morgan Asset Management. (Bottom Left) Note: Brent is the European crude oil benchmark. Henry Hub is the standard US domestic benchmark, measured in millions of British thermal units. (Right) Note: Forecast from the September EIA Short-Term Energy Outlook. Source: EIA, IMF, J.P. Morgan Asset Management.
2003
EUR Local
30,0% MSCI EM 46,7% 22,3% MSCI Asia ex Japan 45,0%
2004
16,9% MSCI EM 16,4% 12,6% MSCI Europe 12,7% 9,2% MSCI Asia ex Japan 11,9% 8,1% Japan TOPIX 11,3% 2,9% US S&P 500 10,9%
2005
55,0% MSCI EM 35,8% 45,3% Japan TOPIX 45,2% 41,9% MSCI Asia ex Japan 24,1% 26,7% MSCI Europe 25,5% 20,9% US S&P 500 4,9%
2006
20,2% MSCI Europe 19,6% 19,6% MSCI Asia ex Japan 28,6% 18,6% MSCI EM 28,9% 3,6% US S&P 500 15,8% -8,7% Japan TOPIX 3,0%
2007
26,7% MSCI Asia ex Japan 38,0% 26,1% MSCI EM 33,5% 3,2% MSCI Europe 6,5% -4,9% US S&P 500 5,5% -14,5% Japan TOPIX -11,1%
2008
-23,0% Japan TOPIX -40,6% -33,7% US S&P 500 -37,0% -43,3% MSCI Europe -38,5% -49,8% MSCI Asia ex Japan -47,7% -50,8% MSCI EM -45,7%
2009
73,4% MSCI EM 62,8% 67,2% MSCI Asia ex Japan 67,2% 32,5% MSCI Europe 28,6% 22,5% US S&P 500 26,5% 1,5% Japan TOPIX 7,6%
2010
28,3% MSCI Asia ex Japan 15,6% 27,5% MSCI EM 14,4% 23,9% Japan TOPIX 1,0% 23,1% US S&P 500 15,1% 11,7% MSCI Europe 7,5%
2011
5,5% US S&P 500 2,1% -7,5% MSCI Europe -8,8% -9,6% Japan TOPIX -17,0% -14,3% MSCI Asia ex Japan -14,6% -15,4% MSCI EM -12,5%
2012
20,8% MSCI Asia ex Japan 19,7% 18,1% MSCI Europe 16,4% 16,8% MSCI EM 17,4% 14,2% US S&P 500 16,0% 5,9% Japan TOPIX 20,9%
4Q 2012
4,5% MSCI Europe 5,2% 3,1% MSCI Asia ex Japan 5,1% 3,1% MSCI EM 5,4% 2,5% Japan TOPIX 16,7% -2,8% US S&P 500 -0,4%
Ten-yr Ann.
14,2% MSCI EM 15,3% 12,4% MSCI Asia ex Japan 14,0% 6,5% MSCI Europe 6,9% 4,7% US S&P 500 7,1% 2,7% Japan TOPIX 1,8%
Equities
15,8% MSCI Europe 20,3% 15,3% Japan TOPIX 25,2% 7,1% US S&P 500 28,7%
Note: Annualised return covers the period 2003 to 2012. Total return indices. Source: MSCI, TOPIX, Standard & Poors, FactSet, J.P. Morgan Asset Management.
31
Characteristic Index level P/E ratio (fwd) Dividend yield Ten-year treasury
1.600
1.400
Equities
1.200
1.000
+61%
800
600
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
32
Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by I/B/E/S. Ten-year treasury is the BoA/Merrill Lynch Euro Government (7-10Y) Index. Source: BoA/Merrill Lynch, I/B/E/S, FactSet, J.P. Morgan Asset Management.
Norway: OBX
300
German: DAX
100
France: CAC
200
80 60
100
Austria: ATX
40
Finland: OMX
Equities
0 Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
20 Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
120 100 80 60
Spain: IBEX 35
Netherlands: AEX
40
Dec 09 Dec 11
Dec 01
Dec 03
Dec 05
Dec 07
20 Dec 99
Note: All indices rebased to 100 at 31 December 1999. Source: FactSet, J.P. Morgan Asset Management.
33
24 Mar 2000: Characteristic P/E = 22,7x Index level 1.527 P/E ratio (fwd)
Dividend yield
10-year Treasury
1,1%
6,2%
1,8%
4,7%
2,2%
1,8%
1.400
1.200
-49%
+101%
-57%
+111%
Equities
1.000 800
Dec 99
Dec 00
Dec 01
Dec 02
Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by I/B/E/S. Source: Standard & Poors, I/B/E/S, FactSet, J.P. Morgan Asset Management.
34
Blend
12,5 16,2
Growth
15,2 20,9 16,7 21,8
Equities
Small
Mid
Blend
76,9%
Eg: Large cap blend stocks are 23,1% P/E cheaper than their Growth historical average.
72,7%
Mid
91,0%
88,3%
76,6%
Small
92,9%
85,7%
76,6%
(Left) Note: EPS levels are based on operating earnings per share. Most recently available data is 3Q 2012. Source: Standard & Poors, FactSet, J.P. Morgan Asset Management. (Right) Source: Standard & Poors, Russell Investment Group, I/B/E/S, FactSet, J.P Morgan Asset Management.
35
2003
EUR
44,5% EM Latin America 60,8% 41,5% EM Europe 62,1%
2004
29,6% EM Latin America 32,2% 29,3% EM EMEA 24,5%
2005
74,2% EM Europe 59,2% 73,3% EM Latin America 38,0% 59,9% EM EMEA 50,4% 55,0% Emerging Markets 35,8% 46,9% EM Asia 28,5%
2006
28,3% EM Latin America 37,6% 22,2% EM Europe 32,8%
2007
35,9% EM Latin America 35,6% 27,7% EM Asia 39,1% 26,1% Emerging Markets 33,5% 17,6% EM Europe 22,3%
2008
-37,2% World -38,3% -48,8% EM Latin America -37,7% -50,3% EM Asia -47,1% -50,8% Emerging Markets -45,7% -53,3% EM EMEA -48,6%
2009
97,8% EM Latin America 63,2% 80,4% EM Europe 73,6% 73,4% Emerging Markets 62,8% 68,8% EM Asia 68,1%
2010
32,4% EM EMEA 19,2%
2011
-1,8% World -5,0%
2012
23,2% EM Europe 18,6%
4Q 2012
3,9% EM Europe 4,5%
Ten-yr Ann.
20,2% EM Latin America 20,0% 14,2% Emerging Markets 15,3% 13,3% EM EMEA 14,7%
Local
27,6% EM Asia 14,9% 27,5% Emerging Markets 14,4% 25,2% EM Europe 18,9% 22,9% EM Latin America 9,2% 20,1% World 10,6%
-14,4% EM Asia -14,2% -15,4% Emerging Markets -12,5% -16,4% EM Latin America -9,8% -17,5% EM EMEA -9,1%
Equities
30,0% EM EMEA 34,5% 30,0% Emerging Markets 46,7% 25,6% EM Asia 48,8%
26,6% EM Europe 25,8% 16,9% Emerging Markets 16,4% 7,0% EM Asia 8,0%
19,2% EM Asia 27,7% 18,6% Emerging Markets 28,9% 11,1% EM EMEA 25,8%
19,4% EM Asia 18,2% 16,8% Emerging Markets 17,4% 14,7% World 16,4% 7,2% EM Latin America 12,5%
3,4% EM Asia 5,2% 3,1% Emerging Markets 5,4% 1,8% EM Latin America 5,1% 0,1% World 3,1%
Note: Total return MSCI indices. EM EMEA is EM Europe plus Egypt, Morocco and South Africa. World is MSCI The World Index covering developed markets. Annualised return covers the period 2003 to 2012. Source: MSCI, FactSet, J.P. Morgan Asset Management.
36
20 15 10 5
4,7% 5,4% -5,3% 13,9% 3,0% 6,0% 5,1% 13,6% 16,0% 0,2% 4,8% 12,9% 0,7% 5,6% 4,1%
4,4%
3,3%
0 -5
4,2%
2,6%
3,0% -2,9%
3,8%
Equities
-10 1926 - 1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010 - 12 1926 - 2012
Sources of income
8
%
6,7%
5 4 3 2 1
6 Eurozone CPI inflation (Nov 2012) 1,3% 0,75% 0 Euro corp MSCI Europe Global REITS EM debt High yield 4,2% 3,7% 2,0% 4,5%
3,7
2,9 2,2
4
2,2
Bunds
37
(Top chart) Note: Total return index is S&P 500 until 1960s then the MSCI Europe Index. Source: Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left) Note: Government bond is benchmark government bond yield. Yields shown are that of the appropriate FTSE NARIET REIT index, which excludes property development companies. Source: Tullett Prebon, NARIET, J.P. Morgan Asset Management. (Bottom right) Note: European corporate is BarCap European Aggregate Credit Corporate Index, emerging market debt is the EMBI+, high yield is the BofA/Merrill Lynch High Yield Master II, MSCI Europe is the dividend yield. Inflation is year on year change in the eurozone CPI. Source: Eurostat, Tullett Prebon, Merrill Lynch, FactSet, J.P. Morgan Asset Management.
Tech.
12,1% -1,7 15,8 0,5 116,1 12,4x 22,5x 14,3x 18,9x 1,6% 0,8%
Health care
9,3% 0,8 18,3 21,9 87,4 13,1x 18,3x 13,4x 15,1x 2,6% 1,8%
Industrials
10,4% 7,1 17,4 -15,4 118,1 12,8x 15,9x 14,3x 15,7x 2,5% 2,2%
Energy
10,6% -1,8 2,0 -3,3 64,3 10,1x 13,4x 10,5x 11,7x 3,1% 2,6%
Cons. Desc.
10,7% 7,3 25,0 7,8 148,8 13,5x 17,9x 15,8x 18,5x 1,9% 1,8%
Cons. Staples
10,4% 1,3 14,7 41,8 105,7 15,6x 17,1x 17,0x 17,0x 2,7% 2,4%
Telecom
4,3% -3,1 8,4 0,0 67,8 12,0x 20,5x 13,0x 13,8x 5,3% 3,5%
Utilities
3,5% -0,2 3,2 -17,8 35,6 14,1x 14,1x 15,6x 16,3x 4,8% 4,2%
Materials
7,6% 5,5 10,8 -16,0 86,2 12,3x 13,3x 15,7x 14,4x 2,6% 8,2%
ACWI
100,0% 3,4
Return Div P/E
2012
Since market peak Since market low Forward P/E ratio 15-year avg Trailing P/E ratio 15-year avg Dividend yield 15-year avg
Equities
Note: All calculations are cumulative total return in local currency, not annualised, including dividends for the stated period. Since market peak represents period 9 October 2007 to end of latest quarter. Since market low represents period 9 March 2009 to end of latest quarter. Source: I/B/E/S, FactSet, MSCI J.P Morgan Asset Management.
38
24
22
20
210
Equities
18
190
16
170
14
150
12
130
10
110
8 Dec 94
Dec 97
Dec 00
Dec 03
Dec 06
Dec 09
Dec 12
90 Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
(Left) Source: I/B/E/S, Compustat, FactSet, J.P. Morgan Asset Management. (Right) Regular dividends only. Source: MSCI, FactSet, J.P. Morgan Asset Management.
39
60
50 40 30 20 10
1987 Crash
Equities
0 1926
1932
1938
1944
1950
1956
1962
1968
1974
1980
1998
2010
90 75 60 45
1,5 1,0 0,5 0,0 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 30 15 0
40
(Top) Note: Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 2012. Source: Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. (Bottom) Note: DJIA volatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average. Source: CBOE, Dow Jones, FactSet, J.P. Morgan Asset Management..
Earnings revisions
108
Europe
105 100 Netherlands
Germany
France
106
S&P 500
95 90
104
Japan
85 80
Italy
Equities
102
Spain
100
Emerging markets
105
98
96
100
EM Asia EMEA
94
95
92 Dec 11
Mar 12
Jun 12
Sep 12
Dec 12
90 Dec 11
Note: Revisions for next 12 month earnings estimates. Source: MSCI, I/B/E/S, J.P. Morgan Asset Management.
41
Developed markets
+4 Std Dev
Average
-1 Std Dev -2 Std Dev -3 Std Dev -4 Std Dev
Current
Equities
France
Germany
UK
Japan
Australia Current
World
Canada
US
Switzerland
10 year average P/CF Dividend yield Forward P/E P/B P/CF Dividend yield
Forward P/E
P/B
World (Avg)
Canada US Switzerland
-0,66
-0,56 0,37 0,54
12,5
12,8 13,0 13,5
1,7
1,8 2,1 2,1
6,7
5,7 8,2 11,4
2,7
2,9 2,1 3,4
13,7
13,7 14,3 13,5
2,0
2,1 2,4 2,4
7,2
7,3 8,4 9,8
2,7
2,4 2,1 2,9
42
Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd P/E), price to current book (P/B), price to last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last ten years. The grey bars represent valuation index variability relative to that of the MSCI World Index of developed markets. Source: MSCI, I/B/E/S, FactSet, J.P. Morgan Asset Management.
Emerging markets
+6 Std Dev
Example Expensive relative to world Expensive relative to own history Cheap relative to own history Russia Brazil China EM Index ACWI Current Forward P/E P/B P/CF Dividend yield Forward P/E Taiwan S. Africa Korea Mexico India 10 year average P/B P/CF Dividend yield
+5 Std Dev +4 Std Dev +3 Std Dev +2 Std Dev +1 Std Dev Average -1 Std Dev -2 Std Dev -3 Std Dev
Equities
-4 Std Dev
-5 Std Dev
Russia Brazil China EM Index ACWI (Avg) Taiwan S. Africa Korea Mexico India
-3,68 -1,87 -1,59 -1,09 -0,67 -0,59 0,42 0,69 2,39 3,31
5,0x 10,7 9,9 10,5 12,2 14,3 12,0 8,7 17,5 14,2
0,8x 1,4 1,6 1,6 1,7 1,8 2,4 1,2 3,0 2,6
3,3x 5,2 5,0 6,2 6,8 6,3 10,4 5,8 7,4 13,6
3,8% 3,6 2,9 2,7 2,7 3,0 3,2 1,1 1,5 1,5
7,9x 8,6 12,0 10,7 13,4 13,9 10,4 9,4 13,1 14,6
1,3x 1,9 2,1 1,9 2,1 1,9 2,3 1,5 2,6 3,3
4,8x 5,6 4,2 5,7 7,0 6,4 7,6 4,9 5,7 12,2
2,2% 3,4 2,8 2,7 2,5 3,6 3,3 1,8 2,0 1,5
43
Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd P/E), price to current book (P/B), price to last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last ten years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Source: MSCI, FactSet, J.P. Morgan Asset Management.
Equities
3,7%
0,9
3
Dividend yield
2
0,8 31 Dec 2012: 2,5% 0,7 Since euro launch (since Jan 1999)
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
0,6 Dec 87
Dec 92
Dec 97
Dec 02
Dec 07
Dec 12
Note: The ten-year EMU bond yield is represented by the BofA Merrill Lynch Euro Government (7-10Y) index. 75% of the value of the index is comprised of bonds from France, Germany, Italy, Spain, Netherlands, and Belgium, Source: BofA Merrill Lynch, I/B/E/S, J.P. Morgan Asset Management.
44
20
20
Equities
10
10
-10
-10
-20
-20
-30
-30
-40
45
x
24
22
Equities
18
14
12
2
Dividend yield
2,2%
10
8 Dec 89
Dec 94
Dec 99
Dec 04
Dec 09
Dec 89
Dec 94
Dec 99
Dec 04
Dec 09
46
TOPIX
Log scale 2.000
1.800
2.000
TOPIX
140
JPY per USD
1.800
1.600
130
Weaker Yen
1.400
1.600
+135% -60%
120
Equities
Stronger Yen
1.200
1.400
31 Dec 2012: P/E = 12,6x 860
110
1.000
1.200
100
1.000
800
90
+19%
800
80
Dec 99
Dec 01
Dec 03
Dec 09
Dec 11
600 Dec 99
Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by I/B/E/S. Source: I/B/E/S, FactSet, J.P. Morgan Asset Management.
47
MSCI EM Index
Log scale
60.000
50.000
2,5
40.000
Equities
30.000
+340%
-59%
+107%
2,0
20.000
0,5 Dec 85
Dec 90
Dec 95
Dec 00
Dec 05
Dec 10
Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by I/B/E/S. Source: MSCI, FactSet, J.P. Morgan Asset Management.
48
15
Equities
300 10
200
5 100
0 Dec 95
0
Dec 99 Dec 03 Dec 07 Dec 11
Late 70s
80s
90s
00s
01 - 03
04 - 09
10 - 12
(Left) Note: Regular dividends only in local currency. Source: MSCI, I/B/E/S, FactSet, J.P. Morgan Asset Management. (Right) Note: Monthly frequency in USD terms until 1987, daily frequency in local currency terms subsequently. Source: IFC, MSCI, J.P. Morgan Asset Management.
49
10% 21% Africa / Middle East Asia 8% 61% Europe Latin America 14%
17%
19%
24%
26%
Consumer
Equities
% 80 60 40
60
81%
31% 39% 14%
40 20 0
12%
37%
27% 2% 20% 5%
Tech Consumer
Europe 33% 20
0 Mexico S. Korea
Brazil
Russia
India
China
50
Note: Other is comprised of healthcare, industrials, telecom and utility sectors. Values may not sum to 100 due to rounding. Source: MSCI, J.P. Morgan Asset Management. Source: MSCI, FactSet, J.P. Morgan Asset Management. (Bottom Right) note: The EMBIG is the J.P. Morgan EMBI Global Index, a USD-dominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The CEMBI is the J.P. Morgan Corporate Emerging Bond Index is a USD-denominated external debt index tracking bonds issued by corporations. Source: J.P. Morgan Asset Management.
2003
US HY 28,2% EM debt 26,9% Global agg 12,5% Portfolio 12,3% Infl. Link 8,3% Euro corp 6,8%
2004
EM debt 11,9% US HY 11,4% Infl. Link 11,0% Global agg 9,3% Portfolio 8,6% Italy 8,6%
2005
EM debt 12,3% Infl. Link 6,0% Italy 5,8% Germ any 5,2% Portfolio 4,5% Euro corp 4,0%
2006
US HY 10,6% EM debt 10,0% Global agg 6,6% Portfolio 4,1% US 3,1% Euro corp 0,5%
2007
Global agg 9,5% US 9,2% EM debt 5,2% Portfolio 3,9% Germ any 2,0% US HY 1,9%
2008
US 14,3% Germ any 12,4% Italy 5,8% Global agg 4,8% Infl. Link 3,8% Portfolio -1,5%
2009
US HY 60,9% EM debt 34,2% Portfolio 18,3% Euro corp 15,7% Italy 8,3% Infl. Link 8,1%
2010
US HY 14,9% EM debt 12,8% Portfolio 7,2% Germ any 6,4% US 6,1% Global agg 5,5%
2011
US 9,9% Germ any 9,8% EM debt 7,0% Global agg 5,6% Portfolio 4,7% US HY 3,8%
2012
Italy 21,3% US HY 18,0% EM debt 17,9% Infl. Link 17,1% Euro corp 13,6% Portfolio 11,8%
4Q 2012
Italy 5,2% US HY 3,9% Infl. Link 3,5% EM debt 3,3% Euro corp 3,0% Portfolio 2,3%
Ten-yr Ann.
EM debt 11,6% US HY 10,7% Portfolio 7,3% Global agg 6,0% Germ any 5,3% Infl. Link 5,0%
Fixed Income
Italy 3,9%
US 2,9%
US HY 2,9%
Italy -0,5%
Italy 1,5%
EM debt -14,7%
US -0,1%
US 4,9%
US 2,4%
US 3,7%
US HY -26,4%
US -3,8%
Italy -0,6%
Italy -5,9%
US 2,2%
Italy 4,6%
51
(Left) Note: Annualised return covers the period from 2002 to 2011. Infl. Link is Barclays Euro Govt All Markets Inflation-linked Index, EM debt is the Barclays Emerging Markets (USD) Index, US HY is the BoA/ML Developed Market High Yield Constrained Index, Euro corp is the Barclays Euro Aggregate Credit Corporate Index, Global agg is the Barclays Global Aggregate Index, US, Italy and Germany are JPM government bond indices. The FI allocation assumes the following weights; 15% in US, 15% in Germany, 10% in Italy, 5% in index linked, 15% in EM debt, 15% in high yield, 15% in euro corporates, and 10% in global bonds. Source: Barclays Capital, Bank of America Merrill Lynch, J.P. Morgan Asset Management.
16
1.100
BB 12
12
12
900 BB+ 11
Fixed Income
700
4 Dec 99
100 Dec 93
(Left) Source: J.P. Morgan Asset Management. (Right) Source: Moodys, Standard & Poors, J.P. Morgan Asset Management.
52
truncated 30 %
bps
US corporate high yield debt (lhs) EM sovereign high yield debt (lhs) High yield default rate (rhs)
1200
25
900 400
20
15
Fixed Income
300
600 10
0 Dec 99
Dec 02
Dec 05
Dec 08
Dec 11
0 Dec 99
(Left) Source: Barclays, J.P. Morgan Asset Management. (Right) Note: US corporate high yield debt peaks at 1.978 bps in October 2008, but is not shown in the chart. Source: Merrill Lynch, J.P. Morgan Asset Management.
53
Balanced
The potential upside that the convertible bond gives when the underlying stock price rises
1600
1300
Stock price
Fixed Income
Index returns
350 300 250 200 150 100 Dec 93
Asset class Convertibles Equities Fixed Income Return 7,0% 6,6% 6,1% Vol. 11,9% 15,8% 5,5%
1000
700
400
Dec 96
Dec 99
Dec 02
Dec 05
Dec 08
Dec 11
100 Dec 85
Dec 90
Dec 95
Dec 00
Dec 05
Dec 10
54
(Upper Left) Source: J.P. Morgan Asset Management. (Lower Left) Total return indices in US dollars. All figures in table annualised. Convertible bonds represented by UBS Global Convertible Bond Index, equities by MSCI World Index, and fixed income by Barclays Global Aggregate Index. Source: UBS, Barclays, J.P. Morgan Asset Management. (Right) Note: *Global high yield from 1994, US prior. DMM = discount margin to maturity. Source: Barclays, Credit Suisse, J.P. Morgan Asset Management.
Yield
Return
Euro Treasuries
2 Year 5 Year 10 Year Long Term Sector
Avg maturity
2 years 5 10 +15
31 Dec 2012
0,94% 1,94 2,46 3,25
31 Dec 2011
2,01% 3,14 3,83 4,18
2012
4,07% 11,66 14,20 17,30
Q4 2012
0,80% 2,91 3,62 5,89
Global Agg
Euro Agg Corporates Euro Treasuries Emerging Debt High Yield
14.449
3.030 1.316 289 137 2.112
EUR 32.787
8268,2 1309,9 4731,2 258,5 1164,0
7,7 years
7,1 4,9 8,5 13,3 6,5
1,70%
1,91 2,00 2,01 4,45 6,08
2,33%
3,44 4,61 3,17 5,72 8,36
2,72%
11,19 13,59 11,00 16,22 13,81
-2,89%
2,82 3,02 2,98 0,74 0,73 +1% -1%
8,4%
Note: Fixed income sectors shown are provided by Barclays Capital and are represented by Global Agg: Barclays Global Aggregate; Euro Agg: Barclays Euro Agg; Corporate: Euro Corporates; Treasuries: Euro Treasuries; Emerging Debt: JPM EMBI+; High Yield: ML HY Master II. Government treasuries securities data for number of issues and market value based on EuroAggregate Treasury benchmarks from Barclays Capital. Change in bond price is calculated using both duration and convexity according to the following formula. New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0,5 * Price * Convexity * (Change in Interest Rates)^2). Source: Barclays, BoA/Merrill Lynch, J.P. Morgan Asset Management.
Fixed Income
5,0%
5.5%
0
-1,9% -5,2%
-4,1%
-7,1%
-10
-5,0%
-5,5%
-6,0%
-6,3%
-8,4%
-14,3%
-20
2 year 5 year 10 year Long Term Euro Corp High Yield Euro Agg Global Agg Euro Treas EM Debt
55
5,5 5,0
12
Germany
Fixed Income
60 years
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
0 1800
1850
1900
1950
2000
56
(Left) Note: Weekly frequency. Source: Tullett Prebon, J.P. Morgan Asset Management. (Right) Latest data December 2011. *High-grade municipal bond yields used for certain years between 1800 and 1920. Source: Jeremy Siegel, The real rate of interest from 1800-1990, Homer & Sylla, A History of Interest Rates, Ibbotson SIBI, Federal Reserve, J.P. Morgan Asset Management.
Yield curves
6,50 % 5,50 Spain France 4,50 US Germany 3,50 Japan 3,50 4,50 6,50 % 5,50
%
4
Fixed Income
2,50
2,50
1
1,50
1,50
0,50
0,50
(Left) Source: Bloomberg, J.P. Morgan Asset Management. (Right) Note: Real interest rate is calculated using core CPI. Source: Eurostat, ECB, J.P. Morgan Asset Management.
57
Germany
Eurozone
24 0 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Spain
14 % 10
16
Fixed Income
0 UK (M4 adjusted)
Dec 11
Dec 12
-8 Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
58
(Left) Latest data is November 2012 for the US, and October 2012 for the UK and eurozone. Note: UK broad money supply is M4 until July 2010 then M4 adjusted (M4 excluding other intermediate financial corporations) onwards. Source: Federal Reserve, OECD, Bank of England, J.P. Morgan Asset Management. (Right) Note: Eurozone bank lending to households for consumption excluding mortgages. Latest data October 2012. Source: ECB, FactSet, J.P. Morgan Asset Management.
2003
EME 30,0% REITS 17,1% Europe 15,8% Portfolio 10,5% HY bonds 10,2% World ex EU 9,5% EMD 5,6%
2004
REITS 28,0% EME 16,9% Europe 12,6% Portfolio 8,3% HY bonds 5,0% World ex EU 4,6% EMD 3,8% Govt bonds 2,4% Cash 2,2% IG bonds 1,6% Cm dty 1,3%
2005
EME 55,0% Cm dty 39,9% REITS 32,9% EMD 29,4% World ex EU 26,8% Europe 26,7% Portfolio 25,9% HY bonds 19,4% IG bonds 11,1% Govt bonds 7,6% Cash 2,2%
2006
REITS 27,3% Europe 20,2% EME 18,6% Portfolio 7,2% Cash 3,0% World ex EU 2,7% HY bonds 1,7% EMD -1,6% IG bonds -4,1% Govt bonds -4,8% Cm dty -8,7%
2007
EME 26,1% Cm dty 4,8% Cash 4,4% Europe 3,2% Portfolio 2,3% Govt bonds -0,3% World ex EU -3,3% IG bonds -3,7% EMD -5,2% HY bonds -6,9% REITS -16,1%
2008
Govt bonds 15,9% Cash 5,7% IG bonds -3,9% EMD -10,3% HY bonds -23,1% Portfolio -25,1% Cm dty -32,3% World ex EU -34,2% Europe -43,3% REITS -45,0% EME -50,8%
2009
EME 73,4% HY bonds 54,4% REITS 34,0% Europe 32,5% Portfolio 31,7% EMD 30,0% World ex EU 24,2% IG bonds 15,5% Cm dty 15,2% Cash 2,3% Govt bonds -0,6%
2010
REITS 28,8% EME 27,5% Cm dty 24,9% World ex EU 24,0% HY bonds 22,8% EMD 20,7% Portfolio 17,2% Govt bonds 13,3% Europe 11,7% IG bonds 6,3% Cash 1,1%
2011
EMD 10,5% Govt bonds 9,9% IG bonds 7,8% HY bonds 6,6% Cash 1,7% World ex EU 0,4% Portfolio -1,0% REITS -2,7% Europe -7,5% Cm dty -10,4% EME -15,4%
2012
REITS 26,7% Europe 18,1% HY bonds 17,8% EME 16,8% EMD 16,1% World ex EU 13,5% Portfolio 12,8% IG bonds 9,5% Cash 1,2% Govt bonds 0,3% Cm dty -2,6%
4Q 2012
Europe 4,5% REITS 3,2% EME 3,1% HY bonds 2,1% EMD 0,8% Portfolio 0,7% Cash 0,1% IG bonds -0,6% World ex EU -1,4% Govt bonds -4,2% Cm dty -8,6%
Ten-yr Ann.
EME 14,2% REITS 9,5% HY bonds 9,1% EMD 9,1% Portfolio 7,9% Europe 6,5% World ex EU 5,2% Govt bonds 4,4% IG bonds 3,3% Cash 2,6% Cm dty 1,7%
59
Note: EME is the MSCI EM Emerging Market Index, Europe is the MSCI Europe Index. Govt bonds is Barclays Global Aggregate Government Treasuries, HY bonds is Barclays Global High Yield Index, EMD is Barclays Emerging Markets (USD) Index, IG bonds is Barclays Global Aggregate Corporates, Cmdty is the DJ UBS Commodity Index, REITS is FTSE EPRA/NAREIT Developed Index (comprised of both investment trusts and operating companies), World ex EU is the MSCI World ex Europe Index, and cash is the JP Morgan Cash Index ECU (3M). The asset allocation portfolio assumes the following weights; 10% in government bonds, 10% in HY bonds, 15% in IG bonds, 5% in EMD, 5% commodities, 5% in cash, 5% in REITS, 15% in EM equities, 10% in World ex Europe, 20% in the MSCI Europe. Source: FTSE, Barclays Capital, Dow Jones/UBS, J.P. Morgan Asset Management.
MSCI Europe MSCI Europe S&P 500 MSCI EM MSCI Asia ex Japan Pan Europe Bonds EM Debt High Yield Bonds Global Bonds Cmdty 1,00
S&P 500
EM Debt
High Yield Bonds 0,66 0,47 0,63 0,58 -0,15 0,74 1,00
Global Bonds -0,25 0,15 -0,16 -0,07 0,52 -0,28 -0,34 1,00
Cmdty
Hedge Funds 0,64 0,39 0,66 0,59 -0,27 0,54 0,79 -0,44 0,46
Lev. Loans -0,06 0,49 0,58 0,53 -0,21 0,52 0,87 -0,26 0,37
0,80 1,00
Hedge Funds
Lev. Loans
Note: Pan Europe bonds is the Citigroup Europe Government Bond Index (WGBI). Emerging market debt is the JPMorgan EMBI Global. High yield bonds is the JPMorgan Domestic High Yield. Global bonds is the Barclays Global Aggregate. Lev. Loans is the Credit Suisse Leveraged Loans Index. Cmdty is the DJ/UBS Commodity Index. Hedge Funds is the CS/Tremont Multi-Strategy Index. Ten year correlation values are calculated for period December 2002 to November 2012. Correlation measures the direction and degree of linear association between two variables. All indices are total return based on weekly return data in euros. Source: Citigroup, Barclays, Credit Suisse, J.P. Morgan Asset Management.
1,00
0,81
1,00
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Commodity prices
Weekly index prices rebased to 100
500 450
120
400 350
115
300 250
MSCI China
200
Grains
150 100
105
Livestock
50
100
Energy
0 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
95 Dec 01
Dec 04
Dec 07
Dec 10
(Left) Note: Commodity prices represented by the appropriate DJ/UBS Commodity sub-index. Source: Dow Jones/UBS, J.P. Morgan Asset Management. (Right) Note: data rebased to 100 at December 1992. Source: MSCI, Standard & Poors, MSCI, FactSet, J.P. Morgan Asset Management.
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Gold price
Log scale Inflation adjusted gold price (lhs) US monetary base (indexed) USD/oz. Inflation (rhs) 31 Dec 2012: USD 1.675 1.600 10 16 % 14
40
12
20
8 800 6 4
0 0
-2
-20
2 400 0
-4 -40
-60
(Left) Note: CPI adjusted gold values are calculated using average monthly price of gold divided by the CPI value for that month. Source: Bloomberg, BLS, J.P. Morgan Asset Management. (Right) BLS, Dow Jones/UBS, J.P. Morgan Asset Management.
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x
5
Japan UK Ireland US
15
10 3 1 5
0 1977 -30
1987 -20
1997 -10
2027 20
0 Jun 98
0
Jun 02 Jun 06 Jun 10
63
(Left) Note: Japan: Land Underlying Buildings and Structures; US: Household Real Estate Assets; UK: Residential Buildings; Spain: Residential Household Wealth; Ireland: Dwellings. Source: OECD, Japan Land and Water Bureau, Ministry of Land, Infrastructure and Transport, Cabinet Office (Government of Japan), US Federal Reserve, S&P/Case-Shiller, OFHEO, UK Office for National Statistics, Bank of Spain, Ireland Central Statistics Office, Permanent TSB/ESRI, J.P. Morgan Asset Management. (Right) Latest negative equity data Q2 2012. Latest delinquency data September 2012. Source: Mark Zandi and Robert Shiller, Mortgage Bankers Association, CoreLogic, J.P. Morgan Asset Management.
-10
-15
-20
-25
-30
64
80
800
30
600
-20
-120 0 EMD and high yield debt EM equity -200 Tech bubble -400 1997-2000 Credit crisis -220 2009-2012 2009 2010 2011 2012 -170 DM equity Government bonds*
(Left) Source: ICI, FactSet, J.P. Morgan Asset Management. (Right) Note: *Intermediate and long term government bonds. Monthly data, latest available November 2012. Source: EPFR, J.P. Morgan Asset Management.
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Equities Bonds 51% 43% 32% 28% 23% 21% 50/50 Portfolio Equities Bonds 50/50 Portfolio
50 40 30 20 10
1%
2%
5 yr rolling
10 yr rolling
20 yr rolling
Note: Returns shown are based on calendar year returns from 1950 to 2012. Source: Barclays Capital, Shiller, Strategas/Ibbotson, US Federal Reserve, J.P. Morgan Asset Management.
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0 -10 -20
Equities Cash Commodities Govt Bonds High Yield*
-10 -20
Equities Cash
-15%
Commodities
Govt Bonds
High Yield*
40
30
30 20 10 0 -10 -20
Equities Cash Commodities Govt Bonds High Yield*
20% 17% 13% 6%
20
12%
13% 4% 6% 7%
3%
10 0 -10 -20
Equities
Cash
Commodities
Govt Bonds
High Yield*
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Note: High or low inflation distinction is relative to median CPI inflation for the period s1971-2011. * High yield returns based on the period 1984 2011. Rising of falling inflation distinction is relative to the previous year CPI inflation rate. Commodities returns are based on GSCI, equities on the S&P 500 total return index, govt bonds are the Barclays Aggregate US Treasury Index, and high yield is the Barclays US Corporate High Yield Index. Source: BLS, Barclays Capital, Robert Shiller, Federal Reserve, Strategas/Ibbotson, J.P. Morgan Asset Management.
8 Real equity return (annual, %) Denmark Netherlands 6 Germany Switzerland 4 Finland UK Belgium France Norway
Spain 2 Austria
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Dan Morris. executive director, is a global market strategist responsible for delivering market analysis and insight to clients in Europe, the Middle East, and Africa. He is a frequent guest on CNBC, Bloomberg, and other TV channels and is widely quoted in the press. Prior to joining J.P. Morgan Asset Management, Dan was the Senior Equity Strategist at Lombard Street Research and before that part of the Institutional Investor-ranked portfolio strategy team at Banc of America Securities in New York. Dan began his career covering Latin American equity markets at BT Alex. Brown and Dresdner Kleinwort Benson. He holds an MBA from the Wharton School and a Masters in International Relations from Johns Hopkins' School of Advanced International Studies. His undergraduate degree is in Mathematics from Pomona College and he is a CFA charterholder. daniel.m.morris@jpmorgan.com
Maria Paola Toschi. executive director, is a global market strategist at J.P. Morgan Asset Management in the Milan Office, in charge of communications to domestic retail and institutional clients. She worked from 1986 to 2003 as a sellside equity analyst in different Italian Banking Institutions and has spent the last eight years in Banca IMI, Intesa Sanpaolo Banking Group, mainly covering small-mid Industrial companies and following several IPOs. In 2003 she became responsible for the retail investment communications team dedicated to the Sanpaolo Retail and Private Banking network. She graduated in Economics at the Milan L. Bocconi University and has been a Member of the Italian Financial Analysts Association since 1989. She joined J.P. Morgan Asset Management Milan in November 2008. maria.p.toschi@jpmorgan.com
Tom Elliott. executive director, is a global strategist within the Market Insights Team at J.P. Morgan Asset Management. He is frequently to be seen on television and in the press, and is a well regarded blogger and speaker on economics and capital markets. An employee since 1995, he worked in the Global Multi-Asset Group (GMAG) until 2006 and before that he was head of the Investment Writing Team. Previously. he worked at Euromoney Publications as a feature writer for a year and prior to that he spent four years at Greig Middleton & Co. as a graduate trainee and securities analyst. Tom obtained a BA in History from Sussex University and an MSc in Economic History from the London School of Economics. tom.cb.elliott@jpmorgan.com
Andrew Goldberg. executive director, is a global market strategist and Head of the Market Insights Strategy Team in Europe. Andrew is responsible for delivering timely market and economic insight to clients across the UK and Europe. A member of the strategy team since its inception, Andrew is one of the co-creators of the Market Insights programme, J.P. Morgans industry leading value-add offering to clients in 25 countries across 10 languages. He is consistently a top-rated speaker at industry events, and a frequent guest of CNBC, Bloomberg, and other major financial news outlets. Andrew joined J.P. Morgan in 2002, and prior to forming the strategy team, was an investment analyst for the firms US Equity group. He obtained a B.S. in Business Administration from Bryant University in 2002. andrew.d.goldberg@jpmorgan.com
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This document has been produced for information purposes only and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Managements own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. Both past performance and yield may not be a reliable guide to future performance and you should be aware that the value of securities and any income arising from them may fluctuate in accordance with market conditions. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. 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 http://www.jpmorgan.com/pages/privacy. Issued in Continental Europe by JPMorgan Asset Management (Europe) Socit responsabilit limite, European Bank & Business Centre, 6 route de Trves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. Issued in the UK by JPMorgan Asset Management (UK) Limited which is authorised and regulated by the Financial Services Authority. Registered in England No. 01161446. Registered address: 25 Bank St, Canary Wharf, London E14 5JP, United Kingdom.
Unless otherwise stated, all data as at 31 December 2012. Prepared by: Kerry Craig, Tom Elliott, Dan Morris, Paola Toschi and Andrew Goldberg.
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