Guide to the Markets Quarterly 3Q_2012

7/31/2019 Guide to the Markets Quarterly 3Q_2012

1/66

Q3 | 2012As at 30 June 2012

GTTM: A guide to global financial marketsEUROPE

For professional investors* only. Not for retail use or distribution


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1

Table of contents

16WORLD 46

27UNITED STATES

36JAPAN

40

53

EUROPE

60

European Market Strategy Team

Dan Morris [email protected]

Paola Toschi [email protected]

Tom Elliott [email protected]

Kerry Craig [email protected]

FIXED INCOME

OTHER ASSET CLASSES

DEMOGRAPHICS

EMERGING MARKETS

2

Home


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2

EUROPE

3MSCI Europe Index at inflection points (local currency)

7Contribution to German GDP

4Europe equity valuations

5Europe returns by style (EUR)

6Eurozone GDP and inflation

8Eurozone unemployment, retail sales and confidence indicators

9Europes vicious circle

10Employment by age and sex

11European labour costs

12Government deficits by country

13Interbank lending rates and peripheral exposure

14Eurozone crisis impact on markets

15Eurozone countries economic divergences

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Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11

600

800

1.000

1.200

1.400

1.600

1.800

60

80

100

120

140

160

180

Europ

e

3

MSCI Europe Index at inflection points (local currency)

Note: Earnings index is derived from the forward P/E. Source: I/B/E/S, J.P . Morgan Asset Management.

MSCI Europe Index

16 July 2007

1.641

12 March 2003

676

4 September 20001.623

9 March 2009

714

1.034

-58% +143% -56%

+72%

30 June 2012

18 February 2011

1.230

Earnings index

Earnings

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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

2

4

6

8


8

12

16

20

24

28

4

Europe equity valuations

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 fromFrance, Germany, Italy, Spain, Netherlands, and Belgium, Source: BofA Merrill Lynch, I/B/E/S, J.P. Morgan Asset Management.

Forward P/E ratio MSCI Europe Index

30 June 20129,5

Average since 1999

14,9

MSCI Europe Index dividend yield and ten-year EMU bond

30 June 2012

Dividend yield

Ten-year EMU bond yield

One year

earnings

growthforecast:

12%

%

3,5%

4,1%

Europ

e

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Europe returns by style (EUR)

Note: Total return indices. Source: J.P. Morgan Asset Management.

20102004 2005 2006 2007 2008 Q2 20122009 2011

Europ

e

YTD

MSCIEurope

Small Cap

23,7%

MSCIEurope

Small Cap

37,6%

MSCIEurope

Small Cap

30,4%

DJ Stoxx 50

9,6%

MSCIEurope

Growth

-40,5%

MSCIEurope

Small Cap

60,3%

MSCIEurope

Small Cap

30,4%

MSCIEurope

Growth

-6,3%

MSCIEurope

Small Cap

10,5%

MSCIEurope

Growth

-2,3%

MSCI

Europe

Value

16,3%

MSCI

Europe

Value

28,9%

MSCI

Europe

Value

23,1%

MSCI EMU

8,5%

DJ Stoxx 50

-42,4%

MSCI

Europe

Value

34,6%

MSCI

Europe

Growth

18,5%

MSCI

Europe

-7,5%

MSCI

Europe

Growth

7,4%

MSCI

Europe

-2,5%

MSCI EMU

13,4%

MSCI

Europe

26,7%

MSCI EMU

22,8%

MSCI

Europe

Growth

8,2%

MSCI

Europe

-43,3%

MSCI

Europe

32,5%

MSCI

Europe

11,7%

MSCI

Europe

Value

-8,7%

MSCI

Europe

5,4%

MSCI

Europe

Value

-2,8%

MSCI

Europe

12,6%

MSCI EMU

26,3%

MSCI

Europe

20,2%

MSCI

Europe

3,2%

MSCI EMU

-44,3%

MSCI

Europe

Growth

30,5%

MSCI

Europe

Value

4,9%

MSCI EMU

-14,1%

MSCI EMU

3,8%

MSCI

Europe

Small Cap

-4,5%

DJ Stoxx 50

9,4%

MSCI

Europe

Growth

24,3%

DJ Stoxx 50

18,0%

MSCI

Europe

Value

-1,8%

MSCI

Europe

Value

-46,1%

MSCI EMU

28,7%

MSCI EMU

3,3%

DJ Stoxx 50

-14,1%

MSCI

Europe

Value

3,1%

MSCI EMU

-5,5%

MSCIEurope

Growth

8,9%

DJ Stoxx 50

24,3%

MSCIEurope

Growth

17,3%

MSCIEurope

Small Cap

-7,2%

MSCIEurope

Small Cap

-51,6%

DJ Stoxx 50

25,6%

DJ Stoxx 50

-2,8%

MSCIEurope

Small Cap

-17,1%

DJ Stoxx 50

0,7%

DJ Stoxx 50

-6,2%

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-4

-2

0

2

4

6

6


0

1

2

3

4

5

Source: Eurostat, Bloomberg consensus forecast, J.P. Morgan Asset Management.

Eurozone GDP and inflation

Real GDPchange year on year

Inflationchange year on year

Average

1,5%

First quarter

2012

-0,1%

Core CPI

May 2012

1,6 %

Headline CPI

May 2012

2,4%

%%

Forecast

headline CPI

2012: 2,4%2013: 1,8%

Forecast

GDP

2012: -0,4%2013: 0,8%

Europ

e

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-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

1,2

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

1,2

7

Source: Federal Statistics Office, J.P. Morgan Asset Management.

Contribution to German GDP

First quarter 2012change quarter on quarter

Europe

Fixed

capital

formation

InventoriesNet

exports

HouseholdGovernment

-0,2%

0,5%

Fourth quarter 2011change quarter on quarter

Fixed

capital

formation

InventoriesNet

exports

Household

Government

% %

Total

Total

Europ

e

TOC


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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11-6

-4

-2

0

2

4

6


8

9

10

11


-40

-30

-20

-10

0

10

20

30

40

8

Eurozone unemployment, retail sales and confidence indicators

Source: Eurostat, OECD, J.P. Morgan Asset Management.

May 2012

11,1%

May 2012

-1,7%

Unemployment

Retail sales growth (y/y)

Confidence indicators

Services sector

confidence

June 2012

-7,4

Consumer

confidence

June 2012

-19,8

Industrial

confidence

June 2012

-12,7

Indexle

vel

%

%

Europ

e

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Europes vicious circle

9

How do you solve one problem without making the others worse?

High bank debt

eg Spain, Ireland

Highsovereign debt

(deficit and/or debt to GDP)

eg Italy, Greece, Portugal

Low growth

eg Italy, Portugal

Europ

e

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10

Employment by age and sex

Note: *2010 figure. Effective retirement age is the average retirement age for males over the period 2004 2009. Official retirement age listed in parenthesis,

subject to variations between public and private sector, length of service etc. Youth unemployment is those aged less than 25 years. Source: OECD,

Eurostat J.P. Morgan Asset Management.

European employment and retirement ages

Employmentrates of 55 64

2011 (b)

Female

employment rate2011 (c)

Youthunemployment

rate 2011 (d)

Total score

(a + b + c - d)

Europ

e

Japan 70 (64) 65* 60 8 187

Sweden 66 (65) 72 72 23 187

Germany 62 (65) 60 68 9 181

Netherlands 62 (65) 56 70 8 180

Denmark 64 (65) 60 70 14 180

US 66 (66) 60* 62 17 171

UK 64 (65) 57 65 21 165

Austria 59 (65) 42 67 8 160

Portugal 67 (65) 48 60 30 145

Ireland 63 (66) 50 55 29 139

France 59 (62) 41 60 22 138

Italy 61 (65) 38 47 29 117

Spain 62 (65) 45 52 46 113

Greece 62 (65) 39 45 44 102

Retirement ageeffective (official)

(a)

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100

110

120

130

140

150

160

170

180

Dez 90 Dez 92 Dez 94 Dez 96 Dez 98 Dez 00 Dez 02 Dez 04 Dez 06 Dez 08 Dez 10

11

Note: Greece, Ireland, Italy, and Spain labour cos t index is average of each countrys index. Source: OECD, J.P. Morgan Asset Management.

European labour costs

Labour cost indices for Europe

Greece, Ireland, Italy, Spain

US

Euro area

Germany

Euro

launch

Europ

e

UK

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-2

0

2

4

6

8

10

0 20 40 60 80 100 120 140 160 180 200220 240

Government deficits by country

*The EU/IMF bailout package for Greece targets a debt to GDP ratio of 120% by 2020. Note: The debate on the euro crisis considers countrys gross debt levels.Source: IMF World Economic Outlook, J.P. Morgan Asset Management.

12

% of GDP

2011 (estimated)

2014 (estimated)

Deficit(%

o

fGDP)

Gross debt (% of GDP)

Ireland

Spain

US

Portugal

Maastricht

treaty

criteria

UKGreece*

Italy

Japan

China

India

Brazil

Germany

France

Mexico

Europ

e

TOC


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0 100 200 300 400 500 600 700

13

Interbank lending rates and peripheral exposure

Last data December 2011. Source: BIS, J.P. Morgan Asset Management.

Bank peripheral debt exposure

Germany

UK

France

US

Italy

Spain

Portugal

Ireland

Greece

USD bn

Note: For the eurozone, UK, and Switzerland the spread is the difference between the three month

Libor/Euribor and the overnight index swap rate. The US is the spread between 3 month Libor and

the 3 month Treasury bill. The spread can be interpreted as an indicator of the willingness of banks

to lend to each other. Source: Bloomberg, J.P. Morgan Asset Management.

Location of banks

Country of issuance

Q4 2010

Q4 2011

Q4 2010

Q4 2011

Q4 2010

Q4 2011

Q4 2010

Q4 2011

Europ

e

0

100

200

300

400

500

Dez 07 Dez 08 Dez 09 Dez 10 Dez 11

bps UK

Eurozone

US

Switzerland

Interbank short-term lending rates

TOC


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1

2

3

4

5

6

7

8

Dez 08 Dez 09 Dez 10 Dez 11 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12

700

750

800

850

900

950

1.000

1,5

2,0

2,5

3,0

3,5

4,0

14

Eurozone crisis impact on markets

Note: EFSF is the European Financial Stability Facility. The EFSF bond shown is the EUR 5 billion

ten-year 3,375% note, issued in July 2011, to raise funds towards the EU/IMF EUR 78 billion

bailout for Portugal. Source: J.P. Morgan Asset Management.

US Treasuries and global equitiesTen-year bond yields

Note: MSCI World Index price return in local currency.

Source: J.P. Morgan Asset Management.

%%Ten-year US Treasury yield (rhs)

MSCI World Index (lhs)

Europ

e

Italy

Spain

EFSF

UK

GermanyDenmark

TOC


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15

Latest data May 2012. Source: Markit, Eurostat, J.P . Morgan Asset Management.

Eurozone countries economic divergences

Europe

Manufacturing PMI Unemployment

Dec 96 Dec 98 Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10

5

10

15

20

25

%

25

30

35

40

45

50

55

60

65

Dez 06 Dez 07 Dez 08 Dez 09 Dez 10 Dez 11

Germany

Italy

France

Spain

Germany

Italy

France

Spain

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16

WORLD

17World stock market returns (EUR and local currency)

21

Risk appetite and volatility

18World equity market cumulative returns (EUR)

19MSCI World Index by sector (EUR)

20

22

Income: Dividend growth (EUR)

23

Income: Reinvested dividends

Income: Equities and bonds

24

25

World economic data

26

World economic momentum

Credit and money supply growth

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17

World stock market returns (EUR and local currency)


20102004 2005 2006 2007 2008

EUR

Local

EUR

Local

EUR

Local

EUR

Local

EUR

Local

Q2 20122009 2011

World

YTD

16,9%

MSCI EM

16,4%

55,0%

MSCI EM

35,8%

20,2%MSCI

Europe

19,6%

26,7%MSCI Asia

ex Japan

38,0%

-23,0%Japan

TOPIX

-40,6%

73,4%

MSCI EM

62,8%

28,3%MSCI Asia

ex Japan

15,6%

5,5%

US S&P 500

2,1%

12,0%

US S&P 500

9,5%

2,0%

US S&P 500

-2,8%

12,6%

MSCI

Europe

12,7%

45,3%

Japan

TOPIX

45,2%

19,6%

MSCI Asia

ex Japan

28,6%

26,1%

MSCI EM

33,5%

-33,7%

US S&P 500

-37,0%

67,2%

MSCI Asia

ex Japan

67,2%

27,5%

MSCI EM

14,4%

-7,5%

MSCI

Europe

-8,8%

8,5%

MSCI Asia

ex Japan

6,1%

-2,1%

MSCI Asia

ex Japan

-5,3%

9,2%

MSCI Asiaex Japan

11,9%

41,9%

MSCI Asiaex Japan

24,1%

18,6%

MSCI EM

28,9%

3,2%

MSCIEurope

6,5%

-43,3%

MSCIEurope

-38,5%

32,5%

MSCIEurope

28,6%

23,9%

JapanTOPIX

1,0%

-9,6%

JapanTOPIX

-17,0%

6,5%

MSCI EM

5,1%

-2,3%

JapanTOPIX

-9,7%

8,1%

Japan

TOPIX

11,3%

26,7%

MSCI

Europe

25,5%

3,6%

US S&P 500

15,8%

-4,9%

US S&P 500

5,5%

-49,8%

MSCI Asia

ex Japan

-47,7%

22,5%

US S&P 500

26,5%

23,1%

US S&P 500

15,1%

-14,3%

MSCI Asia

ex Japan

-14,6%

5,6%

Japan

TOPIX

7,0%

-2,5%

MSCI

Europe

-3,6%

2,9%

US S&P 50010,9%

20,9%

US S&P 5004,9%

-8,7%

Japan

TOPIX3,0%

-14,5%

Japan

TOPIX-11,1%

-50,8%

MSCI EM-45,7%

1,5%

Japan

TOPIX7,6%

11,7%

MSCI

Europe7,5%

-15,4%

MSCI EM-12,5%

5,4%

MSCI

Europe3,9%

-4,3%

MSCI EM-5,1%

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Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

MSCI Emerging Markets 8,2% p.a.

FTSE 100 6,5% p.a.

MSCI Europe ex UK 7,8% p.a.

TOPIX Japan -0,9% p.a.

Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11

5050

100100

150150S&P 500 2,2% p.a.

MSCI Europe ex UK -4,9% p.a.

MSCI Emerging Markets 4,0% p.a.

TOPIX Japan -4,2% p.a.

18

World equity market cumulative returns (EUR)

Note: Total return indices. On a log scale the distance between tick marks shows the same percentage change. Source: J.P. Morgan Asset Management.

Five years to June 2012, log scale

20 years to June 2012, log scale

800

400

200

100

FTSE 100 -1,6% p.a.

S&P 500 7,8% p.a.

World

800

400

200

100

TOC


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19

MSCI World Index by sector (EUR)

Note: Total return indices. Source: I/B/E/S, J.P. Morgan Asset Management.

Energy Materials Industrials

Consstaples Health Financials

Infotech

Telecomservices Utilities

MSCIWorld

Consdisc

MSCI Worldweight %

Q2 2012 return%

YTD return%

Dividend yield%

Forward P/E

Historic P/E

10,6 6,8 10,9 10,8 11,0 10,7 18,6 12,6 4,2 3,8 100,0

-2,9 -6,1 -1,7 -1,3 5,7 6,3 -2,5 -3,4 10,1 5,7 -0,2

-1,8 0,9 7,4 13,4 10,1 11,8 12,5 13,1 8,4 4,9 8,7

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

9,5 11,9 14,0 16,2 17,4 15,8 12,0 14,9 15,9 21,4 13,7

9,3 9,7 11,1 12,1 14,5 11,8 9,3 11,4 11,9 14,9 11,0

World

TOC


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-6

-4

-2

0

2

4

6

Dez 95 Dez 97 Dez 99 Dez 01 Dez 03 Dez 05 Dez 07 Dez 09 Dez 11

Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

20

40

60

80

100

20

Risk appetite and volatility

Volatility

Cheap money

Asian

crisis

Russian

crisis

Tech

bubble

Gulf

war 2

Credit

crunch

VIX

VDAX

Eurozone debt

crisis

Credit Suisse Global Risk Appetite Indicator

VIX and VDAX

Euphoria

Distress

Numberofstandarddeviations

30 June 2012

-0,4World

30 June 2012

21,5

17,1

(Top) Note: The Credit Suisse Global Risk Appetite Indicator compares aggregated risk-adjusted returns across 64 markets (both equity and fixed income). It compares six

month excess returns over cash with 12 month volatility for each asset. Source: Credit Suisse, J.P. Morgan Asset Management. (Bottom) Note: VDAX is the name given to

the Deutsche Brse equivalent of the VIX, based on the DAX. Source: Bloomberg, Chicago Board Options Exchange, Deutsche Brse, J.P. Morgan Asset Management.

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100

150

200

250

21

Income: Dividend growth (EUR)

Note: Regular dividends only. Source: J.P. Morgan Asset Management.

MSCI AC World Index dividend growth

Annualised change Payout ratioAsia ex Japan 6,8% 31,2%

Japan 5,7% 32.8%

Europe ex UK 5,1% 46.2%

US 2,5% 28,5%

UK 1,0% 42,9%

World

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5,1%

4,3%3,9%

3,7%

3,1%2,9%

2,6%2,2%

0

1

2

3

4

5

6

7

6,0% 5,9% 5,7%

5,2% 5,0%

4,2% 4,1%

3,5%

0

1

2

3

4

5

6

7

22

(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: Yields shown are that of the appropriate FTSE NARIET REIT index, which excludes property development companies. Source: NARIET, J.P. Morgan Asset

Management. (Bottom right) Note: Yields shown are than of the appropriate MSCI index. Source: MSCI, J.P. Morgan Asset Management.

Income: Reinvested dividends

REIT dividend yields Equity dividend yields

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

13,9%

-5,3%

3,0%

13,6%

4,4%0,2%

16,0%12,9%

-2,9%

5,2%

-10

-5

0

5

10

1520

25

1926 - 1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 1926 - 2011

Total returns: Dividends and capital appreciationAverage annualised returns

%

Capital appreciation

Dividends

Ten-year government

bond yield

%

Sing. France Austlia Canada Japan Global UK US

%

Austlia France UK Switz. Canada ACWI Japan US

Ten-year government

bond yield

World

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0

1

2

3

4

Dez 05 Dez 06 Dez 07 Dez 08 Dez 09 Dez 10 Dez 11

0

1

2

3

4

5


Ratio

0

1

2

3

4


Income: Equities and bonds

23

1,0%

1,6%

3,3%

4,1%

5,4%

7,8%

0

1

2

3

4

5

6

7

8

9

(Left) 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. I nflation is year on year change in the eurozone CPI. Source: Tullett Prebon, Merrill Lynch, J.P. Morgan Asset Management.

(Right) Note: Europe uses the MSCI Europe Index, US the S&P 500, and UK the FTSE 100. The government bond yield is the generic ten-year bond yield for that country.


%

Eurozone CPI

Inflation

(May 2012)

Cash Bunds MSCI

Europe

European

corporate

EM

debt

High

yield

Dividend yields compared to the government bond yieldsSources of incomeYields

World

Europe

Average 1,5x

Average 1,3x

Average 1,6x

Ratio

Ratio

UK

US

9,1 4,0 7,9 4,8Duration

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World economic data

Note: The Misery Index was devised by US economist ArthurOkun to illustrate the combination of unemployment and inflation. A higher number indicates a worse

economic climate, and vice versa. India GDP estimates from J.P Morgan.

Source: Bloomberg, national statistical agencies, CIA, J.P . Morgan Asset Management.

24

GDP estimate y/y% Inflation y/y%current (a)

Unemployment %

current (b)Policy rate

currentMisery index

(a+b)

G7 and selected countries

20132012

World

Switzerland 0,5 1,5 -1,0 3,0 0,00 2,0

Japan 2,5 1,5 0,2 4,4 0,10 4,6

China 8,2 8,4 3,0 4,1 6,31 7,1

Netherlands -0,8 1,2 2,1 6,2 1,00 8,3

Canada 2,1 2,2 1,2 7,3 1,00 8,5

Germany 0,9 1,4 1,7 6,8 1,00 8,5

Sweden 0,6 2,1 1,0 8,1 1,50 9,1

United States 2,2 2,4 1,7 8,2 0,25 9,9

Brazil 2,8 4,5 5,0 5,8 8,50 10,8

United Kingdom 0,2 1,7 2,8 8,2 0,50 11,0

France 0,3 0,9 2,0 9,6 1,00 11,6

Italy -1,8 0,0 3,3 9,8 1,00 13,1

India 6,0 6,5 7,6 9,8 7,00 17,4

Greece -5,2 -0,9 1,4 22,6 1,00 24,0

Spain -1,7 -0,5 1,9 24,4 1,00 26,3

TOC

W ld i


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25

World economic momentum

Note: The Citigroup Economic Surprise Index is defined as the weighted historical standard deviations of data surprises (actual releases versus survey median).Source: Citigroup, J.P. Morgan Asset Management.

Wor

ld

Dec 07 Dec 08 Dec 09 Dec 10 Dec 11

-150

-100

-50

0

50

100

150

Economic surprise indices, US, eurozone and UK Economic surprise indices, China and Latam


-100

-50

0

50

100

150

EurozoneUS

UK

Latin AmericaChina

TOC

C dit d l th


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-2

26

10

14

18



-6

-4

-2

0

2

4

6

8

10

26

Credit and money supply growth

Real credit growth (y/y)

%

Latest data is April 2012 for the US, and May 2012 for Europe and UK.

Note: Year on year growth in outstanding loans, excluding mortgages less

core inflation. Source: Federal Reserve, Bank of England, ECB,

J.P. Morgan Asset Management.

UK

US

Eurozone

Latest data is May 2012 for the US, and April 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.

Broad money supply growth (y/y)

US (M2)%

Wor

ld

UK (M4 adjusted)

Eurozone (M3)

%

%

0

4

8

12


-2

2

6

10

14


TOC

UNITED STATES


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27

UNITED STATES

28US S&P 500 Index at inflection points (USD)

29US equity valuations

30US returns by style (USD)

31Market returns after consecutive down years S&P 500 Index (USD)

32US corporate balance sheet

33US GDP and inflation

34Contribution to US GDP

35Federal finances

TOC

US S&P 500 Index at inflection points (USD)


29/66


600

800

1.000

1.200

1.400

1.600

60

80

100

120

140

160

28

Note: Earnings index is derived from the forward P/E. Source: I/B/E/S, J .P. Morgan Asset Management.

S&P 500 Index

US S&P 500 Index at inflection points (USD)

27 March 2000

1.524

9 October 2002

777

9 October 2007

1.565

+101%

9 March 2009

677

-49% -57%

30 June 2012

1.362

+98%

18 February 2011

1.343UnitedStates

Earnings index

Earnings

TOC

US equity valuations


30/66

Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

2

4

6

8

10


10

15

20

25

29

30 June 2012

US equity valuations

Source: I/B/E/S, Tullett Prebon Information, J.P. Morgan Asset Management.

Forward P/E ratio S&P 500 Index 31 January 200024,4

Average since 1989

15,8

S&P 500 Index dividend yield and ten-year US Treasury yield

Ten-year US Treasury yield

Dividend yield

One year

earnings

growth

forecast:12%

%

UnitedStates

30 June 2012

11,8

1,7%

2,1%

TOC

US returns by style (USD)


31/66

30

US returns by style (USD)

2010


2004 2005 2006 2007 2008 2009 2011

UnitedStates YTD

Russell2000

18,3%

S&P 400Mid Cap

12,6%

S&P 500Value

20,8%

Nasdaq

10,7%

Russell2000

-33,8%

Nasdaq

45,3%

Russell2000

26,9%

S&P 500Growth

4,7%

Nasdaq

13,3%

S&P 500Growth

-2,0%

S&P 400

Mid Cap

16,5%

S&P 500

Value

5,8%

Russell

2000

18,4%

S&P 500

Growth

9,1%

S&P 500

Growth

-34,9%

S&P 400

Mid Cap

37,4%

S&P 400

Mid Cap

26,6%

S&P 500

2,1%

S&P 500

Growth

10,0%

S&P 500

-2,8%

S&P 500

Value

15,7%

S&P 500

4,9%

S&P 500

15,8%

S&P 400

Mid Cap

8,0%

S&P 400

Mid Cap

-36,2%

S&P 500

Growth

31,6%

Nasdaq

18,0%

S&P 500

Value

-0,5%

S&P 500

9,5%

Russell

2000

-3,5%

S&P 500

10,9%

Russell

2000

4,6%

S&P 500

Growth

11,0%

S&P 500

5,5%

S&P 500

-37,0%

Russell

2000

27,2%

S&P 500

Value

15,1%

Nasdaq

-0,8%

S&P 500

Value

8,9%

S&P 500

Value

-3,6%

Nasdaq

9,1%

S&P 500

Growth

4,0%

Nasdaq

10,4%

S&P 500

Value

2,0%

S&P 500

Value

-39,2%

S&P 500

26,5%

S&P 500

15,1%

S&P 400

Mid Cap

-1,7%

Russell

2000

8,5%

Nasdaq

-4,8%

S&P 500Growth

6,1%

Nasdaq

2,1%

S&P 400Mid Cap

10,3%

Russell2000

-1,6%

Nasdaq

-40,5%

S&P 500Value

21,2%

S&P 500Growth

15,1%

Russell2000

-4,2%

S&P 400Mid Cap

7,9%

S&P 400Mid Cap

-4,9%

Q2 2012

TOC

Market returns after consecutive down years S&P 500 Index (USD)


32/66

UnitedStates

31

Market returns after consecutive down years S&P 500 Index (USD)

Note: Total returns in USD. Source: Dimson, Marsh and Staunton ABN AMRO/LBS Global Investment Returns Yearbook 2008, J.P. Morgan Asset Management.

1929-1932

1940-1941

1973-1974

1933-1936

1942-1945

1975-1976

09/10/02 -

08/10/07

24/03/00 -

08/10/0209/10/07 -

08/03/09

09/03/09 -

18/02/11

+107%

Great Depression World War II Oil crisis Bubble burst Credit crunch

+121%

+66%

+122%

-65%

-17%

-38%-47%

-55%

+190%

TOC

US corporate balance sheet


33/66

4

5

6

7

8

9

10

11

12

0

200

400

600

800

1.000

1.200

1.400

1.600

2000 2002 2004 2006 2008 201050

100

150

200

250

300

350

400

450

500

2000 2002 2004 2006 2008 2010 20125

6

7

8

9

10

32

US corporate balance sheet

Source: Computstat, J.P. Morgan Asset Management.

UnitedStates

Cash balancesS&P 500 ex financials

Sales and profit marginsS&P 500 ex financials

USD bn % Index %

Note: Sales indexed to Q1 2000. Latest data Q4 2011. Source:

Worldscope, J.P. Morgan Asset Management.

Sales (lhs)

Margin (rhs)

Cash and equivalents (lhs)

% total assets (rhs)

TOC

US GDP and inflation


34/66


-4

-2

0

2

4

6

33

Source: BEA, Bloomberg consensus forecasts, J.P . Morgan Asset Management.



Average

2,1%

First quarter

2012

2,0%

US GDP and inflation


0

2

4

6

Core CPI

May 2012

2,3%

Headline CPI

May 2012

1,7%

% %

Forecast

headline CPI

2012: 2,2%

2013: 2,0%

Forecast

GDP

2012: 2,2%

2013: 2,4%

UnitedStates

USD 685

bn of output

lost

USD 850 bn

of output

recovered

TOC

Contribution to US GDP


35/66

0

1

2

3

4

5

0

1

2

3

4

5

-2.000

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

34

Source: BEA, J.P. Morgan Asset Management.

First quarter 2012change quarter on quarter annualised

Contribution to US GDP

Household

Inventories

Business

investment

Government

Residential

investment

Net

exports

3,0%

1,9%Household

InventoriesBusiness

investment

GovernmentResidential

investment

Net

exports

%

%

Total

Total

UnitedStates

Fourth quarter 2011change quarter on quarter annualised

Components of GDPFirst quarter nominal GDP, billions USD

10,9%

Business investment

71,2%

Household

19,5%

Government

2,3%

Residential investment

- 3,9% Net exports

TOC

Federal finances


36/66

0

10

20

30

40

50

60

70

80

90

100

Mrz 04 Mrz 06 Mrz 08 Mrz 10 Mrz 12

35

(Left top and bottom) Note: The Federal Budget for 2012 is based on the March 2012 baseline scenario from the CBO. The alternative scenario is based on the CBOs

alternative scenario for spending and President Obamas budget for revenues (assuming avoidance of the fiscal cliff). Years s hown are fiscal years (Oct. 1 through Sep.

30). Top chart on the left displays federal surplus/deficit (revenues outlays). (Bottom left) US convention is to use net debt levels rather the gross debt. Source: US

Treasury, BEA, CBO, J.P. Morgan Asset Management. (Right) *58% of assets on the Feds balance sheet. **Other includes US deposit institutions, households, state and

local government etc. Data as at April 2012. Source: US Treasury, J.P. Morgan Asset Management.

Federal budget surplus/deficit% of GDP, 1990 - 2022

US Treasuries ownership

United

States

-12

-10

-8

-6

-4

-2

0

2

4

1990 1994 1998 2002 2006 2010 2014 2018 2022

CBO Baseline

Alternative

Forecast

Baseline Alt.

2011 actual -8,7% -8,7%

2012 estimate -7,6% -7,8%

2013 projection -3,8% -6,6%

20

40

60

80

100

1990 1994 1998 2002 2006 2010 2014 2018 2022

CBO Baseline

Alternative 2011 actual:

67,7%

2022: 80,0%

2022: 61,3%

Forecast

%

%

Federal debt% of GDP, 1990 - 2022

%

12%

11%

2%

3%

26%

Japan USD 1.066 bn

China USD 1.146 bn

Other countries USD 2.479 bn

30%

OPEC

UK

Other US domestic USD 2.779bn**

17%US Fed USD 1.667 bn*

TOC

JAPAN


37/66

36

JAPAN

37Japan TOPIX Index at inflection points (JPY)

38Japan equity valuations

39Japan GDP and inflation

TOC

Japan TOPIX Index at inflection points (JPY)


38/66


400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

40

60

80

100

120

140

160

180

200

Jap

an

26 February 2007

1.817

Note: Earnings index is derived from the forward P/E. Source: I/B/E/S, J.P . Morgan Asset Management.

p p ( )

TOPIX Index

28 April 2003

773 13 March 2009

724

-60%+135%

+35%

37

21 February 2011975

Earnings index

Earnings

30 June 2012

770

TOC

Japan equity valuations


39/66


2

4

6

8

10


20

40

60

80

38

Note: Earnings growth forecast excludes negative earnings. Source: I/B/E/S, Tullett Prebon Information, J.P. Morgan Asset Management.

MSCI Japan Index dividend yield and ten-year JGB yield

Forward P/E ratio Japan, Topix Index

31 March 1994

72,7

Average since 1989

30,2

Ten-year JGB yield

Dividend yield

30 June 2012

One year

earnings

growth

forecast:16%

%

Jap

an

0,8%

2,6%

30 June 2012

10,7

TOC

Japan GDP and inflation


40/66

39


-2

-1

0

1

2

3

Source: Ministry of Internal Affairs and Communications, Economic & Social Research Institute, Bloomberg consensus forecasts, J.P. Morgan Asset Management.




-8

-6

-4

-2

0

2

4

6

Average

0,8%

% %

Forecast

headline CPI

2012: 0,1%

2013: 0,1%

Forecast

GDP

2012: 2,5%

2013: 1,5%

Jap

an

First quarter

2012

2,7%

Headline CPI

May 2012

0,2%

Core CPI

May 2012

-0,6%

TOC

EMERGING MARKETS


41/66

40

41MSCI Asia ex Japan Index and emerging market valuations

42Emerging market returns (EUR and local currency)

43Emerging markets GDP growth and inflation

44China: Cyclical indicators

45China: Monetary policy and housing

TOC

MSCI Asia ex Japan Index at inflection points (local)


42/66

Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11

200

300

400

500

600

700

800

20

30

40

50

60

70

80

41

Note: Earnings index is derived from the forward P/E. Source: I/B/E/S, J .P. Morgan Asset Management.

12 May 2003218

1 November 2007

750

MSCI Asia ex Japan Index

20 November 2008

299

+250%

+122%

-60%

21 April 2011

664

Emerging

Markets

Earnings index

Earnings

30 June 2012

560

TOC

Emerging market returns (EUR and local currency)


43/66

Emerging

Markets

42

Note: Total return MSCI indices. EM EMEA is EM Europe plus Egypt, Morocco and South Africa. World is MSCI Developed Market (DM) World Index.


2004 2005 2006 2007 2008

EUR

Local

EUR

Local

EUR

Local

EUR

Local

EUR

Local

2010

EUR

Local

2009 Q2 20122011 YTD

29,6%

EM Latin

America32,2%

74,2%

EM Europe

59,2%

28,3%

EM Latin

America37,6%

35,9%

EM Latin

America35,6%

-37,2%

World

-38,3%

97,8%

EM Latin

America63,2%

32,4%

EM EMEA

19,2%

-1,8%

World

-5,0%

9,6%

EM Europe

6,4%

-0,2%

World

-4,0%

29,3%

EM EMEA

24,5%

73,3%

EM Latin

America

38,0%

22,2%

EM Europe

32,8%

27,7%

EM Asia

39,1%

-48,8%

EM Latin

America

-37,7%

80,4%

EM Europe

73,6%

27,6%

EM Asia

14,9%

-14,4%

EM Asia

-14,2%

8,9%

EM EMEA

6,6%

-2,7%

EM Asia

-5,5%

26,6%

EM Europe

25,8%

59,9%

EM EMEA

50,4%

19,2%

EM Asia

27,7%

26,1%

Emerging

Markets

33,5%

-50,3%

EM Asia

-47,1%

73,4%

Emerging

Markets

62,8%

27,5%

Emerging

Markets

14,4%

-15,4%

Emerging

Markets

-12,5%

8,7%

World

6,8%

-3,7%

EM EMEA

-2,2%

16,9%

Emerging

Markets

16,4%

55,0%

Emerging

Markets

35,8%

18,6%

Emerging

Markets

28,9%

17,6%

EM Europe

22,3%

-50,8%

Emerging

Markets

-45,7%

68,8%

EM Asia

68,1%

25,2%

EM Europe

18,9%

-16,4%

EM Latin

America

-9,8%

7,6%

EM Asia

5,4%

-4,3%

Emerging

Markets

-5,1%

7,0%

EM Asia

8,0%

46,9%

EM Asia

28,5%

11,1%

EM EMEA

25,8%

16,1%

EM EMEA

21,9%

-53,3%

EM EMEA

-48,6%

62,9%

EM EMEA

50,3%

22,9%

EM Latin

America

9,2%

-17,5%

EM EMEA

-9,1%

6,5%

Emerging

Markets

5,1%

-5,8%

EM Europe

-3,9%

6,9%World

11,8%

26,8%World

16,3%

7,9%World

16,1%

-1,2%World

5,2%

-66,3%EM Europe

-64,0%

26,7%World

26,5%

20,1%World

10,6%

-20,8%EM Europe

-16,4%

1,9%

EM Latin

America

3,4%

-8,8%

EM Latin

America

-6,3%

TOC

Emerging markets GDP growth and inflation


44/66

-3

0

3

6

9

12

15

18

-3

0

3

6

9

12

15


43

Emerging

Markets

India

Russia

BrazilInflation %GDP %

China

Inflation %GDP %Inflation %GDP %

Inflation %GDP %

Note: Real GDP growth and inflation are year on year change. Source: (top left) IBGE, (top right) India Central Statistics Organisation, Press Information Bureau of India,

(bottom left) National Bureau of Statistics, (bottom right) Federal Service of State Statistics , J.P. Morgan Asset Management.

Average

7,3%


-3

0

3

6

9

12

15

-3

0

3

6

9

12

15

18

Average

5,4%


-3

0

3

6

9

12

15

-3

0

3

6

9

12

15

18

Average

3,6%


-3

0

3

6

9

12

15

-3

0

3

6

9

12

15

18

Average

9,6%

TOC

China: Cyclical indicators


45/66

-10

0

10

20

30

40

50

60

70


44

(Left) Source: National Bureau of Statistics China, Markit, J.P. Morgan Asset Management. (Top right) Source: China Association of Automobile Manufacturers,

J.P. Morgan Asset Management. (Bottom right) Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management.

Auto salesManufacturing PMIs

May 2012

1,5%

Index level, reading above 50 indicates expansion Year-on-year growth of 12-month rolling sum

Emerging

Markets

46

48

50

52

54

56

58

Mai 09 Nov 09 Mai 10 Nov 10 Mai 11 Nov 11 Mai 12

NBS Mfg. PMI

HSBC Mfg. PMI

June 2012 48,2

May 2012 50,4

15

20

25

30

35

40

1990 1994 1998 2002 2006 2010

%

US Consumption % of globalEM Consumption % of global

Share of global nominal consumption

TOC

China: Monetary policy and housing


46/66


6

8

10

12

14

16

18

20

22

24


6.0

6.5

7.0

7.5

8.0

8.5

45

Reserve requirement ratioHome prices

Chinese currency

Source: (Top left) National Bureau of Statistics China, J.P. Morgan Asset Management. (Right) The Peoples Bank of China, J.P . Morgan Asset Management. (Bottom left)


Emerging

Markets

Renminbi per USD

Minimum reserves requirement

%

June 2012

20,0%

June 2012

6,31%

Large depository institutions

One-year working capital rate

May 2012

6,35June 2005 July 2008: +17,5%

May 2010 June 2012: +7,0%

Indexed to 100 in January 2007

80

130

180

230

280

2007 2008 2009 2010 2011 2012

Beijing/Shanghai

averageJan 2012

141,4NBS 70-city

average

Jan 2012

271,1

TOC

FIXED INCOME


47/66

46

47Fixed income returns

52Emerging market sovereign debt and index weightings

48International yield curves

49ECB and Bank of England policy and real rates

50US Fed and Bank of Japan policy and real rates

51Corporate bonds

TOC

Fixed income returns


48/66

52,6%

US HY57,5%

23,2%

US HY15,2%

12,5%

EM debt9,2%

9,5%

US HY7,1%

7,7%

EM debt2,8%

22,8%

EM debt

25,9%

18,8%

EM debt

11,8%

9,2%

Global agg

5,6%

9,2%

EM debt

6,9%

6,8%

US HY

1,8%

16,0%

FI alloc.

17,5%

12,9%

Global agg

5,5%

7,9%

US HY

4,4%

5,9%

FI alloc.

5,0%

5,6%

Global agg

0,6%

15,7%Euro corp

15,7%

8,4%FI alloc.

5,4%

5,0%FI alloc.

3,6%

5,7%Euro corp

5,7%

2,6%FI alloc.

0,6%

8,1%

IL

8,1%

4,7%

Euro corp

4,7%

3,4%

Euro govt

3,4%

5,0%

IL

5,0%

0,2%

Euro govt

0,2%

4,3%

Euro govt

4,3%

1,1%

Euro govt

1,1%

1,5%

Euro corp

1,5%

4,0%

Euro govt

4,0%

0,0%

Euro corp

0,0%

3,6%

Global agg

6,9%

-0,4%

IL

-0,4%

-2,3%

IL

-2,3%

3,8%

Global agg

1,5%

-1,2%

IL

-1,2%

FixedIncome

47

2009 2010

Euro

Local

Euro

Local

Euro

Local

Euro

Local

Euro

Local

Q2 20122011 YTD

Fixed income sector returns Government fixed income returns

2009 2010 Q2 20122011 YTD

Euro

Local

Euro

Local

Euro

Local

Euro

Local

Euro

Local

Euro

Local

Euro

Local

(Left) Note: IL is Barclays Euro Govt All Markets Inflation-linked Index, Euro govt is Barclays Euro Aggregate Government Treasury Index, EM debt is the EMBI+, US HY isthe Merrill Lynch High Yield Master II, Euro corp is the Barclays Euro Aggregate Credit Corporate Index, Global agg is the Barclays Global Aggregate Index. The F Iallocation assumes the following weights; 15% in index linked, 35% in euro government bonds 15% in EM debt, 15% in high yield, 10% in euro corporates, and 10% inglobal bonds. Source: Barclays Capital, Bank of America Merrill Lynch, J.P. Morgan Asset Management. (Right) Source: JPMorgan Global Bond indices, J.P. Morgan AssetManagement.

Euro

Local

8,3%

Italy

8,3%

25,8%

Japan

2,5%

19,9%

UK Gilts

16,8%

8,9%

Italy

8,9%

9,4%

Japan

1,1%

7,8%

UK Gilts

-1,0%

13,8%

Global

4,2%

13,6%

US

9,9%

5,1%

UK Gilts

1,8%

8,1%

US

3,0%

1,8%

Germany

1,8%

13,5%

US

6,1%

11,4%

Japan

2,3%

4,0%

US

1,7%

7,1%

UK Gilts

3,9%

-1,3%

Global

0,7%

11,5%

UK Gilts

7,5%

10,8%

Global

6,3%

2,7%

Global

2,1%

6,3%

Global

1,8%

-4,8%

Japan

0,9%

6,4%

Germany

6,4%

9,8%

Germany

9,8%

1,9%

Germany

1,9%

1,6%

Germany

1,6%

-6,8%US

-3,8%

-0,6%Italy

-0,6%

-5,9%Italy

-5,9%

-0,0%Japan

1,4%

-2,2%Italy

-2,2%

TOC

International yield curves


49/66

0

1

2

3

0

1

2

3

3 53 103 153 203 253 303 3533M 2Y 5Y 10Y 30Y

Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12

1

2

3

4

48

Source: Tullet Prebon Information, Bloomberg, J.P. Morgan Asset Management.

Government yield curves

%

Germany 1,59%

UK 1,73%US 1,65%

Japan 0,84%

Ten-year yieldsUK

US

Germany

Japan

Maturity

%

%

FixedIncome

TOC

ECB and Bank of England policy and real rates


50/66


-2

0

2

4

6

49


-2

0

2

4

6

Bank of England

Note: Real interest rates are calculated using core CPI and repo rate. Source: ECB, Bloomberg

consensus forecasts, J.P. Morgan Asset Management.

European Central Bank

Note: Real interest rates are calculated using core CPI and base rate.

Source: Bank of England, ONS, B loomberg consensus forecasts,


Real interest rate

May 2012

-0,58%

Repo rate

30 June 2012

1,00%

Real interest rate

May 2012

-1,71%

Base rate

30 June 2012

0,50%

% %

Forecast

Base rate

2012: 0,50%

2013: 0,50%

Forecast

Repo rate

2012: 0,75%

2013: 0,75%

FixedIncome

TOC

US Fed and Bank of Japan policy and real rates


51/66


-2

0

2

4

6

8


0,0

0,5

1,0

1,5

2,0

50

Note: Real interest rates are calculated using core CPI and Fed Funds rate. Source: US Federal

Reserve Bank, Bloomberg consensus forecasts, J.P. Morgan Asset Management.

Note: Real interest rates are calculated using core CPI and call rate.

Source: Bank of Japan, Bloomberg consensus forecasts,


Bank of JapanUS Federal Reserve Bank

Real interest rate

May 2012

-2,01%

Fed Funds

30 June 2012

0,25%

Real interest rate

May 20120,69%

%%

Forecast

Call rate

2012: 0,10%

2013: 0,10%

Forecast

Fed Funds

2012: 0,25%

2013: 0,25%

FixedIncome

Call rate

30 June 2012

0,10%

TOC

Corporate bonds


52/66

0

4

8

12

16

20

24


(Top) Source: Merrill Lynch, J.P. Morgan Asset Management.

(Bottom) Note: BarCap Global High Yield Index in USD. Figures

may not sum due to rounding. Source: BarCap, J.P. Morgan Asset

Management.

Note: Investment grade based on Merrill Lynch Investment Grade, mortgages is the Barclays

Capital Aggregate US MBS index, and corporate high yield is the Merrill Lynch High Yield Master

Index II. Source: Merrill Lynch, BarCap, J.P. Morgan Asset Management.

Investment grade and high yield bonds

Mortgages(MBS)

US corporate

high yield

51

US investment

grade7,8%

3,4%

2,5%

%

US corporate high yield and default rate

Spread over Treasuries (lhs): 644

Default rate (rhs): 1,1%

bps over Treasuries

FixedIncome

%

Yield to maturity

Global high yield by region

United

States56%

Europe

26%

Asia 6%

Canada 2%

Other Europe 14%

UK 4%

France 3%

Germany 3%

Italy 2%Latin America 6%

Other 3%

0

2

4

6

8

10

12

0

400

800

1.200

1.600

2.000

2.400


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Emerging market sovereign debt and index weightings


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Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 110

4

8

12

16

52

Note: Emerging Markets Sovereign is the EMBI+. The local currency is the JPMorgan GBI-EM

Global. Source: US Federal Reserve, J.P. Morgan Asset Management.

(Top) Note: The EMBI+ track total returns on USD denominated debt.

Figures may not sum due to rounding. Source: J.P. Morgan Asset

Management. (Bottom) Note: EMBI+ is representative of the sovereign

debt market. Source: J.P. Morgan Asset Management.

EMBI+ weighting (USD denominated)US and emerging market sovereign debt yields

Emerging market

sovereign (USD)

Ten-year US Treasury

Fed funds rate

Emerging

market

sovereign

(local currency)

%

FixedIncome Yield to maturity

EM external debt spreads and average credit rating

0

300

600

900

1200

1500

Sep 96 Sep 99 Sep 02 Sep 05 Sep 08 Sep 11

Emerging market crises

Developed market crises

bps over Treasuries Credit rating (inverted)

EMBI+ (lhs)

Rating (rhs)

CCC+

B-

B

B+

BB-

BB+

BBB-

Latin

America

51%Europe

30%

Asia

16% Mexico 14%

Brazil 12%

Venezuela 10%

Other Latin America 10%Africa 3%

Indonesia 7%

Philippines 10%

Other Europe 5%

Turkey 13%

Russia 14%Colombia 6%

TOC

OTHER ASSET CLASSES


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53

54Currencies

55Commodities

56Oil, gas and gold

57Correlation of returns (EUR)

58Property

59Cumulative returns on US assets

TOC

Currencies


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54

Note: REER is the real effective exchange rate of a currency against a basket of its main trading partners currencies. REER is rebased to 100 at December 1980


EUR trade weighted indexUSD trade weighted index

Yen trade weighted indexGBP trade weighted index

OtherAss

etClasses

USD REER

10 year moving average

-1,5sd

+1,5sd

EUR REER


-1.5sd

+1.5sd

GBP REER10 year moving average

-1,5sd

+1,5sd

JPY REER


-1,5sd

+1,5sd

80

90

100

110

120

130

140

150

Dez 80 Dez 84 Dez 88 Dez 92 Dez 96 Dez 00 Dez 04 Dez 08

80

90

100

110

120

130


50

60

70

80

90

100

110


80

90

100

110

120

130

140

150

Dez 80 Dez 84 Dez 88 Dez 92 Dez 96 Dez 00 Dez 04 Dez 08TOC

Commodities


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25

50

100

200

400

800

1600

Dez 69 Dez 79 Dez 89 Dez 99 Dez 09

0

50

100

150

200

250

300

0

50

100

150

200

250

300

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

55

(Top) Note: Pfaffenzeller until 2003, IMF commodity prices indices thereafter. Nominal prices adjusted using US consumer price index. Source: Pfaffenzeller, IMF,

J.P. Morgan Asset Management. (Bottom left) Note: On a log scale the distance between tick marks shows the same percentage change. Source: Bloomberg,

J.P. Morgan Asset Management. (Bottom right) Source: Goldman Sachs, National Bureau of Statistics of China, J.P. Morgan Asset Management.

Timber

Copper

Wheat

Cotton

Inflation adjusted commodity indices rebased to 1900 = 100

Metals (lhs)

Agriculturalproducts (lhs)

Chinese steel production (rhs)

Chinesesteelproduction

(millionsmetrictons

)

Met

alsan

dagricu

ltura

lindices

OtherAss

etClasses

Commodity indices and Chinese steel productionGold price (log scale)Inflation adjusted31 January 1980

USD 1.908

30 June 2012

USD 1.597

USD/oz


100

200

300

400

10

20

30

40

50

60

70

TOC

Oil and gas supply


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0

20

40

60

80

100

120

140

160

0

2

4

6

8

10

12

14

56

Crude oil and Henry Hub LNG prices Middle east energy production & chokepointsPercent of global liquid fuel production, 2010

USD/bbl

OtherAss

etClasses

Libya

2,1%Egypt

0,8%

Sudan0,6%

Saudi Arabia

11,7%

Iran

4,9%

Iraq

2,8%

Kuwait

2,9%

UAE

3,3%

Syria

0,5%

Strait of

Hormuz

18,0%

Suez Canal2,1%

Bab el-Mandeb

3,7%

Saudi Arabia 12% China 5% US 22% India 4%

Russia 12% Iran 5% China 11% Russia 3%

US 11% Canada 4% Japan 5% Saudi Arabia 3%

Major producers Major consumers

Percent of global total, 2010 Percent of global total, 2010

Brent

WTI30 June 2012

USD 85

30 June 2012

USD 93

Natural gas30 June 2012

USD 2,7

USD/MMBtu

Note: WTI is the West Texas Intermediate the US benchmark for oil prices, Brent is the Europeancrude oil benchmark. Henry Hub is the standard US domestic benchmark. Source: J .P. Morgan

Asset Management.

Note: Global liquid fuel production excludes liquefied natural gas(LNG). Source: EIA, J.P. Morgan Asset Management.

TOC

Correlation of returns (EUR)


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Note: Pan Europe bonds is the Citigroup Europe World Government Bond Index (WGBI). Emerging market debt is the JPMorgan EMBI Global. High yield bonds is the

JPMorgan Domestic High Yield. Ten year correlation values are calculated for period 12 July 2002 to 22 June 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: Bloomberg, J.P. Morgan Asset Management.

57

MSCI

Europe

MSCI

JapanS&P 500 MSCI EM

MSCI Asia

ex Japan

MSCI

World

Pan

Europebonds

EM debtHigh yield

bonds

MSCIEurope 1,00 0,46 0,79 0,79 0,68 0,93 -0,18 0,47 0,55

MSCIJapan 1,00 0,47 0,56 0,62 0,59 -0,02 0,17 0,35

S&P 500 1,00 0,68 0,62 0,94 -0,21 0,30 0,41

MSCI EM 1,00 0,94 0,84 -0,16 0,57 0,53

MSCI Asiaex Japan 1,00 0,77 -0,12 0,44 0,47

MSCI World 1,00 -0.19 0,42 0,53

Pan Europe

bonds 1,00 0,10 -0,03

EM debt 1,000,56

High yield

bonds 1,00

OtherAss

etClasses

Correlation of

weekly returns over

previous ten years

TOC

Property


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0

50

100

150

200

250

300

Dez 00 Dez 02 Dez 04 Dez 06 Dez 08 Dez 10

Spain

Japan (shifted 17 years)

UK

Ireland

US

58

GPR250 Property Index

MSCI World Index

229

99

30 June 2012

Note: Total return indices, rebased to 100 at 31 December 2000.

Source: GPR250 Property Shares Index, J.P. Morgan Asset

Management.

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.

Ratio

OtherAssetClasses Residential property values to GDP ratio MSCI World Index (EUR) vs GPR250 Property Index (EUR)

0

1

2

3

4

5

6

1977 1987 1997 2007 2017 2027

TOC

Cumulative returns on US assets


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0

1

10

100

1.000

10.000


59

Total return of USD 1 in real terms, log scale

Note: J.P. Morgan estimate from 2010, equities are represented by S&P 500 Total Return, bonds by BarCap US Treasury 20+ Year Total Return Index, and bills by BarCap USTreasury Bills Total Return Index. Log scale accurately represents percentage changes in index levels. Source: Shil ler, Siegel, J.P. Morgan Asset Management.

Annualised real returns

1899 2011 2000 Q1 2012Equities 6,3% -0,8%

Bonds 2,2% 5,8%

Bills 0,7% -0,3%

Equities

USD 952

Bonds

USD 12

Bills

USD 2

1905 - 1923

1928 - 1942

1965 - 1982

1999 USD 1.136

OtherAssetClasses

TOC

DEMOGRAPHICS


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60

61Demographics, savings and current accounts

62Population by age

63Education

TOC

Demographics, savings and current accounts


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-5

0

5

-8

-6

-4

-2

0

2

4

6

8

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

69+

61

Lifecycle of individual savings

Demographics

Age profile

Source: GS Global ECS Research, US Census Bureau, J.P. Morgan Asset Management.

Higher

Lower

Netsaving/dissaving

3

6

9

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

%

Age group distribution

%

Current account balance% of GDP

ChinaMedian age 35,5 years

USMedian age 36,4 years

JapanMedian age 44,8 years

Japan

US

China

TOC

Population by age


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0

10

20

30

40

50

60

0-19

20-39

40-59

60-79

80+

Note: Based on mid-year 2012 population estimate, ordered by s ize of youngest age group. Total fertility rate is the average number of children born per woman overnatural life time. Source: US Census Bureau, J.P. Morgan Asset Management.

India USNigeriaAge Brazil China UK Italy Japan

2,6 2,15,4 2,2 1,5 1,9 1,4 1,4

Germany

1,4Total fertility

rate

Percentage of population, by age cohort

54% 39% 34% 27% 25% 23% 19% 18% 18%

Demographics

62

TOC

Education


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63

Source: OECD, Program for International Student Assessment (PISA), J.P. Morgan Asset Management.

PISA education survey: comparing performance of selected countriesScores for 15 year olds

Rank Reading Maths Science

1 556 Shanghai-China 1 600 Shanghai-China 1 575 Shanghai-China

2 539 Korea 2 562 Singapore 2 554 Finland

3 536 Finland 3 555 Hong Kong-China 3 549 Hong Kong-China

8 520 Japan 9 529 Japan 5 539 Japan

17 500 United States 16 513 Germany 13 520 Germany

20 497 Germany 22 497 France 16 514 United Kingdom

22 496 France 28 492 United Kingdom 23 502 United States

25 494 United Kingdom 31 487 United States 27 498 France

53 412 Brazil 57 386 Brazil 53 405 Brazil

63 370 Peru 63 365 Peru 63 373 Azerbaijan

64 362 Azerbaijan 64 360 Panama 64 369 Peru

65 314 Kyrgyzstan 65 331 Kyrgyzstan 65 330 Kyrgyzstan

Topthree

Selected

others

Bottom

three

Demographics

TOC

Meet the team


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64

Tom Elliott. executive director, is a global strategist within the Investment Marketing Team at J.P. Morgan AssetManagement, responsible for investment communications through the Guide to the Markets suite of products. 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 thathe 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.

[email protected]

Dan Morris. executive director, is a strategist responsible for delivering market analysis and insight to clients in Europe,

the Middle East, and Africa. Prior to joining J.P. Morgan Asset Management, Dan was the Senior Equity Strategist atLombard 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.

[email protected]

Maria Paola Toschi. executive director, is a market strategist at J.P. Morgan Asset Management in the Milan Office, incharge of communications to domestic retail and institutional clients. She worked from 1986 to 2003 as a sell-side 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.

[email protected]

The full suite of the Guide to the Market publications can be accessed by visiting the Insight Portal:

www.jpmorganassetmanagement.com/insightTOC

J.P. Morgan Asset Management


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65

FOR PROFESSIONAL* INVESTORS ONLY. NOT FOR RETAIL USE OR DISTRIBUTION.

*ProfessionalInvestors corresponds to professional clients and eligible counter parties as defined within the European Union Directive 2004/39/EC on Markets in Financial Instruments (MiFID).

Any forecasts, figures, opinions or investment techniques and strategies set out, unless otherwise stated, are J.P. Morgan Asset Managements own at date of publication. They are 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. They may be subject to change without reference or notification to you.

The views contained herein are not to be taken as an advice or recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support aninvestment decision. It should be noted that the value of investments and the income from them may fluctuate in accordance wi th 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. You should also note that if you contact J.P. Morgan Asset Management by telephone

those lines could be recorded and may be monitored for security and training purposes. J.P. Morgan Asset Management is the br and name for the asset management business of JPMorgan Chase & Co.

and its affili ates worldwide.

Issued 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 United K ingdom by JPMorgan Asset Management (UK) which is authorised and regulated by the Financial Services Authority.

Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

Unless otherwise stated, all data is as at 30/06/2012.

Prepared by:Kerry Craig, Tom Elliott , Paola Toschi and Dan Morris

TOC

Guide to the Markets Quarterly 3Q_2012

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