Monthly Market Review

MARKET INSIGHTS

January 2020

Will a merry Christmas bring a happy New Year?

Investor sentiment continued to improve in December with U.S. equity indices hitting record highs. The trade agreement between the U.S. and China, as well as the Conservative Party in the UK gaining a decisive majority in parliament are key catalysts to this upbeat mood. With stabilization of economic data, more investors believe 2020 could be a year of recovery. This return in risk appetite could extend into months ahead and support global equities and other risk assets. While we do agree that there are positive factors that would keep recession risk low and sentiment upbeat in the near term, we should remain vigilant on risk factors that could undermine confidence. As we have warned in recent months, we have seen such optimism before but global politics remain volatile.

This is not what the end looks like

The U.S. and China avoided escalating their trade war in mid-December with an agreement to halt tariffs on USD 160billion of Chinese exports to the U.S., as well as rolling back some of the tariffs implemented earlier in the year. The market cheered at the fact that the worst has been avoided. The deal also shows that both sides are aware of the economic costs of an escalating trade war, and rational thinking would eventually prevail.

That said, there are still a few things to watch out for. Beijing and Washington highlighted different parts of the deal when they released their respective statements. The U.S. focused on the size of agricultural purchases and better intellectual property rights protection than China has offered. China spoke mainly about the rollback of tariffs. The formal agreement has yet to be produced and signed by U.S. President Donald Trump and Chinese President Xi Jinping. President Trump did mention that it will be signed soon, but with no specific date.

Even if the two sides sign this agreement around the New Year, few business leaders believe this would mark the end of tension between both sides. A “Phase Two” agreement is likely to be much more challenging to negotiate, and it is unlikely material progress will be made with the U.S. presidential election only 11 months away. Disputes over technology are also likely to keep the relationship difficult.

2

On Brexit, the Conservative Party won its biggest majority since 1987 and swiftly passed the Withdrawal Agreement Bill. Now the UK government will enter trade deal negotiations with the European Union (EU). However, Boris Johnson’s withdrawal bill has formally ruled out any extension to the transition period. This means if no deal is agreed to between the UK and EU by the end of 2020, the UK could still face a hard Brexit.

In short, investors are right to breath a sign of relief about some of the recent developments in geopolitics, but these events still could see a sting in their tails in 2020.

Setting expectations

At the end of the year, authorities around the world were setting expectations for what’s to come. The U.S. Federal Reserve (Fed) kept its policy rates unchanged in its December Federal Open Market Committee meeting as expected. Its projection for economic growth and inflation continues to show low risk of recession and tame price pressure. This combination justifies its expectations for a steady policy rate in 2020. We think this would make sense considering that the lack of price pressure meant the Fed couldafford to keep monetary policy loose to support growth. Meanwhile, solid consumer demand and the latest de-escalation in trade tensions help to reduce the probability of a recession in 2020, reducing the need for more stimulus.

In China, the Central Economic Work Conference was held to set the economic agenda for 2020. Economic stability remains the overriding objective. We expect China’s 2020 GDP growth target could be set at around 6%, which would imply some tolerance for growth to dip below 6%. Monetary policy is expected to be supportive, but the People’s Bank of China would remain conscious not to raise corporate leverage too much. It announced a 50bps cut to the reserve requirement ratio on New Year’s day, effective January 6. It also announced banks will use loan prime rate (LPR) to set new loans starting on January 1 as well as convert existing floating rate-based loans to be LPR-based loans between March and August. Overall, we expect fiscal stimulus will continue to do more of the heavy lifting in stimulating growth compared to monetary policy.

Sentiment seesawing toward optimism

In addition to reduced geopolitical uncertainties and policy support, economic data are also starting to stabilize. Global manufacturing Purchasing Managers’ Index returned to above 50 in November, but the distribution of improvement is uneven. Nonetheless, data not getting worse was already sufficient to boost investor confidence. Global contraction in corporate investment is also starting to improve. This has led to a modest pickup in government bond yields across developed economies.The U.S. Treasury yield curve has also steepened as a result, which made the curve inversion earlier in 2019 a distant memory.

In fixed income, the negative price impact from high risk-free rates was more than offset by the tightening of corporate credit spreads. Hence, U.S. corporate debt, both investment grade and high yield, was able to produce a positive return in December.The U.S. dollar weakened across the board against both developed and emerging market (EM) currencies. This has helped to boost return in EM fixed income. We expect this trend to continue as global investors continue to search for yield, and EM government and corporate bonds can help to satisfy this demand.

Investors should also pay attention to Chinese fixed income. International investors are still under-represented in the onshore fixed income market. With the Chinese yuan likely to enjoy more stability in 2020, Chinese bonds could play a more prominent role in global investors’ portfolios. The rise in corporate defaults should not deter investors, since Chinese authorities are allowing bonds to fail to establish discipline in the fixed income market. Active research and management are important to navigate such an environment.

More positive sentiment also implies strong performance in equities. Northeast Asian markets, such as China, Hong Kong, SouthKorea and Taiwan, have all outperformed globally given their exposure to the global trade cycle. Reduced trade tension would be helpful. The growing 5G technology adoption is also boosting both semiconductor sales and prices. This favorable trend could persist into the summer as more countries are expected to roll out their 5G networks and hardware manufacturers unveil more handsets.

MONTHLY MARKET REVIEW

MONTHLY MARKET REVIEW | JANUARY 2020

3J.P. MORGAN ASSET MANAGEMENT

MONTHLY MARKET REVIEW | JANUARY 2020

Global economy:

• The U.S. and China agreed to their Phase One trade deal,which is expected to be signed on January 15. This haltedthe tariff on Chinese exports that was scheduled to kick inon December 15. In exchange, China offered to buy moreU.S. products and enforce intellectual property rights lawprotecting international companies. In the UK, a hugevictory for the Conservative Party meant the WithdrawalAgreement bill was finally passed by the UK parliament.Now the UK government will need to negotiate a new tradeagreement with the EU. (GTMA P. 19, 26)

• In its final meeting of 2019, the Fed kept policy ratesunchanged while its latest forecast indicates it is happy tokeep rates at the current level in 2020. The People’s Bankof China cut the reserve requirement ratio by 50bps onNew Year’s Day to support economic growth, which isexpected to be targeted around 6% in 2020.(GTMA P. 10, 22)

Equities:• Market optimism toward trade tensions and Brexit has set

equities on a more encouraging course. The S&P 500 rose2.9% in December, with the S&P 500 and NASDAQ allsetting record highs. In Europe, the Stoxx 500 was up 2%.One question entering into 2020 is whether corporateearnings will be able to match expectations, which remainsat a high single digit. (GTMA P. 35, 37, 45)

• Prospects for improvement in the global trade cycle andexpected improvement in demand for consumerelectronics in the months ahead have also boosted EM andAsian equities, especially in northeast Asia. South Korea(KOSPI) and Taiwan (TWSE) were up 5.3% and 4.4%,respectively, outperforming southeast Asia. China’s CSI300 was up 7%, which helped to boost Hong Kong’smarkets after a challenging six months due to politicalturmoil. (GTMA P. 37, 42, 43)

Fixed income:

• The U.S. Treasury (UST) 10-year yield rose above 1.9% asimprovement in risk appetite and concerns over valuationpersuaded investors to take profit from government bonds.The German bund and other European government bondsalso corrected with yields moving higher. Prospects of theFed maintaining its current policy rate for an extendedperiod of time and limited room for easing from theEuropean Central Bank and the Bank of Japan arereversing the decline in government bond yields.(GTMA P. 47, 50, 53)

• In contrast, EM fixed income and corporate credits enjoyedstrong performance in December. U.S. corporateinvestment grade and high yield credit spreads tightenedby 15bps and 47bps, respectively. Taking into account therise in UST yields, they still managed to generate 0.6% and2.3% return, respectively, in the month. EM U.S. dollar(USD) government debt outperformed corporate debt inDecember, with high yield government names providingthe strongest performance. (GTMA P. 47, 56, 58, 59)

Other assets:

• The U.S. dollar index (DXY) fell 1.9% in December as riskappetite returned. The USD fell against a comprehensivelist of currencies, with Latin America and central andeastern Europe currencies outperforming, reflecting theirrelatively attractive valuations. The Chinese yuan gained1% against the USD as Beijing and Washington reached atrade deal. (GTMA P. 13, 64, 65)

• A proposed output cut by Organization of the PetroleumExporting Countries and Russia in early December hadlimited impact on oil prices. A trade deal and moreoptimism on growth recovery in the month helped to pushoil prices (West Texas intermediate) back above USD 60pbfor the first time since September. Despite the rise in USTyields, gold enjoyed a positive December, with the price ofgold up 3.2% in the month and back above USD 1,500/oz.(GTMA P. 67-69)

Market Bulletins - December:

• Changing of Lagarde, but toolkit challenges remain

• Taking stock of inventories

4

China: Monetary policy |GTM - Asia 10

Source: CEIC, People’s Bank of China (PBoC), J.P. Morgan Asset Management; (Bottom right) National Interbank Funding Center.*Open market operation (OMO) includes reverse repo, repo and central bank bill issuance by the People’s Bank of China.**Monetary policy tools include short-term liquidity operations (SLO), standing liquidity facility (SLF), medium-term liquidity facility (MLF) and pledged supplementary lending (PSL). ***Starting from August 20, the PBoC releases a monthly 1-year and 5-year loan prime rate (LPR) based on quotes from 18 banks. For this new monthly quote, banks are required to submit them in the form of open market operation rates (especially MLF) plus a margin to the national inter-bank lending center. The central bank requests all commercial banks to reference the finalized LPR to price their new lending and use LPR as the benchmark rate in floating rate loan contracts going forward.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Open market operation*Monetary policy tools**

Total, 6-month moving average

Liquidity injection by the PBoCRMB billions, net injection RMB billions, net injection

Reserve requirement ratio

Key policy ratesPer annum

Interbank repo (7-day)

Medium-term lending facility (1-year)

Lending rate (1-year)

Deposit rate (1-year)

Loan prime rate (1-year)***

Large banks

Small- and medium-sized banks

5

China: Exchange rate and foreign reserves |GTM - Asia 13

'16 '17 '18 '19 '2088

90

92

94

96

98

100

102

104

106

'13 '14 '15 '16 '17 '18 '19 '20-120

-90

-60

-30

0

30

60

90

120 6.0

6.2

6.4

6.6

6.8

7.0

7.2

Chinese yuan exchange rate: CFETS CNY* vs. USDIndex, Jan. 2016 = 100

USD / CNY and change in FX reserves

Source: FactSet, J.P. Morgan Asset Management; (Left) China Foreign Exchange Trade Center, J.P. Morgan Economic Research; (Right) People’s Bank of China.*CFETS RMB index is the China Foreign Exchange Trade System basket of 24 currencies traded against the Chinese renminbi. Past performance is not a reliableindicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Weaker yuan

Stronger yuan

USD / CNY

Change in monthly FX reserves (USD billions)

USD / CNY (inverted)

CFETS CNY index

6

U.S. trade policy |GTM - Asia 19

Source: Office of the U.S. Trade Representative (USTR), U.S. International Trade Commission, J.P. Morgan Asset Management; (Left) Peterson Institute for International Economics, U.S. Commerce Department, World Bank. *Imported value of products from trading partner appearing on either the USTR or China Ministry of Commerce lists as a percent of total imports from that trading partner over the same period. **Analysis classifies each individual product the U.S. imports from China to the HTS-8 level that either appears on the 2018 & 2019 tariff lists published in the U.S. Federal Register or has been threatened with higher tariffs into its appropriate System of National Accounts group and aggregates these categories by value of imports in 2017—the last year without increased tariffs for which data was available. Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

U.S. and China: Proposals and actions*% of annual imports from other covered by tariffs

Tariffed goods distribution across economic categories**USD billion

Tariffs by U.S. on imports from China

Tariffs by China on imports from U.S.

Proposed

Proposed

In effect

In effect

Capital goodsConsumption goodsIntermediate goods

7

Central bank policy rates |GTM - Asia 22

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18-1%

0%

1%

2%

3%

4%

5%

6%

7%

Source: J.P. Morgan Asset Management; (Left) FactSet; (Right) BIS. G4 are the Bank of England, the Bank of Japan (BoJ), the European Central Bank and the U.S. Federal Reserve. *Key deposit rates that central banks charge commercial banks on their excess reserves. **The BoJ has adopted a three-tier system in which a negative interest rate of -0.1% will be applied to the policy rate balance of the aggregate amount of all financial institutions that hold current accounts at the BoJ. The UK deposit rate has not been actively used as a monetary policy tool since late 2017. ***Count covers the 38 central banks included in the Bank for International Settlements’ central bank policy monitor. Year-to-date data reflect most recently available as of 30/11/19. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Policy rate Deposit rate*

Eurozone 0.0% -0.5%Japan** -0.1 to 0.0% -0.1%UK 0.75% 0.5%U.S. 1.50 to 1.75% 1.6%

Changes in central bank policy ratesNumber of hikes or cuts***

G4 central bank key policy ratesPer annum

Developed markets

Emerging marketsRate hikes

Rate cutsDeveloped markets

Emerging markets

8

Political calendar |GTM - Asia 26

Developed markets political timeline

Emerging markets political timeline

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

Source: Bloomberg Finance L.P., J.P. Morgan Asset Management.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

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

March ChinaNational People’s Congress

2020

2020

June GlobalWTO Ministerial meeting

December UKBrexit transition period ends

15 April South KoreaLegislative election

31 January UKNew Brexit deadline

11 January TaiwanPresidential & Legislative elections

September Hong KongLegislative Council election

13-16 July U.S.U.S. Democratic candidate is selected

24-27 August U.S.U.S. Republican candidate is selected

3 November U.S.U.S. General election

3 March U.S. “Super Tuesday” primaries

October ASEANASEAN Summit

October/November ChinaFifth Plenum of the 19th CPC Central Committee

9

Global and Asia equity market returns |GTM - Asia 35

Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management.Returns are total returns based on MSCI indices, except the U.S., which is the S&P 500, and China A, which is the CSI 300 index in U.S. dollar terms. China return is based on the MSCI China index. 10-yr total (gross) return data is used to calculate annualized returns (Ann. Ret.) and annualized volatility (Ann. Vol.) and reflect the period 31/12/09 – 31/12/19. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 4Q '19 Ann. Ret. Ann. Vol.

India ASEAN U.S. India U.S. China A Japan Taiwan China U.S. Taiwan Taiwan U.S. China A

102.8% 32.4% 2.1% 26.0% 32.4% 52.1% 9.9% 19.6% 54.3% -4.4% 37.7% 18.0% 13.6% 24.5%

China A Korea ASEAN China Japan India China A U.S. Korea India China A China Taiwan India

98.5% 27.2% -6.1% 23.1% 27.3% 23.9% 2.4% 12.0% 47.8% -7.3% 37.2% 14.7% 9.2% 21.4%

Taiwan Taiwan Europe ASEAN Europe U.S. U.S. Korea India Taiwan U.S. Korea Japan Korea

80.2% 22.7% -10.5% 22.8% 26.0% 13.7% 1.4% 9.2% 38.8% -8.2% 31.5% 13.7% 6.9% 20.3%

ASEAN India Korea APAC ex-JP

Taiwan Taiwan Europe APAC ex-JP

APAC ex-JP

ASEAN Europe APAC ex-JP

APAC ex-JP

China

75.0% 20.9% -11.8% 22.6% 9.8% 10.1% -2.3% 7.1% 37.3% -8.4% 24.6% 10.6% 6.1% 20.2%APAC ex-JP

APAC ex-JP

Japan Korea Korea China India ASEAN China A Japan China China A Europe Taiwan

73.7% 18.4% -14.2% 21.5% 4.2% 8.3% -6.1% 6.2% 32.6% -12.6% 23.7% 10.1% 5.8% 16.5%

Korea Japan APAC ex-JP

Europe China ASEAN Korea Japan ASEAN APAC ex-JP

Japan U.S. ASEAN APAC ex-JP

72.1% 15.6% -15.4% 19.9% 4.0% 6.4% -6.3% 2.7% 30.1% -13.7% 20.1% 9.1% 5.7% 16.4%

China U.S. China Taiwan APAC ex-JP

APAC ex-JP

China China Taiwan Europe APAC ex-JP

Europe Korea Europe

62.6% 15.1% -18.2% 17.7% 3.7% 3.1% -7.6% 1.1% 28.5% -14.3% 19.5% 8.9% 5.6% 16.2%

Europe China Taiwan U.S. China A Japan APAC ex-JP

Europe Europe China Korea Japan China ASEAN

36.8% 4.8% -20.2% 16.0% -2.6% -3.7% -9.1% 0.2% 26.2% -18.7% 13.1% 7.7% 5.6% 15.0%

U.S. Europe China A China A India Europe Taiwan India Japan Korea ASEAN India India Japan

26.5% 4.5% -20.5% 10.9% -3.8% -5.7% -11.0% -1.4% 24.4% -20.5% 8.8% 5.3% 3.9% 12.9%

Japan China A India Japan ASEAN Korea ASEAN China A U.S. China A India ASEAN China A U.S.

6.4% -8.4% -37.2% 8.4% -4.5% -10.7% -18.4% -15.2% 21.8% -27.6% 7.6% 4.0% 3.2% 12.4%

10-yrs ('09 - '19)

10

Global equities: Earnings expectations |GTM - Asia 37

Earnings growthEarnings per share, year-over-year change, consensus estimates

Source: IBES, MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Asia Pacific ex-Japan, EM, Europe and U.S. equity indices used are the MSCI Asia Pacific ex-Japan, MSCI Emerging Markets, MSCI Europe and S&P 500, respectively. Consensus estimates used are calendar year estimates from IBES. Revisions are based on the current unreported year. Net earnings revisions is (number of companies with upward earnings revisions – number of companies with downward earnings revisions) / number of total companies. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Earnings revisions ratiosNet earnings revisions to consensus estimates, 13-week moving average

2018

2017

2019

U.S.

Europe

Asia Pacific ex-Japan

Japan2020

11

Emerging market equities: Performance drivers |GTM - Asia 42

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '180

50

100

150

200

250 90

100

110

120

130

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '1840

80

120

160

200

240

280

50

150

250

350

450

550

EM equity relative performance and commoditiesRelative index level, Dec. 1997 = 100 Index level

Source: FactSet, MSCI, J.P. Morgan Asset Management; (Left) J.P. Morgan Economic Research; (Top right) Bloomberg Finance L.P.EM = Emerging markets; DM = Developed markets.*REER is the real effective exchange rate. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

EM vs. DM growth and equity performance%, next 12 months’ growth estimates Index level

Relative EM / DM equity performance and USD REERRelative index level, Dec. 1997 = 100 Index level

EM growth & equity outperformance

EM growth & equity underperformance

EM minus DM GDP growth

MSCI EM / MSCI DM

MSCI EM / MSCI DM

Bloomberg Commodity Index

USD REER (inverted)*

MSCI EM / MSCI DM

12

APAC ex-Japan equities: Exports & earnings |GTM - Asia 43

Source: FactSet, MSCI, J.P. Morgan Asset Management; (Right) CEIC, national statistics agencies. Earnings per share (EPS) used is next 12 months’ aggregate estimate. *Universe of stocks within the MSCI AC Asia Pacific ex-Japan index are split into three buckets depending on their revenue exposure to their domestic market. Over the time period examined (01/01/09 – 31/12/19), monthly adjustments are made to the buckets to reflect changes in a company's operations over time. Subsequently, earnings-per-share (EPS) for each bucket is calculated by summing the market-value weighted EPS for each company on a monthly basis over the examined period. Each EPS series is then indexed to 100 on 01/01/09. **EM Asia ex-China includes Hong Kong, Korea, Malaysia, Singapore, Taiwan, Thailand and Vietnam. Overall exports aggregate is gross domestic product (GDP)-weighted. Past performance is not a reliable indicator of current and future results. For illustrative purposes only.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Domestic vs. exports-oriented Asian companies*MSCI AC Asia Pacific ex-Japan, earnings per share, Jan. 2009 = 100

Growth in nominal exports and earnings per shareUSD, year-over-year change

MSCI AC Asia Pacific ex-Japan EPS

EM Asia ex-China exports**

Less than 70% of revenue derived domestically

Between 70% and 95% of revenue derived domesticallyMore than 95% of

revenue derived domestically

13

United States: Earnings and returns |GTM - Asia 45

S&P 500 sector earnings contributions3Q 2019 year-over-year earnings contributions by sector, USD

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management; (Left) Compustat.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

S&P 500 year-over-year operating EPS growthAnnual growth contribution

Share of EPS growth 3Q ’19 Avg. '06-'18Margin -7.7% 3.9%Revenue 2.3% 3.0%Share count 1.6% 0.5%Total EPS growth -3.8% 7.4%

2019(Quarterly)

S&P 500 aggregate

Negative contributionPositive contribution

14

Global fixed income: Yields and returns |GTM - Asia 47

Source: Barclays, Bloomberg, FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on Bloomberg Barclays U.S. Aggregate Credit – Corporate High Yield Index (U.S. Corporate HY), Bloomberg Barclays U.S. Aggregate Credit – Corporate Investment Grade Index (U.S. Corporate IG), J.P. Morgan Government Bond Index – EM Global (GBI-EM) (Local EMD), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Asia Credit Index (JACI) (USD Asian Bond), Bloomberg Barclays Pan European High Yield (Europe HY), J.P. Morgan Government Bond Index – Global Traded (DM Government Bond), J.P. Morgan Asia Credit High Yield Index (Asia HY), Bloomberg Barclays Global U.S. Treasury –Bills (3-5 years) (U.S. Treasury) and Bloomberg Barclays U.S. Treasury – Bills (1-3 months) (Cash). 5-year data is used to calculate annualized returns (Ann. Ret.). Returns are in U.S. dollars and reflect the period from 31/12/14 – 31/12/19. *Duration is a measure of the sensitivity of the price (the value of the principal) of a fixed income investment to a change in interest rates and is expressed as number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. **Correlation to the MSCI AC World Index is a measure over 10 years of data. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Global bond opportunities Fixed income sector returns

Sector YTM Duration*(years)

Correl. to MSCI AC World**

Correl. to 10-year

UST

Asia HY 7.2% 4.3 0.65 0.02

U.S. HY 6.0% 3.1 0.81 -0.18

Local EMD 5.9% 4.9 0.65 -0.04

USD EMD 4.8% 7.7 0.56 0.25

USD Asian 4.4% 5.3 0.49 0.35

Europe HY 3.4% 3.2 0.80 -0.30

U.S. IG 2.9% 7.9 0.20 0.67

U.S. Treasury 1.8% 6.5 -0.42 0.98

Cash 1.5% 0.2 0.02 0.04

DM Gov't 1.1% 8.4 0.13 0.58

5-yrs2014 2015 2016 2017 2018 2019 4Q '19 Ann. Ret.USD

Asian Asia HY U.S. HYEurope

HY Cash U.S. IGLocal EMD Asia HY

8.3% 5.2% 17.1% 21.0% 1.8% 14.5% 6.2% 6.4%

U.S. IGUSD

AsianLocal EMD

Local EMD

U.S.Treas

USDEMD

Europe HY U.S. HY

7.5% 2.8% 11.4% 15.4% 0.9% 14.4% 5.5% 6.1%

Asia HYUSDEMD Asia HY

USDEMD

DM Gov't U.S. HY U.S. HY

USDEMD

6.1% 1.2% 11.2% 9.3% -0.7% 14.3% 2.6% 5.9%USDEMD

U.S.Treas

USDEMD U.S. HY

USD Asian

Local EMD Asia HY

USD Asian

5.5% 0.8% 10.2% 7.5% -0.8% 13.1% 2.4% 4.9%U.S.

Treas Cash U.S. IG Asia HY U.S. HY Asia HYUSDEMD U.S. IG

5.1% 0.0% 6.1% 6.9% -2.1% 12.8% 2.1% 4.6%

U.S. HY U.S. IGUSD

AsianDM

Gov't U.S. IGUSD

Asian U.S. IGEurope

HY2.5% -0.7% 5.8% 6.8% -2.5% 11.3% 1.2% 3.2%DM

Gov'tDM

Gov'tEurope

HY U.S. IG Asia HYEurope

HYUSD

AsianU.S.

Treas0.7% -2.6% 3.4% 6.4% -3.2% 10.3% 1.1% 2.4%

Cash U.S. HYDM

Gov'tUSD

AsianUSDEMD

U.S.Treas Cash

DM Gov't

0.0% -4.5% 1.6% 5.8% -4.6% 6.9% 0.4% 2.2%Europe

HYEurope

HYU.S.

TreasU.S.

TreasLocal EMD

DM Gov't

DM Gov't

Local EMD

-6.0% -7.6% 1.0% 2.3% -6.7% 6.0% -0.5% 2.1%Local EMD

Local EMD Cash Cash

Europe HY Cash

U.S.Treas Cash

-6.1% -18.0% 0.3% 0.8% -8.2% 2.2% -0.8% 1.0%

15

Global fixed income: Market size and government bond yields |GTM - Asia 50

Global bond marketUSD trillions

10-year government bond yields

31/12/89 30/06/19

60.6% 35.9% -U.S. 38.5% 41.4%

0.8% 22.7%EM: $25tn

Developed ex-U.S.: $46tn

U.S.: $40tn

Source: FactSet, U.S. Federal Reserve, J.P. Morgan Asset Management; (Left) BIS; (Right) Tullett Prebon Information.*Sum may not add up to 100% due to rounding. **Data begins, and averages calculated from, 01/01/70 for U.S. Treasuries, 02/10/72 for German Bunds and 03/02/86 for Japanese Government Bonds. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%Average

since 1970** Latest

U.S. 6.3% 1.9%Germany 5.4% -0.2%Japan 2.3% 0.0%

16

Global fixed income: Interest rate sensitivity |GTM - Asia 53

Source: Barclays, Bloomberg, FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on Bloomberg Barclays U.S. Treasury Bellwethers Index (2, 5, 10, 30-year U.S. Treasuries), Bloomberg Barclays U.S. Treasury Inflation-Protected Notes Index (TIPS), Bloomberg Barclays U.S. Floating Rate Notes Index (U.S. Floating Rate), Bloomberg Barclays U.S. Aggregate Securitized – MBS Index (U.S. MBS), Bloomberg Barclays U.S. Aggregate Credit – Corporate – Investment Grade Index (U.S. Corporates), Bloomberg Barclays U.S. Aggregate Credit – Corporate – High Yield Index (U.S. High Yield), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Asia Credit Index (USD Asia Credit), J.P. Morgan Government Bond Index – EM Global (GBI-EM) (Local EMD). *Duration is a measure of the sensitivity of the price (the value of the principal) of a fixed income investment to a change in interest rates and is expressed as number of years. **Correlation measured over past 10 years of monthly total returns. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. Change in bond price is calculated using both duration and convexity, assuming a 1% fall in relevant local interest rate. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Illustrative impact of a 100bps fall in interest ratesAssumes a parallel shift in the yield curve and steady spreads

Price return

Total return

U.S. Treasuries 31/12/19 31/12/18 Duration* (years)

Correlation** to 10-year UST

2-Year 1.58% 2.48% 1.96 0.73

5-Year 1.69% 2.51% 4.77 0.92

TIPS 0.15% 0.98% 4.67 0.69

10-Year 1.92% 2.69% 9.05 1.00

30-Year 2.39% 3.02% 21.69 0.93

Sector

U.S. Floating Rate 2.30% 3.64% 0.13 -0.35

U.S. MBS 2.54% 3.39% 3.21 0.82

U.S. Investment Grade 2.84% 4.20% 7.89 0.67

U.S. High Yield 5.19% 7.95% 3.05 -0.18

USD EMD 4.78% 7.05% 7.71 0.25

USD Asia Credit 3.73% 5.19% 5.35 0.35

Local EMD 5.91% 7.20% 4.89 -0.04

Yield / Yield to worst

17

U.S. investment grade bonds |GTM - Asia 56

Investment grade leverageEBITDA** / interest expense Debt / EBITDA

Source: J.P. Morgan Asset Management; (Left and bottom right) Barclays, Bloomberg, FactSet; (Left and top right) J.P. Morgan Economic Research; *Investment grade is Bloomberg Barclays U.S. Aggregate Credit – Corporate Investment Grade Index. **EBITDA is earnings before interest, tax, depreciation and amortisation. Spreads indicated are benchmark yield-to-worst less comparable maturity Treasury yields. Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Corporate bond spreadSpread over comparable government bond, basis points*

Credit rating and duration

Average LatestInvestment grade 132bps 93bps

Interest coverage Leverage

Share of BBB in index

Duration (years)

Recessions

18

U.S. high yield bonds |GTM - Asia 58

Last twelve month sector default ratesSectors with highest default rates

Source: J.P. Morgan Economics Research, J.P. Morgan Asset Management.*Default rate is defined as the percentage of the total market trading at or below 50% of par value and includes any Chapter 11 filing, pre-packaged filing or missedinterest payments. Spreads indicated are benchmark yield-to-worst less comparable maturity Treasury yields. **EBITDA is earnings before interest, tax, depreciation and amortisation. U.S. corporate high yield is represented by the J.P. Morgan Domestic High Yield Index.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

High yield leverageEBITDA** / interest expense Debt/EBITDA

High yield spread and default rate*Default rate Spread to worst (basis points)

10-yr average Latest

HY spread to worst 541bps 424bpsHY default rate 2.1% 2.6%HY ex-energy default 1.2%

Recessions

Interest coverage Leverage

Default rateIndex weight

19

Emerging market debt |GTM - Asia 59

Source: Barclays, Bloomberg, J.P. Morgan Asset Management; (Left) J.P. Morgan Economics Research.*J.P. Morgan GBI-EM Broad Diversified Index sub-component used for each country. Spread is the difference between the yield on each country’s local 3-5 year government bond and the yield on the Bloomberg Barclays U.S. Aggregate Government - Treasury (3-5 Year). **EM debt is represented by the J.P. Morgan Emerging Market Equal Weight Blended Index, which is an equal-weighted composite index of the J.P. Morgan GBI-EM Global Diversified, J.P. Morgan EMBI Global Diversified and J.P. Morgan CEMBI Broad Diversified indices. Spreads are the difference between the yield on EM debt securities and an equivalent maturity U.S. Treasury bond in basis points. Returns are calculated using monthly data from 31/01/03 – 31/12/19.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Spread between local rates and U.S. Treasuries3-5 year local currency government bond index*, basis points

EM debt spreads to U.S. Treasuries and returns12-month forward total return, spread in basis points**

Current spread range: 290-300

5-year averageCurrent

-200 0 200 400 600 800 1000

S. Africa

Mexico

India

Indonesia

Brazil

Russia

Colombia

Malaysia

China

Poland

Thailand

20

U.S. dollar |GTM - Asia 64

'74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '2060

70

80

90

100

110

120

130

140

Source: Bloomberg Finance L.P., FactSet, U.S. Federal Reserve, J.P. Morgan Asset Management.*The real broad trade-weighted exchange rate index is the weighted average of a market’s currency relative to a basket of trading partners’ currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one market’s currency, with other markets within the basket. **The U.S. dollar index shown here is a nominal trade-weighted index of major trading partners’ currencies. Major currencies are: British pound, Canadian dollar, euro, Japanese yen, Swedish kroner and Swiss franc. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

U.S. dollar performanceIndex, Jan. 2006 =100 U.S. dollar index**

Real trade-weighted exchange rate index (REER)*

12/2019: 96.39 12/2019: 103.06

Recession periods

21

Currencies |GTM - Asia 65

Source: FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management.*The real trade-weighted exchange rate index is the weighted average of a market’s currency relative to a basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one market’s currency, with other markets within the basket. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Currency deviation from 10-year average in real effective exchange rate* termsNumber of standard deviations away from average

FX above long-term average

FX belowlong-term average

Current

Max

Min

22

Commodities |GTM - Asia 67

Source: Bloomberg Finance L.P., FactSet, J.P. Morgan Asset Management; (Left) CME; (Right) Barclays, J.P. Morgan Economic Research, MSCI. Commodities are represented by the appropriate Bloomberg Commodity sub-index priced in U.S. dollars. Crude oil shown is West Texas Intermediate (WTI) crude. Other commodity prices are represented by futures contracts. Z-scores are calculated using daily prices over the past five years. Based on Bloomberg Commodity Index (Comdty.); MSCI ACWI Select – Energy Producers IMI, Metals & Mining Producers ex Gold & Silver IMI, Gold Miners IMI, Agriculture Producers IMI (Energy (E), M&M (E), Gold (E), Agri. (E)); Bloomberg Barclays Global Aggregate Credit – Corporate Energy Index (Energy (FI)); Bloomberg Barclays U.S. Aggregate Credit – Corporate High Yield Metals & Mining Index (U.S. M&M (FI)); Bloomberg Barclays Euro Aggregate Credit – Corporate Metals & Mining Index (Euro M&M (FI)); J.P. Morgan Emerging Market Corporate Credit – Corporate Metals & Mining Index (EM M&M (FI)).5-year total return data is used to calculate annualized returns (Ann. Ret.) and 5-year price return data is used to calculate annualized volatility (Ann. Vol.) and reflects the period 31/12/14 – 31/12/19. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Commodity pricesCommodity price z-scores for the past five years, USD per unit

Returns

High levelCurrent

Low level

$41

$1.8

$1,519

$115

$37 $65

$2.2

$1,560

$144$84

$1,050

$1.6

$82$26$62

$195$144$187

$119$73$81

2014 2015 2016 2017 2018 2019 Ann. Ret. Ann. Vol.Euro M&M

(FI)Energy

(FI)Gold (E) M&M (E) Euro M&M

(FI)Gold (E) Gold (E) Gold (E)

8.6% -7.3% 62.9% 37.5% -0.9% 51.1% 11.5% 34.9%

Energy (FI)

EM M&M (FI)

M&M (E) Agri. (E) US M&M (FI)

M&M (E) EM M&M (FI)

M&M (E)

2.1% -10.9% 57.8% 20.3% -3.5% 17.1% 8.6% 24.8%

Agri. (E) Agri. (E) US M&M (FI)

EM M&M (FI)

Energy (FI)

EM M&M (FI)

US M&M (FI)

Energy (E)

-0.2% -13.7% 45.5% 14.7% -3.7% 16.5% 6.0% 19.1%

EM M&M (FI)

Euro M&M (FI)

EM M&M (FI)

US M&M (FI)

EM M&M (FI)

US M&M (FI)

M&M (E) Comdty.

-0.8% -16.1% 32.4% 9.9% -4.1% 14.0% 4.6% 13.2%

US M&M (FI)

Energy (E) Energy (E) Gold (E) Agri. (E) Agri. (E) Agri. (E) US M&M (FI)

-4.4% -20.6% 29.2% 9.4% -8.9% 13.8% 4.5% 13.1%

Energy (E) US M&M (FI)

Euro M&M (FI)

Energy (E) Comdty. Energy (FI)

Energy (FI)

Agri. (E)

-15.1% -23.7% 21.9% 9.1% -11.2% 13.4% 4.2% 11.8%

Gold (E) Comdty. Agri. (E) Energy (FI)

Energy (E) Energy (E) Euro M&M (FI)

EM M&M (FI)

-16.4% -24.7% 15.7% 9.0% -11.4% 9.5% 2.1% 10.7%

Comdty. Gold (E) Comdty. Euro M&M (FI)

Gold (E) Comdty. Energy (E) Euro M&M (FI)

-17.0% -26.3% 11.8% 3.9% -13.0% 7.7% 1.7% 8.2%

M&M (E) M&M (E) Energy (FI)

Comdty. M&M (E) Euro M&M (FI)

Comdty. Energy (FI)

-19.0% -40.1% 11.1% 1.7% -17.8% 5.2% -3.9% 5.7%

2014 - 2019

23

Gold |GTM - Asia 68

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20800

1,000

1,200

1,400

1,600

1,800

2,000 -1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Source: FactSet, U.S. Federal Reserve, J.P. Morgan Asset Management.Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Gold and real rates USD / Troy oz U.S. 10-year Treasury inflation-protected security

Gold price TIPS yield (inverted)

24

Oil: Short-term market dynamics |GTM - Asia 69

U.S. oil inventory and rig count* Number of rigs Billion barrels

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '190

400

800

1,200

1,600

2,000

2,400

0.95

1.00

1.05

1.10

1.15

1.20

1.25

Source: FactSet, J.P. Morgan Asset Management; (Top right) Baker Hughes, U.S. Department of Energy; (Left) U.S. Energy Information Administration.*Weekly U.S. crude oil and petroleum ending inventory includes strategic petroleum reserve, and active rig count represents both natural gas and oil rigs. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/12/19.

Crude oil production growthMonthly change, thousand barrels per day Total, million barrels per day

Brent crude and USD real effective exchange rate (REER)USD / bbl Index

USD depreciation

USD appreciation

Brent crude oil USD REER (inverted)

Rig count U.S. oil inventory

Change from Iran, Libya & Venezuela

Change from OPEC (Less Iran, Libya & Venezuela) & RussiaChange from U.S.

Global

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Material ID: 0903c02a8262e8b6

Asia Pacific | January 2020

MARKET INSIGHTS