MI-GTM LATAM 3Q17 - J.P. Morgan & Co. Hui Hong Kong Julio C. Callegari São Paulo Manuel Arroyo Ozores, CFA Madrid Kerry Craig, CFA Melbourne Samantha M. Azzarello New York Tilmann

Guide to the Markets®

Latin America | |

MARKET INSIGHTS

3Q 2017 As of June 30, 2017

|GTM – Latin America

2

Global Market Insights Strategy Team 2

Americas Europe Asia

Dr. David P. Kelly, CFANew York

Stephanie H. FlandersLondon

Tai HuiHong Kong

Julio C. CallegariSão Paulo

Manuel Arroyo Ozores, CFAMadrid

Kerry Craig, CFAMelbourne

Samantha M. AzzarelloNew York

Tilmann Galler, CFAFrankfurt

Yoshinori ShigemiTokyo

David M. LebovitzNew York

Lucia Gutierrez-MelladoMadrid

Marcella ChowHong Kong

Gabriela D. SantosNew York

Vincent JuvynsLuxembourg

Akira KunikyoTokyo

Alexander W. Dryden, CFANew York

Dr. David StubbsLondon

Dr. Jasslyn Yeo, CFASingapore

Abigail B. Dwyer, CFANew York

Maria Paola ToschiMilan

Hannah AndersonHong Kong

John C. ManleyNew York

Michael J. Bell, CFALondon

Ian HuiHong Kong

Jordan K. JacksonNew York

Jai MalhiLondon

Shogo MaekawaTokyo

Tyler J. VoigtNew York

Nandini L. RamakrishnanLondon


3

|42. China economic indicators43. EM external factors44. Emerging market currencies and current accounts45. Emerging market equities

Fixed income46. Latin America fixed income: Returns47. Latin America fixed income: Valuations48. Emerging market debt49. Global fixed income: Interest rate risk50. Attractiveness of Latin American local rates51. Inflation and monetary policy52. Global default protection prices53. Global interest rate movements54. U.S. high yield bonds

Equities55. MSCI Latin America Index at inflection points56. Latin America equity returns57. Latin America equity market liquidity58. Valuation measures59. Corporate profits 60. Latin America valuations and earnings61. Latin America by sector62. Annual returns and intra-year declines

Other asset classes 63. Commodities64. Oil markets65. Global currencies 66. Global yield alternatives

Investing principles67. Life expectancy and pension shortfall68. Local investing and global opportunities69. Asset class returns70. Market timing71. Fund flows

Latin America economy4. Latin America: Economic growth and inflation5. Latin America: Composition of economic growth6. Latin America: Current accounts and fiscal balances7. Latin America structural drags8. Brazil: Economic snapshot9. Brazil: Inflation and monetary policy10. Brazil: Consumer and business dynamics11. Brazil: Fiscal policy12. Mexico: Economic snapshot13. Mexico: Inflation and monetary policy14. Mexico: Consumer and business dynamics15. Mexico: Fiscal dynamics16. Argentina: Economic snapshot17. Argentina: Inflation and monetary policy18. Colombia: Economic snapshot19. Colombia: Inflation and monetary policy20. Chile: Economic snapshot21. Chile: Inflation and monetary policy22. Peru: Economic snapshot23. Peru: Inflation and monetary policy

Global economy24. Global equity markets25. U.S. and international equities at inflection points26. International equity earnings and valuations27. Manufacturing momentum28. Global inflation 29. Global reflation30. Global monetary and fiscal policy31. U.S.: Economic growth and the composition of GDP32. U.S.: Inflation and unemployment33. U.S.: The Fed and interest rates34. U.S.: The Fed balance sheet35. U.S.: Corporate profits and valuations36. European recovery37. Europe: Revenues and earnings38. UK: Economic indicators39. UK equities40. Japan: Abenomics and markets41. China: Economic and policy snapshot

Page reference 3


4

|

-12%

-8%

-4%

0%

4%

8%

12%

'00 '02 '04 '06 '08 '10 '12 '14 '163%

4%

5%

6%

7%

8%

9%

10%

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

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.Latin America aggregate GDP growth includes Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay. Inflation does not include Argentina, Ecuador or Venezuela.

Guide to the Markets – Latin America. Data are as of June 30, 2017.

Latin America: Economic growth and inflation

InflationYear-over-year % change

Latin

Am

eric

aec

onom

y

4

Real GDPQuarter-over-quarter % change at annual rate, seasonally adjusted

4Q16:0.7%

Average: 2.7%

May 2017: 4.4%


5

|

0% 5% 10% 15% 20% 25% 30% 35%

Mexico

Chile

Peru

Venezuela

Colombia

Brazil

Argentina

Latin America: Composition of economic growth

Latin

Am

eric

aec

onom

y

Exports% of nominal GDP, USD terms, goods, 2015

Source: IMF World Economic Outlook, J.P. Morgan Asset Management; (Left) Argentina Economy Ministry, IBGE, CBC, DANE, BCE, INEGI, BCRP, BCU; (Right) IMF Direction of Trade Statistics.Latin America aggregate GDP growth includes Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay. Argentina private consumption is excluded from 1999-2004 and 2015-2016 due to data availability. 2016 excludes Ecuador due to data availability.


5

China

EM ex-China

U.S.

Eurozone

Other

Real GDP growthContribution to growth, year-over-year % change

Consumption

Investment

Net exports

33%

26%

17%

14%

12%

11%

9%

-4%

-2%

0%

2%

4%

6%

8%

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


6

|

-4%

-2%

0%

2%

4%

6%

8%

'00 '02 '04 '06 '08 '10 '12 '14 '16-8%

-6%

-4%

-2%

0%

2%

4%

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

Source: IMF World Economic Outlook, FactSet, J.P. Morgan Asset Management.2016 figures are IMF estimates. Latin America is a GDP-weighted aggregate including Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay. EMEA is a GDP-weighted aggregate including Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey and UAE.


Latin America: Current accounts and fiscal balances

Fiscal balancesNominal deficit, % of GDP

Current accounts% of GDP

2016: -2.0%

Latin

Am

eric

aec

onom

y

6

2016: -0.2%

2016: 1.6%

2016: -5.9%

2016: -2.6%

2016: -3.5%

EMEA

EM Asia

Latin AmericaEMEA

EM Asia

Latin America


7

|

Indicator LATAM OECD High Income

Ease of doing business (rank, 1-189) 107 26

Days to register a new business 32 8

Days to deal w ith construction permits 181 152

Days to resolve a dispute 749 553

Recovery rate from insolvent f irm (cents) 31 73

Number of hours spent preparing taxes 343 163

Total tax rate (% profit) 46 40

47 53 54 57

116 123

187

020406080

100120140160180200

Mexico Colombia Peru Chile Argentina Brazil Venezuela

Source: J.P. Morgan Asset Management; (Top left and right) World Bank “Doing Business in 2017” survey; (Bottom left) World Trade Alert.*Measures that may involve or almost certainly do involve discrimination against foreign commercial interests.


Latin America structural drags

Protectionist trade measures*

Ease of doing business rankingOverall ranking, 1 = most ease of doing business, 2016

Number of implemented measures, 2016

Selected competitiveness indicators: 2016

Cost to export goodsUSD per container, 2016

7

Latin

Am

eric

aec

onom

y

$3,000

$2,456$2,160

$1,910$1,760

$927 $925 $788 $685 $629 $591

$0$400$800

$1,200$1,600$2,000$2,400$2,800$3,200

596

467

336274

202 201102

52 36 14 120

100

200

300

400

500

600

700


8

|

40

50

60

70

80

90

100

110

120

-$20

$0

$20

$40

$60

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

-20%

-10%

0%

10%

20%

30%

40%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

9%

11%

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

-16%

-12%

-8%

-4%

0%

4%

8%

12%

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

Real consumption and investmentYear-over-year % change

1Q17: -3.7%

1Q17: -1.9%

InvestmentConsumption

Source: IBGE (Brazilian Statistics and Geography Institute), J.P. Morgan Asset Management; (Bottom right) J.P. Morgan Global Economic Research, Central Bank of Brazil, MDIC (Ministry of Development, Industry and External Commerce).

*Real effective exchange rates (REERs) compares the value of a currency to a weighted basket of several foreign currencies. They are deflated using a producer price index.


Brazil: Economic snapshot


8

Latin

Am

eric

aec

onom

y

Trade balance and exchange rateUSD billions, accumulated past 12 months, real effective FX*

Jun. 2017: 86.9

May 2017: $57.0bn

1Q17:4.3%

Average: 2.5%

REER

Trade balance


9

|

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '182%

5%

8%

11%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

0%

5%

10%

15%

20%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: Central Bank of Brazil, IBGE (Brazilian Statistics and Geography Institute), J.P. Morgan Asset Management.Target inflation bands set by Central Bank of Brazil. *Focus survey conducted by Central Bank of Brazil. **Includes prices set at federal level (telephone services, petroleum derivatives, electricity, health plans) and state/municipal level (water and sewage taxes, value added and real estate taxes, public transport costs).


Brazil: Inflation and monetary policy

Inflation targeting and inflationIPCA, 12-month accumulated % change

Inflation breakdownIPCA, year-over-year % changeConsensus*

Target: 4.5%

Lower limit: 2.5%

Upper limit: 6.5%

ServicesGoods

Supervised**

9

3.0%

6.0%

Latin

Am

eric

aec

onom

y

BCB Selic target rate and consensus expectations, end of periodTarget policy rate and expectations

Consensus*

May 2017: 3.6%


10

|

6%

7%

8%

9%

10%

11%

12%

13%

14%

'12 '13 '14 '15 '16 '17

-12%

3%

18%

33%

48%

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: J.P. Morgan Asset Management; (Left) FGV/IBRE (Brazilian Institute of Economics of the Getulio Vargas Foundation); (Top right) Central Bank of Brazil; (Bottom right) IBGE (Brazilian Statistics and Geography Institute).*Non-earmarked funds are those where interest rates are determined by market conditions.


Brazil: Consumer and business dynamics

Consumer and industrial confidenceSep. 2005 = 100, avg. 1996 – 2005 = 100, seasonally adjusted

Credit growthYear-over-year % change, non-earmarked credit*

May 2017: 1.6%

May 2017: -9.3%

HouseholdsCorporates

Latin

Am

eric

aec

onom

y

ConsumerIndustrial

Unemployment rateNon-seasonally adjusted, 3-month average

May 2017: 13.3%

10

60

70

80

90

100

110

120

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17


11

|

16%

17%

18%

19%

20%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

45%

50%

55%

60%

65%

70%

75%

80%

85%

'00 '02 '04 '06 '08 '10 '12 '14 '16-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

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

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management; (Left and bottom right) Central Bank of Brazil; (Top right) National Treasury of Brazil.Public sector includes central government, local governments and selected state-owned companies. Net revenues are revenues minus total transfers to states and municipalities.


Brazil: Fiscal policy

Central government revenues and expenditures% of GDP, 12-month sum

Public sector primary balance% of GDP, 12-month sum

% of GDPGross debt

11

Latin

Am

eric

aec

onom

y

May 2017: 72.5%

May 2017: 19.7%Net revenuesExpenditures

May 2017: 16.6%

May 2017: -2.5%

2017 target: -2.1% Average: 61.9%


12

|

70

80

90

100

110

120

130

140

-$20

-$15

-$10

-$5

$0

$5

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

-15%

-10%

-5%

0%

5%

10%

15%

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

Source: INEGI (National Institute of Statistics and Geography of Mexico), J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.

*Real effective exchange rates (REERs) compares the value of a currency to a weighted basket of several foreign currencies. They are deflated using a producer price index.


Mexico: Economic snapshot

Latin

Am

eric

aec

onom

y

12


1Q17:2.7%

Average: 2.4%

USD billions, accumulated past 12 months, real effective FX*Trade balance and exchange rate


1Q17: 0.0%

1Q17: 3.1%

ConsumptionInvestment

Jun. 2017: 91.9

Apr. 2017: -$9.2bn

REER

Trade balance-15%

-10%

-5%

0%

5%

10%

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


13

|

2%

3%

4%

5%

6%

7%

8%

9%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '191%

2%

3%

4%

5%

6%

7%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

1%

2%

3%

4%

5%

6%

7%

8%

9%

8

10

12

14

16

18

20

22

24

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: Central Bank of Mexico, J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.*Survey conducted by the Central Bank of Mexico.


Mexico: Inflation and monetary policy

Latin

Am

eric

aec

onom

y

Inflation targeting and inflationHeadline inflation, 12-month accumulated % change

Target: 3.0%

FX and goods inflationPeso per USD spot rate, monthly average, year-over-year % chg.

May 2017: 8.0%

Banxico target rate, end of periodTarget policy rate and expectations

13

May 2017: 6.2%

Lower limit: 2.0%

Upper limit: 4.0%

May 2017: 18.8

FX

Goods inflation

Consensus*

Consensus*


14

|

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

30

35

40

45

50

55

60

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '1765

70

75

80

85

90

95

100

105

110

115

Source: J.P. Morgan Asset Management; (Left) INEGI-Central Bank of Mexico; (Top right) Central Bank of Mexico; (Bottom right) INEGI (National Institute of Statistics and Geography of Mexico).


Mexico: Consumer and business dynamics

Consumer and industrial confidenceComposite consumer index, mfg. producer confidence, sa Year-over-year % change, net of bad debts

Private sector credit growth

Mar. 2017: 16.0%

Latin

Am

eric

aec

onom

y

14

Mar. 2017:11.3%

Consumer confidenceIndustrial confidence May 2017: 3.5%

Unemployment rateSeasonally adjusted

HouseholdsCorporates


15

|

0%

10%

20%

30%

40%

50%

60%

70%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '1735%

40%

45%

50%

55%

60%

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

Source: J.P. Morgan Asset Management; (Left) IMF; (Top right) Ministry of Finance and Public Credit; (Bottom right) Central Bank of Mexico.*2016 is an IMF estimate.


Mexico: Fiscal dynamics

Latin

Am

eric

aec

onom

y

Government oil revenues% of total government revenues

Gross debt% of GDP

2016: 58%*

% of total outstandingForeign ownership of government bonds

May 2017: 56.1%

15

0%

10%

20%

30%

40%

50%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16


16

|

-60%

-40%

-20%

0%

20%

40%

60%

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

-60%

-40%

-20%

0%

20%

40%

60%

-30%

-20%

-10%

0%

10%

20%

30%

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

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

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

Source: Economic Ministry, J.P. Morgan Asset Management.


Argentina: Economic snapshot

Latin

Am

eric

aec

onom

y


1Q17:4.3%Average:

2.6%1Q17:0.9%

1Q17: 3.0%

International tradeYear-over-year % change, 4-quarter moving average

ExportsImports

1Q17:0.6%

1Q17: 3.9%



16


17

|

20%

23%

26%

29%

32%

35%

38%

Jan '16 Apr '16 Jul '16 Oct '16 Jan '17 Apr '17

-8%

-6%

-4%

-2%

0%

2%

4%

6%

'93 '98 '03 '08 '13

4.2%

3.1%

2.0%

0.2%1.1%

2.4%

1.6%

1.2% 1.3%

2.5% 2.4%2.6%

1.3%

-2%

-1%

0%

1%

2%

3%

4%

5%

May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17

Source: INDEC (National Institute of Statistics and Census of Argentina), J.P. Morgan Asset Management; (Top right) Central Bank of Argentina; (Bottom right) IMF.Inflation breakdown numbers may not sum due to rounding. *2016 is an IMF estimate.


Argentina: Inflation and monetary policy

Headline inflation breakdown% change m/m, contribution to headline inflation, GBA-CPI

Latin

Am

eric

aec

onom

y

Target policy rate7-day repo rate, end of period, percent per annum

Jun. 2017:26.3%

Public sector balanceStructural balance, % of potential GDP

2016:-5.8%*

Seasonal prices

Regulated prices

Core prices

BCRA annual target range: 12-17%

May 2017, YoY% change: 24.0%

17


18

|

-5%

-3%

-1%

1%

3%

5%

7%

9%

11%

13%

15%

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

-5%

0%

5%

10%

15%

20%

25%

30%

35%

-1%

1%

3%

5%

7%

9%

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

-20%

-5%

10%

25%

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

Source: DANE (National Administration of Statistics), J.P. Morgan Asset Management.


Colombia: Economic snapshot


Latin

Am

eric

aec

onom

y

1Q17:-0.9%

Average: 4.1%

1Q17: -0.7%

1Q17: 1.1%


1Q17: -2.0%

1Q17: -4.8%Exports

Imports



18


19

|

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000$0

$20

$40

$60

$80

$100

$120

$140

$160

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Consensus*

Source: J.P. Morgan Asset Management; (Left & bottom right) Central Bank of Colombia, DANE (National Administration of Statistics); (Top right) Commodity Research Bureau, Reuters, FactSet.*Survey conducted by the Central Bank of Colombia.


Colombia: Inflation and monetary policy

Oil prices and the Colombian pesoCOP per USD (inverted); Brent US$ per barrel

Colombian peso

Oil ($/bbl)

Latin

Am

eric

aec

onom

y

Inflation targeting and inflationHeadline inflation, 12-month accumulated % change

May 2017: 4.4%

Target: 3.0%

Lower limit: 2.0%

Upper limit: 4.0%Target policy rate and expectationsBanRep repo rate, end of period, percent per annum

19

Consensus*


20

|

-20%

-10%

0%

10%

20%

30%

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

-20%-15%-10%-5%0%5%10%15%20%25%30%

-8%

-4%

0%

4%

8%

12%

16%

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

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

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

Source: Central Bank of Chile, J.P. Morgan Asset Management.


Chile: Economic snapshot

Latin

Am

eric

aec

onom

y


1Q17:0.7%

Average: 3.9%


Consumption Investment


1Q17: -1.5%

1Q17: 0.3%

ExportsImports

1Q17: 2.0%

1Q17: -2.4%

20


21

|

0%1%2%3%4%

5%6%7%8%9%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

400

450

500

550

600

650

700

750$4,000

$6,000

$8,000

$10,000

'11 '12 '13 '14 '15 '16 '17

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Consensus*

Consensus*

Source: J.P. Morgan Asset Management; (Left) INE (National Statistics Institute of Chile); (Top right) Reuters, INE; (Bottom right) Central Bank of Chile.*Survey conducted by the Central Bank of Chile.


Chile: Inflation and monetary policy

Latin

Am

eric

aec

onom

y

Target: 3.0%

Lower limit: 2.0%

May 2017: 2.6%

Upper limit: 4.0%

Inflation targeting and inflationHeadline inflation, year-over-year % change

Copper prices and the Chilean pesoCLP per USD (inverted), $/mt

Target policy rate and expectationsCentral Bank of Chile rate, end of period, percent per annum

Chilean peso

Copper prices

21


22

|

-10%

-5%

0%

5%

10%

15%

20%

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

-20%

-10%

0%

10%

20%

30%

40%

0%

2%

4%

6%

8%

10%

12%

14%

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

-20%

-10%

0%

10%

20%

30%

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

Source: Central Reserve Bank of Peru, INEI (National Statistics Institute of Peru), J.P. Morgan Asset Management.


Peru: Economic snapshot


Latin

Am

eric

aec

onom

y

1Q17:0.6%

Average: 4.9%

1Q17: -6.2%

1Q17: 2.4%


ExportsImports 1Q17:

-1.8%

1Q17:10.9%



22


23

|

0%

5%

10%

15%

20%

25%

30%

'07 '09 '11 '13 '15 '17

0%

1%

2%

3%

4%

5%

6%

7%

'07 '09 '11 '13 '15 '17

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Source: J.P. Morgan Asset Management; (Left) INEI; (Top and bottom right) Central Reserve Bank of Peru.*Survey conducted by the Central Bank of Peru.


Peru: Inflation and monetary policy

Latin

Am

eric

aec

onom

y

Inflation targeting and inflationHeadline inflation, Lima, year-over-year % change

Target: 2.0%

Lower limit: 1.0%

Upper limit: 3.0%

Target policy rateBCRP official reference rate, end of period, percent per annum

May 2017: 3.0%

Jun. 2017: 4.00%

Reserve requirementsReserve requirements as a % of total deposits

23

Consensus*

May 2017: 6.9%


24

|

Country / Region USD USD

Regions / Broad IndexesAll Country World 9.3 11.8 9.7 8.5U.S. (S&P 500) 9.3 9.3 12.0 12.0Developed markets 8.6 11.0 9.6 8.2Europe ex-UK 10.0 18.3 3.2 0.3Emerging markets 15.0 18.6 10.1 11.6Latin America 7.4 10.3 24.7 31.5EM Asia 19.8 23.3 7.3 6.5

MSCI: Selected CountriesArgentina 41.6 41.6 5.1 5.1Brazil 5.0 3.1 37.2 66.7Chile 13.5 14.4 10.4 16.8Colombia 10.2 8.3 19.6 26.5Mexico 9.4 24.5 8.6 -9.0Peru 13.1 13.1 55.6 55.6China 25.6 25.0 1.2 1.1Russia -16.0 -14.0 35.1 55.9India 14.8 20.5 1.1 -1.4Japan 6.1 10.1 -0.4 2.7United Kingdom 4.7 10.0 19.2 0.0

Local Local

YTD 2016

23.3%

18.6% 18.3%

10.3% 10.1% 10.0%9.3%

-5%

0%

5%

10%

15%

20%

25%

EM Asia EM Europe(ex-UK)

LatinAmerica

Japan UK U.S.

Source: Standard & Poor’s, MSCI, FactSet, J.P. Morgan Asset Management.All return values are MSCI Gross Index (official) data. Multiples and earnings in sources of return calculation based on consensus expectations. Chart is for illustrative purposes only. Past performance is not indicative of future results. Please see disclosure page for index definitions.


Global equity markets

Sources of global equity returns – YTDTotal return, USD

Glob

al e

cono

my

Dividends

Earnings (local currency)

Multiples

Total return

Currency effect

24

|GTM – Latin America |

25

U.S. and international equities at inflection points

Glob

al e

cono

my

Source: MSCI, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.Forward price to earnings ratio is a bottom-up calculation based on the most recent index price, divided by consensus estimates for earnings in the next twelve months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns. Dividend yield is calculated as consensus estimates of dividends for the next twelve months, divided by most recent price, as provided by FactSet Market Aggregates.


MSCI All Country World ex-U.S. and S&P 500 IndexDec. 1996 = 100, U.S. dollar, price return

25

+106%

+258%

-62%

-57%

+216%

+101%

-52%

-49%

+48%

+106%

Jun. 30, 2017P/E (fwd.) = 14.1x

Jun. 30, 2017P/E (fwd.) = 17.5x

P/E 20 yr. avg. Div. Yield 20 yr. avg.S&P 500 17.5x 16.0x 2.1% 2.0%ACWI ex-U.S. 14.1x 14.7x 3.2% 2.9%


26

|

Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. *Valuations refer to NTMA P/E for Europe, U.S., Japan and Developed Markets and P/B for emerging markets. Valuation and earnings charts use MSCI indices for all regions/countries, except for the U.S., which is the S&P 500. All indices use IBES aggregate earnings estimates, which may differ from earnings estimates used elsewhere in the book.


International equity earnings and valuations

Glob

al e

cono

my

26

0.0x

0.4x

0.8x

1.2x

1.6x

2.0x

2.4x

2.8x

3.2x

3.6x

4.0x

4.4x

4.8x

5.2x

0x

5x

10x

15x

20x

25x

30x

35x

40x

U.S. DM Europe Japan EM

Price-to-book

Pric

e-to

-ear

ning

s

Global valuations Current and 25-year historical valuations*

Global earningsEPS, U.S. dollar, NTMA, Jan. 2009 = 100

Japan

Europe

U.S.

EM

Axis75x

17.8x

25-year range25-year average

16.7x

14.2x15.2x

1.7x

Current


27

Manufacturing momentum

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

Heatmap colors are based on PMI relative to the 50 level, which indicates acceleration or deceleration of the sector, for the time period shown.


Global Purchasing Managers’ Index for manufacturing

27

Glob

al e

cono

my

Jul'1

5

Aug

'15

Sep'

15

Oct

'15

Nov

'15

Dec

'15

Jan'

16

Feb'

16

Mar

'16

Apr

'16

May

'16

Jun'

16

Jul'1

6

Aug

'16

Sep'

16

Oct

'16

Nov

'16

Dec

'16

Jan'

17

Feb'

17

Mar

'17

Apr

'17

May

'17

Jun'

17

Global 50.8 50.5 50.4 51.0 51.0 50.7 50.9 50.0 50.6 50.2 50.1 50.4 51.0 50.8 51.1 52.0 52.1 52.7 52.8 53.0 53.0 52.7 52.6 52.6Developed Markets 52.5 52.4 52.1 53.0 52.6 52.0 52.3 50.9 50.9 50.4 50.2 50.9 51.5 51.3 51.6 52.8 53.2 54.0 54.4 54.4 53.9 54.0 54.6 53.7Emerging Markets 48.8 48.3 48.3 48.9 49.1 49.2 49.2 48.8 50.0 49.5 49.5 49.3 50.1 49.9 50.0 50.7 50.7 51.3 50.8 51.2 51.4 50.8 50.6 50.8U.S. 53.8 53.0 53.1 54.1 52.8 51.2 52.4 51.3 51.5 50.8 50.7 51.3 52.9 52.0 51.5 53.4 54.1 54.3 55.0 54.2 53.3 52.8 52.7 52.0Canada 50.8 49.4 48.6 48.0 48.6 47.5 49.3 49.4 51.5 52.2 52.1 51.8 51.9 51.1 50.3 51.1 51.5 51.8 53.5 54.7 55.5 55.9 55.1 54.7UK 52.3 51.8 51.5 54.5 52.5 51.2 52.5 50.9 51.1 49.5 50.4 53.1 48.3 53.5 55.3 54.2 53.5 55.9 55.6 54.6 54.0 57.0 56.3 54.3Euro Area 52.4 52.3 52.0 52.3 52.8 53.2 52.3 51.2 51.6 51.7 51.5 52.8 52.0 51.7 52.6 53.5 53.7 54.9 55.2 55.4 56.2 56.7 57.0 57.4Germany 51.8 53.3 52.3 52.1 52.9 53.2 52.3 50.5 50.7 51.8 52.1 54.5 53.8 53.6 54.3 55.0 54.3 55.6 56.4 56.8 58.3 58.2 59.5 59.6France 49.6 48.3 50.6 50.6 50.6 51.4 50.0 50.2 49.6 48.0 48.4 48.3 48.6 48.3 49.7 51.8 51.7 53.5 53.6 52.2 53.3 55.1 53.8 54.8Italy 55.3 53.8 52.7 54.1 54.9 55.6 53.2 52.2 53.5 53.9 52.4 53.5 51.2 49.8 51.0 50.9 52.2 53.2 53.0 55.0 55.7 56.2 55.1 55.2Spain 53.6 53.2 51.7 51.3 53.1 53.0 55.4 54.1 53.4 53.5 51.8 52.2 51.0 51.0 52.3 53.3 54.5 55.3 55.6 54.8 53.9 54.5 55.4 54.7Greece 30.2 39.1 43.3 47.3 48.1 50.2 50.0 48.4 49.0 49.7 48.4 50.4 48.7 50.4 49.2 48.6 48.3 49.3 46.6 47.7 46.7 48.2 49.6 50.5Ireland 56.7 53.6 53.8 53.6 53.3 54.2 54.3 52.9 54.9 52.6 51.5 53.0 50.2 51.7 51.3 52.1 53.7 55.7 55.5 53.8 53.6 55.0 55.9 56.0Australia 50.4 51.7 52.1 50.2 52.5 51.9 51.5 53.5 58.1 53.4 51.0 51.8 56.4 46.9 49.8 50.9 54.2 55.4 51.2 59.3 57.5 59.2 54.8 55.0Japan 51.2 51.7 51.0 52.4 52.6 52.6 52.3 50.1 49.1 48.2 47.7 48.1 49.3 49.5 50.4 51.4 51.3 52.4 52.7 53.3 52.4 52.7 53.1 52.4China 47.8 47.3 47.2 48.3 48.6 48.2 48.4 48.0 49.7 49.4 49.2 48.6 50.6 50.0 50.1 51.2 50.9 51.9 51.0 51.7 51.2 50.3 49.6 50.4Indonesia 47.3 48.4 47.4 47.8 46.9 47.8 48.9 48.7 50.6 50.9 50.6 51.9 48.4 50.4 50.9 48.7 49.7 49.0 50.4 49.3 50.5 51.2 50.6 49.5Korea 47.6 47.9 49.2 49.1 49.1 50.7 49.5 48.7 49.5 50.0 50.1 50.5 50.1 48.6 47.6 48.0 48.0 49.4 49.0 49.2 48.4 49.4 49.2 50.1Taiwan 47.1 46.1 46.9 47.8 49.5 51.7 50.6 49.4 51.1 49.7 48.5 50.5 51.0 51.8 52.2 52.7 54.7 56.2 55.6 54.5 56.2 54.4 53.1 53.3India 52.7 52.3 51.2 50.7 50.3 49.1 51.1 51.1 52.4 50.5 50.7 51.7 51.8 52.6 52.1 54.4 52.3 49.6 50.4 50.7 52.5 52.5 51.6 50.9Brazil 47.2 45.8 47.0 44.1 43.8 45.6 47.4 44.5 46.0 42.6 41.6 43.2 46.0 45.7 46.0 46.3 46.2 45.2 44.0 46.9 49.6 50.1 52.0 50.5Mexico 52.9 52.4 52.1 53.0 53.0 52.4 52.2 53.1 53.2 52.4 53.6 51.1 50.6 50.9 51.9 51.8 51.1 50.2 50.8 50.6 51.5 50.7 51.2 52.3Russia 48.3 47.9 49.1 50.2 50.1 48.7 49.8 49.3 48.3 48.0 49.6 51.5 49.5 50.8 51.1 52.4 53.6 53.7 54.7 52.5 52.4 50.8 52.4 50.3


28

Global inflation

Glob

al e

cono

my

Source: Federal Reserve, Statistics Canada, UK Office for National Statistics (ONS), ECB, Melbourne Institute, Japan Ministry of Internal Affairs & Communication, National Bureau of Statistics China, Statistics Indonesia, Korean National Statistical Office, DGBAS, India Ministry of Statistics & Programme Implementation, Bank of Mexico, Goskomstat of Russia, IBGE, FactSet, J.P. Morgan Asset Management.

Heatmap colors are based on z-score of year-over-year inflation rate relative to five year history, for the time period shown.


Year-over-year headline inflation by country and region

28

Jun'

15

Jul'1

5

Aug

'15

Sep'

15

Oct

'15

Nov

'15

Dec

'15

Jan'

16

Feb'

16

Mar

'16

Apr

'16

May

'16

Jun'

16

Jul'1

6

Aug

'16

Sep'

16

Oct

'16

Nov

'16

Dec

'16

Jan'

17

Feb'

17

Mar

'17

Apr

'17

May

'17

Global

Developed Markets

Emerging Markets

U.S.

Canada

UK

Euro Area

Germany

France

Italy

Spain

Greece

Ireland

Australia

Japan

China

Indonesia

South Korea

Taiwan

India

Mexico

Russia

Brazil

1.5% 1.5% 1.6% 1.4% 1.4% 1.6% 1.6% 1.9% 1.7% 1.6% 1.6% 1.6% 1.6% 1.5% 1.5% 1.7% 1.9% 1.9% 2.1% 2.5% 2.3% 2.1% 2.2% 2.0%

0.6% 0.6% 0.6% 0.3% 0.5% 0.7% 0.8% 0.9% 0.6% 0.5% 0.6% 0.5% 0.6% 0.6% 0.7% 0.9% 1.1% 1.2% 1.6% 2.0% 2.2% 1.9% 2.0% 1.7%

3.5% 3.5% 3.7% 3.5% 3.4% 3.5% 3.4% 3.4% 3.6% 3.3% 3.3% 3.2% 3.2% 3.1% 2.8% 3.0% 3.1% 3.1% 2.9% 3.2% 2.4% 2.5% 2.6% 2.6%

0.1% 0.2% 0.2% 0.0% 0.2% 0.5% 0.7% 1.4% 1.0% 0.9% 1.1% 1.0% 1.0% 0.8% 1.1% 1.5% 1.6% 1.7% 2.1% 2.5% 2.7% 2.4% 2.2% 1.9%

1.0% 1.3% 1.3% 1.0% 1.0% 1.4% 1.6% 2.0% 1.4% 1.3% 1.7% 1.5% 1.5% 1.3% 1.1% 1.3% 1.5% 1.2% 1.5% 2.1% 2.0% 1.6% 1.6% 1.3%

0.0% 0.1% 0.0% -0.1% -0.1% 0.1% 0.2% 0.3% 0.3% 0.5% 0.3% 0.3% 0.5% 0.6% 0.6% 1.0% 0.9% 1.2% 1.6% 1.8% 2.3% 2.3% 2.7% 2.9%

0.2% 0.2% 0.1% -0.1% 0.1% 0.1% 0.2% 0.3% -0.2% 0.0% -0.2% -0.1% 0.1% 0.2% 0.2% 0.4% 0.5% 0.6% 1.1% 1.8% 2.0% 1.5% 1.9% 1.4%

0.2% 0.1% 0.1% -0.1% 0.2% 0.2% 0.2% 0.4% -0.2% 0.1% -0.3% 0.0% 0.2% 0.4% 0.3% 0.5% 0.7% 0.7% 1.7% 1.9% 2.2% 1.5% 2.0% 1.4%

0.3% 0.2% 0.1% 0.1% 0.2% 0.1% 0.3% 0.3% -0.1% -0.1% -0.1% 0.1% 0.3% 0.4% 0.4% 0.5% 0.5% 0.7% 0.8% 1.6% 1.4% 1.4% 1.4% 0.9%

0.2% 0.3% 0.4% 0.2% 0.3% 0.2% 0.1% 0.4% -0.2% -0.2% -0.4% -0.3% -0.3% -0.2% -0.2% 0.1% -0.2% 0.1% 0.5% 1.0% 1.6% 1.4% 2.0% 1.6%

0.0% 0.0% -0.5% -1.1% -0.9% -0.4% -0.1% -0.4% -1.0% -1.0% -1.2% -1.1% -0.9% -0.7% -0.3% 0.0% 0.5% 0.5% 1.4% 2.9% 3.0% 2.1% 2.6% 2.0%

-1.1% -1.3% -0.4% -0.8% -0.1% -0.1% 0.4% -0.1% 0.1% -0.7% -0.4% -0.2% 0.2% 0.2% 0.4% -0.1% 0.6% -0.2% 0.3% 1.5% 1.4% 1.7% 1.6% 1.5%

0.4% 0.2% 0.2% -0.1% -0.1% -0.1% 0.2% 0.0% -0.2% -0.6% -0.2% -0.2% 0.1% 0.1% -0.4% -0.3% -0.4% -0.2% -0.2% 0.2% 0.3% 0.6% 0.7% 0.0%

1.5% 1.6% 1.7% 1.9% 1.8% 1.8% 2.0% 2.3% 2.1% 1.7% 1.5% 1.0% 1.5% 1.0% 1.2% 1.3% 1.5% 1.5% 1.8% 2.1% 2.1% 2.2% 2.6% 2.8%

0.4% 0.2% 0.2% 0.0% 0.2% 0.3% 0.1% -0.1% 0.2% 0.0% -0.3% -0.4% -0.3% -0.5% -0.5% -0.5% 0.2% 0.5% 0.3% 0.5% 0.2% 0.2% 0.4% 0.4%

1.4% 1.6% 2.0% 1.6% 1.3% 1.5% 1.6% 1.8% 2.3% 2.3% 2.3% 2.0% 1.9% 1.8% 1.3% 1.9% 2.1% 2.3% 2.1% 2.5% 0.8% 0.9% 1.2% 1.5%

7.3% 7.3% 7.2% 6.8% 6.2% 4.9% 3.4% 4.1% 4.4% 4.4% 3.6% 3.3% 3.5% 3.2% 2.8% 3.1% 3.3% 3.6% 3.0% 3.5% 3.8% 3.6% 4.2% 4.3%

0.7% 0.7% 0.7% 0.5% 0.8% 0.8% 1.1% 0.6% 1.1% 0.8% 1.0% 0.8% 0.7% 0.4% 0.5% 1.3% 1.5% 1.5% 1.3% 2.0% 1.9% 2.2% 1.9% 2.0%

-0.6% -0.6% -0.4% 0.3% 0.3% 0.5% 0.1% 0.8% 2.4% 2.0% 1.9% 1.2% 0.9% 1.2% 0.6% 0.3% 1.7% 2.0% 1.7% 2.2% -0.1% 0.2% 0.1% 0.6%

5.4% 3.7% 3.7% 4.4% 5.0% 5.4% 5.6% 5.7% 5.3% 4.8% 5.5% 5.8% 5.8% 6.1% 5.0% 4.4% 4.2% 3.6% 3.4% 3.2% 3.7% 3.9% 3.0% 2.2%

2.9% 2.7% 2.6% 2.5% 2.5% 2.2% 2.1% 2.6% 2.9% 2.6% 2.5% 2.6% 2.5% 2.7% 2.7% 3.0% 3.1% 3.3% 3.4% 4.7% 4.9% 5.4% 5.8% 6.2%

15.3% 15.6% 15.8% 15.7% 15.6% 15.0% 12.9% 9.8% 8.1% 7.3% 7.3% 7.3% 7.5% 7.2% 6.8% 6.4% 6.1% 5.8% 5.4% 5.0% 4.6% 4.3% 4.1% 4.1%

8.9% 9.6% 9.5% 9.5% 9.9% 10.5% 10.7% 10.7% 10.4% 9.4% 9.3% 9.3% 8.8% 8.7% 9.0% 8.5% 7.9% 7.0% 6.3% 5.4% 4.8% 4.6% 4.1% 3.6%


29

|

Source: J.P. Morgan Asset Management; (Left) IMF; (Top right) Bloomberg Finance L.P.; (Bottom right) MSCI, FactSet, J.P. Morgan Global Economic Research.Nominal GDP used is based on purchasing power parity (PPP) valuation of country GDP. *2017 global GDP data is an IMF forecast. **Inflation breakevens are calculated by subtracting 10-year inflation-protected securities from 10-year nominal yields. Germany inflation breakeven data begins in June 2009.


Global reflation

Components of global growthNominal GDP growth broken down into real GDP growth and inflation

InflationReal GDPNominal GDP

Global GDP growth and corporate profitsYear-over-year growth, nominal GDP, MSCI AC World trailing EPS

Glob

al e

cono

my

29

Global inflation breakevens10-year inflation breakevens**

8.6%8.3%

4.9%

0.3%

6.6%6.2%

5.1% 5.0%5.2%

4.3% 4.4%

5.7%

-4%

-2%

0%

2%

4%

6%

8%

10%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

-0.2%

0.6%

1.4%

2.2%

3.0%

3.8%

4.6%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

UK

U.S.

Germany

EPS

Nominal GDP


30

|

0.41%

0.72%0.91%

1.17%

1.45% 1.70%

-0.32%-0.03%

0.23%-0.03% -0.02%

0.00%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Sep '17 Sep '18 Sep '19

4.3%

3.0%

3.6%

2.9%

-1.8%

0.6%

1.9% 2.0%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

U.S. Eurozone Japan UK

Global monetary and fiscal policy

2017 – 2021***

Global central bank balance sheet expansion* USD billions, balance sheet expansion planned for next 12 months

Fiscal dragReduction in structural deficits, % of potential GDP

Mor

e fis

cal d

rag

Less

fisc

al d

rag

2011 - 2016

30

Glob

al e

cono

my

Market expectations for target policy rate**

UK

Eurozone

U.S.

Japan

-$500

$0

$500

$1,000

$1,500

$2,000

$2,500

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

Forecast*

Source: J.P. Morgan Asset Management; (Top left) Bank of England, Bank of Japan, European Central Bank, FactSet, Federal Reserve System, J.P. Morgan Global Economic Research; (Bottom left) Bloomberg; (Right) IMF.*Includes the Bank of Japan (BoJ), Bank of England (BoE), European Central Bank (ECB) and Federal Reserve. Balance sheet expansion assumes no more quantitative easing (QE) from the BoE, tapering of ECB QE to 0 from end of 2017 over one year, tapering of BoJ QE to 20trn JPY by end of 2018, 0 by mid-2019, and tapering of Fed QE per the June FOMC statement. **Target policy rates for Japan are estimated using EuroYen 3m futures contracts less a risk premium of 6bps. ***Eurozone forecasts past 2018 are JPMAM estimates calculated by aggregating individual country data. Government deficits are calculated by the IMF as the general government structural balance. The structural balance excludes the normal impact of the business cycle, providing a clearer measure of the independent impact of changes in government spending and taxation on demand in the economy. Guide to the Markets – Latin America. Data are as of June 30, 2017.


31

|

Source: BEA, FactSet, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. Quarter-over-quarter percent changes are at an annualized rate. Average represents the annualized growth rate for the full period. Expansion average refers to the period starting in the second quarter of 2009.


U.S.: Economic growth and the composition of GDP

Glob

al e

cono

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Real GDP

Real GDPYear-over-year % change

1Q17

Components of GDP1Q17 nominal GDP, USD trillions

Average: 2.8%

Expansion average:

2.1%

31

YoY % chg: 2.1%

QoQ % chg: 1.4%

-$1

$1

$3

$5

$7

$9

$11

$13

$15

$17

$19

$21

12.6% Investment ex-housing

68.9% Consumption

17.5% Gov’t spending

3.9% Housing

- 3.0% Net exports


32

|

'70 '80 '90 '00 '100%

2%

4%

6%

8%

10%

12%

Source: BEA, BLS, J.P. Morgan Asset Management.CPI used is CPI-U and values shown are % change vs. one year ago and reflect May 2017 CPI data. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations.


U.S.: Inflation and unemployment

Civilian unemployment rate and growth in wagesSeasonally adjusted, year-over-year growth in wages and salaries

CPI and core CPI% change vs. prior year, seasonally adjusted

50-yr. avg. May 2017

Headline CPI 4.1% 1.9%Core CPI 4.1% 1.7%Headline PCE 3.6% 1.4%Core PCE 3.5% 1.4%

Glob

al e

cono

my

Average: 4.2%

May 2017: 4.3%

Oct. 2009: 10.0%

May 2017: 2.4%

Average: 6.2%

Wage growth

Unemployment

32


33

1.38%

2.13%

2.94% 3.00%

1.13% 1.24%1.48% 1.66%

0%

1%

2%

3%

4%

5%

6%

7%

'99 '02 '05 '08 '11 '14 '17 '20

U.S.: The Fed and interest rates

Source: FactSet, Bloomberg Finance L.P., Federal Reserve, J.P. Morgan Asset Management.Market expectations are the federal funds rates priced into the fed futures market as of the date of the June 2017 FOMC meeting.


Federal funds rate expectationsFOMC and market expectations for the fed funds rate

Federal funds rate

FOMC long-run projection

FOMC year-end estimatesMarket expectations on 6/14/17

Glob

al e

cono

my

33

FOMC June 2017 forecasts Percent

2017 2018 2019 Long run

Change in real GDP, Q4 to Q4 2.2 2.1 1.9 1.8

Unemployment rate, Q4 4.3 4.2 4.2 4.6

PCE inflation, Q4 to Q4 1.6 2.0 2.0 2.0

Longrun


34

$0

$1

$2

$3

$4

$5

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

U.S.: The Fed balance sheet

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.*Balance sheet reduction assumes reduction from current level, beginning October 2017 and lasting four years, concluding in October 2021. Reduction of Treasuries and MBS is per FOMC guidelines from the June 2017 meeting minutes: Treasury securities will be reduced $6 billion per month initially and reduction rate will increase in steps of $6 billion at three-month intervals over 12 months until reaching $30 billion per month; MBS will be reduced $4 billion per month initially and reduction rate will increase in steps of $4 billion at three-month intervals over 12 months until reaching $20 billion per month; Other assets are reduced in proportion. Forecasts do not take into account months where maturing assets do not exceed the stated cap nor do they consider the reinvestment of principal or interest repayment in excess of the stated cap.Guide to the Markets – Latin America. Data are as of June 30, 2017.

Balance sheet reduction scenario(current balance sheet = $4.460 trillion)

Beginning balance ($ trillion)

End balance ($ trillion)

Treasuries $2.465 $1.170

MBS $1.770 $0.929

Treasuries

MBS

Other

Dec. 2008:QE1 begins

Jun. 2010:End of QE1;

balance sheet stands at $2.1T

Oct. 2014:End of QE3; balance sheet stands at $4.5T

Nov. 2010:QE2 begins

Jun. 2011:End of QE2; balance sheet

stands at $2.8TSep. 2012:QE3 begins

Jan. 2014:Tapering of

purchases begins

The Federal Reserve balance sheetUSD trillions

34

Glob

al e

cono

my

Forecasted reduction*


35

|

Source: Standard & Poor’s, J.P. Morgan Asset Management; (Left) Compustat; (Right) FactSet.EPS levels are based on operating earnings per share. Earnings estimates are Standard & Poor’s consensus analyst expectations. *1Q17 earnings are calculated using actual earnings for 98.6% of S&P 500 market cap and earnings estimates for the remaining companies. Past performance is not indicative of future returns. Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES since December 1989, and FactSet for June 30, 2017. Average P/E and standard deviations are calculated using 25 years of FactSet history.


U.S.: Corporate profits and valuations

S&P 500 earnings per shareIndex quarterly operating earnings

Glob

al e

cono

my

S&P 500 Index: Forward P/E ratio

35

Average: 16.0x

Current: 17.5x

+1 std. dev.: 19.2x

-1 std. dev.: 12.8x

-$1

$3

$7

$11

$15

$19

$23

$27

$31

$35

'02 '05 '08 '11 '14 '17

1Q17*: $28.81

S&P consensus analyst estimates


36

|

Source: J.P. Morgan Asset Management; (Top left) Markit, Eurostat; (Bottom left) Eurostat; (Right) ECB.SAAR – Seasonally adjusted annual rate. *Eurozone composite PMI is a flash estimate. Eurozone shown is the aggregate of the 19 countries that currently use the euro.


European recovery

Markit PMI and GDP growth in the eurozoneEurozone Markit Composite PMI index and real GDP q/q SAAR

Eurozone unemploymentPersons unemployed as a percent of labor force, seasonally adjusted

Eurozone credit demandNet % of banks reporting positive loan demand

Glob

al e

cono

my

36

Real GDP

Composite PMI

Stronger loan demand

Weaker loan demand

May 2017: 9.3%

Jul. 2013: 12.1%

1Q17: 2.3%

Jun. 2017*: 55.7


37

|

20

30

40

50

60

70

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Europe55%

Africa & Middle East5%

Americas26%

Asia/Pacific

15%

Source: FactSet, MSCI, J.P. Morgan Asset Management; (Top left) Markit. Revenue growth reflects last 12-month actual figures and EPS reflects next 12-month forward estimates from FactSet for the MSCI Europe Index.


Europe: Revenues and earnings

Economic growth and revenue growth estimates12-mo. revenue growth & manufacturing PMI (advanced 12-months)

Earnings per shareNext 12-month consensus EPS

Geographical source of revenuesMSCI Europe

'00 '02 '04 '06 '08 '10 '12 '14 '16€4

€5

€6

€7

€8

€9

€10

€11

€12

€13

$50

$60

$70

$80

$90

$100

$110

$120

$130

$140

$150MSCI Europe S&P 500

Manufacturing PMIRevenue growth

Glob

al e

cono

my

37


38

|

-4%

-2%

0%

2%

4%

6%

8%

'02 '04 '06 '08 '10 '12 '14 '16

0%

2%

4%

6%

8%

10%

12%

14%

Source: FactSet, J.P. Morgan Asset Management; (Top left) FactSet, GFK, ONS; (Bottom left) Bloomberg Finance L.P., ONS; (Right) Eurostat, ONS. *Nominal wages include bonuses.


UK: Economic indicators

Unemployment rate and consumer confidenceOverall index level

Trade with the UK% of GDP, 2015

Glob

al e

cono

my

38

'08 '10 '12 '14 '16-50

-40

-30

-20

-10

0

10

4%

5%

6%

7%

8%

9%Consumer confidence

Unemployment rate

Inflation and wage growth% change year-over-year

Headline CPI

Nominal wage growth*

EU countries’ exports to the UK

Regions’ exports to the UK

UK exports to the EU


39

|

18%

11%

9%7%

5%

10%

15%

20%

FTSEAll-Share

MSCI Europeex-UK

S&P 500 MSCI Japan

0%

20%

40%

60%

80%

100%

Hom

ebu

ilder

s

RE

ITS

Ret

ail

Util

ities

Bank

s

Trav

el

Hea

lth c

are

Pers

onal

good

s

Ener

gy

Min

ing

Toba

cco

Source: J.P. Morgan Asset Management; (Left) Thomson Reuters Datastream, FTSE; (Top right) FactSet, MSCI, Standard & Poor’s; (Bottom right) J.P. Morgan Global Economic Research.


UK equities

FTSE All-Share earnings and performanceNext twelve months earnings estimates

Commodities weights% of Index

Source of UK company revenues% of total revenues

39

Glob

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my

International

UK

Index levelEarnings


40

|

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: J.P. Morgan Asset Management; (Top left) FactSet, Japan Ministry of Internal Affairs & Communications, Japan Ministry of Health, Labor and Welfare; (Bottom left) Nomura; (Right) Nikkei.*Core CPI is defined as CPI excluding food and energy. **Share buyback data is for repurchases of common stock, excluding repurchases from Resolution and Collection Corp. and repurchases of preferred stock. This data was collected by Nomura.


Japan: Abenomics and markets

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17¥70

¥80

¥90

¥100

¥110

¥120

¥130

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

Japanese yen and the stock market

Japanese ¥ per U.S. $ Nikkei 225 Index

Nominal wage growthCore CPI*

Inflation and wage growth% change year-over-year, 6-month moving average

¥0

¥4

¥8

¥12

¥16

¥20

'90 '95 '00 '05 '10 '15

DividendsShare buybacks**

Companies’ dividend payouts and share buybacks Yen trillions

Glob

al e

cono

my

40


41

|

-10%

-5%

0%

5%

10%

15%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: FactSet, J.P. Morgan Asset Management; (Left and top right) CEIC; (Bottom right) People’s Bank of China.*Core CPI is defined as CPI excluding food and energy.


China: Economic and policy snapshot

China real GDP contributionYear-over-year % change

InvestmentConsumptionNet exports

Monetary policy toolsPolicy rate on 1-year renminbi deposits

'08 '09 '10 '11 '12 '13 '14 '15 '16 '170%

1%

2%

3%

4%

5%

0%

5%

10%

15%

20%

25%Reserve requirementInterest rates

Inflation% change year-over-year

41

Glob

al e

cono

my

May 2017Headline CPI 1.5%

Core CPI* 0.5%

Headline PPI 5.5%

0.3%

-4.0%

-1.3% -0.8%

0.2%

-0.1%

0.3%

-0.1%-0.5%

0.3%

4.3% 5.3% 4.8%5.9%

4.3%3.6% 3.6% 4.1% 4.3%

5.3%

5.1%

8.1%

7.1% 4.4%

3.4%4.3% 3.4% 2.9% 2.8%

1.3%

9.7%

9.4%

10.6%

9.6%

7.9% 7.8%7.3% 6.9% 6.7% 6.9%

-4%

0%

4%

8%

12%

16%

2008 2009 2010 2011 2012 2013 2014 2015 2016 1Q17


42

|

40

45

50

55

60

65

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%

'95 '00 '05 '10 '15

Source: J.P. Morgan Asset Management; (Left) Caixin/Markit; (Top right) CEIC, FactSet, National Bureau of Statistics of China; (Bottom right) FactSet, National Bureau of Statistics of China.


China economic indicators

Manufacturing and services PMIsCaixin/Markit Indices, 3-month moving average

Fixed asset investment% change year-over-year

Central government fiscal deficit% of GDP

Jun. 2017:52.0

Jun. 2017:50.1

Manufacturing

Services

2016: -3.8%

Glob

al e

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42

Public

Private

Overall


43

|

90

100

110

120

130

140

'11 '12 '13 '14 '15 '16

$10

$30

$50

$70

$90

$110

$130

40

50

60

70

80

90

100

'11 '12 '13 '14 '15 '16

98

99

100

101

102

'11 '12 '13 '14 '15 '16 '17

-$30

-$10

$10

$30

$50

$70

'11 '12 '13 '14 '15 '16 '17

Source: J.P. Morgan Asset Management; (Top left) Federal Reserve, FactSet; (Bottom left) Bloomberg Finance L.P., FactSet; (Top right) OECD; (Bottom right) IIF. DM currencies represented by the Federal Reserve Major Currency index and EM currencies represented by the Federal Reserve Other Important Trading Partners index. OECD composite leading indicators are comprised of several high-frequency statistics on economic growth specific to each country’s economic structure and data availability. CLIs are designed to provide an advance indication of turning points in the business cycle. 100 represents the long-run average level of the index. Oil prices shown are Brent crude.


EM external factors

EM currencies

DM currencies

Oil ($/bbl)

Bloomberg Commodity IndexIndustrial Metals Index

U.S.

China

Eurozone

U.S. dollar performanceNominal trade-weighted exchange indices, weekly, Aug. 2011 = 100

Leading economic indicatorsOECD composite leading economic indicators

Commodity pricesFor indices: Aug. 2011 = 100; oil prices: USD/barrel

EM net flows by asset classUSD billions, monthly

Glob

al e

cono

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43

DebtEquities

Total


44

|

60

70

80

90

100

110

120

'07 '09 '11 '13 '15 '17

Source: J.P. Morgan Asset Management; (Left) J.P. Morgan Global Economic Research; (Right) IMF.*Fragile Five includes Brazil, India, Indonesia, South Africa and Turkey. 2017 is an IMF forecast.


Emerging market currencies and current accounts

EM FX versus U.S. dollarIndex level

-1 std. deviation: 76.9

+1 std. deviation: 104.4

Average: 90.6

EM currencies appreciating

EM currencies depreciating

EM current account balance for “Fragile Five”*Current accounts as a % of GDP, GDP weighted

External vulnerabilities increasing

External vulnerabilities decreasing

44

Glob

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Current: 68.7

2017: -2.0%


45

|

40

60

80

100

120

140

160

180

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

1.0x1.2x1.4x1.6x1.8x2.0x2.2x2.4x2.6x2.8x3.0x

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: FactSet, MSCI, J.P. Morgan Asset Management; (Left) Consensus Economics.“Growth differential” is consensus estimates for EM growth in the next 12 months minus consensus estimates for DM growth in the next 12 months, provided by Consensus Economics.


Emerging market equities

EM vs. DM growthMonthly, consensus expectations for GDP growth in 12 months*

EM earnings by regionEPS for next 12-month consensus, USD, rebased to 100

Latin America

EM AsiaEMEA

Average: 1.7x

Jun. 2017: 1.6x

EM price to book ratioLast 12 months actual

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45

DM growthEM growthGrowth differential

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16


46

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Cum. Ann.

Colombia Bra zil Arge ntina Argentina Ve ne zue la Ve ne zue la Arge ntina Arge ntina Arge ntina Vene zue la Mexic o Arge ntina Arge ntina

9 .1% 5 .8 % 13 2 .8 % 3 5 .4 % 18 .0 % 4 7 .0 % 19 .0 % 19 .1% 2 6 .6 % 5 3 .2 % 8 .0 % 13 1.3 % 8 .7 %

Bra zil Chile Ve nezue la Ve ne zue la Pe ru USD EMD

USD EMD

Pe ru Ve ne zue la Bra zil Bra zil Pe ru Pe ru

9 .1% 4 .5 % 6 2 .1% 16 .1% 17 .1% 17 .4 % - 5 .3 % 13 .3% 16 .9 % 2 0 .6 % 7 .1% 10 3 .8 % 7 .4 %

Pe ru Me xic o USD EMD

La tin Ame ric a

Colombia Pe ru Chile Me xico USD EMD

Arge ntina La tin Ame rica

Ve ne zue la Ve nezue la

7 .1% 0 .7 % 2 9 .8 % 13 .3 % 14 .6 % 17 .0 % - 6 .6 % 10 .9% 1.2 % 15 .4 % 7 .0 % 9 4 .8 % 6 .9 %

Me xic o Colombia La tin Ame ric a

USD EMD

Me xic o La tin Ame ric a

Me xic o Colombia La tin Ame ric a

La tin Ame ric a

Pe ru USD EMD

USD EMD

6 .9 % 0 .5 % 2 5 .8 % 12 .2 % 14 .3 % 16 .0 % - 7 .1% 10 .5% - 2 .0 % 13 .5 % 6 .8 % 9 4 .6 % 6 .9 %

Chile Pe ru Pe ru Pe ru Brazil Bra zil La tin Americ a

Chile Chile Colombia Colombia La tin Ame ric a

La tin Ame ric a

6 .4 % - 5 .1% 2 2 .2 % 11.6 % 13 .8 % 12 .5 % - 7 .7 % 10 .5% - 2 .8 % 13 .1% 6 .3 % 8 7 .0 % 6 .5 %

USD EMD

USD EMD

Chile Colombia La tin Ame rica

Colombia Colombia Bra zil Pe ru Chile USD EMD

Bra zil Bra zil

6 .2 % - 12 .0 % 13 .1% 11.4 % 12 .3 % 12 .3 % - 8 .8 % 8 .5 % - 3 .5 % 10 .5 % 6 .2 % 8 1.8% 6 .2 %

La tin Ame ric a

La tin Ame ric a

Me xic o Me xic o Chile Mexic o Peru La tin Ame ric a

Me xic o Pe ru Chile Chile Chile

4 .9 % - 13 .5 % 12 .3 % 10 .5 % 10 .7 % 11.7 % - 11.1% 8 .1% - 5 .5 % 10 .4 % 6 .1% 7 7 .4 % 5 .9 %

Arge ntina Ve ne zue la Bra zil Bra zil USD EMD Chile Bra zil USD

EMD Colombia USD EMD Arge ntina Me xic o Me xic o

- 11.1% - 3 9 .9 % 11.4 % 9 .7 % 7 .3% 8 .7 % - 11.2 % 7 .4 % - 7 .0 % 10 .2 % 5 .8 % 7 7 .2 % 5 .9 %

Ve ne zue la Arge ntina Colombia Chile Arge ntina Arge ntina Ve ne zue la Ve ne zue la Bra zil Me xic o Ve ne zue la Colombia Colombia

- 11.2% - 5 7 .9 % - 14 .3 % 5 .9 % - 12 .4% 8 .2 % - 12 .3 % - 2 8 .7 % - 13 .4 % 6 .9% 2 .5 % 4 3 .2 % 3 .7 %

2007-2016

Latin America fixed income: Returns

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.

All returns represent EMBI Global Diversified regional and country subindices, which are USD-denominated sovereign bond indices.All returns are unhedged and shown in USD. Past performance is not indicative of future returns.


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d in

com

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46


47

783

238 224 219 199166

432

282252

200

145 132

0

100

200

300

400

500

600

700

800

900

1,000

Argentina Brazil Mexico Colombia Peru Chile

Latin America fixed income: Valuations

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.

All returns represent EMBI Global Diversified regional and country subindices, which are USD-denominated sovereign bond indices.


EMD spreads by countryUSD-denominated sovereign debt, spread to worst

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10-yr. averageLatest

10-yr. range

47

2,000


48

|

0

100

200

300

400

500

600

700

800

900

1000

'10 '11 '12 '13 '14 '15 '16100

150

200

250

300

350

400

450

500

550

600

'10 '11 '12 '13 '14 '15 '16

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. EM sovereigns represent the Emerging Market Bond Index Global Diversified (EMBI Global Diversified) Index and subindices and EM corporates represent the Corporate Emerging Market Bond (CEMBI Broad Diversified) Index and subindices.


Emerging market debt

Regional EMD spreads: SovereignsUSD-denominated sovereign debt, basis points over Treasuries

Regional EMD spreads: CorporatesUSD-denominated corporate debt, basis points over Treasuries

Average LatestEM 332 309EM Asia 217 168EM Europe 312 236EM LATAM 378 371

48

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Average LatestEM 347 254EM Asia 284 179EM Europe 488 335EM LATAM 393 317


49

-1.9%

-4.7%

-8.4%

-17.6%

-0.1%

-4.2% -4.4%

-6.3%-7.5%

-6.6%-6.0%

-0.6%

-2.9%

-6.3%

-14.9%

1.8%1.1%

0.2%

-0.2%-1.2% -1.7%

-3.5%

-22%

-17%

-12%

-7%

-2%

3%

2-yearTreasury

5-yearTreasury

10-yearTreasury

30-yearTreasury

Floating rate Global highyield

USD EMDcorporates

USD LatinAmerica

aggregate

USD LatinAmerica

sovereigns

USD EMDsovereigns

U.S.aggregate

Source: Barclays, Bloomberg Finance L.P., FactSet, J.P. Morgan Asset Management.2 – 30 year Treasury, Global high yield, Floating rate (BBB), USD EMD corporates, USD Latin America aggregate, USD Latin America sovereigns USD EMD sovereigns and U.S. aggregate are based on Bloomberg Barclays US Treasury indices, Bloomberg Barclays Global High Yield, Bloomberg Barclays U.S. Floating Rate Notes (BBB), Bloomberg Barclays Emerging Markets USD Aggregate – Corporate, Bloomberg Barclays Emerging Markets USD Aggregate – Latin America, Bloomberg Barclays Emerging Markets USD Sovereigns – Latin America, Bloomberg Barclays Emerging Markets USD Aggregate – Sovereign and Bloomberg Barclays U.S. Aggregate, respectively. For illustrative purposes only. Change in bond price is calculated using both duration and convexity.


Global fixed income: Interest rate risk

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Impact of a 1% rise in interest ratesAssumes a parallel shift in the yield curve and spreads are maintained

Total returnPrice return

49


50

|

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16

2

160

172

174

248

399

471

473

474

587

611

841

-100 100 300 500 700 900

Korea

China

Chile

Malaysia

Peru

Colombia

India

Mexico

Indonesia

S. Africa

Russia

Brazil

Source: J.P. Morgan Asset Management; (Left) J.P. Morgan Global Economic Research; (Right) Bloomberg Finance L.P.EM local currency debt is represented by GBI-EM index and regional subindices.


Attractiveness of Latin American local rates

Global – U.S. Treasuries 5-year spreadBasis points, local currency debt, as of Jun. 2017

Regional EMD yieldsLocal currency sovereign debt

Average LatestEM 6.8% 6.9%EM Asia 3.8% 4.0%EM Europe 6.2% 4.7%EM LATAM 7.7% 8.1%

50

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51

|

3%

4%

5%

6%

7%

8%

9%

10%

'11 '12 '13 '14 '15 '16 '17-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

'11 '12 '13 '14 '15 '16 '17

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management; (Right) IBGE (Brazilian Statistics and Geography Institute), INE (National Statistics Institute of Chile), DANE (National Administration of Statistics of Colombia), Central Bank of Mexico, INEI (National Statistics Institute of Peru).*Latin America index excludes Argentina, Ecuador and Venezuela.


Inflation and monetary policy

Headline inflationYear-over-year % change, Latin America* and EM Asia aggregates

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Latin America inflation vs. targetsLast 12 months’ CPI – central bank mid-point target

51

EM AsiaLatin America

Brazil

ColombiaPeru

Mexico

Chile

Policy ratesPercent per annum, nsa, Latin America* and EM Asia aggregates

EM AsiaLatin America

0%1%2%3%4%5%6%7%8%9%

10%

'01 '03 '05 '07 '09 '11 '13 '15 '17


52

'10 '11 '12 '13 '14 '15 '16 '170

100

200

300

400

500

600

700

Global default protection prices

Source: Credit Market Analysis, FactSet, J.P. Morgan Asset Management.


Credit default swap spreads Yield, basis points, 5-yr. senior corporate credit, USD

52

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LatestBrazil 238Russia 168Colombia 135Mexico 112Peru 86Chile 66


53

|

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

'11 '12 '13 '14 '15 '16 '174%

5%

6%

7%

8%

9%

10%

11%

'11 '12 '13 '14 '15 '16 '17

Source: J.P. Morgan Asset Management; (Left) Barclays Capital, Tullett Prebon, FactSet; (Right) Barclays Capital, FactSet, J.P. Morgan Global Economic Research. U.S. investment-grade yields: Barclays U.S. Corporates – Investment Grade Index yield to worst. Treasury yields are yield to maturity. U.S. high yield yields: Barclays U.S. Corporates - High Yield index yield to worst. EM sovereigns: J.P. Morgan EMBIG yield to maturity. EM Corporates: J.P. Morgan CEMBI yield to maturity.


Global interest rate movements

U.S. ratesYield

10-year Treasury

Investment gradeJun. 2017:

3.19%

Jun. 2017: 2.31%

U.S. high yield and emerging market debtYield

LatestU.S. high yield 5.62%

EM corporates (USD) 5.09%

EM sovereigns (USD) 5.37%

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2-year Treasury

Jun. 2017: 1.38%


54

|

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

'08 '09 '10 '11 '12 '13 '14 '15 '16

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. (Left) Federal Reserve.Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder. High yield is represented by the J.P. Morgan Domestic High Yield Index. Investment grade is represented by the J.P. Morgan U.S. Liquid Index.


U.S. high yield bonds

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Fed funds and default rate% rate

Historical high yield and high grade net leverageNet debt/EBITDA

Spread to worstHigh yield spreads

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0%

2%

4%

6%

8%

10%

12%

'87 '91 '95 '99 '03 '07 '11 '15

Default ratesFed funds

30-yr. avg. Latest

Fed funds rate 3.4% 1.3%

Default rate 3.9% 1.3%

0%

4%

8%

12%

16%

20%

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Average: 5.8%

Jun. 2017: 4.4%

High yield

Investment grade


55

MSCI Latin America Index at inflection points

Source: MSCI, FactSet, J.P. Morgan Asset Management.Index levels are in local currency. Dividend yield is calculated as consensus estimates of dividends for the next 12 months divided by price as provided by FactSet. Forward price to earnings is a bottom-up calculation based on the most recent MSCI Latin America price, divided by consensus estimates earnings in the next 12 months (NTM), and is provided by FactSet market aggregates. Returns are cumulative and based on price movement only, in local currency, and do not include the reinvestment of dividends. Past performance is not indicative of future returns. Guide to the Markets – Latin America. Data are as of June 30, 2017.

MSCI Latin America price index

May 28, 2008P/E (fwd.) = 13.5x

8,469,116

Oct. 27, 2008P/E (fwd.) = 7.2x

3,669,031

Nov. 8, 2010P/E (fwd.) = 12.4x

8,098,266Jun. 30, 2017

P/E (fwd.) = 13.4x7,611,042

+411% -57% +121%

-32%

Dec. 29, 2000P/E (fwd.) = 12.0x

1,657,431

Characteristic May 2008 Nov. 2010 Jun. 2017Index level 8,469,116 8,098,266 7,611,042P/E ratio (fwd.) 13.5x 12.4x 13.4xDividend yield 2.5% 2.8% 3.1%

Equi

ties

55

+39%

Jan. 26, 2016P/E (fwd.) = 12.2x

5,474,927


56

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Ann. Vol.

Pe ru Colombia Bra zil Argentina Colombia Colombia Arge ntina Arge ntina Arge ntina Bra zil Argentina Pe ru Arge ntina

9 4 .7 % - 25 .1% 12 8 .6% 7 7 .4 % - 5 .0 % 3 5 .9% 66 .2% 19 .2% - 0 .4% 6 6 .7 % 4 1.6 % 9 .1% 42 .1%

Bra zil Chile La tin Ame rica Pe ru Mexic o Mexic o EM Asia Peru EM Asia Pe ru Me xic o EM Asia Pe ru

8 0 .0 % - 3 5 .4% 10 4 .2% 5 3 .3 % - 12 .1% 29 .1% 2 .3 % 10 .5% - 9 .5% 5 5 .6 % 2 4 .5 % 3 .8% 3 0 .9 %

La tin Ame ric a Pe ru Chile Chile EM Asia EM Asia Mexico EM Asia Me xic o La tin

Ame ric a EM Asia Colombia Chile

5 0 .7 % - 40 .1% 8 6 .7 % 4 4 .8 % - 17 .2 % 21.2 % 0 .2 % 5 .3 % - 14 .2 % 3 1.5 % 2 3 .3 % 3 .2% 2 5 .6 %

EM Asia Me xic o Colombia Colombia EM Equity Pe ru EM Equity EM Equity EM Equity Colombia EM Equity Chile EM Equity

4 1.6 % - 4 2 .9% 8 4 .3 % 4 3 .4 % - 18 .2 % 2 0 .2% - 2 .3 % - 1.8 % - 14 .6 % 2 6 .5 % 18 .6 % 2 .3% 2 4 .5 %

EM Equity La tin Ame rica EM Equity Me xic o La tin

Ame ric a EM Equity La tin Americ a Me xico Chile Chile Chile EM Equity Bra zil

3 9 .8 % - 51.3 % 7 9 .0 % 2 7 .6 % - 19 .1% 18 .6 % - 13 .2 % - 9 .2% - 16 .8 % 16 .8 % 14 .4 % 2 .2% 2 2 .4 %

Chile EM Asia EM Asia EM Asia Chile La tin Ame ric a Bra zil La tin

Ame ric aLa tin

Ame ric a EM Equity Pe ru Brazil EM Asia

2 3 .7 % - 5 2 .8% 7 4 .2 % 19 .4 % - 2 0 .0 % 8 .9 % - 15 .8 % - 12 .0 % - 3 0 .8 % 11.6% 13 .1% 0 .8% 19 .6 %

Colombia EM Equity Pe ru EM Equity Pe ru Chile Colombia Chile Pe ru EM Asia La tin Ame rica

La tin Ame ric a

La tin Ame ric a

15 .0 % - 5 3 .2% 7 2 .1% 19 .2 % - 2 1.4 % 8 .3 % - 2 1.1% - 12 .2 % - 3 1.7 % 6 .5 % 10 .3 % 0 .5% 19 .0 %

Me xic o Argentina Argentina La tin Ame rica

Bra zil Bra zil Chile Bra zil Bra zil Arge ntina Colombia Me xic o Colombia

12 .2 % - 5 4 .4% 6 4 .0 % 14 .9 % - 2 1.6 % 0 .3 % - 2 1.4 % - 13 .7 % - 4 1.2 % 5 .1% 8 .3 % 0 .3% 19 .0 %

Arge ntina Bra zil Me xic o Brazil Arge ntina Arge ntina Peru Colombia Colombia Me xic o Bra zil Arge ntina Mexic o

- 4 .0 % - 56 .1% 5 6 .6 % 6 .8% - 3 8 .9 % - 3 7 .1% - 2 9 .8 % - 19 .8 % - 4 1.8 % - 9 .0 % 3 .1% 0 .1% 17 .0 %

2007 - 2016

Latin America equity returns

Source: MSCI, FactSet, J.P. Morgan Asset Management.

All returns are total return, unhedged and shown in USD. Past performance is not indicative of future returns.


56

Equi

ties


57

|

54%

30%

9%4% 3%

0%

10%

20%

30%

40%

50%

60%

Brazil Mexico Chile Colombia Peru

$2.59

$0.75

$0.05 $0.02 $0.03$0.0

$0.4

$0.8

$1.2

$1.6

$2.0

$2.4

$2.8

Brazil Mexico Colombia Argentina Peru

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

'03 '05 '07 '09 '11 '13 '15 '17

Source: J.P. Morgan Asset Management; (Left and top right) Bloomberg Finance L.P.; (Bottom right) MSCI, FactSet.*Local equities only (excludes ADRs). Values may not sum to 100% due to rounding.


Latin America equity market liquidity

Equi

ties

Latin America historical daily trading volume*Six-month average, USD billions

Latin America current daily trading volume*Six-month average, USD billions

Country weightsWeights in MSCI Latin America index

MexicoBrazil

57


58

|

MSCI Latin America: Valuation measures Historical averages

Valuation measure DescriptionLatest 1 year

ago3-year avg.

5-year avg.

10-year avg.

15-year avg.

P/E Price-to-earnings 13.4 14.1 13.8 13.2 12.2 11.4

P/B Price-to-book 1.8 1.5 1.6 1.6 1.8 1.9

P/CF Price-to-cash flow 7.5 7.3 7.4 7.4 7.3 6.7

P/S Price-to-sales 1.3 1.2 1.2 1.3 1.4 1.4

Div. yield Dividend yield 3.1% 2.8% 3.1% 3.1% 3.1% 3.3%

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '167.0x

9.0x

11.0x

13.0x

15.0x

17.0x

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Source: MSCI, FactSet, J.P. Morgan Asset Management.Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to book is price divided by book value per share. Price to cash flow is price divided by consensus analyst estimates of cash flow per share for the next 12 months. Price to sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. Dividend yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. Consensus analyst estimates are provided by FactSet.


Valuation measures

Equi

ties

MSCI Latin America price-to-book ratio MSCI Latin America price-to-earnings ratio

Average: 1.9x

Jun. 2017: 1.8x

Jun. 2017: 13.4x

Average: 11.4x

+1 std. dev.: 13.3x

-1 std. dev.: 9.5x

58


59

|

19%20% 19% 19%

15%

9%

0%

5%

10%

15%

20%

25%

MSCI LatinAmerica

Mexico Brazil Peru Colombia Chile

0%

5%

10%

15%

20%

25%

30%

35%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16

-60%

-40%

-20%

0%

20%

40%

60%

80%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Local forward

Source: MSCI, J.P. Morgan Asset Management; (Left and bottom right) FactSet; (Top right) Bloomberg Finance L.P.*Earnings are implied earnings derived from dividing the local and USD index levels by forward PEs.


Corporate profits

MSCI Latin America forward earnings* growthNext 12 months’, year-over-year growth, 3-month moving avg.

59

Equi

ties

MSCI Latin America profit margin and return on equityTrailing 12 months’ profit margin, blended 12-month forward ROE

Jun. 2017: 21%

Jun. 2017: 23%

USD forwardROEProfit margin

MSCI Latin America earnings growth by countryForward consensus estimates, next 12 months’, local currency


60

|

13.4x12.7x

17.4x

16.8x

12.9x12.4x

11.6x

5x

7x

9x

11x

13x

15x

17x

19x

21x

23x

LatinAmerica

EM Asia Mexico Chile Colombia Peru Brazil 50

75

100

125

150

175

200

225

250

275

'08 '09 '10 '11 '12 '13 '14 '15 '16

Source: MSCI, FactSet, J.P. Morgan Asset Management.


Latin America valuations and earnings

Equi

ties

Latin America valuationsPrice to earnings ratio, NTMA

10-yr. averageLatest

10-yr. rangeColombia

Peru

Mexico

Chile

Brazil

EPS, local currency, NTMA, Dec. 2008 = 100

60

Latin America earnings

EM Asia


61

|

19%

50%31% 24% 22% 20% 17% 8% 8% 3%

-10%-20%0%

20%40%60%80%

100%

MSC

I Lat

inAm

eric

a

Ener

gy

Tele

com

Indu

stria

ls

Stap

les

Rea

l Est

ate

Dis

cret

iona

ry

Hea

lth C

are

Fina

ncia

ls

Mat

eria

ls

Info

Tec

h

Util

ities

MSCI Lati

n Ameri

caFinan

cials

Consum

er Stap

lesMate

rials

Energy

Industri

als

Teleco

m

Utilitie

s

Consum

er Disc

r.Rea

l Esta

te

IT

Health

Care

Index% weight

100.0% 29.9% 17.6% 15.1% 7.6% 6.7% 6.5% 6.3% 6.0% 1.7% 1.6% 1.0%

Wei

ght

Div. yield est.

Market consensus

P/E est.

Market consensus

21.6x 16.5x 14.9x 17.9x P/E

Div

.

13.4x 10.5x 21.5x 12.3x 10.9x 17.5x 17.8x 11.4x

2.7% 4.3% 1.5% 4.1% 2.4% 2.7%3.1% 3.9% 2.9% 2.3% 3.2% 2.3%

7%

20%16% 13% 12% 10% 8% 7% 7% 6% 6%

-10%-20%

-10%

0%

10%

20%

30%

MSC

I Lat

inAm

eric

a

Hea

lth C

are

Indu

stria

ls

Rea

l Est

ate

Tele

com

Fina

ncia

ls

Stap

les

Info

Tec

h

Mat

eria

ls

Util

ities

Dis

cret

iona

ry

Ener

gy

Source: MSCI, FactSet, J.P. Morgan Asset Management.Returns shown are total returns in local currency. Individual companies grouped into sectors using GICS (Global Industry Classification Standard). Average returns for sectors are weighted by market capitalization. Historical data can change as new information becomes available. Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Dividend yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates are provided by FactSet.


Latin America by sector

Equi

ties

Latin America sector returns – YTD

61

150% 133%

Latin America sector earnings growthForward consensus estimates, next 12 months’, local currency


62

21 1926

-11-15

-25

23 9 14 143

-40

23 8

-8

13

26

80

7 7

-10

-24

-10 -16

-31 -34

-15-7 -6

-11 -10

-48

-25-15

-21-12 -8

-8-14 -13

-4

-60%

-30%

0%

30%

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

35

-31

77

-151

-1

55

28 33 34 32

-40

58

7

-13

9-7

-4 -11

216

-26

-51

-17 -24 -23 -25-9 -17 -16 -23 -16

-57

-15 -15-27

-13 -18 -20 -19 -10 -7

-100%

-60%

-20%

20%

60%

100%

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

Annual returns and intra-year declines

Source: MSCI, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns are calendar year returns from 1997 to 2016, except for 2017, which is year-to-date. 2015 return for MSCI The World was 0.2%.


MSCI Latin America intra-year declines vs. calendar year returnsLocal currency, average intra-year drops of 22.0% (median -18.4%) and annual returns positive in 12 of 20 years

MSCI The World intra-year declines vs. calendar year returnsLocal currency, average intra-year drops of 16.9% (median -13.1%) and annual returns positive in 15 of 20 years

62

Equi

ties


63

|

-3 -2 -1 0 1 2 3 4 5

BloombergCommodity

Index

Agriculture

Crude oil

Industrial metals

Livestock

Natural gas

Silver

Gold

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-6%

-4%

-2%

0%

2%

4%

6%

8%

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

Source: Bloomberg Finance L.P., FactSet, J.P. Morgan Asset Management; (Left) J.P. Morgan Global Economic Research; (Right) CME.Commodity prices are represented by the appropriate Bloomberg Commodity subindex. Other commodity prices are represented by futures contracts. Z-scores are calculated using daily prices over the past 10 years. *Latin America and developed market (DM) aggregates are produced by J.P. Morgan Global Economic Research.


Commodities

Commodity prices Commodity price z-scores

Oth

eras

set c

lass

es

63

Commodity prices and Latin America economic growthLatin America – DM GDP growth*, quarterly, % year-over-year change

Low level

$26.2

$650.8

$8.8

$47.7

$84.2

$1.6

$23.0

$72.9

Current

$46.0

$51.9

$16.6

$1242.3

$114.5

$32.1

$3.1

$82.6

High level

$145.3

$101.8

$48.6

$1891.9

$250.5

$13.6

$71.3

$238.0Commodity pricesLatin America – DM GDP

Example


64

|

Source: J.P. Morgan Asset Management; (Top left) EIA; (Bottom left) EIA, Baker Hughes; (Right) Commodity Research Bureau, FactSet.*Forecasts are from the June 2017 EIA Short-Term Energy Outlook and start in 2017. **U.S. crude oil inventories include the Strategic Petroleum Reserve (SPR). Active rig count includes both natural gas and oil rigs. Brent crude prices are monthly averages in USD using global spot ICE prices.


Oil markets

U.S. crude oil inventories and rig count**Million barrels, number of active rigs

Change in production and consumption of oilProduction, consumption and inventories, millions of barrels per day

Price of oilBrent crude, nominal prices, USD/barrel

Inventories (incl. SPR) Active rigs

64

Oth

eras

set c

lass

es

2014 2015 2016 2017* 2018* Growth since 2014Production

U.S. 14.1 15.1 14.8 15.6 16.7 18.1%OPEC 36.6 38.0 39.0 39.2 39.9 8.8%Global 93.8 96.7 97.2 98.3 100.2 6.8%

ConsumptionU.S. 19.1 19.5 19.6 20.0 20.3 6.0%China 11.5 12.0 12.4 12.8 13.1 14.2%Global 93.6 95.4 96.9 98.5 100.1 6.9%

Inventory Change 0.2 1.3 0.3 -0.2 0.1

Jun. 2017: $46.52

Jul. 2008: $135.73

Dec. 2008: $43.09

Jun. 2014: $111.93

Jan. 2016: $30.98


65

|

0

30

60

90

120

150

180

210

240$0.9

$1.0

$1.1

$1.2

$1.3

$1.4Jan '14 Jul '14 Jan '15 Jul '15 Jan '16 Jul '16 Jan '17

70

80

90

100

110

120

130

140

60

65

70

75

80

85

90

95

Jan '14 Jul '14 Jan '15 Jul '15 Jan '16 Jul '16 Jan '170.6 0.8 1.0 1.2 1.4 1.6 1.8

Argentina

Colombia

Turkey

Japan

Brazil

Russia

Mexico

UK

Euro Area

Chile

India

Peru

Korea

China

U.S.

Source: J.P. Morgan Asset Management; (Left and bottom right) J.P. Morgan Global Economic Research; (Top right) FactSet, Tullett Prebon; (Bottom right) Bloomberg Finance L.P.*Real effective exchange rates (REERs) compare the value of a currency to a weighted basket of several foreign currencies. They are deflated using a producer price index. EM currencies is the J.P. Morgan Emerging Market Currencies Index. Commodity prices is the Bloomberg Commodity Price Index.


Oth

eras

set c

lass

es

Expensive relative to averageCheap relative to average

Real effective exchange rates*FX adjusted for relative inflation changes vs. 10-year average

Graph Key

Current10-year range

2-year Treasury/Bund spread

USD/euro

Commodity prices

EM currencies vs. USD

Emerging marketsCommodity prices and FX

Developed marketsShort rates (bps) and FX

Global currencies 65


66

6.3% 6.1% 5.9%5.1%

4.2% 4.0% 3.9% 3.6%3.1%

2.7% 2.6% 2.3% 2.1%

0%

2%

4%

6%

8%

Maritime MLPs Preferreds Infrastructureassets

GlobalREITs

U.S. REITs Privatereal estate

Convertibles LatinAmericaequity

EMequity

DMequity

U.S.10-year

U.S.equity

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

'95 '99 '03 '07 '11 '15

Global yield alternatives

Source: FactSet, MSCI, J.P. Morgan Asset Management; (Bottom) Alerian, BAML, Barclays, Clarkson, Drewry Maritime Consultants, Federal Reserve, FTSE, NCREIF, Standard & Poor’s. Yields are as of 6/30/17, except maritime which is as of 12/31/16. Maritime: Unlevered yields for maritime assets are calculated as the difference between charter rates (rental income) and operating expenses as a percentage of current asset value. Yields for each of the sub-vessel types above are calculated and the respective weightings are applied to calculate sub-sector specific yields, and then weighted to arrive at the current indicative yield for the World Maritime Fleet; MLPs: Alerian MLP; Preferreds: BAML Hybrid Preferred Securities; Private real estate: NCREIF ODCE; Global/U.S. REITs: FTSE NAREIT Global/USA REITs; Infrastructure Assets: MSCI Global Infrastructure Asset Index; Convertibles: Barclays U.S. Convertibles Composite; Latin America equity: MSCI EM Latin America; EM equity: MSCI Emerging Markets; DM equity: MSCI The World Index; U.S. equity: MSCI USA.Guide to the Markets – Latin America. Data are as of June 30, 2017.

The power of compoundingMSCI Latin America price return vs. total return, growth of 10,000, local currency returns, quarterly

Asset class yields

With dividends reinvested

Price return only

Jun. 2017: 163,173

Jun. 2017: 81,461

Oth

eras

set c

lass

es

66


67

|

70%

26%33%

72%

35%

22%

38%

70%

55%

35%

33%

30%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Bra

zil

Mex

ico

Chi

le

Arg

entin

a

U.S

.

UK

Ger

man

y

Italy

Fran

ce

Japa

n

89%

76%

58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

75-79 80-84 85-89

Source: J.P. Morgan Asset Management; (Left) WHO Global Health Observatory data, life expectancy tables (2013); (Right) OECD Pensions at a Glance 2015.Life expectancy rates are based on Brazilian life expectancy tables. Mandatory and government pension replacement rate is the total public pension or forced savings in defined contribution plans; Voluntary savings is defined contribution savings by employers and employees; Gap is the savings shortfall assuming a desired pre-retirement income replacement rate of 80%. Pre-retirement income is calculated for the average earning worker who is assumed to have worked a full career, defined as entering the labor market at age 20 and working until the normal pension age within each country.Guide to the Markets – Latin America. Data are as of June 30, 2017.

Life expectancy and pension shortfall

Men

Women

Couple – at least onelives to specified age

Probability of reaching certain ages Persons aged 65-69, by gender, and combined couple

Mandatory and voluntary savings by country

Gap

Voluntary savings

Inve

stin

gpr

inci

ples

67

Mandatory & government pension replacement rate

Contribution to pre-retirement income replacement goal of 80%


68

|

30%

18%

15%

8%7% 6% 6% 6%

2% 2% 1%

18%

10%

5%6%

12%

3% 3%

12%

3%

16%

13%

0%

5%

10%

15%

20%

25%

30%

35%

Source: MSCI, J.P. Morgan Asset Management; (Left) BIS, IMF, Cerulli Associates. Latin American figures include Brazil, Chile, Colombia, Mexico and Peru. Share of global GDP is based on purchasing power parity (PPP) as calculated by the IMF for 2016 and is an estimate. Share of global market capitalization is based on float-adjusted MSCI data in U.S. dollar terms. Share of global bond market is based on BIS individual country total debt outstanding in U.S. dollar terms and is as of 4Q 2016. *Average investor allocation is an AUM weighted average of mutual fund international exposure in each country found in Cerulli Associate’s 2014 report “Latin American Distribution Dynamics 2014: Entry Points to Emergent Economies.” Percentages may not sum to 100% due to rounding.


Local investing and global opportunities

Inve

stin

gpr

inci

ples

Sector exposure% of MSCI The World Index and MSCI Latin America

Latin America Developed markets

Investment universe & Latin American investorsPercentage of total net assets

Latin America Global

68

5.8% 3.3%1.5%

97.5%94.2% 96.7% 98.5%

2.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

GDP Bond market Equity market Average LatinAmerican investor

allocation*


69

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Cum. Ann.LATAM e quity

LCL LATAM

sov.

LATAM e quity

EM Asia e quity

US D LATAM

sov.

EM Asia e quity DM e quity

US D LATAM

sov.

US D EMD sov.

LATAM e quity

EM Asia e quity

Globa l high yie ld

Globa l high yie ld

5 0 .7 % - 10 .6 % 10 4 .2 % 19 .4 % 12 .3 % 2 1.2 % 2 7 .4 % 8 .1% 1.2 % 3 1.5 % 2 3 .3 % 10 3 .2 % 7 .3 %

EM Asia e quity Globa l IG

EM Asia e quity

LCL LATAM

sov.

US D EMD sov.

Globa l high yie ld

Globa l high yie ld

US D EMD sov. DM e quity

LCL LATAM

sov.

LCL LATAM

sov.

US D EMD sov.

US D EMD sov.

4 1.6 % - 11.2 % 7 4 .2 % 18 .7 % 7 .3 % 19 .6 % 7 .3 % 7 .4 % - 0 .3 % 17 .1% 11.5 % 9 4 .6 % 6 .9 %

LCL LATAM

sov.

USD EMD sov.

Globa l high yie ld

Asse t a lloc . Globa l IG

US D EMD sov.

EM Asia e quity DM e quity

US D LATAM

sov.

Asse t a lloc . DM e quity

US D LATAM

sov.

US D LATAM

sov.17 .4 % - 12 .0 % 5 9 .4 % 15 .6 % 4 .0 % 17 .4 % 2 .3 % 5 .5 % - 2 .0 % 15 .7 % 11.0 % 8 7 .0 % 6 .5 %

Asse t a lloc .

US D LATAM

sov.

Asse t a lloc .

LATAM e quity

Globa l high yie ld

LCL LATAM

sov.Globa l IG

EM Asia e quity

Globa l high yie ld

Globa l high yie ld

LATAM e quity

Asse t a lloc .

Asse t a lloc .

16 .5 % - 13 .5 % 4 3 .2 % 14 .9 % 3 .1% 17 .3 % 1.8 % 5 .3 % - 2 .7 % 14 .3 % 10 .3 % 6 5 .1% 5 .1%

DM e quityAsse t a lloc .

LCL LATAM

sov.

Globa l high yie ld

LCL LATAM

sov.DM e quity

Asse t a lloc . Globa l IG Globa l IG

US D LATAM

sov.

Asse t a lloc .

LCL LATAM

sov.

LCL LATAM

sov.9 .6 % - 2 0 .6 % 3 4 .3 % 14 .8 % 1.6 % 16 .5 % - 4 .1% 2 .5 % - 3 .8 % 13 .5 % 10 .0 % 6 0 .9 % 4 .9 %

USD EMD sov.

Globa l high yie ld DM e quity

US D LATAM

sov.

Asse t a lloc .

Asse t a lloc .

US D EMD sov.

Globa l high yie ld

EM Asia e quity

US D EMD sov.

USD LATAM

sov.Globa l IG Globa l IG

6 .2 % - 2 6 .9 % 3 0 .8 % 13 .3 % 1.0 % 16 .4 % - 5 .3 % 0 .0 % - 9 .5 % 10 .2 % 7 .0 % 5 5 .4 % 4 .5 %

Globa l IG DM e quityUSD EMD

sov. DM e quity DM e quityUS D

LATAM sov.

US D LATAM

sov.

Asse t a lloc .

Asse t a lloc . DM e quity

Globa l high yie ld DM e quity DM e quity

6 .1% - 4 0 .3 % 2 9 .8 % 12 .3 % - 5 .0 % 16 .0 % - 7 .7 % - 0 .2 % - 13 .0 % 8 .2 % 6 .5 % 5 4 .0 % 4 .4 %

US D LATAM

sov.

LATAM e quity

US D LATAM

sov.

USD EMD sov.

EM Asia e quity Globa l IG

LCL LATAM

sov.

LCL LATAM

sov.

LCL LATAM

sov.

EM Asia e quity

US D EMD sov.

EM Asia e quity

EM Asia e quity

4 .9 % - 5 1.3 % 2 5 .8 % 12 .2 % - 17 .2 % 12 .5 % - 8 .2 % - 4 .2 % - 2 1.7 % 6 .5 % 6 .2 % 4 5 .0 % 3 .8 %

Globa l high yie ld

EM Asia e quity Globa l IG Globa l IG

LATAM e quity

LATAM e quity

LATAM e quity

LATAM e quity

LATAM e quity Globa l IG Globa l IG

LATAM e quity

LATAM e quity

3 .2 % - 5 2 .8 % 2 3 .7 % 7 .0 % - 19 .1% 8 .9 % - 13 .2 % - 12 .0 % - 3 0 .8 % 6 .0 % 5 .4 % 5 .4 % 0 .5 %

2007-2016

Asset class returns

Source: MSCI, Bloomberg/Barclays, J.P. Morgan Global Economic Research, FactSet, J.P. Morgan Asset Management.LATAM equity, EM Asia equity, DM equity, Global high yield, Global IG (investment grade), LCL LATAM sov. (sovereigns), USD LATAM sov. and USD EMD sov. are MSCI Latin America, MSCI EM Asia, MSCI The World, Bloomberg Barclays Global High Yield, Bloomberg Barclays Global Credit - Corporate, GBI-EM Global Diversified Latin Region subindex (US$), EMBIG Diversified Latin Region subindex and EMBIG Diversified index, respectively. The “Asset Allocation” portfolio assumes the following weights: 10% in LATAM equity, 5% in EM Asia equity, 5% in DM equity, 10% in global high yield, 5% in global investment grade, 40% in LCL LATAM sovereigns, 20% in USD LATAM sovereigns and 5% in USD EMD sovereigns. All asset class returns are unhedged and shown in USD. Past performance is not indicative of future returns.


Inve

stin

gpr

inci

ples

69


70

0

5,000

10,000

15,000

20,000

25,000

Fully invested Missed 10 best days Missed 20 best days Missed 30 best days Missed 40 best days Missed 50 best days Missed 60 best days

0

20,000

40,000

60,000

80,000

Fully invested Missed 10 best days Missed 20 best days Missed 30 best days Missed 40 best days Missed 50 best days Missed 60 best days

Market timing

Source: FactSet, MSCI, J.P. Morgan Asset Management.Returns are in respective local currencies. This chart is for illustrative purposes only and does not represent the performance of any investment or group of investments. Past performance is not indicative of future returns. An individual cannot invest directly in an index.


Returns of MSCI The WorldPerformance of 10,000 between January 2, 1997 and December 30, 2016, annualized returns

22,107(4.05% return)

12,744(1.22% return)

8,879(-0.59% return) 6,534

(-2.11% return) 4,937(-3.47% return) 3,798

(-4.72% return)2,965

(-5.90% return)

Five of the 10 best days occurred within two weeks of the 10 worst days

Returns of MSCI Latin AmericaPerformance of 10,000 between January 2, 1997 and December 30, 2016, annualized returns

Inve

stin

gpr

inci

ples

61,269(9.49% return)

24,736(4.63% return) 14,386

(1.84% return) 8,885(-0.59% return) 5,863

(-2.63% return)3,990

(-4.49% return)2,777

(-6.20% return)

Six of the 10 best days occurred within two weeks of the 10 worst days

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71

|

$-

$100

$200

$300

$400

$500

$600

$700

'10 '11 '12 '13 '14 '15 '16 '17$0

$300

$600

$900

$1,200

$1,500

$1,800

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: J.P. Morgan Asset Management; (Left) Strategic Insight Simfund; (Right) IIF.


Fund flows

Cumulative flows into Latin American assetsNet portfolio flows, non-resident, monthly, USD billions

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Cumulative flows into U.S. assetsMutual fund and ETF flows, quarterly, USD billions

Stocks: $1,114bn in cumulative flows since 2007

Bonds: $1,760bn in cumulative flows since 2007

Multi-asset: $601bn in cumulative flows since 2007In

vest

ing

prin

cipl

es

Stocks: $125bn in cumulative flows since 2010

Bonds: $582bn in cumulative flows since 2010


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J.P. Morgan Asset Management – Index definitionsAll indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses.Equities:The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip U.S. stocks.The MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.The MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe.The MSCI Pacific Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region.The Russell 1000 Index® measures the performance of the 1,000 largest companies in the Russell 3000. The Russell 1000 Growth Index® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index® measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.The Russell 2000 Index® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.The Russell 2000 Growth Index® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Value Index® measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000 Index® measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell Midcap Index® measures the performance of the 800 smallest companies in the Russell 1000 Index.The Russell Midcap Growth Index ® measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The Russell Midcap Value Index ® measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index.The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The S&P 500 Index focuses on the large-cap segment of the market; however, since it includes a significant portion of the total value of the market, it also represents the market.

Fixed income:The Barclays 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon US Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible.The Barclays Global High Yield Index is a multi-currency flagship measure of the global high yield debt market. The index represents the union of the US High Yield, the Pan-European High Yield, and Emerging Markets (EM) Hard Currency High Yield Indices. The high yield and emerging markets sub-components are mutually exclusive. Until January 1, 2011, the index also included CMBS high yield securities. The Barclays Municipal Index: consists of a broad selection of investment- grade general obligation and revenue bonds of maturities ranging from one year to 30 years. It is an unmanaged index representative of the tax-exempt bond market.The Barclays US Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate note market.The Barclays US Corporate Investment Grade Index is an unmanaged index consisting of publicly issued US Corporate and specified foreign debentures and secured notes that are rated investment grade (Baa3/BBB or higher) by at least two ratings agencies, have at least one year to final maturity and have at least $250 million par amount outstanding. To qualify, bonds must be SEC-registered.The Barclays US High Yield Index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included.The Barclays US Mortgage Backed Securities Index is an unmanaged index that measures the performance of investment grade fixed-rate mortgage backed pass-through securities of GNMA, FNMA and FHLMC.The Barclays US TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury.The J.P. Morgan Emerging Market Bond Global Index (EMBI) includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities.The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market. The J.P. Morgan Corporate Emerging Markets Bond Index Broad Diversified (CEMBI Broad Diversified)is an expansion of the J.P. Morgan Corporate Emerging Markets Bond Index (CEMBI). The CEMBI is a market capitalization weighted index consisting of U.S. dollar denominated emerging market corporate bonds. The J.P. Morgan Emerging Markets Bond Index Global Diversified (EMBI Global Diversified) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds. The index limits the exposure of some of the larger countries.The J.P. Morgan GBI EM Global Diversified tracks the performance of local currency debt issued by emerging market governments, whose debt is accessible by most of the international investor base.The U.S. Treasury Index is a component of the U.S. Government index.

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J.P. Morgan Asset Management – DefinitionsOther asset classes:The Alerian MLP Index is a composite of the 50 most prominent energy Master Limited Partnerships (MLPs) that provides investors with an unbiased, comprehensive benchmark for the asset class.The Bloomberg Commodity Index and related sub-indices are composed of futures contracts on physical commodities and represents twenty two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zincThe Cambridge Associates U.S. Global Buyout and Growth Index® is based on data compiled from 1,768 global (U.S. & ex – U.S.) buyout and growth equity funds, including fully liquidated partnerships, formed between 1986 and 2013.The CS/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index, LLC. It is an asset-weighted hedge fund index and includes only funds, as opposed to separate accounts. The Index uses the Credit Suisse/Tremont database, which tracks over 4500 funds, and consists only of funds with a minimum of US$50 million under management, a 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC.The HFRI Monthly Indices (HFRI) are equally weighted performance indexes, utilized by numerous hedge fund managers as a benchmark for their own hedge funds. The HFRI are broken down into 4 main strategies, each with multiple sub strategies. All single-manager HFRI Index constituents are included in the HFRI Fund Weighted Composite, which accounts for over 2200 funds listed on the internal HFR Database.The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance, and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.The NFI-ODCE, short for NCREIF Fund Index - Open End Diversified Core Equity, is an index of investment returns reporting on both a historical and current basis the results of 33 open-end commingled funds pursuing a core investment strategy, some of which have performance histories dating back to the 1970s. The NFI-ODCE Index is capitalization-weighted and is reported gross of fees. Measurement is time-weighted.Definitions:Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments involve greater risks than traditional investments and should not be deemed a complete investment program. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain. The value of the investment may fall as well as rise and investors may get back less than they invested.Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise.Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns. Distressed Restructuring Strategies employ an investment process focused on corporate fixed income instruments, primarily on corporate credit instruments of companies trading at significant discounts to their value at issuance or obliged (par value) at maturity as a result of either formal bankruptcy proceeding or financial market perception of near term proceedings.

Investments in emerging markets can be more volatile. The normal risks of investing in foreign countries are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property.The price of equity securities may rise, or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. Equity securities are subject to “stock market risk” meaning that stock prices in general may decline over short or extended periods of time.Equity market neutral strategies employ sophisticated quantitative techniques of analyzing price data to ascertain information about future price movement and relationships between securities, select securities for purchase and sale. Equity Market Neutral Strategies typically maintain characteristic net equity market exposure no greater than 10% long or short.Global macro strategies trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets.International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the United States and other nations.There is no guarantee that the use of long and short positions will succeed in limiting an investor's exposure to domestic stock market movements, capitalization, sector swings or other risk factors. Using long and short selling strategies may have higher portfolio turnover rates. Short selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions.Merger arbitrage strategies which employ an investment process primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction.Mid-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies. Historically, mid-cap companies' stock has experienced a greater degree of market volatility than the average stock.Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. Price to book value compares a stock's market value to its book value. Price to cash flow is a measure of the market's expectations of a firm's future financial health. Price to dividends is the ratio of the price of a share on a stock exchange to the dividends per share paid in the previous year, used as a measure of a company's potential as an investment.Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.Relative Value Strategies maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. Small-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies since smaller companies generally have a higher risk of failure. Historically, smaller companies' stock has experienced a greater degree of market volatility than the average stock.

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J.P. Morgan Asset Management – Risks & disclosures

The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions. This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields is not a reliable indicator of current and future results.J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other EEA jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E); in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Korea by JPMorgan Asset Management (Korea) Company Limited; in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in the United States by JPMorgan Distribution Services Inc. and J.P. Morgan Institutional Investments, Inc., both members of FINRA/SIPC.; and J.P. Morgan Investment Management Inc.

In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other countries in APAC, to intended recipients only.In Latin America, distribution intended to recipients only.

Copyright 2017 JPMorgan Chase & Co. All rights reserved

Prepared by: Gabriela D. Santos and Abigail B. Dwyer

Unless otherwise stated, all data are as of June 30, 2017 or most recently available.

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Documents

MI-GTM LATAM 3Q17 - J.P. Morgan & Co. Hui Hong Kong Julio C. Callegari São Paulo Manuel Arroyo Ozores, CFA Madrid Kerry Craig, CFA Melbourne Samantha M. Azzarello New York Tilmann