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Q3 | 2012As at 30 June 2012
GTTM: A guide to global financial marketsEUROPE
For professional investors* only. Not for retail use or distribution
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1
Table of contents
16WORLD 46
27UNITED STATES
36JAPAN
40
53
EUROPE
60
European Market Strategy Team
Dan Morris [email protected]
Paola Toschi [email protected]
Tom Elliott [email protected]
Kerry Craig [email protected]
FIXED INCOME
OTHER ASSET CLASSES
DEMOGRAPHICS
EMERGING MARKETS
2
Home
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2
EUROPE
3MSCI Europe Index at inflection points (local currency)
7Contribution to German GDP
4Europe equity valuations
5Europe returns by style (EUR)
6Eurozone GDP and inflation
8Eurozone unemployment, retail sales and confidence indicators
9Europes vicious circle
10Employment by age and sex
11European labour costs
12Government deficits by country
13Interbank lending rates and peripheral exposure
14Eurozone crisis impact on markets
15Eurozone countries economic divergences
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Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
600
800
1.000
1.200
1.400
1.600
1.800
60
80
100
120
140
160
180
Europ
e
3
MSCI Europe Index at inflection points (local currency)
Note: Earnings index is derived from the forward P/E. Source: I/B/E/S, J.P . Morgan Asset Management.
MSCI Europe Index
16 July 2007
1.641
12 March 2003
676
4 September 20001.623
9 March 2009
714
1.034
-58% +143% -56%
+72%
30 June 2012
18 February 2011
1.230
Earnings index
Earnings
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
2
4
6
8
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
8
12
16
20
24
28
4
Europe equity valuations
Note: The ten-year EMU bond yield is represented by the BofA Merrill Lynch Euro Government (7-10Y) index. 75% of the value of the index is comprised of bonds fromFrance, Germany, Italy, Spain, Netherlands, and Belgium, Source: BofA Merrill Lynch, I/B/E/S, J.P. Morgan Asset Management.
Forward P/E ratio MSCI Europe Index
30 June 20129,5
Average since 1999
14,9
MSCI Europe Index dividend yield and ten-year EMU bond
30 June 2012
Dividend yield
Ten-year EMU bond yield
One year
earnings
growthforecast:
12%
%
3,5%
4,1%
Europ
e
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Europe returns by style (EUR)
Note: Total return indices. Source: J.P. Morgan Asset Management.
20102004 2005 2006 2007 2008 Q2 20122009 2011
Europ
e
YTD
MSCIEurope
Small Cap
23,7%
MSCIEurope
Small Cap
37,6%
MSCIEurope
Small Cap
30,4%
DJ Stoxx 50
9,6%
MSCIEurope
Growth
-40,5%
MSCIEurope
Small Cap
60,3%
MSCIEurope
Small Cap
30,4%
MSCIEurope
Growth
-6,3%
MSCIEurope
Small Cap
10,5%
MSCIEurope
Growth
-2,3%
MSCI
Europe
Value
16,3%
MSCI
Europe
Value
28,9%
MSCI
Europe
Value
23,1%
MSCI EMU
8,5%
DJ Stoxx 50
-42,4%
MSCI
Europe
Value
34,6%
MSCI
Europe
Growth
18,5%
MSCI
Europe
-7,5%
MSCI
Europe
Growth
7,4%
MSCI
Europe
-2,5%
MSCI EMU
13,4%
MSCI
Europe
26,7%
MSCI EMU
22,8%
MSCI
Europe
Growth
8,2%
MSCI
Europe
-43,3%
MSCI
Europe
32,5%
MSCI
Europe
11,7%
MSCI
Europe
Value
-8,7%
MSCI
Europe
5,4%
MSCI
Europe
Value
-2,8%
MSCI
Europe
12,6%
MSCI EMU
26,3%
MSCI
Europe
20,2%
MSCI
Europe
3,2%
MSCI EMU
-44,3%
MSCI
Europe
Growth
30,5%
MSCI
Europe
Value
4,9%
MSCI EMU
-14,1%
MSCI EMU
3,8%
MSCI
Europe
Small Cap
-4,5%
DJ Stoxx 50
9,4%
MSCI
Europe
Growth
24,3%
DJ Stoxx 50
18,0%
MSCI
Europe
Value
-1,8%
MSCI
Europe
Value
-46,1%
MSCI EMU
28,7%
MSCI EMU
3,3%
DJ Stoxx 50
-14,1%
MSCI
Europe
Value
3,1%
MSCI EMU
-5,5%
MSCIEurope
Growth
8,9%
DJ Stoxx 50
24,3%
MSCIEurope
Growth
17,3%
MSCIEurope
Small Cap
-7,2%
MSCIEurope
Small Cap
-51,6%
DJ Stoxx 50
25,6%
DJ Stoxx 50
-2,8%
MSCIEurope
Small Cap
-17,1%
DJ Stoxx 50
0,7%
DJ Stoxx 50
-6,2%
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-4
-2
0
2
4
6
6
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
0
1
2
3
4
5
Source: Eurostat, Bloomberg consensus forecast, J.P. Morgan Asset Management.
Eurozone GDP and inflation
Real GDPchange year on year
Inflationchange year on year
Average
1,5%
First quarter
2012
-0,1%
Core CPI
May 2012
1,6 %
Headline CPI
May 2012
2,4%
%%
Forecast
headline CPI
2012: 2,4%2013: 1,8%
Forecast
GDP
2012: -0,4%2013: 0,8%
Europ
e
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-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
1,2
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
1,2
7
Source: Federal Statistics Office, J.P. Morgan Asset Management.
Contribution to German GDP
First quarter 2012change quarter on quarter
Europe
Fixed
capital
formation
InventoriesNet
exports
HouseholdGovernment
-0,2%
0,5%
Fourth quarter 2011change quarter on quarter
Fixed
capital
formation
InventoriesNet
exports
Household
Government
% %
Total
Total
Europ
e
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11-6
-4
-2
0
2
4
6
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
8
9
10
11
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-40
-30
-20
-10
0
10
20
30
40
8
Eurozone unemployment, retail sales and confidence indicators
Source: Eurostat, OECD, J.P. Morgan Asset Management.
May 2012
11,1%
May 2012
-1,7%
Unemployment
Retail sales growth (y/y)
Confidence indicators
Services sector
confidence
June 2012
-7,4
Consumer
confidence
June 2012
-19,8
Industrial
confidence
June 2012
-12,7
Indexle
vel
%
%
Europ
e
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Europes vicious circle
9
How do you solve one problem without making the others worse?
High bank debt
eg Spain, Ireland
Highsovereign debt
(deficit and/or debt to GDP)
eg Italy, Greece, Portugal
Low growth
eg Italy, Portugal
Europ
e
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10
Employment by age and sex
Note: *2010 figure. Effective retirement age is the average retirement age for males over the period 2004 2009. Official retirement age listed in parenthesis,
subject to variations between public and private sector, length of service etc. Youth unemployment is those aged less than 25 years. Source: OECD,
Eurostat J.P. Morgan Asset Management.
European employment and retirement ages
Employmentrates of 55 64
2011 (b)
Female
employment rate2011 (c)
Youthunemployment
rate 2011 (d)
Total score
(a + b + c - d)
Europ
e
Japan 70 (64) 65* 60 8 187
Sweden 66 (65) 72 72 23 187
Germany 62 (65) 60 68 9 181
Netherlands 62 (65) 56 70 8 180
Denmark 64 (65) 60 70 14 180
US 66 (66) 60* 62 17 171
UK 64 (65) 57 65 21 165
Austria 59 (65) 42 67 8 160
Portugal 67 (65) 48 60 30 145
Ireland 63 (66) 50 55 29 139
France 59 (62) 41 60 22 138
Italy 61 (65) 38 47 29 117
Spain 62 (65) 45 52 46 113
Greece 62 (65) 39 45 44 102
Retirement ageeffective (official)
(a)
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100
110
120
130
140
150
160
170
180
Dez 90 Dez 92 Dez 94 Dez 96 Dez 98 Dez 00 Dez 02 Dez 04 Dez 06 Dez 08 Dez 10
11
Note: Greece, Ireland, Italy, and Spain labour cos t index is average of each countrys index. Source: OECD, J.P. Morgan Asset Management.
European labour costs
Labour cost indices for Europe
Greece, Ireland, Italy, Spain
US
Euro area
Germany
Euro
launch
Europ
e
UK
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-2
0
2
4
6
8
10
0 20 40 60 80 100 120 140 160 180 200220 240
Government deficits by country
*The EU/IMF bailout package for Greece targets a debt to GDP ratio of 120% by 2020. Note: The debate on the euro crisis considers countrys gross debt levels.Source: IMF World Economic Outlook, J.P. Morgan Asset Management.
12
% of GDP
2011 (estimated)
2014 (estimated)
Deficit(%
o
fGDP)
Gross debt (% of GDP)
Ireland
Spain
US
Portugal
Maastricht
treaty
criteria
UKGreece*
Italy
Japan
China
India
Brazil
Germany
France
Mexico
Europ
e
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0 100 200 300 400 500 600 700
13
Interbank lending rates and peripheral exposure
Last data December 2011. Source: BIS, J.P. Morgan Asset Management.
Bank peripheral debt exposure
Germany
UK
France
US
Italy
Spain
Portugal
Ireland
Greece
USD bn
Note: For the eurozone, UK, and Switzerland the spread is the difference between the three month
Libor/Euribor and the overnight index swap rate. The US is the spread between 3 month Libor and
the 3 month Treasury bill. The spread can be interpreted as an indicator of the willingness of banks
to lend to each other. Source: Bloomberg, J.P. Morgan Asset Management.
Location of banks
Country of issuance
Q4 2010
Q4 2011
Q4 2010
Q4 2011
Q4 2010
Q4 2011
Q4 2010
Q4 2011
Europ
e
0
100
200
300
400
500
Dez 07 Dez 08 Dez 09 Dez 10 Dez 11
bps UK
Eurozone
US
Switzerland
Interbank short-term lending rates
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1
2
3
4
5
6
7
8
Dez 08 Dez 09 Dez 10 Dez 11 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12
700
750
800
850
900
950
1.000
1,5
2,0
2,5
3,0
3,5
4,0
14
Eurozone crisis impact on markets
Note: EFSF is the European Financial Stability Facility. The EFSF bond shown is the EUR 5 billion
ten-year 3,375% note, issued in July 2011, to raise funds towards the EU/IMF EUR 78 billion
bailout for Portugal. Source: J.P. Morgan Asset Management.
US Treasuries and global equitiesTen-year bond yields
Note: MSCI World Index price return in local currency.
Source: J.P. Morgan Asset Management.
%%Ten-year US Treasury yield (rhs)
MSCI World Index (lhs)
Europ
e
Italy
Spain
EFSF
UK
GermanyDenmark
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Latest data May 2012. Source: Markit, Eurostat, J.P . Morgan Asset Management.
Eurozone countries economic divergences
Europe
Manufacturing PMI Unemployment
Dec 96 Dec 98 Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10
5
10
15
20
25
%
25
30
35
40
45
50
55
60
65
Dez 06 Dez 07 Dez 08 Dez 09 Dez 10 Dez 11
Germany
Italy
France
Spain
Germany
Italy
France
Spain
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16
WORLD
17World stock market returns (EUR and local currency)
21
Risk appetite and volatility
18World equity market cumulative returns (EUR)
19MSCI World Index by sector (EUR)
20
22
Income: Dividend growth (EUR)
23
Income: Reinvested dividends
Income: Equities and bonds
24
25
World economic data
26
World economic momentum
Credit and money supply growth
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World stock market returns (EUR and local currency)
Note: Total return indices. Source: J.P. Morgan Asset Management.
20102004 2005 2006 2007 2008
EUR
Local
EUR
Local
EUR
Local
EUR
Local
EUR
Local
Q2 20122009 2011
World
YTD
16,9%
MSCI EM
16,4%
55,0%
MSCI EM
35,8%
20,2%MSCI
Europe
19,6%
26,7%MSCI Asia
ex Japan
38,0%
-23,0%Japan
TOPIX
-40,6%
73,4%
MSCI EM
62,8%
28,3%MSCI Asia
ex Japan
15,6%
5,5%
US S&P 500
2,1%
12,0%
US S&P 500
9,5%
2,0%
US S&P 500
-2,8%
12,6%
MSCI
Europe
12,7%
45,3%
Japan
TOPIX
45,2%
19,6%
MSCI Asia
ex Japan
28,6%
26,1%
MSCI EM
33,5%
-33,7%
US S&P 500
-37,0%
67,2%
MSCI Asia
ex Japan
67,2%
27,5%
MSCI EM
14,4%
-7,5%
MSCI
Europe
-8,8%
8,5%
MSCI Asia
ex Japan
6,1%
-2,1%
MSCI Asia
ex Japan
-5,3%
9,2%
MSCI Asiaex Japan
11,9%
41,9%
MSCI Asiaex Japan
24,1%
18,6%
MSCI EM
28,9%
3,2%
MSCIEurope
6,5%
-43,3%
MSCIEurope
-38,5%
32,5%
MSCIEurope
28,6%
23,9%
JapanTOPIX
1,0%
-9,6%
JapanTOPIX
-17,0%
6,5%
MSCI EM
5,1%
-2,3%
JapanTOPIX
-9,7%
8,1%
Japan
TOPIX
11,3%
26,7%
MSCI
Europe
25,5%
3,6%
US S&P 500
15,8%
-4,9%
US S&P 500
5,5%
-49,8%
MSCI Asia
ex Japan
-47,7%
22,5%
US S&P 500
26,5%
23,1%
US S&P 500
15,1%
-14,3%
MSCI Asia
ex Japan
-14,6%
5,6%
Japan
TOPIX
7,0%
-2,5%
MSCI
Europe
-3,6%
2,9%
US S&P 50010,9%
20,9%
US S&P 5004,9%
-8,7%
Japan
TOPIX3,0%
-14,5%
Japan
TOPIX-11,1%
-50,8%
MSCI EM-45,7%
1,5%
Japan
TOPIX7,6%
11,7%
MSCI
Europe7,5%
-15,4%
MSCI EM-12,5%
5,4%
MSCI
Europe3,9%
-4,3%
MSCI EM-5,1%
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Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
MSCI Emerging Markets 8,2% p.a.
FTSE 100 6,5% p.a.
MSCI Europe ex UK 7,8% p.a.
TOPIX Japan -0,9% p.a.
Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
5050
100100
150150S&P 500 2,2% p.a.
MSCI Europe ex UK -4,9% p.a.
MSCI Emerging Markets 4,0% p.a.
TOPIX Japan -4,2% p.a.
18
World equity market cumulative returns (EUR)
Note: Total return indices. On a log scale the distance between tick marks shows the same percentage change. Source: J.P. Morgan Asset Management.
Five years to June 2012, log scale
20 years to June 2012, log scale
800
400
200
100
FTSE 100 -1,6% p.a.
S&P 500 7,8% p.a.
World
800
400
200
100
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19
MSCI World Index by sector (EUR)
Note: Total return indices. Source: I/B/E/S, J.P. Morgan Asset Management.
Energy Materials Industrials
Consstaples Health Financials
Infotech
Telecomservices Utilities
MSCIWorld
Consdisc
MSCI Worldweight %
Q2 2012 return%
YTD return%
Dividend yield%
Forward P/E
Historic P/E
10,6 6,8 10,9 10,8 11,0 10,7 18,6 12,6 4,2 3,8 100,0
-2,9 -6,1 -1,7 -1,3 5,7 6,3 -2,5 -3,4 10,1 5,7 -0,2
-1,8 0,9 7,4 13,4 10,1 11,8 12,5 13,1 8,4 4,9 8,7
3,1 2,7 2,8 2,0 3,0 2,7 3,5 1,3 5,8 4,7 2,9
9,5 11,9 14,0 16,2 17,4 15,8 12,0 14,9 15,9 21,4 13,7
9,3 9,7 11,1 12,1 14,5 11,8 9,3 11,4 11,9 14,9 11,0
World
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-6
-4
-2
0
2
4
6
Dez 95 Dez 97 Dez 99 Dez 01 Dez 03 Dez 05 Dez 07 Dez 09 Dez 11
Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
20
40
60
80
100
20
Risk appetite and volatility
Volatility
Cheap money
Asian
crisis
Russian
crisis
Tech
bubble
Gulf
war 2
Credit
crunch
VIX
VDAX
Eurozone debt
crisis
Credit Suisse Global Risk Appetite Indicator
VIX and VDAX
Euphoria
Distress
Numberofstandarddeviations
30 June 2012
-0,4World
30 June 2012
21,5
17,1
(Top) Note: The Credit Suisse Global Risk Appetite Indicator compares aggregated risk-adjusted returns across 64 markets (both equity and fixed income). It compares six
month excess returns over cash with 12 month volatility for each asset. Source: Credit Suisse, J.P. Morgan Asset Management. (Bottom) Note: VDAX is the name given to
the Deutsche Brse equivalent of the VIX, based on the DAX. Source: Bloomberg, Chicago Board Options Exchange, Deutsche Brse, J.P. Morgan Asset Management.
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Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
100
150
200
250
21
Income: Dividend growth (EUR)
Note: Regular dividends only. Source: J.P. Morgan Asset Management.
MSCI AC World Index dividend growth
Annualised change Payout ratioAsia ex Japan 6,8% 31,2%
Japan 5,7% 32.8%
Europe ex UK 5,1% 46.2%
US 2,5% 28,5%
UK 1,0% 42,9%
World
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5,1%
4,3%3,9%
3,7%
3,1%2,9%
2,6%2,2%
0
1
2
3
4
5
6
7
6,0% 5,9% 5,7%
5,2% 5,0%
4,2% 4,1%
3,5%
0
1
2
3
4
5
6
7
22
(Top chart) Note: Total return index is S&P 500 until 1960s then the MSCI Europe Index. Source: Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left)
Note: Yields shown are that of the appropriate FTSE NARIET REIT index, which excludes property development companies. Source: NARIET, J.P. Morgan Asset
Management. (Bottom right) Note: Yields shown are than of the appropriate MSCI index. Source: MSCI, J.P. Morgan Asset Management.
Income: Reinvested dividends
REIT dividend yields Equity dividend yields
4,7% 5,4% 6,0% 5,1% 3,3% 4,8% 4,2% 2,6% 3,0% 4,6%
13,9%
-5,3%
3,0%
13,6%
4,4%0,2%
16,0%12,9%
-2,9%
5,2%
-10
-5
0
5
10
1520
25
1926 - 1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 1926 - 2011
Total returns: Dividends and capital appreciationAverage annualised returns
%
Capital appreciation
Dividends
Ten-year government
bond yield
%
Sing. France Austlia Canada Japan Global UK US
%
Austlia France UK Switz. Canada ACWI Japan US
Ten-year government
bond yield
World
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0
1
2
3
4
Dez 05 Dez 06 Dez 07 Dez 08 Dez 09 Dez 10 Dez 11
0
1
2
3
4
5
Dez 05 Dez 06 Dez 07 Dez 08 Dez 09 Dez 10 Dez 11
Ratio
0
1
2
3
4
Dez 05 Dez 06 Dez 07 Dez 08 Dez 09 Dez 10 Dez 11
Income: Equities and bonds
23
1,0%
1,6%
3,3%
4,1%
5,4%
7,8%
0
1
2
3
4
5
6
7
8
9
(Left) Note: European corporate is BarCap European Aggregate Credit Corporate Index, emerging market debt is the EMBI+, high yield is the BofA/Merrill Lynch High Yield
Master II, MSCI Europe is the dividend yield. I nflation is year on year change in the eurozone CPI. Source: Tullett Prebon, Merrill Lynch, J.P. Morgan Asset Management.
(Right) Note: Europe uses the MSCI Europe Index, US the S&P 500, and UK the FTSE 100. The government bond yield is the generic ten-year bond yield for that country.
Source: J.P. Morgan Asset Management.
%
Eurozone CPI
Inflation
(May 2012)
Cash Bunds MSCI
Europe
European
corporate
EM
debt
High
yield
Dividend yields compared to the government bond yieldsSources of incomeYields
World
Europe
Average 1,5x
Average 1,3x
Average 1,6x
Ratio
Ratio
UK
US
9,1 4,0 7,9 4,8Duration
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World economic data
Note: The Misery Index was devised by US economist ArthurOkun to illustrate the combination of unemployment and inflation. A higher number indicates a worse
economic climate, and vice versa. India GDP estimates from J.P Morgan.
Source: Bloomberg, national statistical agencies, CIA, J.P . Morgan Asset Management.
24
GDP estimate y/y% Inflation y/y%current (a)
Unemployment %
current (b)Policy rate
currentMisery index
(a+b)
G7 and selected countries
20132012
World
Switzerland 0,5 1,5 -1,0 3,0 0,00 2,0
Japan 2,5 1,5 0,2 4,4 0,10 4,6
China 8,2 8,4 3,0 4,1 6,31 7,1
Netherlands -0,8 1,2 2,1 6,2 1,00 8,3
Canada 2,1 2,2 1,2 7,3 1,00 8,5
Germany 0,9 1,4 1,7 6,8 1,00 8,5
Sweden 0,6 2,1 1,0 8,1 1,50 9,1
United States 2,2 2,4 1,7 8,2 0,25 9,9
Brazil 2,8 4,5 5,0 5,8 8,50 10,8
United Kingdom 0,2 1,7 2,8 8,2 0,50 11,0
France 0,3 0,9 2,0 9,6 1,00 11,6
Italy -1,8 0,0 3,3 9,8 1,00 13,1
India 6,0 6,5 7,6 9,8 7,00 17,4
Greece -5,2 -0,9 1,4 22,6 1,00 24,0
Spain -1,7 -0,5 1,9 24,4 1,00 26,3
TOC
W ld i
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25
World economic momentum
Note: The Citigroup Economic Surprise Index is defined as the weighted historical standard deviations of data surprises (actual releases versus survey median).Source: Citigroup, J.P. Morgan Asset Management.
Wor
ld
Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
-150
-100
-50
0
50
100
150
Economic surprise indices, US, eurozone and UK Economic surprise indices, China and Latam
Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
-100
-50
0
50
100
150
EurozoneUS
UK
Latin AmericaChina
TOC
C dit d l th
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-2
26
10
14
18
Dez 05 Dez 06 Dez 07 Dez 08 Dez 09 Dez 10 Dez 11
Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
-6
-4
-2
0
2
4
6
8
10
26
Credit and money supply growth
Real credit growth (y/y)
%
Latest data is April 2012 for the US, and May 2012 for Europe and UK.
Note: Year on year growth in outstanding loans, excluding mortgages less
core inflation. Source: Federal Reserve, Bank of England, ECB,
J.P. Morgan Asset Management.
UK
US
Eurozone
Latest data is May 2012 for the US, and April 2012 for the UK and eurozone. Note: UK broad
money supply is M4 until July 2010 then M4 adjusted (M4 excluding other intermediate financial
corporations) onwards. Source: Federal Reserve, OECD, Bank of England, J.P. Morgan Asset
Management.
Broad money supply growth (y/y)
US (M2)%
Wor
ld
UK (M4 adjusted)
Eurozone (M3)
%
%
0
4
8
12
Dez 05 Dez 06 Dez 07 Dez 08 Dez 09 Dez 10 Dez 11
-2
2
6
10
14
Dez 05 Dez 06 Dez 07 Dez 08 Dez 09 Dez 10 Dez 11
TOC
UNITED STATES
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27
UNITED STATES
28US S&P 500 Index at inflection points (USD)
29US equity valuations
30US returns by style (USD)
31Market returns after consecutive down years S&P 500 Index (USD)
32US corporate balance sheet
33US GDP and inflation
34Contribution to US GDP
35Federal finances
TOC
US S&P 500 Index at inflection points (USD)
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Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
600
800
1.000
1.200
1.400
1.600
60
80
100
120
140
160
28
Note: Earnings index is derived from the forward P/E. Source: I/B/E/S, J .P. Morgan Asset Management.
S&P 500 Index
US S&P 500 Index at inflection points (USD)
27 March 2000
1.524
9 October 2002
777
9 October 2007
1.565
+101%
9 March 2009
677
-49% -57%
30 June 2012
1.362
+98%
18 February 2011
1.343UnitedStates
Earnings index
Earnings
TOC
US equity valuations
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Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
2
4
6
8
10
Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
10
15
20
25
29
30 June 2012
US equity valuations
Source: I/B/E/S, Tullett Prebon Information, J.P. Morgan Asset Management.
Forward P/E ratio S&P 500 Index 31 January 200024,4
Average since 1989
15,8
S&P 500 Index dividend yield and ten-year US Treasury yield
Ten-year US Treasury yield
Dividend yield
One year
earnings
growth
forecast:12%
%
UnitedStates
30 June 2012
11,8
1,7%
2,1%
TOC
US returns by style (USD)
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30
US returns by style (USD)
2010
Note: Total return indices. Source: J.P. Morgan Asset Management.
2004 2005 2006 2007 2008 2009 2011
UnitedStates YTD
Russell2000
18,3%
S&P 400Mid Cap
12,6%
S&P 500Value
20,8%
Nasdaq
10,7%
Russell2000
-33,8%
Nasdaq
45,3%
Russell2000
26,9%
S&P 500Growth
4,7%
Nasdaq
13,3%
S&P 500Growth
-2,0%
S&P 400
Mid Cap
16,5%
S&P 500
Value
5,8%
Russell
2000
18,4%
S&P 500
Growth
9,1%
S&P 500
Growth
-34,9%
S&P 400
Mid Cap
37,4%
S&P 400
Mid Cap
26,6%
S&P 500
2,1%
S&P 500
Growth
10,0%
S&P 500
-2,8%
S&P 500
Value
15,7%
S&P 500
4,9%
S&P 500
15,8%
S&P 400
Mid Cap
8,0%
S&P 400
Mid Cap
-36,2%
S&P 500
Growth
31,6%
Nasdaq
18,0%
S&P 500
Value
-0,5%
S&P 500
9,5%
Russell
2000
-3,5%
S&P 500
10,9%
Russell
2000
4,6%
S&P 500
Growth
11,0%
S&P 500
5,5%
S&P 500
-37,0%
Russell
2000
27,2%
S&P 500
Value
15,1%
Nasdaq
-0,8%
S&P 500
Value
8,9%
S&P 500
Value
-3,6%
Nasdaq
9,1%
S&P 500
Growth
4,0%
Nasdaq
10,4%
S&P 500
Value
2,0%
S&P 500
Value
-39,2%
S&P 500
26,5%
S&P 500
15,1%
S&P 400
Mid Cap
-1,7%
Russell
2000
8,5%
Nasdaq
-4,8%
S&P 500Growth
6,1%
Nasdaq
2,1%
S&P 400Mid Cap
10,3%
Russell2000
-1,6%
Nasdaq
-40,5%
S&P 500Value
21,2%
S&P 500Growth
15,1%
Russell2000
-4,2%
S&P 400Mid Cap
7,9%
S&P 400Mid Cap
-4,9%
Q2 2012
TOC
Market returns after consecutive down years S&P 500 Index (USD)
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UnitedStates
31
Market returns after consecutive down years S&P 500 Index (USD)
Note: Total returns in USD. Source: Dimson, Marsh and Staunton ABN AMRO/LBS Global Investment Returns Yearbook 2008, J.P. Morgan Asset Management.
1929-1932
1940-1941
1973-1974
1933-1936
1942-1945
1975-1976
09/10/02 -
08/10/07
24/03/00 -
08/10/0209/10/07 -
08/03/09
09/03/09 -
18/02/11
+107%
Great Depression World War II Oil crisis Bubble burst Credit crunch
+121%
+66%
+122%
-65%
-17%
-38%-47%
-55%
+190%
TOC
US corporate balance sheet
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4
5
6
7
8
9
10
11
12
0
200
400
600
800
1.000
1.200
1.400
1.600
2000 2002 2004 2006 2008 201050
100
150
200
250
300
350
400
450
500
2000 2002 2004 2006 2008 2010 20125
6
7
8
9
10
32
US corporate balance sheet
Source: Computstat, J.P. Morgan Asset Management.
UnitedStates
Cash balancesS&P 500 ex financials
Sales and profit marginsS&P 500 ex financials
USD bn % Index %
Note: Sales indexed to Q1 2000. Latest data Q4 2011. Source:
Worldscope, J.P. Morgan Asset Management.
Sales (lhs)
Margin (rhs)
Cash and equivalents (lhs)
% total assets (rhs)
TOC
US GDP and inflation
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-4
-2
0
2
4
6
33
Source: BEA, Bloomberg consensus forecasts, J.P . Morgan Asset Management.
Real GDPchange year on year
Inflationchange year on year
Average
2,1%
First quarter
2012
2,0%
US GDP and inflation
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
0
2
4
6
Core CPI
May 2012
2,3%
Headline CPI
May 2012
1,7%
% %
Forecast
headline CPI
2012: 2,2%
2013: 2,0%
Forecast
GDP
2012: 2,2%
2013: 2,4%
UnitedStates
USD 685
bn of output
lost
USD 850 bn
of output
recovered
TOC
Contribution to US GDP
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0
1
2
3
4
5
0
1
2
3
4
5
-2.000
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
34
Source: BEA, J.P. Morgan Asset Management.
First quarter 2012change quarter on quarter annualised
Contribution to US GDP
Household
Inventories
Business
investment
Government
Residential
investment
Net
exports
3,0%
1,9%Household
InventoriesBusiness
investment
GovernmentResidential
investment
Net
exports
%
%
Total
Total
UnitedStates
Fourth quarter 2011change quarter on quarter annualised
Components of GDPFirst quarter nominal GDP, billions USD
10,9%
Business investment
71,2%
Household
19,5%
Government
2,3%
Residential investment
- 3,9% Net exports
TOC
Federal finances
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0
10
20
30
40
50
60
70
80
90
100
Mrz 04 Mrz 06 Mrz 08 Mrz 10 Mrz 12
35
(Left top and bottom) Note: The Federal Budget for 2012 is based on the March 2012 baseline scenario from the CBO. The alternative scenario is based on the CBOs
alternative scenario for spending and President Obamas budget for revenues (assuming avoidance of the fiscal cliff). Years s hown are fiscal years (Oct. 1 through Sep.
30). Top chart on the left displays federal surplus/deficit (revenues outlays). (Bottom left) US convention is to use net debt levels rather the gross debt. Source: US
Treasury, BEA, CBO, J.P. Morgan Asset Management. (Right) *58% of assets on the Feds balance sheet. **Other includes US deposit institutions, households, state and
local government etc. Data as at April 2012. Source: US Treasury, J.P. Morgan Asset Management.
Federal budget surplus/deficit% of GDP, 1990 - 2022
US Treasuries ownership
United
States
-12
-10
-8
-6
-4
-2
0
2
4
1990 1994 1998 2002 2006 2010 2014 2018 2022
CBO Baseline
Alternative
Forecast
Baseline Alt.
2011 actual -8,7% -8,7%
2012 estimate -7,6% -7,8%
2013 projection -3,8% -6,6%
20
40
60
80
100
1990 1994 1998 2002 2006 2010 2014 2018 2022
CBO Baseline
Alternative 2011 actual:
67,7%
2022: 80,0%
2022: 61,3%
Forecast
%
%
Federal debt% of GDP, 1990 - 2022
%
12%
11%
2%
3%
26%
Japan USD 1.066 bn
China USD 1.146 bn
Other countries USD 2.479 bn
30%
OPEC
UK
Other US domestic USD 2.779bn**
17%US Fed USD 1.667 bn*
TOC
JAPAN
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36
JAPAN
37Japan TOPIX Index at inflection points (JPY)
38Japan equity valuations
39Japan GDP and inflation
TOC
Japan TOPIX Index at inflection points (JPY)
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Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
40
60
80
100
120
140
160
180
200
Jap
an
26 February 2007
1.817
Note: Earnings index is derived from the forward P/E. Source: I/B/E/S, J.P . Morgan Asset Management.
p p ( )
TOPIX Index
28 April 2003
773 13 March 2009
724
-60%+135%
+35%
37
21 February 2011975
Earnings index
Earnings
30 June 2012
770
TOC
Japan equity valuations
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Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
2
4
6
8
10
Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
20
40
60
80
38
Note: Earnings growth forecast excludes negative earnings. Source: I/B/E/S, Tullett Prebon Information, J.P. Morgan Asset Management.
MSCI Japan Index dividend yield and ten-year JGB yield
Forward P/E ratio Japan, Topix Index
31 March 1994
72,7
Average since 1989
30,2
Ten-year JGB yield
Dividend yield
30 June 2012
One year
earnings
growth
forecast:16%
%
Jap
an
0,8%
2,6%
30 June 2012
10,7
TOC
Japan GDP and inflation
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39
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-2
-1
0
1
2
3
Source: Ministry of Internal Affairs and Communications, Economic & Social Research Institute, Bloomberg consensus forecasts, J.P. Morgan Asset Management.
Real GDPchange year on year
Inflationchange year on year
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-8
-6
-4
-2
0
2
4
6
Average
0,8%
% %
Forecast
headline CPI
2012: 0,1%
2013: 0,1%
Forecast
GDP
2012: 2,5%
2013: 1,5%
Jap
an
First quarter
2012
2,7%
Headline CPI
May 2012
0,2%
Core CPI
May 2012
-0,6%
TOC
EMERGING MARKETS
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40
41MSCI Asia ex Japan Index and emerging market valuations
42Emerging market returns (EUR and local currency)
43Emerging markets GDP growth and inflation
44China: Cyclical indicators
45China: Monetary policy and housing
TOC
MSCI Asia ex Japan Index at inflection points (local)
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Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
200
300
400
500
600
700
800
20
30
40
50
60
70
80
41
Note: Earnings index is derived from the forward P/E. Source: I/B/E/S, J .P. Morgan Asset Management.
12 May 2003218
1 November 2007
750
MSCI Asia ex Japan Index
20 November 2008
299
+250%
+122%
-60%
21 April 2011
664
Emerging
Markets
Earnings index
Earnings
30 June 2012
560
TOC
Emerging market returns (EUR and local currency)
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Emerging
Markets
42
Note: Total return MSCI indices. EM EMEA is EM Europe plus Egypt, Morocco and South Africa. World is MSCI Developed Market (DM) World Index.
Source: J.P. Morgan Asset Management.
2004 2005 2006 2007 2008
EUR
Local
EUR
Local
EUR
Local
EUR
Local
EUR
Local
2010
EUR
Local
2009 Q2 20122011 YTD
29,6%
EM Latin
America32,2%
74,2%
EM Europe
59,2%
28,3%
EM Latin
America37,6%
35,9%
EM Latin
America35,6%
-37,2%
World
-38,3%
97,8%
EM Latin
America63,2%
32,4%
EM EMEA
19,2%
-1,8%
World
-5,0%
9,6%
EM Europe
6,4%
-0,2%
World
-4,0%
29,3%
EM EMEA
24,5%
73,3%
EM Latin
America
38,0%
22,2%
EM Europe
32,8%
27,7%
EM Asia
39,1%
-48,8%
EM Latin
America
-37,7%
80,4%
EM Europe
73,6%
27,6%
EM Asia
14,9%
-14,4%
EM Asia
-14,2%
8,9%
EM EMEA
6,6%
-2,7%
EM Asia
-5,5%
26,6%
EM Europe
25,8%
59,9%
EM EMEA
50,4%
19,2%
EM Asia
27,7%
26,1%
Emerging
Markets
33,5%
-50,3%
EM Asia
-47,1%
73,4%
Emerging
Markets
62,8%
27,5%
Emerging
Markets
14,4%
-15,4%
Emerging
Markets
-12,5%
8,7%
World
6,8%
-3,7%
EM EMEA
-2,2%
16,9%
Emerging
Markets
16,4%
55,0%
Emerging
Markets
35,8%
18,6%
Emerging
Markets
28,9%
17,6%
EM Europe
22,3%
-50,8%
Emerging
Markets
-45,7%
68,8%
EM Asia
68,1%
25,2%
EM Europe
18,9%
-16,4%
EM Latin
America
-9,8%
7,6%
EM Asia
5,4%
-4,3%
Emerging
Markets
-5,1%
7,0%
EM Asia
8,0%
46,9%
EM Asia
28,5%
11,1%
EM EMEA
25,8%
16,1%
EM EMEA
21,9%
-53,3%
EM EMEA
-48,6%
62,9%
EM EMEA
50,3%
22,9%
EM Latin
America
9,2%
-17,5%
EM EMEA
-9,1%
6,5%
Emerging
Markets
5,1%
-5,8%
EM Europe
-3,9%
6,9%World
11,8%
26,8%World
16,3%
7,9%World
16,1%
-1,2%World
5,2%
-66,3%EM Europe
-64,0%
26,7%World
26,5%
20,1%World
10,6%
-20,8%EM Europe
-16,4%
1,9%
EM Latin
America
3,4%
-8,8%
EM Latin
America
-6,3%
TOC
Emerging markets GDP growth and inflation
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-3
0
3
6
9
12
15
18
-3
0
3
6
9
12
15
Dez 99 Dez 01 Dez 03 Dez 05 Dez 07 Dez 09 Dez 11
43
Emerging
Markets
India
Russia
BrazilInflation %GDP %
China
Inflation %GDP %Inflation %GDP %
Inflation %GDP %
Note: Real GDP growth and inflation are year on year change. Source: (top left) IBGE, (top right) India Central Statistics Organisation, Press Information Bureau of India,
(bottom left) National Bureau of Statistics, (bottom right) Federal Service of State Statistics , J.P. Morgan Asset Management.
Average
7,3%
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-3
0
3
6
9
12
15
-3
0
3
6
9
12
15
18
Average
5,4%
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-3
0
3
6
9
12
15
-3
0
3
6
9
12
15
18
Average
3,6%
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-3
0
3
6
9
12
15
-3
0
3
6
9
12
15
18
Average
9,6%
TOC
China: Cyclical indicators
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-10
0
10
20
30
40
50
60
70
Dez 99 Dez 01 Dez 03 Dez 05 Dez 07 Dez 09 Dez 11
44
(Left) Source: National Bureau of Statistics China, Markit, J.P. Morgan Asset Management. (Top right) Source: China Association of Automobile Manufacturers,
J.P. Morgan Asset Management. (Bottom right) Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management.
Auto salesManufacturing PMIs
May 2012
1,5%
Index level, reading above 50 indicates expansion Year-on-year growth of 12-month rolling sum
Emerging
Markets
46
48
50
52
54
56
58
Mai 09 Nov 09 Mai 10 Nov 10 Mai 11 Nov 11 Mai 12
NBS Mfg. PMI
HSBC Mfg. PMI
June 2012 48,2
May 2012 50,4
15
20
25
30
35
40
1990 1994 1998 2002 2006 2010
%
US Consumption % of globalEM Consumption % of global
Share of global nominal consumption
TOC
China: Monetary policy and housing
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 114
6
8
10
12
14
16
18
20
22
24
Dec 02 Dec 04 Dec 06 Dec 08 Dec 10
6.0
6.5
7.0
7.5
8.0
8.5
45
Reserve requirement ratioHome prices
Chinese currency
Source: (Top left) National Bureau of Statistics China, J.P. Morgan Asset Management. (Right) The Peoples Bank of China, J.P . Morgan Asset Management. (Bottom left)
J.P. Morgan Asset Management.
Emerging
Markets
Renminbi per USD
Minimum reserves requirement
%
June 2012
20,0%
June 2012
6,31%
Large depository institutions
One-year working capital rate
May 2012
6,35June 2005 July 2008: +17,5%
May 2010 June 2012: +7,0%
Indexed to 100 in January 2007
80
130
180
230
280
2007 2008 2009 2010 2011 2012
Beijing/Shanghai
averageJan 2012
141,4NBS 70-city
average
Jan 2012
271,1
TOC
FIXED INCOME
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46
47Fixed income returns
52Emerging market sovereign debt and index weightings
48International yield curves
49ECB and Bank of England policy and real rates
50US Fed and Bank of Japan policy and real rates
51Corporate bonds
TOC
Fixed income returns
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52,6%
US HY57,5%
23,2%
US HY15,2%
12,5%
EM debt9,2%
9,5%
US HY7,1%
7,7%
EM debt2,8%
22,8%
EM debt
25,9%
18,8%
EM debt
11,8%
9,2%
Global agg
5,6%
9,2%
EM debt
6,9%
6,8%
US HY
1,8%
16,0%
FI alloc.
17,5%
12,9%
Global agg
5,5%
7,9%
US HY
4,4%
5,9%
FI alloc.
5,0%
5,6%
Global agg
0,6%
15,7%Euro corp
15,7%
8,4%FI alloc.
5,4%
5,0%FI alloc.
3,6%
5,7%Euro corp
5,7%
2,6%FI alloc.
0,6%
8,1%
IL
8,1%
4,7%
Euro corp
4,7%
3,4%
Euro govt
3,4%
5,0%
IL
5,0%
0,2%
Euro govt
0,2%
4,3%
Euro govt
4,3%
1,1%
Euro govt
1,1%
1,5%
Euro corp
1,5%
4,0%
Euro govt
4,0%
0,0%
Euro corp
0,0%
3,6%
Global agg
6,9%
-0,4%
IL
-0,4%
-2,3%
IL
-2,3%
3,8%
Global agg
1,5%
-1,2%
IL
-1,2%
FixedIncome
47
2009 2010
Euro
Local
Euro
Local
Euro
Local
Euro
Local
Euro
Local
Q2 20122011 YTD
Fixed income sector returns Government fixed income returns
2009 2010 Q2 20122011 YTD
Euro
Local
Euro
Local
Euro
Local
Euro
Local
Euro
Local
Euro
Local
Euro
Local
(Left) Note: IL is Barclays Euro Govt All Markets Inflation-linked Index, Euro govt is Barclays Euro Aggregate Government Treasury Index, EM debt is the EMBI+, US HY isthe Merrill Lynch High Yield Master II, Euro corp is the Barclays Euro Aggregate Credit Corporate Index, Global agg is the Barclays Global Aggregate Index. The F Iallocation assumes the following weights; 15% in index linked, 35% in euro government bonds 15% in EM debt, 15% in high yield, 10% in euro corporates, and 10% inglobal bonds. Source: Barclays Capital, Bank of America Merrill Lynch, J.P. Morgan Asset Management. (Right) Source: JPMorgan Global Bond indices, J.P. Morgan AssetManagement.
Euro
Local
8,3%
Italy
8,3%
25,8%
Japan
2,5%
19,9%
UK Gilts
16,8%
8,9%
Italy
8,9%
9,4%
Japan
1,1%
7,8%
UK Gilts
-1,0%
13,8%
Global
4,2%
13,6%
US
9,9%
5,1%
UK Gilts
1,8%
8,1%
US
3,0%
1,8%
Germany
1,8%
13,5%
US
6,1%
11,4%
Japan
2,3%
4,0%
US
1,7%
7,1%
UK Gilts
3,9%
-1,3%
Global
0,7%
11,5%
UK Gilts
7,5%
10,8%
Global
6,3%
2,7%
Global
2,1%
6,3%
Global
1,8%
-4,8%
Japan
0,9%
6,4%
Germany
6,4%
9,8%
Germany
9,8%
1,9%
Germany
1,9%
1,6%
Germany
1,6%
-6,8%US
-3,8%
-0,6%Italy
-0,6%
-5,9%Italy
-5,9%
-0,0%Japan
1,4%
-2,2%Italy
-2,2%
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International yield curves
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0
1
2
3
0
1
2
3
3 53 103 153 203 253 303 3533M 2Y 5Y 10Y 30Y
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12
1
2
3
4
48
Source: Tullet Prebon Information, Bloomberg, J.P. Morgan Asset Management.
Government yield curves
%
Germany 1,59%
UK 1,73%US 1,65%
Japan 0,84%
Ten-year yieldsUK
US
Germany
Japan
Maturity
%
%
FixedIncome
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ECB and Bank of England policy and real rates
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-2
0
2
4
6
49
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-2
0
2
4
6
Bank of England
Note: Real interest rates are calculated using core CPI and repo rate. Source: ECB, Bloomberg
consensus forecasts, J.P. Morgan Asset Management.
European Central Bank
Note: Real interest rates are calculated using core CPI and base rate.
Source: Bank of England, ONS, B loomberg consensus forecasts,
J.P. Morgan Asset Management.
Real interest rate
May 2012
-0,58%
Repo rate
30 June 2012
1,00%
Real interest rate
May 2012
-1,71%
Base rate
30 June 2012
0,50%
% %
Forecast
Base rate
2012: 0,50%
2013: 0,50%
Forecast
Repo rate
2012: 0,75%
2013: 0,75%
FixedIncome
TOC
US Fed and Bank of Japan policy and real rates
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
-2
0
2
4
6
8
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
0,0
0,5
1,0
1,5
2,0
50
Note: Real interest rates are calculated using core CPI and Fed Funds rate. Source: US Federal
Reserve Bank, Bloomberg consensus forecasts, J.P. Morgan Asset Management.
Note: Real interest rates are calculated using core CPI and call rate.
Source: Bank of Japan, Bloomberg consensus forecasts,
J.P. Morgan Asset Management.
Bank of JapanUS Federal Reserve Bank
Real interest rate
May 2012
-2,01%
Fed Funds
30 June 2012
0,25%
Real interest rate
May 20120,69%
%%
Forecast
Call rate
2012: 0,10%
2013: 0,10%
Forecast
Fed Funds
2012: 0,25%
2013: 0,25%
FixedIncome
Call rate
30 June 2012
0,10%
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Corporate bonds
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0
4
8
12
16
20
24
Dez 99 Dez 01 Dez 03 Dez 05 Dez 07 Dez 09 Dez 11
(Top) Source: Merrill Lynch, J.P. Morgan Asset Management.
(Bottom) Note: BarCap Global High Yield Index in USD. Figures
may not sum due to rounding. Source: BarCap, J.P. Morgan Asset
Management.
Note: Investment grade based on Merrill Lynch Investment Grade, mortgages is the Barclays
Capital Aggregate US MBS index, and corporate high yield is the Merrill Lynch High Yield Master
Index II. Source: Merrill Lynch, BarCap, J.P. Morgan Asset Management.
Investment grade and high yield bonds
Mortgages(MBS)
US corporate
high yield
51
US investment
grade7,8%
3,4%
2,5%
%
US corporate high yield and default rate
Spread over Treasuries (lhs): 644
Default rate (rhs): 1,1%
bps over Treasuries
FixedIncome
%
Yield to maturity
Global high yield by region
United
States56%
Europe
26%
Asia 6%
Canada 2%
Other Europe 14%
UK 4%
France 3%
Germany 3%
Italy 2%Latin America 6%
Other 3%
0
2
4
6
8
10
12
0
400
800
1.200
1.600
2.000
2.400
Dec 99 Dec 02 Dec 05 Dec 08 Dec 11
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Emerging market sovereign debt and index weightings
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Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 110
4
8
12
16
52
Note: Emerging Markets Sovereign is the EMBI+. The local currency is the JPMorgan GBI-EM
Global. Source: US Federal Reserve, J.P. Morgan Asset Management.
(Top) Note: The EMBI+ track total returns on USD denominated debt.
Figures may not sum due to rounding. Source: J.P. Morgan Asset
Management. (Bottom) Note: EMBI+ is representative of the sovereign
debt market. Source: J.P. Morgan Asset Management.
EMBI+ weighting (USD denominated)US and emerging market sovereign debt yields
Emerging market
sovereign (USD)
Ten-year US Treasury
Fed funds rate
Emerging
market
sovereign
(local currency)
%
FixedIncome Yield to maturity
EM external debt spreads and average credit rating
0
300
600
900
1200
1500
Sep 96 Sep 99 Sep 02 Sep 05 Sep 08 Sep 11
Emerging market crises
Developed market crises
bps over Treasuries Credit rating (inverted)
EMBI+ (lhs)
Rating (rhs)
CCC+
B-
B
B+
BB-
BB+
BBB-
Latin
America
51%Europe
30%
Asia
16% Mexico 14%
Brazil 12%
Venezuela 10%
Other Latin America 10%Africa 3%
Indonesia 7%
Philippines 10%
Other Europe 5%
Turkey 13%
Russia 14%Colombia 6%
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OTHER ASSET CLASSES
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53
54Currencies
55Commodities
56Oil, gas and gold
57Correlation of returns (EUR)
58Property
59Cumulative returns on US assets
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Currencies
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Note: REER is the real effective exchange rate of a currency against a basket of its main trading partners currencies. REER is rebased to 100 at December 1980
Source: J.P. Morgan Asset Management.
EUR trade weighted indexUSD trade weighted index
Yen trade weighted indexGBP trade weighted index
OtherAss
etClasses
USD REER
10 year moving average
-1,5sd
+1,5sd
EUR REER
10 year moving average
-1.5sd
+1.5sd
GBP REER10 year moving average
-1,5sd
+1,5sd
JPY REER
10 year moving average
-1,5sd
+1,5sd
80
90
100
110
120
130
140
150
Dez 80 Dez 84 Dez 88 Dez 92 Dez 96 Dez 00 Dez 04 Dez 08
80
90
100
110
120
130
Dez 80 Dez 84 Dez 88 Dez 92 Dez 96 Dez 00 Dez 04 Dez 08
50
60
70
80
90
100
110
Dez 80 Dez 84 Dez 88 Dez 92 Dez 96 Dez 00 Dez 04 Dez 0870
80
90
100
110
120
130
140
150
Dez 80 Dez 84 Dez 88 Dez 92 Dez 96 Dez 00 Dez 04 Dez 08TOC
Commodities
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25
50
100
200
400
800
1600
Dez 69 Dez 79 Dez 89 Dez 99 Dez 09
0
50
100
150
200
250
300
0
50
100
150
200
250
300
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
55
(Top) Note: Pfaffenzeller until 2003, IMF commodity prices indices thereafter. Nominal prices adjusted using US consumer price index. Source: Pfaffenzeller, IMF,
J.P. Morgan Asset Management. (Bottom left) Note: On a log scale the distance between tick marks shows the same percentage change. Source: Bloomberg,
J.P. Morgan Asset Management. (Bottom right) Source: Goldman Sachs, National Bureau of Statistics of China, J.P. Morgan Asset Management.
Timber
Copper
Wheat
Cotton
Inflation adjusted commodity indices rebased to 1900 = 100
Metals (lhs)
Agriculturalproducts (lhs)
Chinese steel production (rhs)
Chinesesteelproduction
(millionsmetrictons
)
Met
alsan
dagricu
ltura
lindices
OtherAss
etClasses
Commodity indices and Chinese steel productionGold price (log scale)Inflation adjusted31 January 1980
USD 1.908
30 June 2012
USD 1.597
USD/oz
Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
100
200
300
400
10
20
30
40
50
60
70
TOC
Oil and gas supply
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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
0
20
40
60
80
100
120
140
160
0
2
4
6
8
10
12
14
56
Crude oil and Henry Hub LNG prices Middle east energy production & chokepointsPercent of global liquid fuel production, 2010
USD/bbl
OtherAss
etClasses
Libya
2,1%Egypt
0,8%
Sudan0,6%
Saudi Arabia
11,7%
Iran
4,9%
Iraq
2,8%
Kuwait
2,9%
UAE
3,3%
Syria
0,5%
Strait of
Hormuz
18,0%
Suez Canal2,1%
Bab el-Mandeb
3,7%
Saudi Arabia 12% China 5% US 22% India 4%
Russia 12% Iran 5% China 11% Russia 3%
US 11% Canada 4% Japan 5% Saudi Arabia 3%
Major producers Major consumers
Percent of global total, 2010 Percent of global total, 2010
Brent
WTI30 June 2012
USD 85
30 June 2012
USD 93
Natural gas30 June 2012
USD 2,7
USD/MMBtu
Note: WTI is the West Texas Intermediate the US benchmark for oil prices, Brent is the Europeancrude oil benchmark. Henry Hub is the standard US domestic benchmark. Source: J .P. Morgan
Asset Management.
Note: Global liquid fuel production excludes liquefied natural gas(LNG). Source: EIA, J.P. Morgan Asset Management.
TOC
Correlation of returns (EUR)
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Note: Pan Europe bonds is the Citigroup Europe World Government Bond Index (WGBI). Emerging market debt is the JPMorgan EMBI Global. High yield bonds is the
JPMorgan Domestic High Yield. Ten year correlation values are calculated for period 12 July 2002 to 22 June 2012. Correlation measures the direction and degree of linear
association between two variables. All indices are total return based on weekly return data in euros. Source: Bloomberg, J.P. Morgan Asset Management.
57
MSCI
Europe
MSCI
JapanS&P 500 MSCI EM
MSCI Asia
ex Japan
MSCI
World
Pan
Europebonds
EM debtHigh yield
bonds
MSCIEurope 1,00 0,46 0,79 0,79 0,68 0,93 -0,18 0,47 0,55
MSCIJapan 1,00 0,47 0,56 0,62 0,59 -0,02 0,17 0,35
S&P 500 1,00 0,68 0,62 0,94 -0,21 0,30 0,41
MSCI EM 1,00 0,94 0,84 -0,16 0,57 0,53
MSCI Asiaex Japan 1,00 0,77 -0,12 0,44 0,47
MSCI World 1,00 -0.19 0,42 0,53
Pan Europe
bonds 1,00 0,10 -0,03
EM debt 1,000,56
High yield
bonds 1,00
OtherAss
etClasses
Correlation of
weekly returns over
previous ten years
TOC
Property
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0
50
100
150
200
250
300
Dez 00 Dez 02 Dez 04 Dez 06 Dez 08 Dez 10
Spain
Japan (shifted 17 years)
UK
Ireland
US
58
GPR250 Property Index
MSCI World Index
229
99
30 June 2012
Note: Total return indices, rebased to 100 at 31 December 2000.
Source: GPR250 Property Shares Index, J.P. Morgan Asset
Management.
Note: Japan: Land Underlying Buildings and Structures; US: Household Real Estate Assets; UK: Residential
Buildings; Spain: Residential Household Wealth; Ireland: Dwellings. Source: OECD, Japan Land and Water Bureau,
Ministry of Land, Infrastructure and Transport, Cabinet Office (Government of Japan), US Federal Reserve,
S&P/Case-Shiller, OFHEO, UK Office for National Statistics, Bank of Spain, Ireland Central Statistics Office,
Permanent TSB/ESRI, J.P. Morgan Asset Management.
Ratio
OtherAssetClasses Residential property values to GDP ratio MSCI World Index (EUR) vs GPR250 Property Index (EUR)
0
1
2
3
4
5
6
1977 1987 1997 2007 2017 2027
TOC
Cumulative returns on US assets
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0
1
10
100
1.000
10.000
Dec 1899 Dec 1909 Dec 1919 Dec 1929 Dec 1939 Dec 1949 Dec 1959 Dec 1969 Dec 1979 Dec 1989 Dec 1999 Dec 2009
59
Total return of USD 1 in real terms, log scale
Note: J.P. Morgan estimate from 2010, equities are represented by S&P 500 Total Return, bonds by BarCap US Treasury 20+ Year Total Return Index, and bills by BarCap USTreasury Bills Total Return Index. Log scale accurately represents percentage changes in index levels. Source: Shil ler, Siegel, J.P. Morgan Asset Management.
Annualised real returns
1899 2011 2000 Q1 2012Equities 6,3% -0,8%
Bonds 2,2% 5,8%
Bills 0,7% -0,3%
Equities
USD 952
Bonds
USD 12
Bills
USD 2
1905 - 1923
1928 - 1942
1965 - 1982
1999 USD 1.136
OtherAssetClasses
TOC
DEMOGRAPHICS
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60
61Demographics, savings and current accounts
62Population by age
63Education
TOC
Demographics, savings and current accounts
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-5
0
5
-8
-6
-4
-2
0
2
4
6
8
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
69+
61
Lifecycle of individual savings
Demographics
Age profile
Source: GS Global ECS Research, US Census Bureau, J.P. Morgan Asset Management.
Higher
Lower
Netsaving/dissaving
3
6
9
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
%
Age group distribution
%
Current account balance% of GDP
ChinaMedian age 35,5 years
USMedian age 36,4 years
JapanMedian age 44,8 years
Japan
US
China
TOC
Population by age
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0
10
20
30
40
50
60
0-19
20-39
40-59
60-79
80+
Note: Based on mid-year 2012 population estimate, ordered by s ize of youngest age group. Total fertility rate is the average number of children born per woman overnatural life time. Source: US Census Bureau, J.P. Morgan Asset Management.
India USNigeriaAge Brazil China UK Italy Japan
2,6 2,15,4 2,2 1,5 1,9 1,4 1,4
Germany
1,4Total fertility
rate
Percentage of population, by age cohort
54% 39% 34% 27% 25% 23% 19% 18% 18%
Demographics
62
TOC
Education
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63
Source: OECD, Program for International Student Assessment (PISA), J.P. Morgan Asset Management.
PISA education survey: comparing performance of selected countriesScores for 15 year olds
Rank Reading Maths Science
1 556 Shanghai-China 1 600 Shanghai-China 1 575 Shanghai-China
2 539 Korea 2 562 Singapore 2 554 Finland
3 536 Finland 3 555 Hong Kong-China 3 549 Hong Kong-China
8 520 Japan 9 529 Japan 5 539 Japan
17 500 United States 16 513 Germany 13 520 Germany
20 497 Germany 22 497 France 16 514 United Kingdom
22 496 France 28 492 United Kingdom 23 502 United States
25 494 United Kingdom 31 487 United States 27 498 France
53 412 Brazil 57 386 Brazil 53 405 Brazil
63 370 Peru 63 365 Peru 63 373 Azerbaijan
64 362 Azerbaijan 64 360 Panama 64 369 Peru
65 314 Kyrgyzstan 65 331 Kyrgyzstan 65 330 Kyrgyzstan
Topthree
Selected
others
Bottom
three
Demographics
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Meet the team
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Tom Elliott. executive director, is a global strategist within the Investment Marketing Team at J.P. Morgan AssetManagement, responsible for investment communications through the Guide to the Markets suite of products. An
employee since 1995, he worked in the Global Multi-Asset Group (GMAG) until 2006 and before that he was head of the
Investment Writing Team. Previously. he worked at Euromoney Publications as a feature writer for a year and prior to thathe spent four years at Greig Middleton & Co. as a graduate trainee and securities analyst. Tom obtained a BA in History
from Sussex University and an MSc in Economic History from the London School of Economics.
Dan Morris. executive director, is a strategist responsible for delivering market analysis and insight to clients in Europe,
the Middle East, and Africa. Prior to joining J.P. Morgan Asset Management, Dan was the Senior Equity Strategist atLombard Street Research and before that part of the Institutional Investor-ranked portfolio strategy team at Banc of
America Securities in New York. Dan began his career covering Latin American equity markets at BT Alex. Brown and
Dresdner Kleinwort Benson. He holds an MBA from the Wharton School and a Masters in International Relations from
Johns Hopkins' School of Advanced International Studies. His undergraduate degree is in Mathematics from Pomona
College and he is a CFA charterholder.
Maria Paola Toschi. executive director, is a market strategist at J.P. Morgan Asset Management in the Milan Office, incharge of communications to domestic retail and institutional clients. She worked from 1986 to 2003 as a sell-side equity
analyst in different Italian Banking Institutions and has spent the last eight years in Banca IMI, Intesa Sanpaolo Banking
Group, mainly covering small-mid Industrial companies and following several IPOs. In 2003 she became responsible for
the retail investment communications team dedicated to the Sanpaolo Retail and Private Banking network. She graduated
in Economics at the Milan L. Bocconi University and has been a Member of the Italian Financial Analysts Association
since 1989. She joined J.P. Morgan Asset Management Milan in November 2008.
The full suite of the Guide to the Market publications can be accessed by visiting the Insight Portal:
www.jpmorganassetmanagement.com/insightTOC
J.P. Morgan Asset Management
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65
FOR PROFESSIONAL* INVESTORS ONLY. NOT FOR RETAIL USE OR DISTRIBUTION.
*ProfessionalInvestors corresponds to professional clients and eligible counter parties as defined within the European Union Directive 2004/39/EC on Markets in Financial Instruments (MiFID).
Any forecasts, figures, opinions or investment techniques and strategies set out, unless otherwise stated, are J.P. Morgan Asset Managements own at date of publication. They are considered to be
accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. They may be subject to change without reference or notification to you.
The views contained herein are not to be taken as an advice or recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support aninvestment decision. It should be noted that the value of investments and the income from them may fluctuate in accordance wi th market conditions and taxation agreements and investors may not get
back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. You should also note that if you contact J.P. Morgan Asset Management by telephone
those lines could be recorded and may be monitored for security and training purposes. J.P. Morgan Asset Management is the br and name for the asset management business of JPMorgan Chase & Co.
and its affili ates worldwide.
Issued by JPMorgan Asset Management (Europe) Socit responsabilit limite, European Bank & Business Centre, 6 route de Trves, L-2633 Senningerberg, Grand Duchy of Luxembourg,
R.C.S.Luxembourg B27900, corporate capital EUR 10.000.000. Issued in the United K ingdom by JPMorgan Asset Management (UK) which is authorised and regulated by the Financial Services Authority.
Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.
Unless otherwise stated, all data is as at 30/06/2012.
Prepared by:Kerry Craig, Tom Elliott , Paola Toschi and Dan Morris
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