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Guide to the MarketsAustralia | |

MARKET INSIGHTS

3Q 2017 30 June 2017

Global Market Insights Strategy Team

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 J. 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 RamakrishnanLondon

3

GTM – Australia 3| Australian economy4. Economic growth and the composition of GDP5. Growth indicators6. Inflation7. Labour market8. Consumer finances9. Residential real estate10. Trade11. Government finances

Global economy12. Global growth13. Global Purchasing Managers’ Index (PMI) for manufacturing14. Global inflation dynamics15. Globalisation and trade16. U.S.: GDP and inflation17. U.S.: Growth indicators18. U.S.: Labour market19. U.S.: Fiscal policies20. U.S.: Long-run economic growth21. Eurozone economy22. Eurozone: Inflation and lending23. European politics24. Japan: GDP and inflation25. Japan: Growth indicators26. Japan: Policies, currencies and governance27. China: GDP and inflation28. China: Growth indicators29. China financial dynamics30. China: Credit and leverage

Equities31. World equity market returns32. Global equity earnings and valuations33. Australia ASX 200 at inflection points34. Australia ASX 200 valuation measures35. Australia ASX 200 earnings36. Australia sector returns37. Market volatility38. Correlation and dispersion39. Global style performance

Page reference40. Global investing41. U.S. S&P 500 at inflection points42. U.S. S&P 500 earnings and valuations43. Bear markets and subsequent bull runs44. Interest rates and equities45. Europe: Earnings and valuation46. Emerging markets valuations and returns47. Emerging markets equities: Relative performance48. Emerging markets: Earnings snapshot

Fixed income49. Fixed income sector returns50. Policy rates and market expectations51. Central bank balance sheets52. G3 bond yields53. Australian interest rates and inflation54. The Australian yield curve55. The U.S. Federal Reserve outlook56. Historical impact of U.S. Federal Reserve tightening57. Fixed income interest rate risk58. Global investment-grade bonds59. U.S. high yield bonds60. European high yield bonds61. Emerging market debt

Other asset classes62. Oil consumption and production63. Commodities64. Australian dollar65. Global currencies66. Emerging markets currencies67. Correlations

Investing principles68. Asset class returns (AUD)69. Cash accounts70. Annual returns and intra-year declines71. The power of compounding72. Life expectancy and pension shortfall73. Time, diversification and the volatility of returns74. Asset markets in coming decade

4

GTM – Australia 4|

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15-4%

-2%

0%

2%

4%

6%

8%

10%

Economic growth and the composition of GDP

Real GDP Components of GDPYear-over-year change Nominal GDP, sum of last four quarters, AUD billions*

Source: Australian Bureau of Statistics, FactSet, J.P. Morgan Asset Management. *Values may not sum to 100% due to rounding. Guide to the Markets – Australia. Data as of 30 June 2017.

56.6% Consumption

23.5% Gov’t spending

12.0% Investment ex-housing

7.6% Housing0.3% Net exports

Avg 1965 1Q17

Real GDP 3.4% 1.7%

Aust

ralia

nec

onom

y

5

GTM – Australia 5|Growth indicators

Source: FactSet, J.P. Morgan Asset Management; (Top left and right) Westpac; (Top left) National Australia Bank; (Bottom left and top right) ABS.Guide to the Markets – Australia. Data as of 30 June 2017.

Consumer confidence and business conditionsIndex, 3-month moving average

New capital expenditures% of GDP

Consumer confidence and retail salesYear-over-year change 3-month moving average

Business credit growthYear-over-year change

Non-residentialPublic engineering

ResidentialResources

Aust

ralia

nec

onom

y

Consumer confidenceBusiness confidence

Retail sales growth

Consumer confidence

'99 '01 '03 '05 '07 '09 '11 '13 '15-10%

-5%

0%

5%

10%

15%

20%

25%

May 2017:3.1%

6

GTM – Australia 6|Inflation

CPI and core CPIYear-over-year change

Source: Australian Bureau of Statistics, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index, core CPI is the average of the trimmed mean and weighted median measures of inflation. Tradables represent approximately 35% of the CPI basket and non-tradables 65%. Guide to the Markets – Australia. Data as of 30 June 2017.

Average 1Q17

Headline CPI* 3.8% 2.1%

Core CPI 3.8% 1.8%

Tradables 2.9% 1.3%

Non-tradables 4.3% 2.6%

Aust

ralia

nec

onom

y

7


'99 '01 '03 '05 '07 '09 '11 '13 '153.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

Labour market

Unemployment and underemployment ratesSeasonally adjusted

Employment changeMonthly change in trend series, thousands

Wage growthYear-over-year change, excluding bonuses

Source: Australian Bureau of Statistics, FactSet, J.P. Morgan Asset Management. Guide to the Markets – Australia. Data as of 30 June 2017.

May 2017:5.5%

'99 '01 '03 '05 '07 '09 '11 '13 '151.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

1Q17:1.8%

Average: 3.3%

Aust

ralia

nec

onom

y Part timeFull time

1Q17: 8.9%

Underemployment rateUnemployment rate

-20

-10

0

10

20

30

40

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

8


$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

$11

$12

Assets Liabilities

Consumer finances

Consumer balance sheet1Q17, AUD trillions of dollars outstanding, not seasonally adjusted*

Household debt and savings ratioPercent of annualised household disposable income

Household debt service ratioInterest payments to household disposable income, seasonally adjusted

Source: Australian Bureau of Statistics, FactSet, RBA, J.P. Morgan Asset Management. *Values may not sum to 100% due to rounding. Guide to the Markets – Australia. Data as of 30 June 2017.

1Q17:8.7%

3Q08:13.2%

Total assets: $11.4tn

Total liabilities: $2.3tn

Other financial: 13%

Deposits: 9%Other tangible: 3%

Homes: 55%

Pension funds: 20%

Savings rate

Household debt

Loans: 90%

Securities otherthan shares: 1%

Other accounts payable: 10%

Aust

ralia

nec

onom

y

9


-10%

-5%

0%

5%

10%

15%

20%

25%

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

-5%

0%

5%

10%

15%

20%

35%

45%

55%

65%

75%

85%

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

0%

2%

4%

6%

8%

10%

12%

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

Residential real estate

Capital cities house pricesYear-over-year change, 3-month moving average

Mortgage lending

Auction clearance rate and house prices

Source: J.P. Morgan Asset Management; (Left and bottom right) RPD CoreLogic; (Top right) Australian Bureau of Statistics, FactSet.*Dwelling price is the year-over-year change in the hedonic index for eight capital cities.Guide to the Markets – Australia. Data as of 30 June 2017.

Auction clearance rate (adv. 5 months) Dwelling prices*

3-month annualised rate

Owner-occupierInvestor

AdelaideBrisbane

Sydney

Perth

MelbourneCanberra

APRA threshold

3-month moving average Year-over-year

Aust

ralia

nec

onom

y

10


TradeIncome

-8%

-6%

-4%

-2%

0%

2%

4%

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

Trade

Terms of trade and commodity prices Current account % of nominal GDP

Exports by destination

Source: Australian Bureau of Statistics, FactSet, J.P. Morgan Asset Management; (Left) RBA.Guide to the Markets – Australia. Data as of 30 June 2017.

Aust

ralia

nec

onom

y

Commodity pricesTerms of trade

Export / import prices RBA commodity price index

% of total exports, 12-month rolling sum

China

JapanEUU.S.

11


$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

Government spending Sources of revenue

0%

5%

10%

15%

20%

25%

30%

35%

$0

$100

$200

$300

$400

$500

$600

$700

'71 '76 '81 '86 '91 '96 '01 '06 '11 '16 '21

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

'71 '76 '81 '86 '91 '96 '01 '06 '11 '16 '21

Government finances

2016 Commonwealth budgetBudget, AUD billions*

Commonwealth budget surplus/deficit% of GDP, 2017-18 budget, end of fiscal year

Commonwealth gross debt2017-18 budget, end of fiscal year

Source: Australian Treasury, J.P. Morgan Asset Management. *Figures may not sum due to rounding.Guide to the Markets – Australia. Data as of 30 June 2017.

2017-18: -1.6%

Forecast

% of GDPTotal debt (bn)

2017-18 2018-19 2019-20 2020-21

Real GDP growth 2.75% 3.00% 3.00% 3.00%

Unemployment 5.75% 5.50% 5.50% 5.25%

Inflation (CPI) 2.00% 2.25% 2.50% 2.50%

Aust

ralia

nec

onom

y

Total spending: $464bn Borrowing: $20bn (4%)

Income:$210bn (45%)

Corp:$80bn (17%)

Sales:$67bn (14%)

Excise: $37bn (8%)

Other: $50bn (11%)

Social security:$164bn (35%)

Non-defence:$147bn (32%)

Health:$75bn (16%)

Defence: $30bn (6%)

Other: $48bn (10%)

Budget assumptions

Forecast

12


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Global growth

Real GDP growthYear-over-year change

Source: IMF, J.P. Morgan Asset Management. *Forecasts are from the IMF’s World Economic Outlook April 2017 edition.Guide to the Markets – Australia. Data as of 30 June 2017.

Glob

al e

cono

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DM growth outperforms EM

EM growth outperforms DM

Forecast*

DM GDP growthEM GDP growth

EM less DM growth

13

GTM – Australia 13|Global Purchasing Managers’ Index (PMI) for manufacturing

Source: AIG, FactSet, Markit, J.P. Morgan Asset Management. The Global Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions. Global PMI is a GDP-weighted calculation. Heatmap colours are based on PMI relative to 50 and across all countries shown. Guide to the Markets – Australia. Data as of 30 June 2017.

Glob

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cono

my

2015 2016 2017Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

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 52.6

Developed 52.1 51.9 51.7 52.6 52.3 52.0 52.1 50.8 50.9 50.5 50.3 51.1 51.4 51.2 51.5 52.6 52.9 53.7 54.2 54.1 53.9 54.1 54.1 53.9

Emerging 49.1 48.6 48.4 49.0 49.2 49.0 49.4 48.9 50.2 49.6 49.5 49.3 50.3 50.1 50.3 51.0 50.8 51.1 50.8 51.3 51.6 50.8 50.5 50.8

Australia 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 55.0

U.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 52.0

UK 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 54.3

Japan 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 52.4

Eurozone 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 57.4

Germany 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 59.6

France 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 54.8

Italy 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 55.2

Spain 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 54.7

Ireland 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 56.0

China 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 50.4

Indonesia 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 49.5

Korea 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 50.1

Taiwan 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 53.3

India 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 50.9

Brazil 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 50.5

Mexico 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 52.3

Russia 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

14


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

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

Global inflation dynamics

Inflation and inflation forecasts Producer price indexYear-over-year change Year-over-year change

Source: ABS, BEA, Bloomberg Finance L.P., Bureau of Statistics China, Eurostat, FactSet, Ministry of Internal Affairs and Communication, J.P. Morgan Asset Management. *Inflation projections are Bloomberg consensus figures. Guide to the Markets – Australia. Data as of 30 June 2017.

Glob

al e

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my

Projection*U.S.

EurozoneChina

Japan

Australia

U.S.EurozoneChina

JapanAustralia

15


0% 5% 10% 15% 20% 25% 30% 35% 40%

Brazil

India

China

Russia

Mexico

S. Korea

U.S.

Japan

Australia

UK

Eurozone

Canada

Germany

Globalisation and trade

Exports as a % of GDPGoods exported, 2016

Global tradeYear-over-year change, 3MMA Index

ASEAN exportsYear-over-year change

Source: FactSet, J.P. Morgan Asset Management; (Left) IMF Direction of Trade Statistics; (Top right) J.P. Morgan Securities, Netherlands Bureau for Economic Policy Analysis World Trade Monitor; (Bottom right) National Statistical Agencies.Guide to the Markets – Australia. Data as of 30 June 2017.

U.S.EurozoneChinaEM ex-ChinaOther

Trade growth Global PMI (adv. 3 months)

IndonesiaPhilippinesMalaysiaThailand

Singapore

48

50

52

54

56

58

-5%

0%

5%

10%

15%

20%

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

16

GTM – Australia 16|U.S.: GDP and inflation

Real GDP InflationYear-over-year change Year-over-year change

Source: FactSet, J.P. Morgan Asset Management; (Left) BEA; (Right) BLS. Components of GDP percentages may not sum to 100% due to rounding. *CPI is the Consumer Price Index. Core CPI is CPI excluding food and energy. PCE is the Personal Consumption Expenditure deflator and employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations. SAAR is the seasonally adjusted annualised rate. Guide to the Markets – Australia. Data as of 30 June 2017.

Components of GDP 1Q17Consumption 69.0%Government spending 17.5%Investment ex-housing 12.6%Housing 3.9%Net exports -3.0%

Avg 1964

Avg1999

May 2017

Headline CPI* 4.0% 2.2% 1.7%

Core CPI 4.0% 2.0% 1.9%

PCE 3.5% 1.8% 1.4 %

Core PCE 3.5% 1.7% 1.4%

Avg1969

1Q17

Real GDP 2.7% 2.1%

Glob

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cono

my

17

GTM – Australia 17|U.S.: Growth indicators

Source: FactSet, J.P. Morgan Asset Management; (Top left and bottom right) BEA; (Top and bottom left) U.S. Census Bureau; (Bottom right) Federal Reserve Bank ofPhiladelphia.Guide to the Markets – Australia. Data as of 30 June 2017.

Light vehicle salesMillions, seasonally adjusted annualised rate

Manufacturing and trade inventories

Housing startsThousands, seasonally adjusted annualised rate

Private investment and capex intentions

Average: 15.6

May 2017:16.6

May 2017:1,092

Average: 1,310

Glob

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Days of sales, seasonally adjusted

Apr 2017:41.7

Capex, future plans

Private capex

Advanced 3 months Year-over-year

18


'70 '80 '90 '00 '100%

2%

4%

6%

8%

10%

12%

U.S.: Labour market

Unemployment rate and wage growthWages of production and non-supervisory workers, SA

NFIB survey vs. Employment Cost Index

Total private job openings and quits

Source: BLS, FactSet, J.P. Morgan Asset Management; (Top right) National Federation of Independent Business.Guide to the Markets – Australia. Data as of 30 June 2017.

Average: 4.2% May 2017:4.3%

Oct 2009: 10.0%

May 2017: 2.4%

Average: 6.2%

Wage growth

Unemployment rate

Job openings Quits

Glob

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Thousands, seasonally adjusted

Net percentage Year-over-year

Companies planning to increase workers salaries

ECI (3-month lag)

19


20%

40%

60%

80%

100%

120%

'40 '48 '56 '64 '72 '80 '88 '96 '04 '12 '20-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

'91 '96 '01 '06 '11 '16 '21 '26

U.S.: Fiscal policies

Federal budget surplus/deficit% of GDP, 1990-2026, 2016 CBO Baseline

OECD corporate income tax rate by country

U.S. federal net debt (accumulated deficits)% of GDP, 1940-2027, 2017 CBO Baseline, end of fiscal year

Source: J.P. Morgan Asset Management; (Left and bottom right) BEA, FactSet, Treasury Department; (Top right) OECD. 2017 Federal Budget is based on the Congressional Budget Office (CBO) June 2017 Baseline Budget Forecast. Years shown are fiscal years (1 Oct through 30 Sep).Guide to the Markets – Australia. Data as of 30 June 2017.

Glob

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CBO Forecast

2017: -3.6%

23%

35%30%

23% 20%16% 15% 13%

0%

10%

20%

30%

40%

Average U.S. Australia Japan UK Germany Canada Ireland

20062016

2017: 76.7%

2027: 91.2%

CBO Forecast

20


0

25

50

75

100

125

1900 1912 1921 1933 1949 1961 1980 2001

U.S.: Long-run economic growth

Drivers of U.S. GDP growth Length of economic expansions and recessionsAverage year-over-year change

Source: BEA, J.P. Morgan Asset Management; (Left) BLS; (Right) NBER. *Current expansion began in July 2009 and continued through June 2017. Data for length of recovery and recessions obtained from the National Bureau of Economic Research (NBER). GDP drivers are calculated as the average annualised growth between 4Q of the first and last year. Guide to the Markets – Australia. Data as of 30 June 2017.

Glob

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2.8%

1.0%1.2%

1.6%1.9%

0.9%

1.4%

2.0%

2.1% 1.5%1.3%

0.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

'57-'66 '67-'76 '77-'86 '87-'96 '97-'06 '07-'16

4.2%

3.0%

3.3%3.1%

3.2%

1.3%

Growth in workers+ Growth in real output per worker

Growth in real GDP

Average length (months): Expansions: 47 monthsRecessions: 15 months

96 months*

21


-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

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

Eurozone economy

Contribution to eurozone GDP growth Year-over-year change

Retail sales and consumer confidenceYear-over-year change, 6MMA Level

Eurozone Unemployment rateHarmonised rates, seasonally adjusted

Source: Eurostat, FactSet, J.P. Morgan Asset Management. (Top right) European Commission. Guide to the Markets – Australia. Data as of 30 June 2017.

Retail sales Consumer confidence

Glob

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May 2017: 9.3%

Change in inventories

Exports

Imports

Investment

Consumption

GDP

22


-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

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

Eurozone: Inflation and lending

Eurozone CPI inflationContribution to headline inflation, year-over-year change

Eurozone bank lendingYear-over-year change

Corporate lending rates to smaller companiesNon-financial corporations, new business lending, 1-5 years, <EUR 1 million

Source: ECB, Eurostat, FactSet, J.P. Morgan Asset Management. *Core inflation is CPI inflation excluding energy, food, alcohol and tobacco.Guide to the Markets – Australia. Data as of 30 June 2017.

Glob

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Household

Corporate

Food, alcohol, tobaccoCore rate*EnergyCPI

ECB inflation target: 2%

Germany

France

Spain

Italy

23

GTM – Australia 23|European politics

European 2017 political timeline

Survey results: Do you support the euro?% answering “yes” as of November 2016

Italian election polling

Source: J.P. Morgan Asset Management; (Bottom left) European Commission; (Bottom right) Scenaripolitici.com. M5S is 5 Star Movement, PD is Democratic Party, FI is Forza Italia, LN is Lega Nord, Fdl is Brothers of Italy.Guide to the Markets – Australia. Data as of 30 June 2017.

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct

15 MarchThe NetherlandsGeneral election

23 April FranceFirst round of the presidential election

24 September Germany Federal election

26 January ItalyCourt decision on “Italicum” political reform

11-18 June FranceLegislative election

22-29 January France Socialist presidential primaries

7 May FranceSecond round of the presidential election

September SpainCatalonia plan independence referendum

29 March UKArticle 50 is activated, “Brexit” is triggered

40%

50%

60%

70%

80%

90%

Italy France Spain Belgium N'lands Germany

8 June UKGeneral election

Latest data

0%

5%

10%

15%

20%

25%

30%

M5S PD FI LN FdI

24


'99 '01 '03 '05 '07 '09 '11 '13 '15-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Japan: GDP and inflation


Source: FactSet, J.P. Morgan Asset Management; (Left) Japanese Cabinet Office; (Right) Ministry of Internal Affairs and Communication.*CPI is the consumer price index. Core CPI excludes food and energy prices. Guide to the Markets – Australia. Data as of 30 June 2017.

Avg1999

1Q17

Real GDP 0.9% 1.3%

Avg1999

May2017

Headline CPI* 0.1% 0.4%

Core CPI -0.3% -0.2%

Average

Glob

al e

cono

my

25

GTM – Australia 25|Japan: Growth indicators

Private consumption and sentiment indicator

Unemployment and wage growth

Diffusion index Year-over-year change, 3MMA

Seasonally adjustedOperating profitsYear-over-year change

Source: FactSet, J.P. Morgan Asset Management; (Top) Japanese Cabinet Office; (Bottom left) Japanese Statistics Bureau and Statistics Centre, Ministry of Health, Labour and Welfare; (Bottom right) Ministry of Finance. *Household sentiment is based on the Economy Watchers Survey Household index. Guide to the Markets – Australia. Data as of 30 June 2017.

Unemployment rate (inverted)Wage growth (6MMA)

Glob

al e

cono

my

Private consumptionHousehold sentiment*

Non-manufacturing

Manufacturing

26


0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016

Japan: Policies, currencies and governance

Japanese yen and the stock marketReal interest rate differential and Japanese yen

Appointment of outside directors as TSE1 companies

Source: FactSet, J.P. Morgan Asset Management; (Top left) Tullett Prebon; (Bottom left) Goldman Sachs, Tokyo Stock Exchange; (Right) Nikkei.Guide to the Markets – Australia. Data as of 30 June 2017.

Nikkei 225 Index Japanese ¥ per U.S. $

Glob

al e

cono

my

2-year U.S. / Japan treasury bond spread (inflation adjusted)

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17-6%

-4%

-2%

0%

2%

4%

60

80

100

120

Real interest rate differential

Japanese ¥ per U.S. $

Percentage of total

>1 external director, no independents>1 independent external>2 independent external

27

GTM – Australia 27|China: GDP and inflation


Source: FactSet, NBS China, J.P. Morgan Asset Management. Latest Chinese GDP growth figure is 1Q 2017. *CPI is the Consumer Price Index. PPI is the Producer Price Index.Guide to the Markets – Australia. Data as of 30 June 2017.

Consumption

GDP growthInvestment

Net exports May 2017:5.5%

May 2017: 1.5%

CPI*

PPI

Glob

al e

cono

my

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

21%

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

28


-5%

-4%

-3%

-2%

-1%

0%

1%

2%

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '10 '11 '12 '13 '14 '15 '160%

10%

20%

30%

40%

China: Growth indicators

Source: CEIC, FactSet, NBS China, J.P. Morgan Asset Management.Guide to the Markets – Australia. Data as of 30 June 2017.

Retail sales and industrial productionYear-over-year change, 3-month moving average

China home pricesYear-over-year change

Central government fiscal deficit% of GDP

Fixed asset investment (FAI)Year-over-year change, year to date

Retail sales

Industrial production

May 2017:10.8%

May 2017: 6.9%

Glob

al e

cono

my

Tier 1Tier 2Tier 3

Local government Private

State-owned enterprises1Q17: -4.3%

29

GTM – Australia 29|China financial dynamics

Key policy ratesPer annum

Foreign exchange reservesUSD trillions

Chinese yuanRebased index

Source: FactSet, J.P. Morgan Asset Management. (Top left) People’s Bank of China; (Bottom left) J.P. Morgan Economics Research; (Right) CEIC, People’s Bank of China. Guide to the Markets – Australia. Data as of 30 June 2017.

China REER* CNY per USD (inverted)

May 2017: $3.1tn

Glob

al e

cono

my

Lending rate (1-year)

SHIBOR (7-day)

SLF (7-day)MLF (6-month)

Deposit rate (1-year)

30


0x

1x

2x

3x

4x

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

0%

10%

20%

30%

40%

50%

60%

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

China: Credit and leverage

Credit to GDP growth

Credit growth

Broad credit measure, ratio, year-over-year growth, 3-month moving average

Year-over-year changeNew bank credit breakdown by borrowers

Source: People’s Bank of China, J.P. Morgan Asset Management; (Top and bottom left) CEIC; (Bottom right) BIS. Credit growth to GDP growth ratio utilizes rolling 12-month nominal GDP and augmented credit. The augmented credit measure consists of all reported bank claims on the domestic economy, plus bankers’ acceptances, entrusted loans, trust loans, new net corporate bond and non-financial equity financing, issuance of asset-backed securities and interbank loans. Wenzhou SME crisis refers to the wave of bankruptcies and funding problems faced by a large number of small and medium enterprises (SMEs) in Wenzhou in 2011. *NFBIs are non-financial banking institutions.Guide to the Markets – Australia. Data as of 30 June 2017.

Glob

al e

cono

my

% of total credit extended CorporationsNBFI* HouseholdsGovernment

Global Financial Crisis

Loosening financial conditions

Wenzhou SME crisis

Interbank liquidity crunch

A-sharemarket crashRate cut

Rapid rebound in inflation

Tightening financial conditions

Shadow banking concerns

RMB bank lendingTotal social financingAugmented credit

0%

20%

40%

60%

80%

100%

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

31


2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2Q17 Ann. Vol. 25.5%

EM 33.6%

-7.8% Japan -40.6%

57.4% Small Cap

57.4%

13.1% Small Cap

13.1%

2.1% U.S.

2.1%

20.3% Australia

20.3%

53.6% U.S.

32.4%

24.3% U.S.

13.7%

25.6% Japan 12.1%

13.2% Small Cap

13.2%

12.0% EM

15.0%

7.1% Europe 2.1%

7.9% U.S.

6.9%

Small Cap 19.6%

17.1% Small Cap

17.1%

-20.7% U.S.

-37.0%

38.8% EM

62.8%

4.6% EM

14.4%

-10.4% Portfolio

-9.8%

18.4% Europe 16.4%

47.4% Japan 54.4%

8.3% Portfolio

6.7%

14.0% U.S.

1.4%

12.5% U.S.

12.0%

9.4% Europe 8.4%

5.8% EM

6.7%

4.5% Australia

4.5%

Japan 19.4%

16.1% Australia

16.1%

-32.1% Europe -38.5%

37.0% Australia

37.0%

1.7% Japan 1.0%

-10.5% Europe -8.8%

17.1% EM

17.4%

46.2% Europe 22.3%

7.3% EM

5.6%

10.2% Small Cap

10.2%

12.1% EM

10.1%

5.4% Portfolio

7.2%

5.3% Japan 6.8%

4.5% Portfolio

4.4%

EM 17.4%

8.2% Portfolio

12.5%

-32.7% Portfolio -41.0%

21.3% Portfolio

36.6%

1.6% Portfolio

8.2%

-10.5% Australia -10.5%

15.6% Portfolio

17.1%

30.4% Portfolio

21.8%

5.7% Japan 10.3%

9.8% Europe 5.4%

11.8% Australia

11.8%

5.2% Japan 7.4%

2.5% U.S.

3.1%

3.0% EM

4.7%

Portfolio 16.1%

2.7% Europe 6.5%

-38.4% Australia -38.4%

6.1% Europe 28.6%

1.6% Australia

1.6%

-12.5% Japan -17.0%

14.6% U.S.

16.0%

20.2% Australia

20.2%

5.6% Australia

5.6%

8.0% Portfolio

3.3%

9.7% Portfolio

10.0%

3.2% U.S.

9.3%

2.5% Portfolio

2.1%

2.0% Japan 1.0%

U.S. 15.2%

-5.3% U.S. 5.5%

-41.0% EM

-45.7%

-2.0% U.S.

26.5%

1.0% U.S.

15.1%

-18.2% EM

-12.5%

6.6% Small Cap

6.6%

13.4% EM

3.8%

3.1% Europe 5.2%

2.6% Australia

2.6%

4.0% Japan 0.3%

3.2% Australia

3.2%

-0.3% Small Cap

-0.3%

1.8% Europe 3.5%

Europe 15.2%

-14.9% Japan -11.1%

-53.2% Small Cap

-53.2%

-18.8% Japan 7.6%

-8.3% Europe 7.5%

-21.4% Small Cap

-21.4%

6.2% Japan 20.9%

-0.8% Small Cap

-0.8%

-3.8% Small Cap

-3.8%

-3.9% EM

-5.4%

0.7% Europe 7.9%

1.1% Small Cap

1.1%

-1.6% Australia

-1.6%

-0.3% Small Cap

-0.3%

Australia 14.3%

10-years '07 - '16

World equity market returns

Source: FactSet, MSCI, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. Annualised return (Ann.) and volatility (Vol.) covers the period 2007 to 2016. Volatility is based on local currency returns. Small Cap: S&P ASX Small Ordinaries; EM: MSCI EM Index; Europe: MSCI Europe Index; Japan: TOPIX first section; Australia: ASX 200 Index; U.S.: S&P 500 Index. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 20% U.S.; 30% Australia; 15% EM; 15% Europe; 10% Japan; 10% small cap. All indices are total returns. Guide to the Markets – Australia. Data as of 30 June 2017.

AUD

Local

Equi

ties

32


17.516.4 15.6

14.8 14.5

1.7

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. World Australia Europe Japan EM

Price-to-book

Pric

e-to

-ear

ning

s

Global equity earnings and valuations

Forward earnings per share Global valuationsUSD, rebased to 100 Current and 20-year historical valuations*

Source: Bloomberg Finance L.P., FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. *Valuations refer to NTMA P/E for Europe, U.S., Japan, Australia and developed markets (world) and P/B for emerging markets. Valuation and earnings charts use MSCI indices for all regions/countries, except for the U.S. and Australia, which are the S&P 500 and ASX 200, respectively. Valuations for Australia start in 1999.Guide to the Markets – Australia. Data as of 30 June 2017.

Equi

ties

Australia

Europe

EM

U.S.

Axis

20-year rangeCurrent

20-year averageJapan

33


2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Australia ASX 200 at inflection points

ASX 200 Index

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Dividend yield is based on current data. Return calculations shown in green are based on the total return index. Guide to the Markets – Australia. Data as of 30 June 2017.

7 Mar 2002: P/E = 16.2x

3,498

13 Mar 2003:P/E = 12.6x

2,700

01 Nov 2007:P/E = 16.4x

6,829

10 Mar 2009:P/E = 15.7x

3,185

31 Dec 1996: 2,425

+207%

-20%

-50%

Total return:+77%

Equi

ties

30 Jun 2017:P/E = 15.6x

5,721

+159%

Characteristic Mar 2002 Nov 2007 Jun 2017Index level 3,498 6,829 5,721P/E ratio (fwd) 16.2x 16.4x 15.6xDividend yield 3.0% 3.1% 4.1%10-year Tsy 6.3% 6.3% 2.6%

34


8x

10x

12x

14x

16x

18x

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

Australia ASX 200 valuation measures

ASX 200 Index: Forward P/E ratio

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Dividend yield is calculated as the next 12-month consensus dividend divided by most recent price. Price-to-book ratio is the price divided by book value per share. Price-to-cash flow is price divided by NTM cash flow. EY minus corporate bond yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) less the yield on the AusBond Credit (5-10y) Index. *Average dates vary due to data availability, start date is 31 December 1999 except for P/B, which is January 2001, and EY spread, which is October 2003. Guide to the Markets – Australia. Data as of 30 June 2017.

Equi

ties

Average: 14.0x

31 Jun 2017:15.6x

Valuation 30 Jun measure Description 2017 Avg* P/E Forward P/E 15.6x 14.0x Div. Yield Dividend yield 4.5% 4.6% P/B Price-to-book 1.9x 2.0x P/CF Price-to-cash flow 11x 9.4x EY Spread EY minus corp bond yield 3% 1.5%

35

GTM – Australia 35|Australia ASX 200 earnings

ASX 200 earnings and performanceIndex level, analyst estimates of the next 12 months of earnings

Annual earnings estimatesMonthly earnings per share consensus estimate

Earnings revisions by sectorThree-month earnings revisions*

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. *Revisions is the difference between the number of companies seeing upward and downward revisions to earnings estimates for the coming year. Guide to the Markets – Australia. Data as of 30 June 2017.

ASX 200 index levelASX 200 EPS

Equi

ties

MaterialsFinancials ex-REITs

'13

'14 '15 '16

'17

$300

$320

$340

$360

$380

$400

$420

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

-100

-80

-60

-40

-20

0

20

40

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

36

GTM – Australia 36|Australia sector returns

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. All calculations are total returns in local currency not annualised. Growth and value indices are sub-sets of the ASX 200 Index. Since market peak represents period 1 November 2007 to the end of the last quarter. Since market low is the period 10 March 2009 to the end of the last quarter. Guide to the Markets – Australia. Data as of 30 June 2017.

Financials Materials RealEstate

Health Care Industrials Cons.

StaplesCons.Discr. Energy Telecom Utilities Australia

Equi

ties

Tech

ASX 200 weight 37.5% 16.1% 8.1% 7.6% 7.3% 7.0% 5.0% 4.0% 3.8% 2.3% 1.4% 100%

Growth 17.7% 20.7% 4.7% 14.9% 11.0% 12.4% 4.4% 0.3% 8.6% 4.3% 1.0% 100%

Value 68.9% 11.2% 12.3% 0.0% 0.0% 2.3% 1.5% 2.9% 0.5% 0.5% 0.0% 100%

2Q17 -4.4 0.3 -2.7 7.2 8.9 -5.6 2.1 -5.7 -8.3 1.4 4.6 -1.6

YTD 1.2 2.1 -2.5 23.2 12.3 4.6 4.7 -2.6 -12.5 12.2 7.4 3.2

Since Market Peak (November 2007) 51.0 -20.1 -4.8 220.9 13.9 55.6 16.5 -29.0 74.2 121.5 119.7 29.4

Since Market Low (March 2009)

268.7 50.7 273.4 259.6 252.0 122.4 218.4 -11.5 142.5 290.5 161.5 158.5

Forward P/E Ratio 13.6x 14.4x 14.8x 26.0x 23.2x 17.7x 18.5x 15.1x 12.8x 23.6x 21.6x 15.6x

15-yr avg. 12.4x 13.3x 12.6x 20.4x 17.5x 16.1x 14.0x 18.1x 13.2x 17.9x 17.2x 13.7x

Trailing P/E Ratio 14.3x 16.8x 15.8x 27.5x 23.9x 19.1x 19.5x 20.5x 14.0x 28.2x 23.2x 16.9x

15-yr avg. 13.3x 15.1x 14.2x 23.5x 20.7x 17.6x 15.1x 20.0x 13.6x 19.7x 19.6x 15.0x

Dividend Yield 5.5% 2.3% 4.8% 1.7% 3.4% 3.4% 3.4% 2.7% 6.8% 3.9% 2.2% 4.1%

15-yr avg. 5.4% 2.0% 6.1% 2.0% 3.8% 3.9% 3.8% 2.7% 6.6% 5.5% 2.6% 4.1%

Wei

ghts

Ret

urn

P/E

Div

37


0

10

20

30

40

50

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

Market volatility

Equity, fixed income and dollar realised volatility

VIX index**

Three-month rolling standard deviation of daily % change*

S&P 500 Index

Source: FactSet, J.P. Morgan Asset Management; (Top) Bloomberg Finance L.P. *Equities are represented by the S&P 500 index, fixed income by the Bloomberg Barclays U.S. Aggregate Bond index, and the dollar by the DXY index.**The VIX-CBOE Volatility Index measures market expectations of near-term volatility conveyed by S&P 500 Index option prices. Guide to the Markets – Australia. Data as of 30 June 2017.

Equity Fixed incomeU.S. dollar

Equi

ties

Feb ’16:Oil, U.S. recession

fears, China

Aug ’15:Global slowdown fears, China, Fed uncertainty

Oct ’14:Global slowdown

fearsJun ’13:Taper Tantrum

Jun ’12:Euro double dip

Sep ’11: Eurozone crisis

Jul ’10: BP oil spill,

eurozone crisis, Greek default

0.0%0.1%0.2%0.3%0.4%0.5%0.6%0.7%0.8%

0%

1%

2%

3%

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

VIX Level '08 peak 66.7 Average 17.5 Latest 11.2

38


020406080

100120140160

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

Correlation and dispersion

Dispersion of equity sector returnsMSCI World, standard deviation of sector returns, 12MMA

Average global stock-to-stock correlationDeveloped markets, rolling six-month average pairwise correlations

Number of +/- 1% days for the ASX 200

Source: J.P. Morgan Asset Management; (Left and bottom right) FactSet; (Left and top right) MSCI; (Top right) Bernstein Research; (Bottom right) Standard & Poor’s. Dispersion is a measure of relative returns of each sector in the index, weighted by the size of each sector. The higher the dispersion the greater the difference between the performance between the sectors in the index. Correlation is a measure of how similar the price changes of each stock are relative to other stocks in the index. The lower the correlation, the less similar returns are between stocks in the index. Guide to the Markets – Australia. Data as of 30 June 2017.

Average: 57

YTD:12 days

Equi

ties

0%

1%

2%

3%

4%

5%

6%

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

0.0

0.1

0.2

0.3

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

39

GTM – Australia 39|Global style performance

Value vs. growth performance and rates Cyclicals vs. defensives relative performance and ratesMSCI World value / growth performance, 10-year U.S. Treasury yield MSCI World cyclical / defensive performance, 10-year U.S. Treasury yield

Source: FactSet, MSCI, Tullett Prebon, J.P. Morgan Asset Management. Guide to the Markets – Australia. Data as of 30 June 2017.

Defensives outperforming

Cyclicals outperforming

Equi

ties

10-year U.S. TreasuryCyclicals vs. defensives

Growth outperforming

Valueoutperforming

10-year U.S. TreasuryValue vs. growth

40


U.S., 15.3%

EU, 16.5%

7EM, 58.1%

Japan, 4.3%

EM, 13.1%

UK, 5.8%

Global investing

Sector exposure

Share of global GDP

% of MSCI World Index and MSCI Australia Index

Based on purchasing power parityShare of global equity marketMSCI AC World Index

Source: FactSet, J.P. Morgan Asset Management; (Top left) IMF; (Top right and bottom) MSCI. Share of global market capitalisation is based on float-adjusted MSCI data. Share of global GDP based on purchasing power parity (PPP) estimates for 2017. Percentages may not sum to 100% due to rounding. Guide the Markets – Australia. Data as of 30 June 2017.

WorldAustralia

Canada, 3.1%

Australia, 2.4%

Canada, 1.4%Other DM, 2.9%

U.S., 52.5%

Equi

ties

Australia, 1.0%

Japan, 7.6%

Europe ex-UK, 15.3%

18% 16% 13% 12% 11% 10%6% 5% 3% 3% 3%

43%

1%8%

3% 6% 7% 5%

16%

2% 2%9%

0%

10%

20%

30%

40%

50%

Financials I.T. Health Care ConsumerDisc.

Industrials ConsumerStaples

Energy Materials Utilities Telecoms Real Estate

41


600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

U.S. S&P 500 at inflection points

S&P 500 Index

Source: Compustat, FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Forward price-to-earnings ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months, and is provided by FactSet Market Aggregates. Returns calculations shown in green are based on total return index. Guide to the Markets – Australia. Data as of 30 June 2017.

Equi

ties 24 Mar 2000:

P/E = 27.4x1,527

9 Oct 2002:P/E = 14.1x

777

9 Mar 2009:P/E = 10.3x

677

31 Dec 1996: P/E = 16.0x

741

9 Oct 2007:P/E = 14.8x

1,565

+121%-47%

-55%

Total return:+116%

30 Jun 2017:P/E = 17.5x

2,423

+327%

Characteristic Mar 2000 Oct 2007 Jun 2017Index level 1,527 1,565 2,423P/E ratio (fwd) 24.4x 14.8x 17.5xDividend yield 1.1% 1.7% 1.9%10-year Tsy 6.2% 4.6% 2.3%

42


-5%

-1%

3%

7%

11%

15%

19%

23%

'12 '13 '14 '15 '16 '17 '18

10x

14x

18x

22x

26x

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

U.S. S&P 500 earnings and valuations

S&P 500 earnings and performanceIndex level, analyst estimates of the next 12 months of earnings

S&P 500 forward P/E ratio

U.S. dollarYear-over-year change, quarterly, USD major currencies index

Source: FactSet, J.P. Morgan Asset Management; (Left and top right) Standard & Poor’s; (Bottom right) U.S. Federal Reserve, S&P 500 individual company 10k filings. *Forecast assumes no change in the U.S. dollar from its 30 June 2017 level.Guide to the Markets – Australia. Data as of 30 June 2017.

S&P 500 index levelS&P 500 EPS 31 Jan 1999: 24.3x

Average: 15.7x

Equi

ties

30 Jun 2017: 17.5x

S&P 500 revenues U.S. 56%International 44%

Forecast*

2Q17:3.92%

43


-100%

-80%

-60%

-40%

-20%

0%

1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

7

9

8

6

5

4

3

2

1

Market corrections

Bear markets Macro environment Bull markets

Mkt. Peak Bear return

Duration (months) Recession Commodity

spikeAggressive

FedExtreme

valuationsBull begin

dateBull

returnDuration (months)

1 Crash of 1929 - excessive leverage, irrational exuberance Sep 1929 -86% 32 Jul 1926 152% 37 2 1937 Fed tightening - premature monetary tightening Mar 1937 -60 61 Mar 1935 129 23 3 Post WWII crash - post-war demobilisation, recession fears May 1946 -30 36 Apr 1942 158 49 4 Flash crash of 1962 - flash crash, Cuban Missile Crisis Dec 1961 -28 6 Oct 1960 39 13 5 Tech crash of 1970 - economic overheating, civil unrest Nov 1968 -36 17 Oct 1962 103 73 6 Stagflation - OPEC oil embargo Jan 1973 -48 20 May 1970 74 31 7 Volcker tightening - whip inflation now Nov 1980 -27 20 Mar 1978 62 32 8 1987 crash - programme trading, overheating markets Aug 1987 -34 3 Aug 1982 229 60 9 Tech bubble - extreme valuations, dotcom boom/bust Mar 2000 -49 30 Oct 1990 417 113 10 Global financial crisis - leverage/housing, Lehman collapse Oct 2007 -57 17 Oct 2002 101 60

Current cycle Mar 2009 258 99 Averages - -45% 24 - 156% 54

Bear markets and subsequent bull runs

S&P 500 Composite declines from all-time highs

Characteristics of bull and bear markets

Source: FactSet, NBER, Robert Shiller, Standard & Poor’s, J.P. Morgan Asset Management. *A bear market represents a 20% or more decline from the previous market high using a monthly frequency. Periods of recession are defined using the NBER’s business cycle dates. Commodity spike is defined by a significant upward movement in oil prices. Periods of extreme valuation are defined as periods where the forward P/E multiple on the S&P 500 were approximately two standard deviations above the long-run average. Aggressive Fed tightening is defined as Federal Reserve monetary tightening that was unexpected and/or significant in magnitude. Guide to the Markets – Australia. Data as of 30 June 2017.

20% market decline*

Recession

Equi

ties

10

44

GTM – Australia 44|Interest rates and equities

Correlations between weekly equity returns and interest rate movementsRolling two-year correlation of weekly returns on the S&P 500 and the ASX 200 and the 10-year Treasury yield, 1972-2017

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Guide to the Markets – Australia. Data as of 30 June 2017.

Cor

rela

tion

10-year Treasury yield

S&P 500ASX 200

Positive relationship

between yield movements and

equity returns

Negative relationship

between yield movements and

equity returns

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

45


'07 '08 '09 '10 '11 '12 '13 '14 '15 '16€5.5

€6.0

€6.5

€7.0

€7.5

€8.0

€8.5

€9.0

€9.5

€10.0

€10.5

€11.0

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

Europe: Earnings and valuation

MSCI Europe earnings and performance MSCI Europe forward P/E ratio

STOXX 50 yearly earnings trend

Source: FactSet, J.P. Morgan Asset Management; (Left and top right) MSCI; (Bottom right) STOXX.Guide to the Markets – Australia. Data as of 30 June 2017.

Average: 13.6x

30 Jun 2017:14.8x

Equi

ties

Index level, analyst estimates of the next 12 months’ earnings

MSCI Europe index levelMSCI Europe EPS

EPS, rebased to 100 in January 201720162015

20142013

92

96

100

104

108

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

46


-20%

-10%

0%

10%

20%

30%

40%

50%

0.75x 1.00x 1.25x 1.50x 1.75x 2.00x 2.25x 2.50x 2.75x 3.00x

Emerging markets valuations and returns

MSCI Emerging Markets Index: Price-to-book ratio MSCI Emerging Markets: Price to book and returnsPrice-to-book ratio and next five-year annualised % total return

Source: FactSet, MSCI, J.P. Morgan Asset Management. Guide to the Markets – Australia. Data as of 30 June 2017.

Average: 1.77x 30 Jun 2017: 1.66x

-2.0 Std dev

+2.0 Std dev

Current level

Equi

ties

47


0

20

40

60

80

100

120

140

160

-1%

0%

1%

2%

3%

4%

5%

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '150

50

100

150

200

250 90

100

110

120

130

Emerging markets equities: Relative performance

EM vs. DM growth and equity performanceMonthly, consensus expectations for GDP growth in 12 months

EM equity relative performance and commodity pricesRebased 2003 = 100

EM equity relative performance and the USDRebased to 100 in 1993

Source: FactSet, MSCI, J.P. Morgan Asset Management; (Left) J.P. Morgan Economic Research; (Top right) Bloomberg Finance L.P.*REER is the real effective exchange rate.

Guide to the Markets – Australia. Data as of 30 June 2017.

MSCI EM / MSCI DM

EM less DM GDP growth

EM growth & equity outperformance

EM growth & equity underperformance

Equi

ties

MSCI EM / MSCI DM

Bloomberg commodity index

MSCI EM / MSCI DM

USD REER (inverted)*

48


'10 '11 '12 '13 '14 '15 '1620

40

60

80

100

120

140

160

Emerging markets: Earnings snapshot

EM earnings expectations by sector EM earnings expectations by regionConsensus EPS for next 12 months, USD, rebased to 100 in 2010 Consensus EPS for next 12 months, USD, rebased to 100 in 2006

Source: FactSet, MSCI, J.P. Morgan Asset Management.Guide to the Markets – Australia. Data as of 30 June 2017.

Equi

ties

EM Latin America

EM Asia

EM Europe

Materials

EnergyIndustrials

Telecoms

StaplesDiscr.

Financials

I.T.

Utilities

HealthCare

49


2012 2013 2014 2015 2016 YTD 2Q17 Ten-yr Ann.17.8%

Global HY 18.8%

25.3% Global HY

7.1%

16.0% EM Debt

6.2%

14.5% EM Debt

1.8%

15.3% Global HY

15.9%

2.8% Aus IG 2.8%

3.0% Global IG

3.5%

7.1% Global HY

7.3%

16.6% EM Debt 18.0%

16.4% Global IG

0.3%

14.8% US Treas.

5.1%

13.4% US Treas.

0.8%

10.1% EM Debt

9.6%

2.3% Aus Gov

2.3%

2.6% Global HY

2.0%

6.8% EM Debt

6.7%

9.9% Aus IG 9.9%

12.9% US Treas.

-2.7%

13.3% US TIPS

3.6%

10.9% US TIPS -1.4%

5.7% Portfolio

5.6%

0.4% Global HY

4.9%

1.8% EM Debt

2.4%

6.5% Aus IG 6.5%

9.8% Global IG

11.2%

9.3% Portfolio

-0.3%

12.8% Global IG

3.1%

8.5% Global IG

-3.6%

5.2% US TIPS

4.7%

0.3% EM Debt

6.3%

1.3% Portfolio

1.5%

5.9% Portfolio

6.0%

8.8% Portfolio

9.6%

6.4% EM Debt

-8.3%

11.6% Portfolio

6.2%

7.8% Global HY

-2.1%

4.8% Global IG

4.3%

-0.0% Portfolio

3.2%

1.1% Aus IG 1.1%

5.9% Aus Gov

5.9%

5.6% US TIPS

7.0%

6.1% US TIPS -8.6%

10.3% Aus Gov

10.3%

7.6% Portfolio

0.5%

3.8% Aus IG 3.8%

-0.7% Global IG

5.2%

1.1% Aus Gov

1.1%

4.4% Global IG

4.3%

5.5% Aus Gov

5.5%

4.3% Aus IG 4.3%

9.2% Global HY

2.5%

3.0% Aus IG 3.0%

2.5% Aus Gov

2.5%

-3.8% US Treas.

1.9%

0.6% US Treas.

1.2%

4.2% US Treas.

4.2%

0.7% US Treas.

2.0%

0.3% Aus Gov

0.3%

8.1% Aus IG 8.1%

2.3% Aus Gov

2.3%

1.5% US Treas.

1.0%

-4.8% US TIPS

0.9%

-1.0% US TIPS -0.4%

4.0% US TIPS

3.9%

Fixed income sector returns

Fixed income sector returns

Source: Barclays, Bloomberg Finance L.P., BoA/ML, FactSet, J.P. Morgan Asset Management. Aus Gov: AusBond Treasury (0+Y); U.S. Treas.: Barclays US Aggregate Government – Treasury; Global IG: Barclays Global Aggregate – Corporate – Investment Grade; Aus IG: Bloomberg AusBond Credit (0+Y); Global HY: BoA/ML Global High Yield; EM Debt: J.P. Morgan EMBI+; U.S. TIPS: Bloomberg Barclays US Treasury Inflation Protected (TIPS). Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 25% Aus Gov, 15% Aus IG, 10% Global IG, 15% Global HY; EM Debt 10%, US Treas. 15%, US TIPS 10%. Correlation to U.S. Treasuries and Australian Treasuries are to the Barclays US Treasury (10Y) and Bloomberg AusBond Treasury (7-10Y), respectively, for the past 10 years. Guide to the Markets – Australia. Data as of 30 June 2017.

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EM Debt

Global IG

Portfolio

U.S. Treasuries

Australia Gov

U.S. TIPS

Global HY

Australia IG

Correl to TreasuriesYield Duration U.S. Australia

5.79% 4.6 Yrs -0.25 -0.35

5.69 7.4 0.25 0.03

3.06 - - -

3.00 3.4 0.37 0.68

2.57 6.7 0.24 -0.07

2.30 5.9 0.73 0.99

1.90 6.2 0.99 0.73

0.58 5.4 0.57 0.29

AUD

LCL

50


-0.35%

-0.16%

0.10% 0.33%-0.05% -0.04%

-0.03% -0.06%

0.38%

0.61%0.75%

0.98%

1.29%

1.55%

1.76%

1.92%

-0.6%

-0.3%

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

1.8%

2.1%

Dec '17 Dec '18 Dec '19 Dec '20

Market expectations for target policy rate

Policy rates and market expectations

Central bank key policy ratesTarget rates

Source: J.P. Morgan Asset Management; (Left) Bank of Japan, European Central Bank, FactSet, RBA, U.S. Federal Reserve; (Right) Bloomberg Finance L.P.Guide to the Markets – Australia. Data as of 30 June 2017.

Policy rate Deposit rateRBA 1.50% 1.50%U.S. Fed 1.25% 1.25%ECB 0.00% -0.40%BoJ -0.10% -0.10%

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UK

Japan

U.S.

Eurozone

51


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17-100

0

100

200

300

400

500

600

700

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

Central bank balance sheets

Central bank balance sheets Central bank asset purchases% of domestic government bonds owned by G4 central banks Three-month rolling bond purchases by G4 central banks*, USD billions

Source: Bloomberg Finance L.P., J.P. Morgan Asset Management. *New purchases of assets are based on monthly holdings as reported by U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England and announced purchase plans for the next 12 months, as well as J.P. Morgan Asset Management projections for the Bank of Japan. Guide to the Markets – Australia. Data as of 30 June 2017.

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European Central BankBank of EnglandBank of Japan

U.S. Federal Reserve

Projection

52

GTM – Australia 52|G3 bond yields

10-year bond yields

Source: FactSet, Tullett Prebon, J.P. Morgan Asset Management. Guide to the Markets – Australia. Data as of 30 June 2017.

Fed QE32012

Fed QE22010

Fed QE2008

Oil shock1981

Black Friday1987

Britain leaves ERM1992

Asian currency crisis1997

9/11 attacks2001

Dot com bubbleFeb 2000

ECB QE2015

UKEurozone

U.S.Fall of Berlin

Wall 1989

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U.S. election

2016

53

GTM – Australia 53|Australian interest rates and inflation

Nominal and real 10-year Treasury yields

Source: Australian Bureau of Statistics, FactSet, Tullett Prebon, J.P. Morgan Asset Management. *December real yield calculated using 1Q17 inflation.Guide to the Markets – Australia. Data as of 30 June 2017.

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

-5%

0%

5%

10%

15%

20%30 Jun 1982:

16.40%

30 Jun 2017: 2.60%

Nominal 10-year Treasury yield

Real 10-year Treasury yield

Avg. 1970-2017

30 Jun2017

Nominal yield 8.30% 2.60%

Real yield* 2.83% 0.50%

30 Jun 2017: 0.50%

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54


3.7%

2.6%

2.4%2.2%

1.9%1.7%

1.6%

1.7%

2.4%

2.0%1.8%

1.6%1.6%1.6%1.6%

2.0%

1.2%

1.6%

2.0%

2.4%

2.8%

3.2%

3.6%

4.0%

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

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

10y1y 2y 3y 5y3m

The Australian yield curve

Yield curve

Yield curve steepness10-year minus 2-year Australian Treasuries, basis points

Correlation of government bonds*Correlation between U.S. and Australian Treasury yields

Source: FactSet, Tullett Prebon, J.P. Morgan Asset Management. *52-week rolling correlations of the weekly change in bond yields. Guide to the Markets – Australia. Data as of 30 June 2017.

7y 30y

30 Jun 2017

30 Jun 2016

10-year bonds

2-year bonds

Average: 49bps

30 Jun 2017: 87bps

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55


1.29%1.55%

1.76%

1.40%

2.10%

2.90%

3.00%

0%

1%

2%

3%

4%

5%

6%

7%

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21$0

$1

$2

$3

$4

$5

'05 '07 '09 '11 '13 '15 '17 '19 '21

The U.S. Federal Reserve outlook

Federal funds rate expectations Federal Reserve balance sheetFOMC and market expectations for the fed funds rate USD trillions

Source: FactSet, U.S. Federal Reserve, J.P. Morgan Asset Management.*Balance sheet reduction assumes reduction from current level, beginning October 2017 and lasting four years, concluding on 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.Guide to the Markets – Australia. Data as of 30 June 2017.

Longrun

Federal funds rate

FOMC long-run projection

FOMC year-end estimatesMarket expectations on 30 June 2017

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Projection*

Nov 2010: QE2

Treasuries

MBS

Other

Sep 2012: QE3

Jan 2014:Tapering of

purchases begins

Dec 2008: QE1

Sep 2011: Operation Twist

56

GTM – Australia 56|Historical impact of U.S. Federal Reserve tightening

Federal funds rate

Market reaction during previous rate hiking cycles

Target rate*, highlighted areas denote periods of rate hikes

Source: FactSet, Standard & Poor’s, U.S. Federal Reserve, J.P. Morgan Asset Management. S&P 500 returns are price returns and do not include reinvestment of dividends. Averages do not include the current cycle. *Between 1979 and 1982, the FOMC changed its approach to monetary policy, focusing on the money supply, rather than the federal funds rate. In autumn of 1982, however, the U.S. Federal Reserve shifted back to its approach of targeting the “price” rather the “quantity” of money. Because the federal funds rate was not the FOMC’s key policy tool, we exclude increases in the federal funds rate between 1979 and 1982 in our analysis of rate hike cycles. Guide to the Markets – Australia. Data as of 30 June 2017.

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May 1983 –July 1984

March 1988 –February 1989

February 1994 –February 1995

June 1999 –May 2000

June 2004 –June 2006

Average of past five rate hiking cycles

Cycle beginningDecember 2015

Yield change (bps)

Federal funds rate 313 325 300 175 425 308 100

2-year Treasury 311 227 305 121 238 240 36

10-year Treasury 274 91 185 50 52 130 1

S&P 500 return -9.6% 6.8% -2.1% 8.5% 12.0% 3.1% 16.9%

U.S. dollar 10.4% 1.7% -4.7% 3.4% -5.8% 1.0% -2.1%

7 hikes14 months

10 hikes11 months

7 hikes12 months

6 hikes11 months

17 hikes24 months

4 hikes19 months

5-cycle average: 9 hikes, 14 months

57

GTM – Australia 57|Fixed income interest rate risk

Current and historical yields for selected indices

Illustration of the impact a 1% rise in interest rates may have on selected indices

Last 10 years*

Assumes a parallel shift in the yield curve and spreads are maintained

Source: Barclays, FactSet, J.P. Morgan Asset Management. *Historical spread analysis is based on last 10 years of data, with the exception of EMD LC sovereign, which is based on seven years due to data availability. Fixed income sectors shown are provided by Barclays and are represented by: Treasury Australia; Bloomberg AusBond Treasury indices; Investment-grade credit: Barclays Global Aggregate – Corporates; High yield: Barclays Global High Yield; EMD USD sovereign: Barclays Emerging Markets – Sovereign; EMD USD corporate: Barclays Emerging Markets – Corporate; EMD LC sovereign: Barclays Emerging Markets Local Currency Government. For illustrative purposes only. Change in bond price is calculated using both duration and convexity. Guide to the Markets – Australia. Data as of 30 June 2017.

Price returnTotal return

Average

Current

Min

How to interpret this chart

Max

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-12%

-9%

-6%

-3%

0%

3%

EMD LCsovereign

EMD USDcorporate

EMD USDsovereign

High yieldInvestmentgrade credit

10+ years5-7 years1-3 yearsTreasury:Australia

0%

5%

10%

15%

20%

Treasury:Australia

1-3 years 5-7 years 10+ years Investmentgrade credit

High yield EMD USDsovereign

EMD USDcorporate

EMD LCsovereign

58


$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

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

6x

8x

10x

12x

14x

16x

0.8x

1.2x

1.6x

2.0x

2.4x

2.8x

3.2x

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

'99 '01 '03 '05 '07 '09 '11 '13 '150

100

200

300

400

500

600

Global investment-grade bonds

Global investment-grade bondsOption-adjusted spreads, basis points

U.S. IG leverage measuresLeverage* and interest coverage** ratio

U.S. IG issuanceGross issuance, USD trillion

Source: J.P. Morgan Asset Management; (Left) Barclays, BofA Merrill Lynch, FactSet; (Top and bottom right) J.P. Morgan Securities.*Leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). **Interest coverage is EBITDA over interest expense. Guide to the Markets – Australia. Data as of 30 June 2017.

Europe

AustraliaU.S.

Non-financialsFinancials

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Interest coverageLeverage

YTD: $669bn

59

GTM – Australia 59|U.S. high yield bonds

U.S. high yield spread and default rate

U.S. and European yieldsYield to worst

U.S. high yield leverage measuresNet leverage* and interest coverage ratio**

Source: J.P. Morgan Asset Management; (Top and bottom right) J.P. Morgan Economic Research; (Bottom left) Barclays, FactSet. 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 issue actually defaulting and reflects the possibility of the bond being called at an unfavourable time for the holder. *Net leverage is net debt divided by adjusted earnings before interest, tax, depreciation and amortization (EBITDA). **Interest coverage ratio is EBITDA over interest expense. Guide to the Markets – Australia. Data as of 30 June 2017.

Asset class Average since 1986 Latest

HY spread (RHS) 577 441HY default (LHS) 3.9% 1.3%

European high yieldU.S. high yieldU.S. high yield - energy

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0bps

500bps

1000bps

1500bps

2000bps

0%

5%

10%

15%

20%

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

3.0x

3.5x

4.0x

4.5x

5.0x

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

60


€ 0

€ 30

€ 60

€ 90

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

European high yield bonds

European high yield: Spread to world and default rates*

European high yield issuance by credit ratingEUR billions

High yield sector weights% of index**

Source: FactSet, J.P. Morgan Asset Management; (Top) BofA/Merrill Lynch, Credit Suisse; (Bottom left) J.P. Morgan Economic Research; (Bottom right) Barclays.*Spread to worst is BofA/Merrill Lynch Euro Non-Financial High Yield Constrained. Default rates are reported by JPMAM’s Quant Team. **U.S. HY is the J.P. Morgan Domestic HY index and Euro HY is the J.P. Morgan Euro HY index. Percentages may not sum to 100% due to rounding.Guide to the Markets – Australia. Data as of 30 June 2017.

BBB

CCCUnrated

YTD:€46.8bn

Default rate 2002: 34%

Asset class Average LatestHY spread (RHS) 623 291HY default (LHS) 4.6% 0.9%

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Consumer 27%Consumer 34%

Financial 7%Financial 11%Telecom 15%

Telecom 16%Industrial 11%

Industrial 18%Energy 18%

Energy 9%Other 21% Other 11%

0%

20%

40%

60%

80%

100%

U.S. HY Euro HY

0bps

500bps

1,000bps

1,500bps

2,000bps

2,500bps

0%

5%

10%

15%

20%

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

61


3%

5%

7%

9%

11%

13%

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

Emerging market debt

Headline inflationYear-over-year change, LatAm and EM Asia aggregates

Fiscal positionsNominal deficit, % of GDP

Source: J.P. Morgan Asset Management; (Left) J.P. Morgan Securities Research; (Top right) J.P. Morgan Economics Research; (Bottom right) IMF. *Latin America index excludes Argentina, Ecuador and Venezuela. Based on J.P. Morgan GBI-EM (EM sovereign (local currency)), J.P. Morgan EMBI+ (EM sovereign (USD)), J.P. Morgan CEMBI (EM corporate (USD)). Yield to worst is shown for EM sovereign (USD) and EM corporate (USD) indexes.Guide to the Markets – Australia. Data as of 30 June 2017.

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30 Jun 17 AverageSovereign (LCL) 6.2% 6.8%Sovereign (USD) 5.7% 6.2%Corporate (USD) 5.1% 6.3%

EM AsiaEM Latin America*

Yield to maturity

IMF forecast

EM EuropeEM AsiaEM Latin America

0%

2%

4%

6%

8%

10%

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

Emerging market yields

62

GTM – Australia 62|Oil consumption and production

Price of oilBrent crude, nominal prices, USD / barrel

Crude oil production growthYear-over-year change, millions barrels per day

U.S. crude oil inventories and rig count*Millions barrels Number of active rigs

Source: FactSet, J.P. Morgan Asset Management; (Top left) U.S. Energy Information Administration; (Bottom left) Baker Hughes, U.S. Department of Energy.*Weekly U.S. crude oil and petroleum ending inventory includes strategic petroleum reserve, and active rig count represents both natural gas and oil rigs.Guide to the Markets – Australia. Data as of 30 June 2017.

Inventories (incl. SPR)

Active rigs

30 Jun 2017: $48.74

Jul 2008: $145.65

Dec 2008: $34.27

Jun 2014: $115.60

Oth

er

asse

t cla

sses

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

'15 '16 '17 '18

Forecast

OPEC + RussiaU.S.

63


-15%

-10%

-5%

0%

5%

10%

15%

20%

'13 '14 '15 '16 '17

0

10

20

30

40

50

60

0

20

40

60

80

100

120

140

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

Commodities

Commodity pricesRBA commodity indices Mt Days

Chinese implied steel demand growth**Year-over-year change

Source: J.P. Morgan Asset Management; (Left) FactSet, RBA; (Top and bottom right) Bloomberg Finance L.P., National Bureau of Statistics of China.*Not plotted on chart. **Implied steel demand is Chinese steel production less net exports of steel.Guide to the Markets – Australia. Data as of 30 June 2017.

Oth

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asse

t cla

sses

31 May 2017: 7.0%

Index weights 2016Bulk commodities 54.4%Rural commodities 13.4%Base metals 5.3%Other resources* 26.9%Index 100.0%

Chinese port inventories and days of supply

Days of supplyInventories at port

64


5060708090

100110120130140

'80 '84 '88 '92 '96 '00 '04 '08 '12 '16

Australian dollar

AUD trade-weighted index

Iron ore price and FXUSD per tonne

Short rates (bps) and FX

Source: FactSet, J.P. Morgan Asset Management; (Bottom left) Commodity Research Bureau; (Bottom right) Tullett Prebon.Guide to the Markets – Australia. Data as of 30 June 2017.

Oth

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asse

t cla

sses

Iron ore price

USD per AUD

2-year U.S. / Australia Treasury spread (bps)

USD per AUD

$A REER10-year moving average

+1.5 std dev

-1.5 std dev

65


0.5

2.5

4.5

6.5

8.5

10.5

12.5

14.5

0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8

Turkey

Japan

Canada

Brazil

Mexico

Euro

UK

South Africa

Russia

Australia

Indonesia

India

China

Korea

U.S.

Global currencies

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

Currency trendsReal effective exchange rate, rebased to 100 as of Dec 2015

US-German interest rate differential2-year yields (LHS); price of a dollar in EUR (RHS)

Source: J.P Morgan Asset Management; (Left and top right) J.P. Morgan Economics Research; (Top and bottom right) FactSet; (Bottom right) Tullett Prebon.*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, except for Indonesia, which uses a consumer price index. Guide to the Markets – Australia. Data as of 30 June 2017.

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Euro

UK

Japan

China

U.S.

2-year spread

USD / EUR

Expensive relative to averageCheap relative to average

KeyCurrent

10-year range

66

GTM – Australia 66|Emerging markets currencies

EM currencies vs. U.S. dollarIndex level

Commodity prices and EM FXIndices

“Fragile Five” current account balance*% of GDP

Source: J.P. Morgan Asset Management; (Left) J.P. Morgan Economics Research; (Top right) Bloomberg Finance L.P., J.P. Morgan Economics Research; (Bottom right) FactSet, IMF. *”Fragile Five” are Brazil, India, Indonesia, South Africa and Turkey. Aggregate current account balance is weighted by individual country’s GDP. Guide to the Markets – Australia. Data as of 30 June 2017

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Commodity prices

EM currencies vs. USD

EM currencies appreciating

EM currencies depreciating

Average

-1 std. dev.

+1 std. dev.

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

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

60

80

100

120

140

160

180

60

70

80

90

100

110

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

60

70

80

90

100

110

120

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

67

GTM – Australia 67|Correlations

Source: Barclays, Bloomberg Finance L.P., Credit Suisse, FactSet, FTSE, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. EMD (USD): JP Morgan GBI-EM Global Diversified Composite; Aus Govt Bonds: Bloomberg AusBond Govt (0+Y); Global High Yield: Barclays Global High Yield; REITS: FTSE EPRA/NAREIT Developed; Hedge funds: Credit Suisse / Tremont Hedge Fund Index Multi-Strategy - Hedge Fund Index; Commodities: Bloomberg Commodity Index. All correlation coefficients based on quarterly total return data.Guide to the Markets – Australia. Data as of 30 June 2017.

Three-year correlations

Ten-year correlations

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ASX 200 S&P 500MSCI

Europe MSCI EMAus Govt

BondsGlobal

Agg Global HY EM debt REITsHedge Funds Cmdty

ASX 200 1.00 0.85 0.93 0.83 -0.52 0.06 0.74 -0.02 0.71 0.82 0.47

S&P 500 0.64 1.00 0.91 0.80 -0.57 0.07 0.76 -0.09 0.76 0.79 0.54

MSCI Europe 0.92 0.60 1.00 0.81 -0.54 0.07 0.76 0.00 0.77 0.80 0.46

MSCI EM 0.49 0.70 0.62 1.00 -0.61 0.26 0.89 -0.02 0.61 0.87 0.63

Aus Govt Bonds 0.11 -0.14 -0.09 -0.02 1.00 0.26 -0.58 0.55 -0.23 -0.69 -0.54

Global Agg -0.29 -0.09 -0.35 0.22 0.54 1.00 0.27 0.49 0.00 0.02 0.26

Global HY 0.19 0.34 0.25 0.70 -0.02 0.57 1.00 -0.01 0.66 0.86 0.67

EM debt 0.25 0.34 0.15 0.60 0.61 0.79 0.64 1.00 0.16 -0.31 -0.34

REITs 0.70 0.27 0.55 0.10 0.59 -0.17 -0.22 0.31 1.00 0.60 0.31

Hedge Funds 0.60 0.34 0.77 0.63 0.12 -0.19 0.23 0.14 -0.19 1.00 0.66

Cmdty 0.04 0.16 0.07 0.29 -0.27 0.19 0.71 0.20 -0.17 0.12 1.00

68


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2Q17 Ann. Vol.

Aus. FI 8.8%

EM equity 16.8%

REITS 34.4%

EM equity 43.8%

REITS 33.2%

EM equity 25.5%

Global FI

32.0%

EM equity 38.8%

Aus. FI 6.0%

Aus. FI 11.4%

REITS 32.2%

DM equity 47.8%

REITS 27.3%

REITS 14.0%

REITS 13.9%

EM equity 12.0%

EM equity 5.8%

Aus. Equity 8.0%

REITS 16.1%

Global FI

5.9%

Aus. Equity 14.6%

Aus. Equity 28.0%

Aus. Equity 22.8%

Aus. Equity 24.2%

Aus. Equity 16.1%

Aus. FI 14.9%

Aus. Equity 37.0%

Cash 4.7%

Global FI

5.6%

Aus. Equity 20.3%

Aus. Equity 20.2%

DM equity 15.3%

DM equity 12.1%

EM equity 12.1%

DM equity 4.8%

DM equity 3.6%

EM equity 7.3%

EM equity 14.6%

Cash 4.8%

REITS 8.8%

EM equity 21.1%

DM equity 17.6%

EM equity 23.4%

Cash 6.8%

Cash 7.6%

Port. 12.6%

EM equity 4.6%

Cash 5.0%

EM equity 17.1%

Port. 16.2%

Port. 10.8%

Global FI

8.9%

Aus. Equity 11.8%

Aus. Equity 3.2%

Global FI

2.0%

Port. 6.7%

Aus. Equity 12.9%

REITS 3.8%

Port. 5.6%

Port. 16.7%

Port. 16.2%

Port. 14.6%

Port. 6.6%

Port. -15.6%

Cash 3.5%

Port. 1.7%

Port. -1.8%

DM equity 15.1%

EM equity 13.4%

Global FI

10.0%

Port. 5.1%

DM equity 8.7%

Port. 2.8%

Aus. FI 1.0%

Aus. FI 6.0%

DM equity 12.0%

Port. -4.3%

Cash 4.9%

DM equity 10.8%

REITS 15.5%

DM equity 12.3%

Aus. FI 3.5%

DM equity -24.9%

REITS 3.3%

Aus. Equity 1.6%

REITS -2.0%

Port. 14.7%

Global FI

13.0%

Aus. FI 9.8%

Aus. FI 2.6%

Port. 7.9%

Aus. FI 2.3%

Port. 0.9%

REITS 5.7%

Port. 9.4%

Aus. Equity -8.8%

Aus. FI 3.0%

Aus. FI 7.0%

Aus. FI 5.8%

Cash 6.0%

DM equity -1.6%

Aus. Equity -38.4%

Aus. FI 1.7%

REITS 0.4%

DM equity -5.0%

Aus. FI 7.7%

REITS 6.6%

EM equity 7.3%

Aus. Equity 2.6%

Aus. FI 2.9%

Cash 0.9%

Cash 0.4%

Cash 4.6%

Global FI

5.7%

EM equity -14.5%

DM equity -0.0%

Cash 5.6%

Cash 5.7%

Aus. FI 3.1%

Global FI

-1.7%

EM equity -41.0%

DM equity 1.4%

DM equity -1.4%

Aus. Equity -10.5%

Cash 4.0%

Cash 2.9%

Aus. Equity 5.6%

Cash 2.3%

Global FI

2.6%

Global FI

-1.4%

Aus. Equity -1.6%

DM equity 4.0%

Aus. FI 2.8%

DM equity -26.9%

Global FI

-15.9%

Global FI

5.0%

Global FI

2.1%

Global FI

-0.8%

REITS -7.7%

REITS -55.2%

Global FI

-17.1%

Global FI

-7.4%

EM equity -18.2%

Global FI

3.0%

Aus. FI 2.0%

Cash 2.7%

EM equity -3.9%

Cash 2.1%

REITS -4.1%

REITS -3.6%

Global FI

2.4%

Cash 0.5%

15-years '02 - '16

Asset class returns (AUD)

Source: Bloomberg Finance L.P., FactSet, FTSE, J.P. Morgan, MSCI, Standard & Poor's, J.P. Morgan Asset Management. Annualised return (Ann.) and volatility(Vol.) covers the period 2002 to 2016. EME: MSCI Emerging Markets; Australian FI: Bloomberg AusBond Composite (0+Y); Global FI: Barclays Global Aggregate; DMEquities: MSCI World; Australian equities: ASX 200 Index; REITs: FTSE EPRA/NAREIT Australia; Cash: Bloomberg AusBond Bank Bill Index. Port. is hypotheticalportfolio (for illustration purposes only and should not be taken as a recommendation): 15% DM equities; 10% EM equities; 25% Australian equities; 25% Australian FI;10% Global FI; 5% Cash and 10% REITs. Returns are unhedged, total return, in Australian dollars.Guide to the Markets – Australia. Data as of 30 June 2017.

Inve

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inci

ples

69


$0

$100

$200

$300

$400

$500

$600

$700

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

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

Cash accounts

Annual income generated by AUD100,000 investment in a one-year term deposit

Term deposit and policy rate3-year term deposit*

Term deposit held with banksAUD billions

Source: FactSet, RBA, J.P. Morgan Asset Management. *Annual term deposit rate is average rate for a $10,000 term deposit at a retail bank.Guide to the Markets – Australia. Data as of 30 June 2017.

Term depositCash rate

2008: $6,442

31 May 2017: 2.95%

3 Jun 2017: 1.50%

Inve

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g pr

inci

ples

May 2017: $2,300

Apr 2017: $601bn

70


-12%

16%

10% 8%6%

15%

3%7%

-12%

10%

23%

18% 19%

12%

-41%

31%

-3%

-15%

15% 15%

1%

-2%

7%

1%

-21%

-5%

-10%

-17% -16%

-11% -10%

-16% -17%

-12%

-3%-7%

-10%-12%

-47%

-17% -16%

-22%

-10% -11%-9%

-18%

-10%

-5%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

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

Annual returns and intra-year declines

ASX 200 index intra-year declines vs. calendar year returnsDespite average intra-year drops of 14.3% (median 11.7%), annual returns are positive in 17 out of 23 years*

Source: FactSet, MSCI, J.P. Morgan Asset Management. Returns are based on price only and exclude dividends. Intra-year decline refers to the largest market fall from peak to trough in a short period of time during the calendar year. *Returns are shown for calendar years from 1994 to 2016.Guide to the Markets – Australia. Data as of 30 June 2017.

Inve

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inci

ples

Calendar year return

Intra-year decline

YTD

71


$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

25 30 35 40 45 50 55 60 65

The power of compounding

$5,000 invested annually with 5% growth per year One-off $5,000 investment with/without income reinvestedAUD AUD, MSCI Australia returns

Source: J.P. Morgan Asset Management; (Right) FactSet, MSCI.Guide to the Markets – Australia. Data as of 30 June 2017.

Inve

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g pr

inci

ples

Without dividends reinvested

With dividends reinvested

$31,067

$113,607

Starting at age 35

Starting at age 25

Age

$353,804

$639,199

72


107

14

911 11

912

10 10 9 9

812

7

10 8

10

8

11

10

5

8

6

0

5

10

15

20

25

Ave

rage UK

U.S

.

Fran

ce

Can

ada

Aus

tralia

Sin

gapo

re

Bra

zil

Chi

na

Indi

a

Mex

ico

UA

E

Life expectancy and pension shortfall

Probability of reaching ages 80 and 90 Perceived retirement shortfall by countryPersons aged 65, by gender, and combined by couple Years

Source: ABS Life Tables, “The Future of Retirement: Life after work” study by HSBC, J.P. Morgan Asset Management. Figures represent the expected portion of retirement that will not be covered by retirement savings based on survey data.Guide to the Markets – Australia. Data as of 30 June 2017.

Men

WomenCouple – at least one lives to specified age

Expected savings shortfall

Savings expected to last

Inve

stin

g pr

inci

ples

68%

24%

78%

36%

93%

51%

0%

20%

40%

60%

80%

100%

80 years 90 years

73


-39%

-8%

-15%

-3% -2%

1%

-1% 1% 2%7%

1%5%

47%43%

33%28%

23% 21% 19%16% 16% 17%

12% 14%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Time, diversification and the volatility of returns

Range of equity, bond and blended total returnsAnnual total returns, 1950-2016

Source: Barclays, FactSet, Robert Shiller, Strategas/Ibbotson, U.S. Federal Reserve, J.P. Morgan Asset Management. Returns shown are based on calendar year returns from 1950 to 2016. Large cap equity represents the S&P 500 Shiller Composite and bonds represents the Strategas/Ibbotson for periods from 1950 to 1980 and the Barclays Aggregate after index inception in 1980.Guide to the Markets – Australia. Data as of 30 June 2017.

Large cap equityBonds50/50 portfolio

1-yr rolling 5-yr rolling 10-yr rolling 20-yr rolling

Inve

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g pr

inci

ples

74


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Asset markets in coming decade

Past and expected returns

Source: 2017 Long-term capital market assumptions, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management, October 2016. Returns are hedged to AUD. Guide to the Markets – Australia. Data as of 30 June 2017.

% per year, AUD hedged returnsExpected return in next decadeReturn over past decade

Inve

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inci

ples

J.P. Morgan Asset Management – Index DefinitionsThe MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group, within each country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of USD200-1,500 million. The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes - three for value and five for growth including forward-looking variables. The objective of the indexdesign is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each targeting 50% of the free-float adjusted market capitalization of the underlying country index. Country Value/Growth indices are then aggregated into regional Value/Growth indices. Prior to May 30, 2003, the indices used Price/Book Value (P/BV) ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either "value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index.The following MSCI Total Return IndicesSM are calculated with gross dividends:This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to individuals resident in the country of the company, but does not include tax credits.The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Pacific IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of June 2007, the MSCI Pacific Index consisted of the following 5 Developed Market countries: Australia, Hong Kong, Japan, New Zealand, and Singapore. Credit Suisse/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 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.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 Dow Jones Industrial Average measures the stock performance of 30 leading blue-chip U.S. companies.The Bloomberg Commodity Index is 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 zinc

All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. The S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market, representing all major industries.The Russell 3000 Index® measures the performance of the 3,000 largest U.S. companies based on total market capitalization. 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 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 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 Top 200 Index ® measures the performance of the largest cap segment of the U.S. equity universe. It includes approximately 200 of the largest securities based on a combination of their market cap and current index membership and represents approximately 68% of the U.S. market. The MSCI® EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America. The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWIconsisted of 45 country indices comprising 23 developed and 22 emerging market country indices.

J.P. Morgan Asset Management – Index Definitions All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. Individual components qualify for inclusion in the index on the basis of liquidity and are weighted by their respective world production quantities.The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis. This U.S. Treasury Index is a component of the U.S. Government index. West Texas Intermediate (WTI) is the underlying commodity for the New York Mercantile Exchange's oil futures contracts. The Barclays Capital High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, and 144-As are also included.The Barclays Capital 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. 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 andnon convertible.The Barclays Capital General Obligation Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be general obligation bonds rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lowerrating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark.The Barclays Capital Revenue Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be revenue bonds rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark.The Barclays High Yield Municipal Index includes bonds rated Ba1 or lower or non-rated bonds using the middle rating of Moody’s, S&P and Fitch.The Barclays Capital Taxable Municipal Bond Index is a rules-based, market-value weighted index engineered for the long-term taxable bond market. To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies if all three rate the bond: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate and must be at least one year from their maturity date. Remarketed issues (unless converted to fixed rate), bonds with floating rates, and derivatives, are excluded from the benchmark.

Municipal Bond Index: To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lowerrating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives are excluded from the benchmark.The Barclays Capital Emerging Markets Index includes USD-denominated debt from emerging markets in the following regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability.The Barclays Capital MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. Aggregate components must have a weighted average maturity of at least one year, must have $250 million par amount outstanding, and must be fixed rate mortgages.The Barclays Capital Corporate Bond Index is the Corporate component of the U.S. Credit index.The Barclays Capital TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury.The J.P. Morgan EMBI Global Index 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 CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing exposure to the systematic risk of the market (i.e., a beta of zero).The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among several hedge fund strategies. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage.The Barclays U.S. Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate note market.*Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy, and are based on a December 8, 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data). Presumed to be excluded from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate representation of returns in the category. CS/Tremont later published a finalized November return of -40.56% for the month, reflecting this mark-down. CS/Tremont assumes no responsibility for these estimates.

J.P. Morgan Asset Management – Definitions, risks & disclosuresBonds are subject to interest rate risks. Bond prices generally fall when interest rates rise.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. 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.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.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 thevalue of real estate, risks related to general and economic conditions, changes in the value of the underlying property ownedby the trust and defaults by borrower.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. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in emerging markets can be more volatile. As mentioned above, 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.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.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.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. Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. Price to book valuecompares 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.

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 havehigher 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.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 substrategies. 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.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.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.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. 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.Relative Value Strategies maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. The Cambridge Associates LLC U.S. Private Equity Index® is an end-to-end calculation based on data compiled from 1,052 U.S. private equity funds (buyout, growth equity, private equity energy and mezzanine funds), including fully liquidated partnerships, formed between 1986 and 2013.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.

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.Copyright 2017 JPMorgan Chase & Co. All rights reserved.

Prepared by: Kerry Craig, Tai Hui, Jasslyn Yeo, Marcella Chow, Hannah Anderson and Ian Hui.

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

Material ID: 0903c02a81df5853

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