guide to the markets quarterly europe q1 2013

7/30/2019 Guide to the Markets Quarterly Europe Q1 2013

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3

14

31

51

59

Global Market Strategy Team

Dan Morris [email protected]

Paola Toschi [email protected]

Tom Elliott [email protected]

Kerry Craig [email protected]

Andrew Goldberg [email protected]

1

www.jpmorganassetmanagement.com/insight
http://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insighthttp://www.jpmorganassetmanagement.com/insight


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2

Europe Economy

3. Eurozone GDP and Inflation

4. European Manufacturing PMIs

5. European Unemployment6. European Structural Imbalances

7. European Bank Lending and Credit Growth

8. European Government Interest Rates

9. European Bank Exposure

10. Euro Exchange Rate

11. Cash Accounts

12. Sentiment Indicators

13. European Economic Indicators

Global Economy

14. Global Debt and Deficits

15. Central Bank Monetary Stimulus and Inflation Expectations16. Global Trade: The Importance of Exports

17. US GDP and Inflation

18. US Cyclical Indicators

19. US Consumer Finances

20. US Housing and Labour Markets

21. Federal Finances

22. Japan GDP and Inflation

23. Japan Indicators

24. Emerging Market GDP Growth and Inflation

25. China Economic Growth

26. China Cyclical and Monetary Indicators

27. Emerging Markets: China Auto Consumption

28. Global Monetary Policy

29. World Consumption and Growth

30. Oil and the Economy

Equities

31. World Stock Market Returns

32. MSCI Europe Index at Inflection Points

33. European Indices

34. US S&P 500 at Inflection Points

35. Earnings and Valuations by Style

36. Emerging Market Returns

37. Income: Equities, REITS, and Fixed Income

38. World Sector Returns

39. Equity Dividends and Valuation40. Equity Correlations and Volatility

41. Earnings Revisions

42. Developed Market Equity Valuations by Country

43. Emerging Market Equity Valuations by Country

44. Europe Equity Valuations

45. Sources of Earnings per Share Growth

46. US Equity Valuations

47. Japan TOPIX and Exchange Rate

48. Emerging Market Equity Performance

49. Emerging Market Dividends, Earnings Growth and Volatili ty

50. Emerging Market Equity and Debt Composition

Fixed Income

51. Fixed Income Returns

52. Fixed Income Yields

53. Investment Grade and High Yield Bond Spreads

54. Convertible Bonds and Leveraged Loans

55. Fixed Income Market Data

56. Government Bond Yields

57. Yield Curves and Real Interest Rates

58. Credit and Money Supply Growth

Other Assets and Investor Behaviour

59. Asset Class Returns

60. Correlation of Returns

61. Global Commodities

62. Commodities and Inflation

63. Property

64. Consumer Confidence and the Stock Market

65. Industry Fund Flows

66. Asset Returns by Holding Period

67. Returns in Different Inflation Environments

68. GDP Growth and Equity Returns


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

-4

-2

0

2

4

6

3

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

Eurozone real GDPChange year on year Avg since 1999 3Q 2012

Real GDP 1,4% -0,6%

%

Eurozone inflationChange year on year

EuropeEco

nomy


0

1

2

3

4

5

Avg since 1999 Nov 2012

Headline CPI 2,2% 2,2%

Core CPI 1,6% 1,4%%


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4

EuropeEco

nomy

Lowest relative to 50 PMI Highest relative to 50 PMI

Note: Heatmap colours are based on PMI relative to the 50 level, which indicates expansion or contraction of the sector, for the time period shown. Source: Markit,

J.P. Morgan Asset Management.

Switzerland

Sweden

Germany

Austria

France

UK

Denmark

Netherlands

Italy

Spain

Ireland

Norway

Greece

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

2010

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2011 2012

Sep

Oct

Nov

61,9 60,6 59,9 62,2 59,5 58,5 58,1 54,2 53,8 52,0 49,3 47,7 45,6 49,1 47,3 49,0 51,1 46,9 45,4 48,1 48,6 46,7 43,6 46,1 48,5

61,3 60,2 61,5 60,9 58,6 59,8 56,1 52,9 50,1 48,7 48,1 49,8 47,6 48,9 51,4 50,3 50,2 50,2 49,0 48,4 50,6 45,1 44,7 43,1 43,2

58,1 60,7 60,5 62,7 60,9 62,0 57,7 54,6 52,0 50,9 50,3 49,1 47,9 48,4 51,0 50,2 48,4 46,2 45,2 45,0 43,0 44,7 47,4 46,0 46,8

55,2 57,7 60,3 61,9 60,6 57,0 55,6 53,0 50,8 50,1 48,7 48,0 47,6 49,0 51,8 52,0 51,5 51,2 50,2 50,1 47,4 46,7 45,1 44,8 49,3

57,9 57,2 54,9 55,7 55,4 57,5 54,9 52,5 50,5 49,1 48,2 48,5 47,3 48,9 48,5 50,0 46,7 46,9 44,7 45,2 43,4 46,0 42,7 43,7 44,5

59,4 58,2 59,1 58,8 55,1 54,0 52,5 51,7 49,9 49,7 51,1 48,6 48,1 49,9 51,6 50,8 51,5 50,0 46,1 48,4 45,1 49,6 48,8 47,3 49,1

55,5 63,1 58,0 61,2 62,4 62,8 59,0 58,2 58,2 54,6 63,0 42,9 47,5 59,3 53,1 54,8 51,0 63,4 52,4 52,1 47,0 50,6 50,0 55,6 56,7

56,5 57,5 57,5 60,7 58,1 59,2 55,1 52,1 51,4 50,7 48,9 48,0 46,0 46,2 49,0 50,3 49,6 49,0 47,6 48,9 48,9 49,7 50,7 48,9 48,2

51,2 52,2 55,8 56,7 55,7 56,0 51,8 49,8 48,2 49,7 47,3 50,1 48,5 48,6 48,3 49,7 51,5 50,1 51,2 53,1 53,9 50,9 51,8 52,1 52,4

50,0 51,5 52,0 52,1 51,6 50,6 48,2 47,3 45,6 45,3 43,7 43,9 43,8 43,7 45,1 45,0 44,5 43,5 42,0 41,1 42,3 44,0 44,5 43,5 45,3

51,2 52,2 55,8 56,7 55,7 56,0 51,8 49,8 48,2 49,7 47,3 50,1 48,5 48,6 48,3 49,7 51,5 50,1 51,2 53,1 53,9 50,9 51,8 52,1 52,4

55,7 54,4 55,2 57,9 57,2 55,6 56,9 56,1 56,5 54,9 53,8 50,2 49,1 46,8 54,6 56,1 59,1 52,8 54,0 46,3 50,0 48,8 49,2 49,0 50,1

43,9 43,1 42,8 42,8 45,4 46,8 44,5 45,5 45,2 43,3 43,2 40,5 40,9 42,0 41,0 37,7 41,3 40,7 43,1 40,1 41,9 42,1 42,2 41,0 41,8


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4

6

8

10

12

14

16

18

20

22

(Left) Note: Greece, Ireland, and Spain unemployment rate is average of each countrys harmonised unemployment rate. Source: Eurostat, FactSet, J.P. Morgan AssetManagement. (Right) Note: *2010 figure. Effective retirement age is the male average retirement age over the period 2006 2011. Official retirement age listed inparenthesis, subject to variations between public and private sectors, length of service etc. Youth unemployment is those aged less than 25 years. Source: OECD,Eurostat J.P. Morgan Asset Management.5

International

EuropeEco

nomy

Country

Effective

retirementage

Employment

rate of 55-64

Female

employmentrate

Youth un-

employmentrate

Austria 60 years 42%* 67% 8%

Denmark 64 60 70 14

France 59 41 60 22

Germany 62 60 68 9

Greece 62 39 45 44

Ireland 63 50 55 29

Italy 61 38 47 29

Japan 69 65 60 8

Netherlands 64 56 70 8

Portugal 66 48 60 30

Spain 62 45 52 46

Sweden 66 72 72 23

UK 64 57 65 21

US 65 60* 62 17

Unemployment rate

% Greece, Ireland, Spain

US

Italy

Germany

Euro area

European labour market inclusion rates


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85

90

95

100

105

110

115

120

125

130

135

140

Dec 90 Dec 95 Dec 00 Dec 05 Dec 10-6

-3

0

3

6

9

12

Dec 90 Dec 00 Dec 10

(Left) Note: Latest data August 2012. Source: IMF, J.P. Morgan Asset Management. (Right) Note: Latest data 3Q 2012. Data rebased to 100 at 4Q 1998. Unit labour cos tmeasures the average cost of labour per unit of output and is calculated as the ratio of total labour cost to real output. Source: ECB, J.P. Morgan Asset Management.

6

EuropeEconomy

Unit labour costsRelative to Germany

Euro

launch

Ireland

Greece

Spain

Italy

Trade balances with the eurozoneSix month moving average, USD Billion

Eurolaunch

Germany

Greece

Spain

Italy


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0

100

200

300

400

Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

7

Source: ECB, Federal Reserve, J.P. Morgan Asset Management.

EuropeEconomy

ECB lending to domestic banksEUR Billions

Italy

Spain

EUR USD

Bank reservesTrillions

ECB current account (lhs)

US bank excess reserves (rhs)

ECB deposit facility (lhs)

0,0

0,4

0,8

1,2

1,6

0,0

0,2

0,4

0,6

0,8

1,0



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Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 110

5

10

15

20

25

30

35

Note: The ECB announced the second round of Long Term Refinancing Operations (LTRO) in February 2012. The Outright Monetary T ransaction (OMT) programme wasannounced in September 2012. Source: Tullett Prebon, FactSet, J.P. Morgan Asset Management.

8

International

EuropeEconomy

European sovereign funding costsTen-year benchmark bond yield

31 Dec 2012

Greece 10,2%

Portugal 6,9%

Spain 5,2%

Ireland 5,2%

Italy 4,4%

Germany 1,3%

Euro launch

%

LTRO

OMT


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0

50

100

150

200

250

Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 120 100 200 300 400 500 600 700 800 900 1000

US now

US oya

UK now

UK oya

Ge now

Ge oya

Fr now

Fr oya

Location of banks

(Left) Source: BIS, J.P. Morgan Asset Management. (Right) Note: The price of a credit default swap (CDS) measures the cost of insuring a bond against default. Forexample, for a five year CDS a price of 100 basis points means it costs the insurer of the bond EUR 10.000 per year to insure EUR 1.000.000 for five years. Source:Markit, Bloomberg, J.P. Morgan Asset Management.

9

31 Dec 2012:117

EuropeEconomy

European bank credit default swapsFive-year iTraxx Europe Index, basis points

Bank exposure to European debtUSD Billions

bps

Italy

Spain

Portugal

Ireland

Greece

Country of issuance

Germany

UK

France

US

2Q 2008

2Q 2012

2Q 2008

2Q 2012

2Q 2008

2Q 2012

2Q 2008

2Q 2012


11/71

80

90

100

110

120

130

Dec 80 Dec 84 Dec 88 Dec 92 Dec 96 Dec 00 Dec 04 Dec 08 Dec 12Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

0,8

0,9

1,0

1,1

1,2

1,3

1,4

1,5

1,6

1,7

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

10

31 Dec 2012:USD 1,32E

uropeEconomy

Euro exchange rate

31 Dec 2012:

CHF 1,21

Swiss Franc per Euro

US Dollar per Euro

EUR REER

10 year moving average

EUR Trade Weighted Index

-1,5 std dev

+1,5 std devEuro

launch


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0

1

2

3

4

5

0

1.000

2.000

3.000

4.000

5.000

2000 2002 2004 2006 2008 2010 2012Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

42

44

46

48

50

52

54

56

58

60

62

11

Cash on the sidelinesPercent of nominal eurozone GDP

3Q 2012:49,0%

EuropeEconomy

(Left) Note: Excess means the amount above the December 2006 value. Source : European Central Bank, Eurostat, J.P. Morgan Asset Management. (Right) *Bluemarker points represent year on year inflation for that year and illus trates how the value of income that would have been eroded due to inflation in that year. Inflation isrealised inflation from 2000-2006, expected annual inflation thereafter. Source: Bloomberg, Eurostat, J.P. Morgan Asset Management.

%

EUR 262 billion

excess euro onthe sidelines

Income generated by EUR 100,000 investment in a one-yearbank deposit

Dec 2012:EUR 425

2007: EUR 4.580

%EUR Inflation (y/y)Income


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-40

-30

-20

-10

0

10

20

30

40


75

80

85

90

95

100

105

110

115

120

125

(Left) Note: Exponential moving average. Source: CESIfo Group, FactSet, J.P. Morgan Asset Management. (Right) Last data November 2012. Source: Eurostat, FactSet,


German business climate indicesSurvey of ca. 7.000 companies

12

European confidence indicators

EuropeEconomy

Current situation

Business expectations

Business climate

Industrial confidence

Consumer confidence

Service sector confidence

EuropeEconomy


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0

2

4

6

8

10

0 20 40 60 80 100 120 140 160 180 200 220

-8

-6

-4

-2

0

2

4

6

8

10

20 40 60 80 100 120 140 160 180

GDP growth, debt to GDP and borrowing costs

14

GlobalEconomy

Government deficit and debt by country% of GDP

Peak gross debt

2015 (estimated)

Deficit(%o

fGDP)

Gross debt (% of GDP)

MaastrichtTreaty

criteria

Note: The chart on the left uses gross debt (% of GDP) as this is one of the three criteria stipulated in the Maastrict Treaty. The chart on the right uses the 2012estimate of net debt (% GDP). Net debt is calculated as gross debt minus financial assets corresponding to debt instruments. The peak is taken as the highest grossdebt as % of GDP in the period 2006 to 2012 with the corresponding deficit (% of GDP) figure for that year. Peak is 2012 unless otherwise stated. Ice. is Iceland withpeak debt to GDP ratio in 2011. Source: IMF WEO October 2012 edition, Tullet Prebon, FactSet, J .P. Morgan Asset Management.

Ireland

Spain

US

Portugal

UK

Greece

Italy

Japan

China

(2010)

India

(2006)

Brazil

(2009)

Germany

France

Mexico(2009)

AveragerealGDPg

rowth(20112

013)

Net debt (% GDP)

Bubble size = Ten-yeargovernment bond yield

= 5%

= 10%

Japan

GreecePortugal

Italy

Spain

France

US

Germany

EU

Singapore

India

China

TaiwanKorea

Indonesia

Philippines

Malaysia

Thailand

220 240 260

Ireland

Ice.


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1,0

1,5

2,0

2,5

3,0

3,5

4,0

May 07 May 08 May 09 May 10 May 11 May 121

2

3

4

5


Increase since

Dec 2007

UK GBP 260 billion

USA USD 1,8 trillion

Eurozone EUR 830 billion

Japan JPY 37 trillion

15

Monetary base (M0)*Indexed

(Left) *This is M0, or the total amount of a currency that is either circulated in the hands of the public or in commercial bank deposits held in the central bank's reserves.

Source: US Federal Reserve, Bank of England, ECB, J.P. Morgan Asset Management. (Right) Note: Ten-year zero-coupon inflation swaps. Source: Bloomberg, J.P.

Morgan Asset Management.

Expected average inflation rates over next ten years

UK

US

Eurozone

GlobalEconomy x


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1,1

1,4

4,8

2,4

2,4

2,1

1,6

5,3

3,3

1,7

1,7

3,2

7,1

1,0

3,4

10,2

12,9

12,9

16,0

2,0

1,2

1,7

1,0

3,0

1,6

1,2

1,7

2,1

4,9

5,0

9,5

18,1

20,2

7,3

9,4

8,6

8,5

12,2

18,3

0 10 20 30 40

Brazil

India

China

Russia

Japan

USA

France

Italy

UK

Germany

9,8%

13,7%

27,8%

30,6%

13,7%

14,4%

24,7%

32,5%

(Left) Source: IMF, MDIC, Indian Ministry of Commerce & Industry, China Customs, Bank of Russia, BEA, Japan Customs, ONS, French Minis try of Economy, Finance &

Industry, ISTAT, German Federal Statistics Office, FactSet, J.P. Morgan Asset Management. (Top Right): Source: WTO, J.P. Morgan Asset Management. (Bottom Right)

Note: The Baltic Dry Index measures changes in the cos t of transporting raw materials by sea for different geographical routes and ship sizes. The index may be used as

an indicator of demand for raw materials and leading indictor of economic growth. Source: Bloomberg, J.P. Morgan Asset Management.

Baltic Dry IndexLog scale

World trade valueUSD trillions, log scale

16

GlobalEconomy

Exports as % of GDPLatest 12 months, goods and services exports

Brazil

India

China

Russia

Japan

US

France

Italy

UK

Germany

US Eurozone BRIC Other

42,6%

22,2%

3

12

48

1984 1989 1994 1999 2004 2009

500

2.000

8.000



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20-yr avg Q3 2012

Real GDP 2,5% 3,1%

Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11-10

-8

-6

-4

-2

0

2

4

6

8

10

17

Note: SAAR is seasonally adjusted annual rate. Source: BEA, J.P. Morgan Asset Management.

Real GDPChange quarter on quarter, SAAR

InflationChange year on year

1964 1969 1974 1979 1984 1989 1994 1999 2004 2009-3

0

3

6

9

12

15

50-yr avg Nov 2012


Core CPI 4,2% 1,9%%

GlobalEconomy

USD 951 bn

of outputrecovered

%

USD 625 bn ofoutput lost


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18

Light vehicle salesMillions, seasonally adjusted annualised rate

Housing startsThousands, seasonally adjusted annualised rate

Manufacturing and trade inventoriesDays of sales, seasonally adjusted

Real capital goods ordersNon-defensive capital goods orders ex. aircraft, USD bn, seasonally adjusted

Dec 94 Dec 99 Dec 04 Dec 098

10

12

14

16

18

20

22

24

Average: 15,1

Nov 2012:15,5

Dec 93 Dec 97 Dec 01 Dec 05 Dec 0936

38

40

42

44

46

48

Oct 2012:

39,2

Dec 74 Dec 79 Dec 84 Dec 89 Dec 94 Dec 99 Dec 04 Dec 090

400

800

1.200

1.600

2.000

2.400

Nov 2012: 861

Average: 1.433


45

50

55

60

65

70

75

Average: 57,3

Nov 2012: 55,8

(Top left) Source: BEA, J.P. Morgan Asset Management. (Top right) Source: Census Bureau, J.P. Morgan Asset Management. (Bottom left) Source: Census

Bureau, J.P. Morgan Asset Management. (Bottom right) Note: Capital goods orders deflated using the producer price index for capital goods. Source: Census

Bureau, J.P. Morgan Asset Management.

GlobalEconomy


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-25

-20

-15

-10

-5

0

5

10

10

11

12

13

14

15

Dec 79 Dec 89 Dec 99 Dec 09 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 1130

45

60

75

90

19

(Left) Note: Latest DSR data September 2012 Source: US Federal Reserve, J.P. Morgan Asset Management. (Top right) Note: Personal savings rate i s calculated as

personal savings (after tax income personal outlays) divided by after tax income. Employer and employee contributions to retirement funds as included in after tax

income but not in personal outlays, and thus are implicitly included in personal savings. Source: BEA, J.P. Morgan Asset Management. (Bottom Right) Source: FRB,

FactSet, J.P. Morgan Asset Management.

GlobalEconomy

Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted

x

3Q07:

14,1%

3Q12:10,7%


0

2

4

6

8

10

12

Personal Savings RateAnnual, % of disposable income

Nov 2012:3,6%

Household AssetsUSD trillions

Total assets excluding housing:3% above 2007 peak

Total assets:

4% below 2007 peak

Consumer real credit growthHousehold DSR

%Oct 2012:1,8%


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92

94

96

98

100

0 12 24 36 48 60


3,0

3,5

4,0

4,5

5,0

5,5

6,0

6,5

7,0

7,5

90

100

110

120

130

140

150

160

20

(Left) Note: Latest data October 2012 for Case-Shiller price index and November 2012 for existing home sales. Case-Shiller price index and median sales price rebased to

100 at December 1999. Source: Robert Shiller, J.P. Morgan Asset Management. (Right) Note: *US Non-Farm Private Payrolls. Latest data November 2012. Source: BEA,


US home sales and prices Indexed US employment levels* from beginning of recessionDates refer to different recession periods

Months into recession

EmploymentlevelG

lobalEconomy

2008

200119991957Case-Shiller home

price index

Existing homesales, millions


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-12

-10

-8

-6

-4

-2

0

2

4

1990 1994 1998 2002 2006 2010 2014 2018 2022

21

(Left) Note: 2012 numbers are actuals. Years shown are fiscal years (1 October through 30 September). Source: CBO, J.P. Morgan Asset Management. (Right) Source:

US Treasury, CBO, J.P. Morgan Asset Management.

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

Federal expenditure and receipts% of GDP, 1960 - 2012

Forecast

%

Average: 20,5%

Average: 17,9%

Receipts

Expenditure

2012:22,8%

2012:15,8%

Fiscal cliff scenario

New Years compromise

14

16

18

20

22

24

26

1960 1970 1980 1990 2000 2010

GlobalEconomy


23/71

22

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

Real GDPChange year on year

InflationChange year on year


-8

-6

-4

-2

0

2

4

6

Avg since 1999 Q3 2012

Real GDP 0,9% 0,5%


-2

-1

0

1

2

3

%


Headline CPI -0,1% -0,2%

Core CPI -0,6% -0,5%%

GlobalEconomy


24/71

75

100

125

150


23

GlobalEconomy

(Top Left) Note: *IMF estimate. Source: IMF WEO October 2012 edition, FactSet, J.P. Morgan Asset Management. (Bottom Left) Source: TOPIX, FactSet, J.P. MorganAsset Management. (Bottom Right): Note: REER is the real effective exchange rate of a currency against a basket of its main trading partners currencies. Source:FactSet, J.P. Morgan Asset Management.

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 20120

1

2

3

4

5

Current account balance% of GDP

2012*:

1,6%


7

89

10

11

12

13

14

15

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Japanese currency and stock performance Japan nominal and real effective exchange rate (REER)

TOPIX IndexYen per WonYen per USD

Average REER

Yen REER

StrongerYen

Reuters Tankan Business Confidence SurveyIndex


-45

-30

-15

0

15

30Manufacturing

Index

Non-manufacturing

index

Sep 2012: 8

Sep 2012: -3

WeakerYen

Forecast


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Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11-3

0

3

6

9

12

15

-3

0

3

6

9

12

15

18


-3

0

3

6

9

12

15

-3

0

3

6

9

12

15

18


-3

0

3

6

9

12

15

-3

0

3

6

9

12

15

18

Brazil

Note: Real GDP growth and inflation are year on year change. Source: IBGE, India Central Statistics Organisation, Press Information Bureau of India, National Bureau of

Statistics, Federal Service of State Statistics , FacSet, J.P. Morgan Asset Management.

Average:5,4%

Average:9,5%


-3

0

3

6

9

12

15

-3

0

3

6

9

12

15

18

Average:3,5%

Average:7,2%

Russia

India China

Inflation %GDP % Inflation %GDP %

Inflation %GDP % Inflation %GDP %

24

GlobalEconomy


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10,0%

9,1%

10,4%10,0%

7,0%

6,1%

8,2%

9,1%

4

5

6

7

8

9

10

11

4q10 2q11 4q11 2q12

-4

-2

0

2

4

6

8

10

12

14

2009 2010 2011 2012*

25

Note: Latest data September 2012. *2012 is year to date GDP through Q3 2012. Source: National Bureau of S tatistics of China, J.P. Morgan Asset Management.

Real GDPChange year on year

China GDP contribution

GlobalEconomy


3

6

9

12

15

Avg since 1999 Q3 2012

Real GDP 9,6% 7,4%

Gross capital formation

Consumption

Net exports

3,9%

4,2%

-0,4%

7,7%%

%

4,9%

4,7%

-0,4%

9,2%

5,5%

4,5%

0,4%

10,4%

4,4%

8,4%

-3,6%

9,2%

China Real GDP growthChange quarter on quarter, seasonally adjusted annualised rate

%


27/71

45

50

55

60

Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12-60

-30

0

30

60

90

Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

26

Imports

ExportsNov 2012:

8,0%

Nov 2012:

1,5%

NBS Mfg PMI

Markit Mfg PMI

Nov 2012: 50,6

Dec 2012: 51,5

Manufacturing PMIsIndex level, level above 50 indicates expansion

Merchandise trade growthYear on year % change of three-month sum

GlobalEconomy

Chinese inflation indicesChange year on year

Note: NBS Mfg PMI covers approximately 800 companies with a bias toward state-owned and large enterprises, while the Markit Mfg PMI includes 400 companies with a

bias toward small and medium-sized companies. Source: National Bureau of Statisti cs of China, Markit, The Peoples Bank of China, China Economic Information Network,

FactSet, J.P. Morgan Asset Management.

Monetary policy rates

%


10

15

20

25

5,5

6,0

6,5

7,0

7,5

8,0

Reserve requirement ratio1-year working

capital rate%%


-2

0

2

4

6

8

10

%



Ex Food CPI 0,8% 1,6%


28/71

27

Source: BEA, China Automotive Information Net, World Bank, J.P. Morgan Asset Management.

Auto SalesMillions of units, seasonally adjusted annualised rate

Passenger Cars per 1.000 PeopleIn 2010

United States

China

GlobalEconomy

0

5

10

15

20

25


34

178

267

439 454496 510

0

100

200

300

400

500

China Brazil South Korea US Japan France Germany


29/71

-3,0

-1,5

0,0

1,5

3,0

4,5

6,0

7,5

9,0

28

Emerging market inflation

GlobalEconomy


2

3

4

5

6

7

8

Inflation rate

Policy rate

Monetary policy and inflationSelected countries

%Inflation Rate

Real Policy Rate

Target Policy Rate

UK

US

Eurozone

Japan

S.

Africa

India

Mexico

S.

Korea

Russia

Brazil

China

(Left) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shown year on year change in CPI inflation for latest month. Real policy

rates are short-term target interest rates less the year on year change in inflation. Source: BOE, Federal Reserve, ECB, BOJ, Central Bank of Mexico, Banco Central do

Brasil, South African Reserve Bank, Reserve Bank of India, Bank of Korea, Bank of Russia, Peoples Bank of China, FactSet, J.P. Morgan Asset Management. (Right)

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

Developed Emerging


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15

20

25

30

35

40

45

50

1990 1994 1998 2002 2006 2010

%

29

Emerging markets share of global consumption and

investment

EM Investment % of GlobalEM Consumption % of Global

US Consumption % of Global

Contribution to global GDP growth

DevelopedEmerging

GlobalEconomy

(Left) Source: IMF, United Nations, J.P. Morgan Asset Management. (Right) Note: Share of global consumption based on household consumption and does not include

government consumption. Source: IMF, United Nations, Factset, J.P. Morgan Asset Management.

32%36%

48%55%

68%64%

52%45%

0

10

20

30

40

50

60

70

80

90

100

1980's 1990's 2000's 2010-2017

%


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0

20

40

60

80

100

120

140

160

0

2

4

6

8

10

12

14

0 100 200 300

30

Libya0,6%

Egypt0,8%

Sudan0,5%

Saudi Arabia12,8%

Iran4,9%

Iraq3,0%

Kuwait3,1%

UAE3,6%

Syria0,5%

Strait ofHormuz

17,0%

Suez Canal2,2%

Bab el-Mandeb3,4%

Saudi Arabia 13% China 5% US 22% India 4%

Russia 12% Iran 5% China 10% Russia 3%

US 12% Canada 4% Japan 5% Saudi Arabia 3%

Selected producers Selected consumers

% of global total, 2011 % of global total, 2011

Middle East energy production & chokepoints% of global liquid fuel production, 2011

(Top Left) Source: World Bank, J.P. Morgan Asset Management. (Bottom Left) Note: Brent is the European crude oil benchmark. H enry Hub is the standard US

domestic benchmark, measured in millions of British thermal units. (Right) Note: Forecast from the September EIA Short-Term Energy Outlook. Source: EIA, IMF,


GlobalEconomy

Energy efficiency improvement by countryHow many kilos of oil to produce USD 1.000 of output

kg of oil/GDP

Latest

1980

China

Canada

India

US

Japan

Germany

UK

Crude oil and Henry Hub natural gas pricesUSD/bbl USD/MMBtu

31 Dec 2012:

USD 111

31 Dec 2012:USD 3.4

Brent Natural gas


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30,0%

MSCI EM

46,7%

16,9%

MSCI EM

16,4%

55,0%

MSCI EM

35,8%

20,2%MSCI

Europe

19,6%

26,7%MSCI Asia

ex Japan

38,0%

-23,0%Japan

TOPIX

-40,6%

73,4%

MSCI EM

62,8%

28,3%MSCI Asia

ex Japan

15,6%

5,5%US S&P

500

2,1%

20,8%MSCI Asia

ex Japan

19,7%

4,5%MSCI

Europe

5,2%

14,2%

MSCI EM

15,3%

22,3%

MSCI Asia

ex Japan

45,0%

12,6%

MSCI

Europe

12,7%

45,3%

Japan

TOPIX

45,2%

19,6%

MSCI Asia

ex Japan

28,6%

26,1%

MSCI EM

33,5%

-33,7%

US S&P

500

-37,0%

67,2%

MSCI Asia

ex Japan

67,2%

27,5%

MSCI EM

14,4%

-7,5%

MSCI

Europe

-8,8%

18,1%

MSCI

Europe

16,4%

3,1%

MSCI Asia

ex Japan

5,1%

12,4%

MSCI Asia

ex Japan

14,0%

15,8%

MSCI

Europe

20,3%

9,2%

MSCI Asia

ex Japan

11,9%

41,9%

MSCI Asia

ex Japan

24,1%

18,6%

MSCI EM28,9%

3,2%

MSCI

Europe

6,5%

-43,3%

MSCI

Europe

-38,5%

32,5%

MSCI

Europe

28,6%

23,9%

Japan

TOPIX

1,0%

-9,6%

Japan

TOPIX

-17,0%

16,8%

MSCI EM17,4%

3,1%

MSCI EM5,4%

6,5%

MSCI

Europe

6,9%

15,3%

Japan

TOPIX

25,2%

8,1%

Japan

TOPIX

11,3%

26,7%

MSCI

Europe

25,5%

3,6%

US S&P

500

15,8%

-4,9%

US S&P

500

5,5%

-49,8%

MSCI Asia

ex Japan

-47,7%

22,5%

US S&P

500

26,5%

23,1%

US S&P

500

15,1%

-14,3%

MSCI Asia

ex Japan

-14,6%

14,2%

US S&P

500

16,0%

2,5%

Japan

TOPIX

16,7%

4,7%

US S&P

500

7,1%

7,1%

US S&P

500

28,7%

2,9%

US S&P

500

10,9%

20,9%

US S&P

500

4,9%

-8,7%

Japan

TOPIX

3,0%

-14,5%

Japan

TOPIX

-11,1%

-50,8%

MSCI EM

-45,7%

1,5%

Japan

TOPIX

7,6%

11,7%

MSCI

Europe

7,5%

-15,4%

MSCI EM

-12,5%

5,9%

Japan

TOPIX

20,9%

-2,8%

US S&P

500

-0,4%

2,7%

Japan

TOPIX

1,8%

31

Note: Annualised return covers the period 2003 to 2012. Total return indices . Source: MSCI, TOPIX, Standard & Poors, FactSet, J.P. Morgan Asset Management.

EUR

Local

Equities

20082003 2004 2005 2006 4Q 20122007 2009 20122010 2011Ten-yrAnn.


33/71


600

800

1.000

1.200

1.400

1.600

1.800

32

Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings inthe next 12 months and is provided by I/B/E/S. Ten-year treasury is the BoA/Merrill Lynch Euro Government (7-10Y) Index. Source: BoA/Merrill Lynch, I/B /E/S, FactSet,J.P. Morgan Asset Management.

16 Jul 2007:

P/E = 13,3x1.641

12 Mar 2003:

P/E = 14,2x676

4 Sep 2000:

P/E = 21,8x

1.623

9 Mar 2009:

P/E = 9,0x

714

1.147

-58% +143% -56%

31 Dec 2012:P/E = 11,4x

MSCI Europe Index

Eq

uities

+61%

Characteristic Sep 2000 Jul 2007 Dec 2012

Index level 1.623 1.641 1.147

P/E ratio (fwd) 21,8x 13,4x 11,4xDividend yield 1,9% 2,9% 3,7%

Ten-year treasury 5,4% 4,5% 2,5%


34/71


40

60

80

100

120

140

160


40

60

80

100

120

140


100

200

300

400

Note: All indices rebased to 100 at 31 December 1999. Source: FactSet, J.P. Morgan Asset Management.

Finland, France and GermanyAustria and Norway

Spain, Sweden and SwitzerlandBelgium, Netherlands, and Italy

33

Eq

uities

Norway: OBX

Austria: ATX


40

60

80

100

120

140

German: DAX

Finland: OMX

France: CAC

Belgium: BEL 20

Italy: FTSE MIB

Netherlands: AEX

Switzerland: Market Index Spain: IBEX 35

Sweden: OMX Stockholm 30


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Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

600

800

1.000

1.200

1.400

1.600

Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in

the next 12 months and is provided by I/B/E/S. Source: Standard & Poors, I/B/E/S, FactSet, J.P. Morgan Asset Management.

S&P 500 Index

34

24 Mar 2000:

P/E = 22,7x1.527

9 Oct 2002:

P/E = 15.6x777

9 Oct 2007:P/E = 14,9x

1.565

+111%

9 Mar 2009:

P/E = 12,2x677

-49% -57%

31 Dec 2012:P/E = 12,8x

1.426

+101%

Eq

uities

Characteristic Mar 2000 Oct 2007 Dec 2012

Index level 1.527 1.565 1.426

P/E ratio (fwd) 25,6x 15,2x 12,8x

Dividend yield 1,1% 1,8% 2,2%

10-year Treasury 6,2% 4,7% 1,8%


36/71

0

1

2

3

4

5

6

7

8

2001 2003 2005 2007 2009 2011

0

5

10

15

20

25

2001 2003 2005 2007 2009 2011

35

Eq

uities

(Left) Note: EPS levels are based on operating earnings per share. Most recently available data is 3Q 2012. Source: Standard & Poors, FactSet, J.P. Morgan Asset

Management. (Right) Source: Standard & Poors, Russell Investment Group, I/B/E/S, FactSet, J.P Morgan Asset Management.

Current P/E vs 20-year average P/E

Current P/E as % of 20-year average P/E

Value Blend Growth

Small

Mid

Large

Value Blend Growth

Small

Mid

Large

Eg: Large cap blendstocks are 23,1%

cheaper than their

historical average.

S&P 500 earnings per shareOperating basis, quarterly

3Q12:USD 25,64

3Q07: USD 24,26

USD

Euro Stoxx 600 earnings per shareOperating basis, quarterly

3Q12:

EUR 5,37

2Q07: EUR 7,70

EUR

11,8 12,5 15,2

14,0 16,2 20,9

12,7 14,4 16,7

14,0 16,3 21,8

13,2 14,6 16,3

14,2 17,1 21,3

84,8% 76,9% 72,7%

91,0% 88,3% 76,6%

92,9% 85,7% 76,6%


37/71

44,5%

EM Latin

America

60,8%

29,6%

EM Latin

America

32,2%

74,2%

EM Europe59,2%

28,3%

EM Latin

America

37,6%

35,9%

EM Latin

America

35,6%

-37,2%

World-38,3%

97,8%

EM Latin

America

63,2%

32,4%

EM EMEA19,2%

-1,8%

World-5,0%

23,2%

EM Europe18,6%

3,9%

EM Europe4,5%

20,2%

EM Latin

America

20,0%

41,5%

EM Europe

62,1%

29,3%

EM EMEA

24,5%

73,3%

EM Latin

America

38,0%

22,2%

EM Europe

32,8%

27,7%

EM Asia

39,1%

-48,8%

EM Latin

America

-37,7%

80,4%

EM Europe

73,6%

27,6%

EM Asia

14,9%

-14,4%

EM Asia

-14,2%

20,6%

EM EMEA

21,5%

3,4%

EM EMEA

6,2%

14,2%

Emerging

Markets

15,3%

30,0%

EM EMEA

34,5%

26,6%

EM Europe

25,8%

59,9%

EM EMEA

50,4%

19,2%

EM Asia

27,7%

26,1%

Emerging

Markets

33,5%

-50,3%

EM Asia

-47,1%

73,4%

Emerging

Markets

62,8%

27,5%

Emerging

Markets

14,4%

-15,4%

Emerging

Markets

-12,5%

19,4%

EM Asia

18,2%

3,4%

EM Asia

5,2%

13,3%

EM EMEA

14,7%

30,0%

Emerging

Markets

46,7%

16,9%

Emerging

Markets

16,4%

55,0%

Emerging

Markets

35,8%

18,6%

Emerging

Markets

28,9%

17,6%

EM Europe

22,3%

-50,8%

Emerging

Markets

-45,7%

68,8%

EM Asia

68,1%

25,2%

EM Europe

18,9%

-16,4%

EM Latin

America

-9,8%

16,8%

Emerging

Markets

17,4%

3,1%

Emerging

Markets

5,4%

12,8%

EM Europe

14,5%

25,6%

EM Asia

48,8%

7,0%

EM Asia

8,0%

46,9%

EM Asia

28,5%

11,1%

EM EMEA

25,8%

16,1%

EM EMEA

21,9%

-53,3%

EM EMEA

-48,6%

62,9%

EM EMEA

50,3%

22,9%

EM Latin

America

9,2%

-17,5%

EM EMEA

-9,1%

14,7%

World

16,4%

1,8%

EM Latin

America

5,1%

12,6%

EM Asia

14,3%

11,3%

World

25,5%

6,9%

World

11,8%

26,8%

World

16,3%

7,9%

World

16,1%

-1,2%

World

5,2%

-66,3%

EM Europe

-64,0%

26,7%

World

26,5%

20,1%

World

10,6%

-20,8%

EM Europe

-16,4%

7,2%

EM Latin

America

12,5%

0,1%

World

3,1%

5,6%

World

6,7%

36

Note: Total return MSCI indices. EM EMEA is EM Europe plus Egypt, Morocco and South Africa. World is MSCI The World Index covering developed markets. Annualised

return covers the period 2003 to 2012. Source: MSCI, FactSet, J.P. Morgan Asset Management.

Eq

uities

EUR

Local

20082003 2004 2005 2006 4Q 20122007 2009 20122010 2011Ten-yrAnn.


38/71

0,75%

1,3%

2,0%

3,7%4,2%

4,5%

6,7%

0

2

4

6

8

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

13,9%

-5,3%

3,0%

13,6%

4,4%0,2%

16,0%

12,9%

-2,9%

0,7% 5,6%

-10

-5

0

5

10

15

20

25

1926 - 1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010 - 12 1926 - 2012

5,45,1 5,0

4,54,2

3,8 3,7

4,6

2,9

3,7

2,2

2,7

3,7

2,2

0

1

2

3

4

5

6

37

(Top chart) Note: Total return index is S&P 500 until 1960s then the MSCI Europe Index. Source: Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left)

Note: Government bond is benchmark government bond yield. Yields shown are that of the appropriate FTSE NARIET REIT index, which excludes property development

companies. Source: Tullett Prebon, NARIET, J.P. Morgan Asset Management. (Bottom right) Note: European corporate is BarCap European Aggregate Credit Corporate

Index, emerging market debt is the EMBI+, high yield is the BofA/Merrill Lynch High Yield Master II, MSCI Europe is the dividend yield. Inflation is year on year change in the

eurozone CPI. Source: Eurostat, Tullett Prebon, Merrill Lynch, FactSet, J.P. Morgan Asset Management.

REIT and equity dividend yields Sources of income

Total returns: Dividends and capital appreciationAverage annualised returns

%

Capital appreciation

Dividends

Ten-year bond yield

%

Austlia Canada France Japan Global UK US

%

Eq

uities

REIT yield

Equity yield

Eurozone

CPI inflation(Nov 2012)

Cash Bunds MSCI

Europe

Euro

corpEM

debt

High

yield

Global

REITS


39/71

MSCI AC World Index

38

Eq

uities

ACWI Weight

4Q 2012

2012

Since market peak

Since market low

Forward P/E ratio

15-year avg

Trailing P/E ratio

15-year avg

Dividend yield

15-year avg

Financials Tech.Healthcare

Industrials EnergyCons.Desc.

Cons.Staples

Telecom Utilities Materials ACWI

Note: All calculations are cumulative total return in local currency, not annualised, including dividends for the stated period. Since market peak represents period 9 October

2007 to end of latest quarter. Since market low represents period 9 March 2009 to end of latest quarter. Source: I/B/E/S , FactSet, MSCI J.P Morgan Asset Management.

21,1% 12,1% 9,3% 10,4% 10,6% 10,7% 10,4% 4,3% 3,5% 7,6% 100,0%

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

28,9 15,8 18,3 17,4 2,0 25,0 14,7 8,4 3,2 10,8 16,5

-37,8 0,5 21,9 -15,4 -3,3 7,8 41,8 0,0 -17,8 -16,0 -8,4

129,4 116,1 87,4 118,1 64,3 148,8 105,7 67,8 35,6 86,2 98,9

10,8x 12,4x 13,1x 12,8x 10,1x 13,5x 15,6x 12,0x 14,1x 12,3x 12,2x

12,8x 22,5x 18,3x 15,9x 13,4x 17,9x 17,1x 20,5x 14,1x 13,3x 15,8x

12,1x 14,3x 13,4x 14,3x 10,5x 15,8x 17,0x 13,0x 15,6x 15,7x 13,6x

13,9x 18,9x 15,1x 15,7x 11,7x 18,5x 17,0x 13,8x 16,3x 14,4x 16,0x

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

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

Return

Div

P/E


40/71

90

110

130

150

170

190

210

230

250

270


39

(Left) Source: I/B/E/S, Compustat, FactSet, J.P. Morgan Asset Management. (Right) Regular dividends only. Source: MSCI, FactSet, J.P. Morgan Asset Management.

Eq

uities

S&P 500 valuations by dividend quartileValuation based on forward P/E

No-low dividend yield

High dividend yield

Average dividend yield

MSCI indices dividend growthLocal currency

Japan

US

Europe ex UK

Asia ex Japan

8

10

12

14

16

18

20

22

24

26


x


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0

10

20

30

40

50

60

70

1926 1932 1938 1944 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010

40

Stock market volatility

Large cap stocksCorrelations Among Stocks

1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 20100,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

0

15

30

45

60

75

90

DJIA volatility shownin three-month

moving average

(Top) Note: Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 2012. Source: Empirical Research Partners LLC, Standard

& Poors, J.P. Morgan Asset Management. (Bottom) Note: DJIA volatility are represented as three-month moving averages of the daily absolute percentage change in the

Dow Jones Industrial Average. Source: CBOE, Dow Jones, FactSet, J.P. Morgan Asset Management..

%

Eq

uities

Volatility Measures 2008 peak Average Latest

DJIA (left) 3,30% 0,72% 0,52%

VIX (right) 80,9 20,4 18,0

Sovereign DebtCrisis

LehmanBankruptcy

Tech Bust & 9/11

1987 Crash

Great Depression /World War II

OPEC OilCrisis

Cuban Missile Crisis

Dec 2012: 34.4%


42/71

70

75

80

85

90

95

100

105

Dec 11 Mar 12 Jun 12 Sep 12 Dec 12

90

95

100

105


92

94

96

98

100

102

104

106

108


41

Note: Revisions for next 12 month earnings estimates. Source: MSCI, I/B/E/S, J.P. Morgan Asset Management.

Brazil

EMEA

Latin Americaex Brazil

Netherlands

Italy

Spain

France

Germany

Europe

Eq

uities

Emerging markets

Earnings revisions

Japan

MSCI EMU

FTSE 100

S&P 500

EM Asia


43/71

42

Eq

uities

+3 Std Dev

+2 Std Dev

+1 Std Dev

Average

-1 Std Dev

-2 Std Dev

-3 Std Dev

+4 Std Dev

-4 Std Dev

Developed markets

Expensive

relative to own

history

Expensive

relative to

world

Cheap relative

to own historyCheap

relative to

world

Example

Average

Current

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd P/E), price to current book (P/B), price to last 12 months

cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last ten years. The grey bars represent

valuation index variability relative to that of the MSCI World Index of developed markets. Source: MSCI, I/B/E/S, FactSet, J.P. Morgan Asset Management.

Current compositeindex

Current 10 year average

Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield

France -1,95 11,0x 1,2x 5,5x 3,8% 11,8x 1,6x 5,8x 3,8%

Germany -1,60 11,0 1,4 5,7 3,4 11,9 1,5 4,6 3,3

UK -1,45 10,9 1,7 6,4 3,9 12,5 2,0 7,0 3,9

Japan -1,28 12,8 1,1 4,1 2,3 16,5 1,4 6,2 1,9

Australia -1,03 13,2 1,8 6,9 4,7 13,3 2,2 8,2 4,5

World (Avg) -0,66 12,5 1,7 6,7 2,7 13,7 2,0 7,2 2,7

Canada -0,56 12,8 1,8 5,7 2,9 13,7 2,1 7,3 2,4

US 0,37 13,0 2,1 8,2 2,1 14,3 2,4 8,4 2,1

Switzerland 0,54 13,5 2,1 11,4 3,4 13,5 2,4 9,8 2,9

France Germany UK Japan Australia World Canada US Switzerland

Stddev

from

globa

lav

erage


44/71

43

Eq

uities

+3 Std Dev

+2 Std Dev

+1 Std Dev

Average

-1 Std Dev

-2 Std Dev

-3 Std Dev

+5 Std Dev

+4 Std Dev

-4 Std Dev

+6 Std Dev

-5 Std Dev

Emerging markets

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd P/E), price to current book (P/B), price to last 12 months

cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last ten years. The grey bars represent

valuation index variability relative to that of the All Country World Index (ACWI). Source: MSCI, FactSet, J.P. Morgan Asset Management.

Current compositeindex

Current 10 year average

Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield

Russia -3,68 5,0x 0,8x 3,3x 3,8% 7,9x 1,3x 4,8x 2,2%

Brazil -1,87 10,7 1,4 5,2 3,6 8,6 1,9 5,6 3,4

China -1,59 9,9 1,6 5,0 2,9 12,0 2,1 4,2 2,8

EM Index -1,09 10,5 1,6 6,2 2,7 10,7 1,9 5,7 2,7

ACWI (Avg) -0,67 12,2 1,7 6,8 2,7 13,4 2,1 7,0 2,5

Taiwan -0,59 14,3 1,8 6,3 3,0 13,9 1,9 6,4 3,6

S. Africa 0,42 12,0 2,4 10,4 3,2 10,4 2,3 7,6 3,3Korea 0,69 8,7 1,2 5,8 1,1 9,4 1,5 4,9 1,8

Mexico 2,39 17,5 3,0 7,4 1,5 13,1 2,6 5,7 2,0

India 3,31 14,2 2,6 13,6 1,5 14,6 3,3 12,2 1,5

Expensive

relative to

own history

Expensive

relative to

world

Cheap

relative to

own history

Cheap

relative to

world

Example

Average

Current

Russia Brazil China EM Index ACWI Taiwan S. Africa Korea Mexico India

Stddev

from

globa

lav

erage


45/71

0,6

0,7

0,8

0,9

1,0

1,1

1,2

1,3

1,4

Dec 87 Dec 92 Dec 97 Dec 02 Dec 07 Dec 12Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

2

3

4

5

6

7

44

Note: The ten-year EMU bond yield is represented by the BofA Merrill Lynch Euro Government (7-10Y) index. 75% of the value of the index is comprised of bonds from

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

31 Dec 2012:

Dividend yield

Ten-year EMU bond yield

%

2,5%

3,7%

MSCI Europe Index dividend yield and Ten-Year EMU bond

Eq

uities

Eurozone and US relative valuations

Eurozone/US forward P/E

Since euro launch(since Jan 1999)

Euro

launch

31 Dec 2012:

x

Eurozonerelatively

cheaper

Eurozonerelativelymore

expensive


46/71

-40

-30

-20

-10

0

10

20

30

40

-40

-30

-20

-10

0

10

20

30

40


45

S&P 500 year over year EPS growthGrowth broken into revenue and margin expansion, quarterly

Equities

Note: Grey shaded areas represent recession periods. EPS levels are based on operating earnings per share. Most recently available data is 2Q 2012. 4Q2008, 1Q2010

and 2Q2010 reflect -101%, 91%, and 51% growth in operating earnings, and are adjusted on the chart. Source: Standard & Poors, Bloomberg, J.P. Morgan Asset

Management.

Margins

Revenue Forecast

0


47/71


2

4

6

8

10


8

10

12

14

16

18

20

22

24

26

31 Dec 2012:

46

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

Forward P/E ratio, S&P 500 Index

31 Jan 2000:

24,4x

Average since 1989:15,7x

Dividend yield and ten-year US Treasury yield

Ten-year US Treasury yield

Dividend yield

1,8%

2,2%

%

Equities

31 Dec 2012:

12,8x

x

31 Dec 2012:


48/71


800

1.000

1.200

1.400

1.600

1.800

2.000

70

80

90

100

110

120

130

140


800

1.000

1.200

1.400

1.600

1.800

2.00026 Feb 2007:P/E = 18,0x

1.817


the next 12 months and is provided by I/B/E/S. Source: I/B/E/S, FactSet, J.P. Morgan Asset Management.

TOPIXLog scale

28 Apr 2003:P/E = 16,4x

773 13 Mar 2009:P/E = 23,7x

724

-60%+135%

31 Dec 2012:

P/E = 12,6x860

+19%

47

Equities

TOPIX and the JPY per USD Exchange Rate

StrongerYen

WeakerYen

JPY per USDTOPIX


49/71

0,5

1,0

1,5

2,0

2,5

3,0

Dec 85 Dec 90 Dec 95 Dec 00 Dec 05 Dec 10Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

20.000

30.000

40.000

50.000

60.000


the next 12 months and is provided by I/B/E/S. Source: MSCI, FactSet, J.P. Morgan Asset Management.

48

29 Sep 2001:P/E = 9,3x

12.460

29 Oct 2007:

P/E = 13,1x54.872

MSCI EM IndexLog scale

27 Oct 2008:

P/E = 7,5x22.525

31 Dec 2012:P/E = 10,5

46,731

+340% +107%-59%

Equities

MSCI Emerging Markets Index: Price to book

Average: 1,81

Dec 2012:1,65

-1,5 St dev

+1,5 St dev


50/71

0

5

10

15

20

49

MSCI EM Index: Long term growth in DPS and EPSIndex, 100 = December 1995

(Left) Note: Regular dividends only in local currency. Source: MSCI, I/B/E/S, FactSet, J.P . Morgan Asset Management. (Right) Note: Monthly frequency in USD terms until

1987, daily frequency in local currency terms subsequently. Source: IFC, MSCI, J.P. Morgan Asset Management.

EM EPS (fwd)

DM EPS (fwd)

DM DPS

EM DPS

Annualised equity market volatility% per year

Developed markets

Emerging markets%

Equities

Late

70s80s 90s 00s 01 - 03 04 - 09 10 - 12

0

100

200

300

400

500



51/71

0

20

40

60

80

100

50

MSCI Emerging Markets Index by region MSCI Emerging Markets Index by sector

MSCI emerging market indices: country index by sector

Note: Other is comprised of healthcare, industrials, telecom and util ity sectors. Values may not sum to 100 due to rounding. Source: MSCI, J.P. Morgan Asset

Management. Source: MSCI, FactSet, J.P. Morgan Asset Management. (Bottom Right) note: The EMBIG is the J.P. Morgan EMBI Globa l Index, a USD-dominated

external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The CEMBI is the J.P. Morgan Corporate Emerging Bond Index is a

USD-denominated external debt index tracking bonds issued by corporations. Source: J.P. Morgan Asset Management.

Equities

10%

61%

8%

21%

19%

24%

26%

14%

17%

Africa / Middle East

Asia

Europe

Latin America

OtherEnergy &Materials

Financials

Tech

Consumer

Other

Energy &Materials

Financials

Tech

Consumer

20%

5%

18%11%

38%

22%

2% 14%

6%

37%27%

31%

39%

12%

13%37%

81%

20%

22%

21%

13%

15% 14% 17%22%

29%

15%

0

20

40

60

80

100

%

Emerging market debt by region and sectorUSD denominated debt

Africa / Middle East 7% Other 18%

LatinAmerica

43%

Europe 33%

Asia 17% Tech 10%

Financial 36%

Energy &Materials 29%

%

Brazil Russia India China Mexico S. Korea EMBIG CEMBI

Consumer 7%


52/71

FixedIncome

(Left) Note: Annualised return covers the period from 2002 to 2011. Infl. Link is Barclays Euro Govt All Markets Inflation-linked Index, EM debt is the Barclays Emerging

Markets (USD) Index, US HY is the BoA/ML Developed Market High Yield Constrained Index, Euro corp is the Barclays Euro Aggregate Credit Corporate Index, Global

agg is the Barclays Global Aggregate Index, US, Italy and Germany are JPM government bond indices. The FI allocation assumes the following weights; 15% in US, 15%

in Germany, 10% in Italy, 5% in index linked, 15% in EM debt, 15% in high yield, 15% in euro corporates, and 10% in global bonds. Source: Barclays Capital, Bank of

America Merrill Lynch, J.P. Morgan Asset Management.

51

2003 2004 2005 20072006 20112008 2010 20122009 4Q 2012Ten-yrAnn.

US HY

28,2%

EM de bt

11,9%

EM de bt

12,3%

US HY

10,6%

Global agg

9,5%

US

14,3%

US HY

60,9%

US HY

14,9%

US

9,9%

Italy

21,3%

Italy

5,2%

EM de bt

11,6%

EM de bt

26,9%

US HY

11,4%

Infl. Link

6,0%

EM de bt

10,0%

US

9,2%

Germany

12,4%

EM de bt

34,2%

EM de bt

12,8%

Germany

9,8%

US HY

18,0%

US HY

3,9%

US HY

10,7%

Global agg

12,5%

Infl. Link

11,0%

Italy

5,8%

Global agg

6,6%

EM de bt

5,2%

Italy

5,8%

Portfolio

18,3%

Portfolio

7,2%

EM de bt

7,0%

EM de bt

17,9%

Infl. Link

3,5%

Portfolio

7,3%

Portfolio

12,3%

Global agg

9,3%

Germany

5,2%

Portfolio

4,1%

Portfolio

3,9%

Global agg

4,8%

Euro corp

15,7%

Germany

6,4%

Global agg

5,6%

Infl. Link

17,1%

EM de bt

3,3%

Global agg

6,0%

Infl. Link8,3%

Portfolio8,6%

Portfolio4,5%

US3,1%

Germany2,0%

Infl. Link3,8%

Italy8,3%

US6,1%

Portfolio4,7%

Euro corp13,6%

Euro corp3,0%

Germany5,3%

Euro corp

6,8%

Italy

8,6%

Euro corp

4,0%

Euro corp

0,5%

US HY

1,9%

Portfolio

-1,5%

Infl. Link

8,1%

Global agg

5,5%

US HY

3,8%

Portfolio

11,8%

Portfolio

2,3%

Infl. Link

5,0%

Italy

3,9%

Euro corp

7,5%

US

2,9%

Germany

-0,2%

Infl. Link

1,9%

Euro corp

-3,8%

Global agg

6,9%

Euro corp

4,7%

Euro corp

1,5%

Germany

4,5%

Germany

1,1%

Euro corp

4,9%

Germany

3,9%

Germany

7,4%

US HY

2,9%

Italy

-0,5%

Italy

1,5%

EM de bt

-14,7%

Germany

1,8%

Infl. Link

-0,4%

Infl. Link

-2,3%

Global agg

4,3%

US

-0,1%

US

4,9%

US

2,4%

US

3,7%

Global agg

-4,5%

Infl. Link

-1,7%

Euro corp

0,0%

US HY

-26,4%

US

-3,8%

Italy

-0,6%

Italy

-5,9%

US

2,2%

Global agg

-0,5%

Italy

4,6%


53/71

4

8

12

16

20

4

8

12

16

20


10

11

12

13

14

100

300

500

700

900

1.100

1.300

1.500

1.700


52

(Left) Source: J.P. Morgan Asset Management. (Right) Source: Moodys, Standard & Poors, J.P. Morgan Asset Management.

Fixed income yields

FixedIncome

Emerging market debt spreads and ratings

Credit rating (inverted)Bps over Treasuries

% %

B+

BB-

BB

BB+

BBB-

BBB

High yield

EM local currency sovereign

EM USD sovereign


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0

100

200

300

400

500

600

700


0

5

10

15

20

25

30

0

300

600

900

1200


53

(Left) Source: Barclays, J.P. Morgan Asset Management. (Right) Note: US corporate high yield debt peaks at 1.978 bps in October 2008, but is not shown in the chart.

Source: Merrill Lynch, J.P. Morgan Asset Management.

High yield bond spreadsInvestment grade bond spreadsUSD debt

FixedIncome

bps

bpsEM investment grade corporate

debt

DM investment gradecorporate debt

EM investment gradesovereign debt

%

High yield default

rate (rhs)

US corporate high

yield debt (lhs)

EM sovereign highyield debt (lhs)

Data truncated


55/71

100

400

700

1000

1300

1600

1900


100

150

200

250

300

350


54

Loan and fixed income spreads and yields

FixedIncome

(Upper Left) Source: J.P. Morgan Asset Management. (Lower Left) Total return indices in US dollars. All figures in table annualised. Convertible bonds represented by

UBS Global Convertible Bond Index, equities by MSCI World Index, and fixed income by Barclays Global Aggregate Index. Source: UBS, Barclays, J.P . Morgan Asset

Management. (Right) Note: *Global high yield from 1994, US prior. DMM = discount margin to maturity. Source: Barclays, Credit Suisse, J.P. Morgan Asset Management.

bpsHigh yield OAS

Leverage Loan DMM

Annual*

Asset class Return Volatility

High yield 8,8% 6,5%

Leverage loans 6,0% 3,4%

Behaves like

a bond

Behaves like

a stock

Stock price

Convertibleprice

Balanced

Mechanics of a convertible bond

The protection that

buying a convertiblebond gives as the

underlying stock price

falls

Asset class Return Vol.

Convertibles 7,0% 11,9%

Equities 6,6% 15,8%

Fixed Income 6,1% 5,5%

The potential upside

that the convertible

bond gives when the

underlying stock price

rises

Parity

Index returns


56/71

55

Note: Fixed income

sectors shown are

provided by Barclays

Capital and are

represented by Global

Agg: Barclays Global

Aggregate; Euro Agg:

Barclays Euro Agg;Corporate: Euro

Corporates; Treasuries:

Euro Treasuries;

Emerging Debt: JPM

EMBI+; High Yield: ML HY

Master II.

Government treasuries

securities data for number

of issues and market

value based on Euro-

Aggregate Treasury

benchmarks from Barclays

Capital.

Change in bond price is

calculated using both

duration and convexity

according to the following

formula.

New Price = (Price +

(Price * -Duration *

Change in Interest

Rates))+(0,5 * Price *

Convexity * (Change in

Interest Rates)^2).

Source: Barclays,

BoA/Merrill Lynch, J.P.

Morgan AssetManagement.

FixedIncome

Yield Return

Euro Treasuries Num. of issues Market value Avg maturity 31 Dec 2012 31 Dec 2011 2012 Q4 2012

2 Year 2 years 0,94% 2,01% 4,07% 0,80%

5 Year 5 1,94 3,14 11,66 2,91

10 Year 10 2,46 3,83 14,20 3,62

Long Term +15 3,25 4,18 17,30 5,89

Sector

Global Agg 14.449 EUR 32.787 7,7 years 1,70% 2,33% 2,72% -2,89%

Euro Agg 3.030 8268,2 7,1 1,91 3,44 11,19 2,82

Corporates 1.316 1309,9 4,9 2,00 4,61 13,59 3,02

Euro Treasuries 289 4731,2 8,5 2,01 3,17 11,00 2,98

Emerging Debt 137 258,5 13,3 4,45 5,72 16,22 0,74

High Yield 2.112 1164,0 6,5 6,08 8,36 13,81 0,73

Estimated price impact of a 1% rise/fall in interest rates on selected indices

%

+1%

-1%

Num. of issues: 205

Total value: USD 3.433 tn

2 year 5 year 10 year Long Term Euro Corp High Yield Euro Agg Global Agg Euro Treas EM Debt

-1,9%-5,2%

-7,1%

-14,3%

-4,1% -5,0% -5,5% -6,0% -6,3%-8,4%

1,9%

5,3%7,1%

14,4%

4,1% 5,0%5.5% 6,0% 6,4%

8,4%

-20

-10

0

10

20


57/71


1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

5,5

6,0

0

3

6

9

12

15

1800 1850 1900 1950 2000

56

(Left) Note: Weekly frequency. Source: Tullett Prebon, J.P. Morgan Asset Management. (Right) Latest data December 2011. *High-grade municipal bond yields used for

certain years between 1800 and 1920. Source: Jeremy Siegel, The real rate of interest from 1800-1990, Homer & Sylla, A History of Interest Rates, Ibbotson SIBI,

Federal Reserve, J.P. Morgan Asset Management.

US high quality bond yields*

Ten-year bond yields US government bond yields

%

60 years

FixedIncome

UK

Germany

US

%


58/71

-0,50

0,50

1,50

2,50

3,50

4,50

5,50

6,50

-0,50

0,50

1,50

2,50

3,50

4,50

5,50

6,50

0 5 10 15 20 25 30 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

-1

0

1

2

3

4

5

(Left) Source: Bloomberg, J.P. Morgan Asset Management. (Right) Note: Real interest rate is calculated using core CPI. Source: Eurostat, ECB,


Yield curves ECB refinancing rate and real interest rates

Spain

France

US

Germany

Japan

% %Main refinancing

rate

Real interest rate

57

FixedIncome

%

Years


59/71

-2

26

10

14

18


-2

2

6

10

14


58

(Left) Latest data is November 2012 for the US, and October 2012 for the UK and eurozone. Note: UK broad money supply is M4 until July 2010 then M4 adjusted (M4

excluding other intermediate financial corporations) onwards. Source: Federal Reserve, OECD, Bank of England, J.P. Morgan Ass et Management. (Right) Note: Eurozone

bank lending to households for consumption excluding mortgages. Latest data October 2012. Source: ECB, FactSet, J.P. Morgan A sset Management.

US (M2)

UK (M4 adjusted)

Eurozone (M3)

Broad money supply growthChange year on year

Eurozone bank lendingChange year on year

FixedIncome

%

%

%

0

4

8

12


-8

0

8

16

24


%

Germany

Spain

Eurozone


60/71

59

Note: EME is the MSCI EM Emerging Market Index, Europe is the MSCI Europe Index. Govt bonds is Barclays Global Aggregate Government Treasur ies, HY bonds is Barclays Global High Yield Index,

EMD is Barclays Emerging Markets (USD) Index, IG bonds is Barclays Global Aggregate Corporates, Cmdty is the DJ UBS Commodity Index, REITS is FTSE EPRA/NAREIT Developed Index

(comprised of both investment trusts and operating companies), World ex EU is the MSCI World ex Europe Index, and cash is the JP Morgan Cash Index ECU (3M). The asset allocation portfolio

assumes the following weights; 10% in government bonds, 10% in HY bonds, 15% in IG bonds, 5% in EMD, 5% commodities, 5% in cash, 5% in REITS, 15% in EM equities, 10% in World ex Europe,

20% in the MSCI Europe. Source: FTSE, Barclays Capital, Dow Jones/UBS, J.P. Morgan Asset Management.

2003 2004 2005 20072006 20112008 2010 20122009 4Q 2012

Oth

erAssetsand

InvestorBehaviour

EME

30,0%

REITS

28,0%

EME

55,0%

REITS

27,3%

EME

26,1%

Govt bonds

15,9%

EME

73,4%

REITS

28,8%

EMD

10,5%

REITS

26,7%

Europe

4,5%

EME

14,2%

REITS17,1%

EME16,9%

Cmdty39,9%

Europe20,2%

Cmdty4,8%

Cash5,7%

HY bonds54,4%

EME27,5%

Govt bonds9,9%

Europe18,1%

REITS3,2%

REITS9,5%

Europe

15,8%

Europe

12,6%

REITS

32,9%

EME

18,6%

Cash

4,4%

IG bonds

-3,9%

REITS

34,0%

Cmdty

24,9%

IG bonds

7,8%

HY bonds

17,8%

EME

3,1%

HY bonds

9,1%

Portfolio

10,5%

Portfolio

8,3%

EMD

29,4%

Portfolio

7,2%

Europe

3,2%

EMD

-10,3%

Europe

32,5%

World ex EU

24,0%

HY bonds

6,6%

EME

16,8%

HY bonds

2,1%

EMD

9,1%

HY bonds

10,2%

HY bonds

5,0%

World ex EU

26,8%

Cash

3,0%

Portfolio

2,3%

HY bonds

-23,1%

Portfolio

31,7%

HY bonds

22,8%

Cash

1,7%

EMD

16,1%

EMD

0,8%

Portfolio

7,9%

World ex EU9,5%

World ex EU4,6%

Europe26,7%

World ex EU2,7%

Govt bonds-0,3%

Portfolio-25,1%

EMD30,0%

EMD20,7%

World ex EU0,4%

World ex EU13,5%

Portfolio0,7%

Europe6,5%

EMD

5,6%

EMD

3,8%

Portfolio

25,9%

HY bonds

1,7%

World ex EU

-3,3%

Cmdty

-32,3%

World ex EU

24,2%

Portfolio

17,2%

Portfolio

-1,0%

Portfolio

12,8%

Cash

0,1%

World ex EU

5,2%

Cmdty

3,1%

Govt bonds

2,4%

HY bonds

19,4%

EMD

-1,6%

IG bonds

-3,7%

World ex EU

-34,2%

IG bonds

15,5%

Govt bonds

13,3%

REITS

-2,7%

IG bonds

9,5%

IG bonds

-0,6%

Govt bonds

4,4%

Cash

2,5%

Cash

2,2%

IG bonds

11,1%

IG bonds

-4,1%

EMD

-5,2%

Europe

-43,3%

Cmdty

15,2%

Europe

11,7%

Europe

-7,5%

Cash

1,2%

World ex EU

-1,4%

IG bonds

3,3%

Govt bonds

2,4%

IG bonds

1,6%

Govt bonds

7,6%

Govt bonds

-4,8%

HY bonds

-6,9%

REITS

-45,0%

Cash

2,3%

IG bonds

6,3%

Cmdty

-10,4%

Govt bonds

0,3%

Govt bonds

-4,2%

Cash

2,6%

IG bonds

-4,9%

Cmdty

1,3%

Cash

2,2%

Cmdty

-8,7%

REITS

-16,1%

EME

-50,8%

Govt bonds

-0,6%

Cash

1,1%

EME

-15,4%

Cmdty

-2,6%

Cmdty

-8,6%

Cmdty

1,7%

Ten-yr

Ann.


61/71

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

Domestic High Yield. Global bonds is the Barclays Global Aggregate. Lev. Loans is the Credit Suisse Leveraged Loans Index. Cmdty is the DJ/UBS Commodity Index.

Hedge Funds is the CS/Tremont Multi-Strategy Index. Ten year correlation values are calculated for period December 2002 to November 2012. Correlation measures the

direction and degree of linear association between two variables. Al l indices are total return based on weekly return data in euros. Source: Citigroup, Barclays, Credit

Suisse, J.P. Morgan Asset Management.

60

MSCIEurope

S&P 500MSCIEM

MSCIAsia ex

Japan

PanEurope

Bonds

EM DebtHighYield

Bonds

GlobalBonds

CmdtyHedgeFunds

Lev.Loans

MSCI

Europe

1,00 0,80 0,82 0,77 -0,23 0,44 0,66 -0,25 0,33 0,64 -0,06

S&P 500 1,00 0,69 0,69 -0,16 0,21 0,47 0,15 0,32 0,39 0,49

MSCI EM 1,00 0,96 -0,16 0,49 0,63 -0,16 0,48 0,66 0,58

MSCI Asia exJapan

1,00 -0,11 0,41 0,58 -0,07 0,42 0,59 0,53

Pan EuropeBonds

1,00 0,18 -0,15 0,52 -0,12 -0,27 -0,21

EM Debt 1,00 0,74 -0,28 0,18 0,54 0,52

High YieldBonds

1,00 -0,34 0,28 0,79 0,87

Global Bonds 1,00 0,00 -0,44 -0,26

Cmdty 1,00 0,46 0,37

Hedge Funds 1,00 0,81

Lev. Loans 1,00

Correlation of monthly returns

over previous ten years

Oth

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95

100

105

110

115

120

125


(Left) Note: Commodity prices represented by the appropriate DJ/UBS Commodity sub-index. Source: Dow Jones/UBS, J.P. Morgan Asset Management. (Right) Note:

data rebased to 100 at December 1992. Source: MSCI, Standard & Poors, MSCI, FactSet, J.P. Morgan Asset Management.

Commodity pricesWeekly index prices rebased to 100

China and industrial metal pricesRebased

61


50

100

150

200

250

300

350

400

450

500Precious metals

Industrial metals

Energy

Livestock

Grains

S&P GSCIIndustrial Materials

MSCI China

Oth

erAssetsand

Inve

storBehaviour


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-4

-2

0

2

4

6

8

10

12

14

16

200

400

800

1.600

Jun 68 Jun 78 Jun 88 Jun 98 Jun 08

62

Dec 93 Dec 97 Dec 01 Dec 05 Dec 09-6

-4

-2

0

2

4

6

-60

-40

-20

0

20

40

60

Commodity prices and US inflationChange year on year

Headline CPI (%) Dow Jones/UBS Commodity Index

(Left) Note: CPI adjusted gold values are calculated using average monthly price of gold divided by the CPI value for that month. Source: Bloomberg, BLS, J.P. Morgan

Asset Management. (Right) BLS, Dow Jones/UBS, J.P. Morgan Asset Management.

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Gold priceLog scale

31 Dec 2012:

USD 1.675

Inflation adjusted gold price (lhs)

Inflation (rhs)

US monetary base (indexed)%USD/oz.


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Residential property values to GDPRatio

US mortgages in negative equity and delinquency rates

0

5

10

15

20

25

30

0

3

6

9

12

Jun 98 Jun 02 Jun 06 Jun 10

% %

Homeowners innegative equity

Seriously delinquentloans

0

1

2

3

4

5

6

1977 1987 1997 2007 2017 2027

Spain

Japan

UK

Ireland

US

-30 -20 -10 0 10 20

(Left) Note: Japan: Land Underlying Buildings and Structures; US: Household Real Estate Assets; UK: Residential Buildings; Spain: Residential Household Wealth; Ireland:

Dwellings. Source: OECD, Japan Land and Water Bureau, Ministry of Land, Infrastructure and Transport, Cabinet Office (Government of Japan), US Federal Reserve,

S&P/Case-Shiller, OFHEO, UK Office for National Statistics, Bank of Spain, Ireland Central Statistics Office, Permanent TSB/ESRI, J.P. Morgan Asset Management. (Right)

Latest negative equity data Q2 2012. Latest delinquency data September 2012. Source: Mark Zandi and Robert Shiller, Mortgage Bankers Association, CoreLogic, J.P. Morgan

Asset Management.

x

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Years relative to peak in ratio


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64

Eurozone consumer confidence

Dec 85 Dec 87 Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11-40

-35

-30

-25

-20

-15

-10

-5

0

5

Average: -12,5

Feb 1988:

+19,6%

May 1986:+12,1%

Mar 1993:+19,4%

Nov 1996:

+30,1%Mar 2003:

+32,5%

Mar 2009:+44,7%

Jul 1989:+4,4% Jun 1995:

+17,7%

Aug 2000:

-23,8%

Jun 2007:-22,5%

Nov 2010:

-8,3%

Note: Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs.

Subsequent 12-month MSCI Europe Index returns are price returns only, which excludes dividends. Total period return is the average 12-month rolling return. Source:

European Commission, FactSet, J.P. Morgan Asset Management.

Average 12 month MSCI Europe Index return:

After a peak: -3,4% After a trough: +29,3% Total period: 7,8%

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-220

-170

-120

-70

-20

30

80

2009 2010 2011 2012

(Left) Source: ICI, FactSet, J.P. Morgan Asset Management. (Right) Note: *Intermediate and long term government bonds. Monthly data, latest available November 2012.

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

Mutual fund flowsAll domiciles, excluding ETFs, USD billions

65

Cumulative mutual fund flowsUS domiciled funds excluding ETFs, USD billions

EMD and high yield debt

EM equity

DM equity

Government bonds*

-400

-200

0

200

400

600

800

1.000

1.200

1997-2000 2009-2012

Equity funds

Bond funds

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Tech bubble Credit crisis


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-37%

-8%

-15%

-2% -2%

1%

-1%

1% 2%

6%

1%5%

51%

43%

32%

28%

23% 21%19%

16% 17%

18%

12%

14%

-40

-30

-20

-10

0

10

20

30

40

50

60

1 year 5 yrrolling

10 yrrolling

20 yrrolling

66

Range of equity, bond and blended total returnsAnnual total returns, 1950 - 2012

Note: Returns shown are based on calendar year returns from 1950 to 2012. Source: Barclays Capital, Shiller, Strategas/Ibbotson, US Federal Reserve, J.P. MorganAsset Management.

Equities

Bonds50/50 Portfolio

Annual Avgtotal return

Growth of USD100,000 over 20 years

Equities 10,8% 782.751

Bonds 6,2% 335.627

50/50 Portfolio 8,9% 554.754

%

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High and rising inflationOccurred 14 times since 1972

Note: High or low inflation distinction is relative to median CPI inflation for the period s1971-2011. * High yield returns based on the period 1984 2011. Rising of fallinginflation distinction is relative to the previous year CPI inflation rate. Commodities returns are based on GSCI, equities on the S&P 500 total return index, govt bonds arethe Barclays Aggregate US Treasury Index, and high yield is the Barclays US Corporate High Yield Index. Source: BLS, Barclays Capital, Robert Shiller, Federal Reserve,Strategas/Ibbotson, J.P. Morgan Asset Management.

Low and rising inflationOccurred 7 times since 1972

High and falling inflationOccurred 6 times since 1972

Low and falling inflationOccurred 13 times since 1972

2%

7%

13%

7%

-1%

-20

-10

0

10

20

30

40

Equities Cash Commodities Govt Bonds High Yield*

guide to the markets quarterly europe q1 2013

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