Brooks Macdonald Adviser Academy 2017

#AdviserAcademy

Complexity and flexibility: investments, due diligence and beyond

Guide to the MarketsUK | |

MARKET INSIGHTS

Q2 2017 As of 31 March 2017

21

Agenda

“Trump trade” may be waning but global growth story is alive and well

Economic case for Europe is growing and political risks are not

Brexit: a lot more talking still to come

22

GTM – UK |

0

1,000

2,000

3,000

5060708090

100110120130140

'84 '94 '04 '14020406080100120140160

200

300

400

500

600

700

'84 '94 '04 '14

-8

-3

2

7

12

-40

-20

0

20

40

60

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

% change year on year

US growth monitor

Corporate profits, business investment and employment growth

Initial jobless claims vs. consumer confidence Housing starts and Conference Board Leading Economic Index Index level (LHS); thousands (RHS)

Source: (All charts) Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns in all charts indicate recessions determined by NBER.Guide to the Markets - UK. Data as of 31 March 2017.

Jobless claims in thousands (LHS); index level (RHS)

Recession

Consumer confidenceJobless claims

Glo

bal e

cono

my

Housing starts

Leading indicator

26

Business investment

Profits

Employment

23

GTM – UK |

0

1

2

3

4

5

6

7

'99 '03 '07 '11 '15 '19

US Federal Reserve outlook

Federal funds rate expectations

Source: Bloomberg, Federal Reserve Bank of New York, US Federal Reserve, J.P. Morgan Asset Management. *Forecasts of Federal Open Market Committee (FOMC) participants, midpoints of central tendency except for Federal funds rate, which is a median estimate. Guide to the Markets - UK. Data as of 31 March 2017.

Glo

bal e

cono

my

Federal funds rate

FOMC long-run projectionMarket expectations on 31 Mar 2017

US Fed FOMC forecasts medianUS Fed FOMC forecasts range

3.0%

24

% Fed funds rate, FOMC and market expectationsFOMC March 2017 forecasts*

2017 2018 2019 Long run

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

Unemployment rate, Q4 4.5 4.5 4.5 4.7

PCE inflation, Q4 to Q4 1.9 2.0 2.0 2.0

24

GTM – UK |

101214161820222426

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

US S&P 500 equity indicators

Leading economic indicator vs. S&P 500 performanceIndex level

Forward P/E ratiox, multiple

S&P 500 earnings per share (EPS) vs. ISM manufacturingIndex level (LHS); % change year on year (RHS)

Source: (Left) Conference Board, FactSet, Standard & Poor’s, J.P. Morgan Asset Management. (Top right) Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by consensus estimates for earnings in the next 12 months. (Bottom right) FactSet, ISM, Standard & Poor’s, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 31 March 2017.

Average: 15.7x

31 Jul 1999: 24.5x

31 Mar 2017:17.7x

Equ

ities

49

'98 '00 '02 '04 '06 '08 '10 '12 '14 '1685

90

95

100

105

110

115

120

125

130

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

S&P 500Leading economic indicator

'98 '00 '02 '04 '06 '08 '10 '12 '14 '1630

35

40

45

50

55

60

65

-50-40-30-20-100102030

25

GTM – UK |

-6

-4

-2

0

2

4

6

35

40

45

50

55

60

65

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

90

95

100

105

110

115

120

85

90

95

100

105

110

115

120

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

Eurozone growth monitor

Credit demand and eurozone GDP growthNet % of banks reporting positive loan demand (LHS); % GDP growth (RHS)

Retail sales and industrial productionIndex level

Composite PMI and GDPIndex level (LHS); % change year on year (RHS)

Source: (Left) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Top right) Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Eurostat, Markit, Bloomberg, J.P. Morgan Asset Management. Light grey columns in all charts indicate recession. Guide to the Markets - UK. Data as of 31 March 2017.

Glo

bal e

cono

my

Industrial production (LHS)Retail sales (RHS)

GDPPMI

18

-8

-6

-4

-2

0

2

4

6

-200

-150

-100

-50

0

50

100

150

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

Stronger loan demand

Consumer credit (LHS)Eurozone GDP growth y/y (RHS)

Housing loans (LHS)

Overall corporate (LHS)

Weaker loan demand

26

GTM – UK |

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

80

90

100

110

120

130

140

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

MSCI Europe ex-UK performance and drivers

MSCI Europe ex-UK earnings and performanceIndex level, next 12 months’ earnings estimates (LHS); index level (RHS)

Source: (Left) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. EPS is earnings per share. (Top right) Goldman Sachs, J.P. Morgan Asset Management. Yearly earnings trend is Stoxx 600. Guide to the Markets - UK. Data as of 31 March 2017.

MSCI Europe ex-UK index level

MSCI Europe ex-UK EPS

Equ

ities

41

Europe yearly earnings trendEPS, rebased to 100 in January

2013 2014 2015

2016 2017

Europe earnings by sectorEPS, % change year on year

-10-505

101520

85

90

95

100

May JulAprJan Feb Mar Sep Nov DecJun Aug Oct

27

GTM – UK |

-6

-3

0

3

6

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

Wage growth

UK economic outlook

Lending to individuals: Secured and unsecured lending%, seasonally adjusted, three-month annualised growth rate % change year on year

Retail sales vs. consumer confidenceStandard deviations from average (LHS); % change year on year (RHS)

Source: (Left) Bank of England, FactSet, J.P. Morgan Asset Management. (Top right) Bloomberg, ONS, J.P. Morgan Asset Management. *Nominal wages include bonuses. (Bottom right) GFK, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. Retail sales data is a six-month moving average and consumer confidence data is a six-month moving average z score (indicates how many standard deviations the data point is away from its mean). Guide to the Markets - UK. Data as of 31 March 2017.

Headline CPINominal wage growth*

Real wage growth

UK

eco

nom

y

5

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16-4

0

4

8

12

16

20

24

-10

-5

0

5

10

-3

-2

-1

0

1

2

3

'86 '91 '96 '01 '06 '11 '16

Consumer confidence

Retail sales

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16-4

0

4

8

12

16

20

24

SecuredUnsecured

28

GTM – UK |

0 5 10 15 20

11%5%

29%

3%13%

25%

14%

Source: (Left) UK ONS Pink Book, JP. Morgan Asset Management. (Top and bottom right) Oliver Wyman, J.P. Morgan Asset Management. International business revenues include wholesale revenues. Guide to the Markets - UK. Data as of 31 March 2017.

Brexit: Trade and financial services

Goods and services exports and imports% of UK GDP

UK financial servicesAnnual gross value added, GBP billion

UK financial services industry revenuesGBP billion

UK

eco

nom

y

| 9

ExportsImports

Domestic business with UK clients

Non-EU international business

EU related international business

0

50

100

150

200

Sales & trading

Investment banking

Market infrastructure & other

Retail & business banking

Insurance & reinsurance

Private wealth management

Asset Management

EU27

US

Australia

Japan

Singapore

Hong Kong

Canada

Saudi Arabia

India

China

Switzerland

UK export share EU27 44%US 20%Asia 13%Middle East 5%

29

Recap

DON’T get spooked by US valuations

DO seek upside in non-US equities

DON’T forget that European political risk is not all negative

DO prepare to work harder to generate the same return

J.P. Morgan Asset Management: Risks and disclosuresThe Market Insights programme 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 programme 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 yield are 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 authorised 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.

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Copyright 2017 JPMorgan Chase & Co. All rights reserved

9165a6c0-154e-11e7-91e9-005056960c8a Prepared by: Stephanie Flanders, Tilmann Galler, Vincent Juvyns, Dr. David Stubbs, Maria Paola Toschi, Michael Bell, Alexander Dryden and Nandini Ramakrishnan.

Unless otherwise stated, all data as of 31 March 2017 or most recently available.

Guide to the Markets - UK

JP-LITTLEBOOK

Brooks Macdonald Adviser Academy 2017

#AdviserAcademy

Complexity and flexibility: investments, due diligence and beyond

181

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