JPM Report June

8/3/2019 JPM Report June

1/29

As of

{

31 March 2011}

TTM: A i l l fin n i l m rk


2/29

Table of contents

2WORLD

FIXED INCOME 11

17UNITED STATES

21ASIA EX-JAPAN

26BRAZIL

23EMERGING MARKETS

1


3/29

World equity market total returns by region (USD)

World

20092000 2001 2002 2003 2004 2005 2006 2007 Q{1} {2011}2008 2010

MSCI

Europe

-8.1%

MSCI EM

-2.4%

MSCI Asia

Pac. exJP

-5.8%

MSCI Brazil

115.0%

MSCI Brazil

36.5%

MSCI Brazil

57.0%

MSCI Brazil

45.8%

MSCI Brazil

80.0%

MSCI

Japan

-29.1%

MSCI Brazil

128.6%

MSCI EM

19.2%

MSCI

Europe

6.6%

MSCI Asia MSCI Asia MSCI MSCI Asia

S&P 500

-9.1%

Pac. exJP

-9.4%

MSCI EM

-6.0%

MSCI EM

56.3%

Pac. exJP

29.6%

MSCI EM

34.5%

Europe

34.4%

MSCI EM

39.8%

S&P 500

-37.0%

MSCI EM

79.0%

Pac. exJP

17.1%

S&P 500

5.9%

MSCI Brazil S&P 500MSCI MSCI Asia

MSCI EMMSCI MSCI Asia MSCI Asia MSCI MSCI Asia MSCI MSCI Asia

-11.4% -11.9%-10.1%

.

47.0%26.0%

25.6%

.

33.2%

.

31.7% -46.1%

.

73.0% 15.6%

.

2.8%

MSCI Asia

Pac. exJPMSCI Brazil

-17.0%

MSCI

Europe

MSCI

Europe

MSCI

Europe

MSCI Asia

Pac. exJPMSCI EM

32.6%

MSCI

Europe

MSCI Asia

Pac. exJP

MSCI

EuropeS&P 500

15.1%

MSCI Brazil

2.6%- . - . . . . . - . .

MSCI

Japan

-28.1%

MSCI

Europe

-19.6%

S&P 500

-22.1%

MSCI

Japan

36.2%

MSCI

Japan

16.0%

MSCI

Europe

9.9%

S&P 500

15.8%

S&P 500

5.5%

MSCI EM

-53.2%

S&P 500

26.5%

MSCI Brazil

6.8%

MSCI EM

2.1%

MSCI EM

-30.6%

MSCI

Japan

-29.3%

MSCI Brazil

-30.7%

S&P 500

28.7%

S&P 500

10.9%

S&P 500

4.9%

MSCI

Japan

6.3%

MSCI

Japan

-4.1%

MSCI Brazil

-56.1%

MSCI

Japan

6.4%

MSCI

Europe

4.5%

MSCI

Japan

-4.9%

Note: Total return indices. Source: J.P. Morgan Asset Management.

2


4/29

MSCI AC World Index weighting by country;market returns after consecutive down years

Japan 8% UK 8%Develo ed

MSCI AC World Index: % weighting by country

iesWorld

France 4%

Switzerland 3%

Em.

Europe

17%

Pacific 6%

Canada5%

Equi

Germany 3%

Spain 2%

Italy 1%

Other 4% China 2%Brazil 2%

13%UnitedStates43%

Korea 2%

Taiwan 2%

India 1%

Other 4%

+190%

1933-1936

1942-194509/10/02 -08/10/07

+122%

+66%

+121%

+{105%}

1975-197609/03/09 -{31/03/11}

-65%-17%

-38%-47%

-55%

1929-1932

1940-1941 1973-1974 24/03/00 -08/10/02

09/10/07 -08/03/09

3

Note: Total returns in USD. Source: Dimson, Marsh and Staunton ABN AMRO/LBS Global Investment Returns Yearbook 2008, J.P. Morgan Asset Management.


5/29

Commodities

Commodity indices and steel production

iesWorld

60

Equi

Chinese steel production (rhs)Ch

inese

30050Metals (lhs)

steelproductio

riculturalindice

200

30Agriculturalproducts (lhs)

(millionsofm

Metalsand

ag

10020

trictons)

Dec 94 Dec 99 Dec 04 Dec 09

4

Source: Goldman Sachs, National Bureau of Statistics of China, J.P. Morgan Asset Management.


6/29

Gold and oil

World WTI Crude oil price Gold price

2,000140

{31 March 2011}$107

Inflation adjusted31 December 1979

Inflation adjusted31 January 1980

$1,873

$/bbl $/oz

1,600

100

120{31 March 2011}

$1,432

1,200

60

80

400

40

0

Dec 69 Dec 79 Dec 89 Dec 99 Dec 09

0

20

Dec 69 Dec 79 Dec 89 Dec 99 Dec 09

5

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


7/29

Risk

iesWorld Credit Suisse Global Risk Appetite Indicator

6

8

EuphoriaEqui

4

arddeviations

{31 March2011}

2

Numberofs

tan

.

-2

0

-481 85 89 93 97 01 05 09

Distress

Note: The Credit Suisse Global Risk Appetite Indicator compares aggregated risk-adjusted returns across 64 markets (both equity and fixed income). It compares six month excess returns over cash with

12 month volatility for each asset. Source: Credit Suisse, J.P. Morgan Asset Management.

6


8/29

Market volatility

iesWorld VIX and VDAX

80

Equi

CreditcrunchVIX

VDAX

60

70

tility

Russiancrisis

Gulfwar 2

Eurozone

40

50

V

ola Asian

crisis

Techbubble

crisis

20

30

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

10

Cheap money

7

Note: VDAX is the name given to the Deutsche Brse equivalent of the VIX, based on the DAX. Source: Bloomberg, Chicago Board Options Exchange, Deutsche Brse, J.P. Morgan Asset Management.


9/29

World economic data

iesWorld

Money supply CurrentQ{4} 2010 GDP Growth

Equi y/y

%

q q

Annualised %nemp oymen

%CPI inflation

y/y%growth (M3)

y/y%account as

% GDP

Brazil 5.0 3.1 6.4 6.3 18.3 -2.9Russia 4.5 10.8 7.6 9.5 28.2 M2 4.8 India 8.2 37.1 7.3 8.8 16.3 -2.7

China 9.8 12.7 4.1 4.9 15.7 M2 4.1

France 1.5 1.4 9.6 1.7 5.6 -1.8

Germany 4.0 1.5 7.1 2.2 3.8 4.9Greece -6.6 -5.6 14.2 4.4 1.8 -2.9

Italy 1.5 0.5 8.5 2.5 0.6 -3.0Spain 0.6 0.9 20.3 3.6 0.3 -3.8

Eurozone 2.0 1.1 9.9 2.4 1.8 -0.3UK 1.5 -1.9 8.0 4.4 0.0 M4* -1.7

US 2.8 3.1 8.8 2.1 4.1 M2 -3.4Japan 2.5 -1.3 4.6 0.0 2.3 M2 3.3

Note: Arrows represent change on previous quarter. China q/q annualised GDP growth J.P. Morgan estimate. Data is latest available at time of publishing. Source: EIU, OECD, J.P. Morgan Asset

Management. *UK money supply measure is M4 adjusted (M4 excluding intermediate OFCs).

8


10/29

Consensus estimates 2010 and 2011

iesWorld

Equi

2011 2011

Real GDP growth % ActualMar 11

ForecastJun 11

o cy ra es

CPI headline inflation %

20122012Forecast

Dec 11

Brazil 4.1 4.5 5.5 4.6 11.75 12.25 12.25

Russia 4.4 4.4 9.1 8.0 8.00 8.50 8.50

India 8.0 8.7 8.5 8.0 6.75 6.00 6.25

China 9.5 9.0 4.6 3.0 6.31 6.50 6.50

France 1.7 1.8 1.9 1.7 1.00 1.25 1.75

Germany 2.7 2.0 2.2 2.0 1.00 1.25 1.75

Eurozone 1.7 1.7 2.2 2.0 1.00 1.25 1.75

. . . . . . .

US 3.1 3.1 2.3 1.9 0.25 0.25 0.25

Japan 1.5 1.9 0.0 0.3 0.10 0.10 0.10


9


11/29

Cross-country earnings and valuations

harts

Regional earnings growth and valuation Country earnings growth and valuation

World

Japan

-60

-45

Asia

-60

-45TopicalC

Positive earnings

momentum andcheap valuation

Positive earningsmomentum andcheap valuation

Spain

UK GermanyFrance-30Developed

MarketsEurope

-30

valuation*

valuation*

US ChinaRussia-15

0

North AmericaEmergingMarkets EMEA

-15

0

Relative

Relative

Turkey

South AfricaIndia

15

Latin America

15

raz

99.0 99.5 100.0 100.5 101.0 101.5 102.099.8 100.0 100.2 100.4 100.6 100.8 101.0

Earnings revision index Earnings revision index

10

Note: Earnings revisions are magnitude of changes, in dollars, over the last month. *Latest value of forward P/E relative to long-run average. Source: I/B/E/S, J.P. Morgan Asset Management.


12/29

International yield curves

Government yield curves

Income

55

Fixed

% %

44

UK {3.58}%

2

3

2

3

Germany {3.35}%

US {3.4}5%

11Japan {1.26}%

00

Maturit10Y 30Y5Y2Y6M

11



13/29

International yield curves BRICs

Government yield curves

Income

1515

Fixed

Brazil 13.2%

% %

1212

6

9

6

9

India 8.0%

Russia 7.2%

33

China 4.0%

00

Maturit5Y 10Y2Y1Y6M 3Y 4Y

12



14/29

US Fed and ECB policy and real rates

US Federal Reserve Bank

Income European Central Bank

8

Fixed orecas

2011: 0.25%2012: 1.00%

%

8

%

2011: 1.75%2012: 2.00%

6

4

6

2

2

0

Fed Funds{31 March 2011}

0.25%0

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

Real interest rateFebruary 2011

-0.84%


-2

13

Note: Real interest rates are calculated using core CPI and Fed Funds rate. Source: US

Federal Reserve Bank, Bloomberg, J.P. Morgan Asset Management.

Note: Real interest rates are calculated using core CPI and repo rate. Source: ECB,

Bloomberg, J.P. Morgan Asset Management.


15/29

US and European interbank rates, investment grade andhigh yield bonds

8

Europe interbank rates Investment grade and high yield bond returns

10 October 20085.4%

ECB Repo rateIncome

4

6Spread over Repo rate

1.2%Overnight Euribor

3 month Euribor

Yields Total Returns in USD

31 Mar 2011 2009 2010 Q1

JPMorgan Government2.8% 1.9% 6.4% 0.5%

Fixed

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

2

JPMorgan Emerging MarketBond (EMBI Global)

6.4% 28.2% 12.0% 1.0%

US interbank rates

8

ar ap o a ggrega e . . . .

BarCap Global 1-3 yearAggregate

1.7% 7.4% 2.3% 1.7%

%

4

617 October 2008

4.4%Spread over Fed Funds rate

2.9%

. . . .

Merrill Lynch High Yield USB-BB Index

6.9% 46.1% 14.5% 3.6%

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

2

US Fed Funds rate

Overnight USD Libor

3 month Libor

14

Source: ECB, US Federal Reserve, J.P. Morgan Asset Management. Source: Barclays Capital, Bank of America Merrill Lynch, J.P. Morgan Asset Management.


16/29

Investment grade and high yield bond spreads

US corporate high yield spread and default rateInvestment grade and emerging markets spreadsbps over Treasuries

Income

bps over Treasuries

122,4001,200Fixed

%

Corporate high yield (lhs): 477

Default rate (rhs): 1.1%

8

10

1 600

2,000

800

1,000

EmergingMarket

61,200

,

600

4800400

Mortgages

261

00

Dec 99 Dec 02 Dec 05 Dec 080Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09

US InvestmentGrade

150

Source: Merrill Lynch US High Yield Master Index II, J.P. Morgan Asset Management.Note: Investment grade based on Merrill Lynch Investment Grade, mortgages on Fannie May

30 Year mortgages and emerging markets bond is JPMorgan EMBI+. Source: Merrill Lynch,J.P. Morgan Asset Management.

15


17/29

US and emerging market debt yields and index weightings

EMBI weighting (dollar denominated)US and emerging market sovereign debt yields

Income

Other LatinAmerica*

14%

Other Asia

8%

Africa 4%

Fixed

Mexico

12%

Philippines

7%

Indonesia6%

LatinAmerica

43%

Asia21%

%

12

Emerging marketsovereign (USD) Emerging

market

Brazil 10%

VenezuelaTurkey 9%

OtherEurope 9%

Europe30%

8 GBI-EM weighting (local currency)

local currency

Other Asia

Africa 5% Brazil 13%

Mexico 8%

12%

Latin

4

10 year US Treasury

India 15%

11% Other LatinAmerica

5%

Poland 8%

America26%

EuropeAsia52%

0


Fed funds rate

China 26%

Turkey 4%

OtherEurope 5%

16

Note: Emerging Markets Sovereign is the JPMorgan EMBI Index of dollar denominated

debt until March 2003 thereafter it is the EMBI+. The local currency is the JPMorgan GBI-EM Global. Source: US Federal Reserve, J.P. Morgan Asset Management.

Note: The EMBI and GBI-EM track total returns on sovereign issued

debt. Figures may not sum to 100 due to rounding. Source: J.P.Morgan Asset Management. *Includes the Caribbean.


18/29

US S&P 500 Index at inflection points (USD)

1,800

S&P 500 Index (USD), log scale

States

27 March 2000P/E 22.7

9 October 2007P/E 14.9

1,400

1,600

Unite

, ,{31 March 2011}

P/E 12.51,326

1,000

1,200

+101%+231% -49% -57%

800

9 October 2002P/E 15.6

600

777

9 March 2009P/E 12.2

677

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

anuaryP/E 12.3462

17

Note: On a log scale the distance between tick marks shows the same percentage change. P/E is forward P/E. Source: I/B/E/S, J.P. Morgan Asset Management.


19/29

US equity valuations

25

Forward P/E ratio S&P 500 31 January 200024,4

States

One yearearnings

rowth

20

Average since 198916.0

Unite

forecast:

14%

10

15

{31 March 2011}12.5

10

S&P 500 Index dividend yield vs. 10 year US Treasury yield

10 r US Treasur Yield%%

6

8

{31 March 2011}

2

Dividend yield.

{1.8}%

18

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


20/29

US GDP and inflation

Real GDPchange year on year

Inflationchange year on year

States

Forecast GDPForecast

6 6

Unite 2011: 3.1%

2012: 3.1%

2011: 2.3%2012: 1.9%

% %

2

Average2.0%

2.8%

4

Headline CPIFebruary 2011

2.1%

0

2

-20

Core CPI

February


-4


20111.1%

19

Source: BEA, Bloomberg, J.P. Morgan Asset Management.


21/29


22/29

MSCI AC Asia ex-Japan Index by country

apan

Market % Change (USD)

A

siaex-J oun ry ap. n e g arc

Asia ex-Japan $3,842 100% 5.2% 2.1% 18.4%

, . . .

China 701 18 5.3 2.9 4.8

Hong Kong 317 8 1.3 -0.4 23.2

India 299 8 11.1 -5.1 21.0

Indonesia 96 2 9.7 4.7 34.6

Korea 577 15 11.7 7.6 27.2

Malaysia 116 3 5.3 4.3 37.0

ew ea an . . .

Philippines 22 1 10.0 -2.8 35.5

Singapore 192 5 4.8 -0.6 22.2

-. . .

Thailand 69 2 8.0 4.2 56.3

21

Note: Total returns. Source: I/B/E/S, J.P. Morgan Asset Management.


23/29


24/29

Emerging markets valuations, returns and data

arkets

Returns USD EUR

MSCI Emerging Markets Index (USD), log scale

Em

erging

1,200

1,600 2010 Q1 2010 Q1

MSCI EM 19.2% 2.1% 27.5% -3.5%MSCI EM Asia 19.4% 1.6% 27.6% -4.0%MSCI EM EMEA 23.8% 5.1% 32.4% -0.6%MSCI EM Europe 17.1% 11.8% 25.2% 5.7%

P/E 14.2

1.338{31 March 2011}

P/E {10.6}{1,171}

800

. . . - .

+392% -63% +135%

31 December 1999P/E 16.8489

400

27 February 2009P/E 9.4

499

-44%

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

31 March 2003P/E 8.4

272

23

Note: On a log scale the distance between tick marks shows the same percentage change. P/E is forward P/E. Source: I/B/E/S, J.P. Morgan Asset Management.


25/29

Emerging markets indices and GDP growth

Russia

31 March 2011 31 March 2011 31 March 2011BOVESPA SENSEX RTSGDP % GDP % GDP %ies

arkets

Brazil India

All market indices are log scale

6

8

10

12

8 000

16,000

32,000

36.000

48.000

60.000

72.000

4

6

8

500600700

1.000

2.000

0

5

10

15.68,587

.19,445

.2,044

Equi

Em

erging

0

2

4

2,000

4,000


12.000

24.000

-4

-2

0

2


200

300

400

-10

-5

Fourth quarter 2010{5.0}%



16

2,500 16 35.000 8MSCI China KOSPI FTSE-JSE All Share31 March 2011

P/E 10.9

31 March 2011P/E 10.7

GDP % GDP % GDP %

China Korea S. Africa{31 March 2011}

P/E {9.4}

10

12

14100

50

40 1,000

1,500

2,000

4

8

12

15.000

20.000

25.000

.

2

4

666 32,204{ , }


6

8

30

20


500

-4

0


10.000

-2

0


Fourth quarter 2010{3.}8%


24

Note: GDP is quarterly percentage change year on year. On a log scale the distance between tick marks shows the same percentage change. Source: Bloomberg, I/B/E/S,

J.P. Morgan Asset Management.


26/29

China GDP and inflation

Real GDPchange year on year

Inflationchange year on year

ies

arkets

Forecast

2516Equi

Em

erging

orecas2011: 9.5%2012: 9.0%

Headline CPI2011: 4.6%2012: 3.0%

% %

1512

Headline CPIFebruary 2011

{4.9}%

FoodFebruary 2011

10

10

{11.0}%

Average9.7%

0

5

8

-5

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

6 Non-foodFebruary 2011

2.3 %


25

Source: National Bureau Of Statistics of China, Bloomberg, J.P. Morgan Asset Management.


27/29

Brazil BOVESPA Index at inflection points

100,000ies

l

BOVESPA Index, log scale

20 May 2008{31 March 2011}

60,000

70,000

80,000

,

Equi

Brazi .

73,516 P/E {11.6}{68,587}

40,000

50,000

-60% +134%

20,000

,

31 December 1999P/E 12.517,092

27 October 2008P/E 4.829,345

+778%

-51%

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

7,000

8,000

9,000

,16 October 2002

P/E 4.88,370

26

Note: On a log scale the distance between tick marks shows the same percentage change. P/E is forward P/E. Source: Factset, J.P. Morgan Asset Management.


28/29

Brazil scorecard

arkets

l Overall economy

After growing at a faster pace than potential in 2010 - a remarkable rebound from 2009 crisis, the full GDP growthshould decelerate to a level close to its potential in 2011. Monetary and fiscal policy remain uncertain. We expect theextent of the rate cycle to become clear over the next quarter. Fiscal policy is crucial to putting Brazil on a sustainable

Em

ergingBrazi

Interest rates andInflation

Brazil continues to be fully absorbed in dealing with inflation and the economy is set to experience benign deceleration

in 2011. Should these conditions not materialise, inflation is poised to be an important problem for 2011 given pastmone and credit creation in the countr .

growth path.

Currency and externalaccounts

Linked to the faith of interest rates and monetary policy, the BRL continued its appreciating trend, piercing the 1.65level, which was a psychological support and a level well defended by the government. This prompted theauthorities to introduce a 6% IOF tax on external corporate loans with a maturity shorter than a year.

Market outlook andvaluation

Domestic rowth sectors are most interestin iven the otential for risin investment to stimulate trend rowth.

We expect volatility until there is greater clarity on the rate cycle and fiscal policy. After underperforming global

emerging markets in 2010, Brazil screens well on valuation having moved back to a comfortable discount on forwardPE.

Investment Themes Brazil has historically under-invested producing high returns on investment but low growth. Investment is rising asthe private sector responds to lower real rates and a stable business cycle.

Key news items, ,

Roger Agnelli confirmed that he will step down from his position when his mandate ends in May. As expressedbefore, we view this increasing influence by the government as something to be concerned about and an indicationof further deterioration in overall corporate governance.

27

Source: J.P. Morgan.

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgement and are subject to change without notice.


29/29

Documents

JPM Report June