Professional Documents
Culture Documents
Q4 | 2011
As of 30 September 2011
Table of Contents
UNITED KINGDOM WORLD EUROPE UNITED STATES JAPAN EMERGING MARKETS FIXED INCOME OTHER ASSET CLASSES
2 11 22 28 35 40 45 54
Home
UNITED KINGDOM
UK FTSE 100 Index at inflection points (GBP) UK equity valuations UK returns by style (GBP) UK market returns after consecutive down years UK GDP and inflation Contribution to UK GDP UK unemployment, retail sales and confidence indicators UK market scorecard
3 4 5 6 7 8 9 10
TOC
2
7,000
6,000
+132%
-52%
+105%
-47%
5,000
4,000
3,000
TOC
Dec 95
Dec 97
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
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.
UK equity valuations
Forward P/E ratio, FTSE 100 Index United Kingdom
30 25 20 15 10 5 Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07
10
Dividend yield
TOC
2.3%
Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09
United Kingdom
2004
FTSE 250 22.9%
2005
FTSE 250 30.2%
2006
FTSE 250 30.2%
2007
MSCI UK Growth 14.2%
2008
MSCI UK Value -28.1%
2009
FTSE Small Cap 54.3%
2010
FTSE 250 27.4%
YTD
MSCI UK Value -5.4%
Q3 2011
MSCI UK Value -10.5%
TOC
Note: Total return indices. Source: J.P. Morgan Asset Management.
United Kingdom
1932-1936 +147%
1975 +145%
1941-1945 +84%
-40% 1929-1931
-13% 1938-1940 -48% -61% 1972-1974 04/09/00 11/03/03 -45% 15/06/07 08/03/09
Great Depression
World War II
Oil crisis
Internet bubble
Credit crunch
TOC
Note: Total returns in GBP. Source: Dimson, Marsh and Staunton ABN AMRO/LBS Global Investment Returns Yearbook 2008, J.P. Morgan Asset Management.
Inflation
Forecast GDP 2011: 1.1% 2012: 1.7% Second quarter 2011 0.6% change year on year
6
%
4
%
5
Forecast headline CPI 2011: 4.4% 2012: 2.6% Headline CPI August 2011 4.5%
Average 1.9%
2 -2 1 -4 0 -6
TOC
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Contribution to UK GDP
Second quarter 2011 United Kingdom
change quarter on quarter
2.0
2.0 %
Government
Household
1.5 1.5
Net exports
1.0
Inventories
Government
0.4%
TOC
0.0
Confidence indicators
20
10
Index level
-10
12 % 10 8 6 4 2
-20
-30
-40
TOC
Source: ONS, British Retail Consortium, GfK NOP (UK), Eurostat, J.P. Morgan Asset Management.
UK market scorecard
United Kingdom
Overall economy
UK GDP growth continues to be below long-term trend, and in the second quarter GDP was just 0.6% higher than in the same period in 2010. Cuts in government spending, higher taxes, and imported inflation have significantly affected demand growth.
Employment
Unemployment rose slightly over the second quarter, to 7.9%. It may increase as public sector spending cuts take effect, with over 300,000 posts likely to be lost over the next four years. However, UK unemployment is lower than unemployment in the eurozone and in the US.
Corporate earnings
The earnings outlook for those companies reliant on discretionary spending has deteriorated, as they struggle to pass on rising input prices in an environment of falling real incomes. Exporters, meanwhile, face demand weakness in key overseas markets.
Interest rates
The consensus forecast is for the Bank of England base rate to be at 0.50% well into 2012, meaning that real interest rates will remain significantly negative for some time to come. A second round of quantitative easing was announced in early October.
Inflation
With headline CPI inflation at 4.5%, prices in the UK are rising at a rate well above those of its main trading partners and ahead of the Bank of Englands 2% target. However, inflation in 2011 largely reflects higher imported commodity prices and tax rises, both of which are deflationary in the long term. Fiscal tightening has begun and higher taxes and cuts in public spending are already impacting on consumer demand. The key theme for the rest of 2011 and for 2012 will be whether global demand can continue to support manufacturing exports while the service sector feels the brunt of fiscal tightening. Monetary policy is likely to remain accommodative throughout this period.
TOC
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. Source: J.P. Morgan Asset Management.
10
WORLD
World stock market returns (GBP and local currency) World equity market returns (GBP) MSCI AC World Index by country (GBP) MSCI World by sector (GBP) MSCI AC World Index dividend growth (GBP) Risk appetite and volatility World economic data Government deficits by country Credit and money supply growth Demographics
12 13 14 15 16 17 18 19 20 21
11
TOC
2005
50.5% MSCI EM 35.8%
2006
19.6% MSCI Europe ex UK 22.5% 17.3% MSCI Asia ex Japan 28.6%
2007
38.2% MSCI Asia ex Japan 38.0%
2008
1.3% Japan Topix -40.6%
2009
59.4% MSCI EM 62.8%
2010
23.7% MSCI Asia ex Japan 15.6%
YTD
-8.2% US S&P 500 -8.7%
Q3 2011
-2.2% Japan Topix -9.4%
-17.0% -18.3% M SCI Europe M SCI Asia ex ex UK Japan -17.5% -17.0% -19.3% M SCI Asia ex Japan -17.5%
TOC
Local
12
World
200 150
100
100
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
TOC
100
100
Dec 91
Dec 93
Dec 95
Dec 97
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Note: On a log scale the distance between tick marks shows the same percentage change. Total return indices. Source: J.P. Morgan Asset Management.
13
United Kingdom 8.5% -10.2% Return YTD Switzerland 3.3% -9.3% Australia 3.2% -16.6% > 0% -5 to 0% -10 to -5% -15 to -10% -20 to -15% < -20%
Germany 3.0% -20.2% Other* 3.7% -20.0% Spain 1.3% -9.0% Swed 1.1% -21.6% Hong Kong
S.A. Nether
TOC
Rus
Note: Total return indices. Size of square represents weight within the index, colour represents return. *Other includes countries with weighting of less than 0.4% of the index. J.P. Morgan Asset Management.
14
World
Energy MSCI World weight % Q3 2011 return % YTD return % Dividend yield % Historic P/E Forward P/E
10.9
Cons Staples
11.0
Health
10.5
Financials
18.1
Info Tech
12.2
Telecom Services
4.6
Utilities
4.2
MSCI World
100.0
-18.0
-23.0
-19.4
-14.1
-3.4
-7.4
-20.6
-6.7
-7.3
-4.3
-14.0
-13.2
-23.7
-16.1
-10.3
1.9
2.5
-21.0
-8.0
-2.0
-3.3
-11.4
3.0
2.4
2.8
2.1
3.2
2.9
3.7
1.3
5.8
5.1
3.0
10.3
10.6
11.9
14.3
15.4
14.5
10.1
13.2
11.0
18.7
13.1
8.9
9.3
10.5
11.8
13.5
10.8
8.2
11.3
10.7
13.5
10.3
TOC
Note: Total return indices. Source: I/B/E/S, J.P. Morgan Asset Management.
15
World
300
200
100
TOC
Dec 99
Dec 00
Dec 01
Dec 02
Dec 03
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Note: On a log scale the distance between tick marks shows the same percentage change. Regular dividends only. Source: J.P. Morgan Asset Management.
16
Euphoria
World
Distress
Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09
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.
VIX VDAX Asian crisis Russian crisis Tech bubble Gulf war 2
Volatility
60 40 20
TOC
Dec 95
Dec 97
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
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.
17
TOC
Spain Japan
Note: Arrows represent change on previous quarter. The Misery Index was devised by US economist Arthur Okun to illustrate the combination of unemployment and inflation. A higher number indicates a worse economic climate, and vice versa. GDP forecasts for Austria and the Netherlands are IMF and Eurostat estimates. Source: Bloomberg, national statistical agencies, J.P. Morgan Asset Management.
18
US UK
Ireland
Japan
India
Greece
Spain
France Portugal
Deficit (% of GDP)
China
TOC
-2 0 20 40 60 80 100 120 Gross debt (% of GDP) 140 160 180 220 250 200
19
20
UK US
10
%
8
UK US Eurozone
16
Eurozone
12
4
4
-2
-4
TOC
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Note: UK broad money supply is M4 until July 2010 then M4 adjusted (M4 excluding intermediate OFCs (other financial corporations)) onwards. US money supply is M2, and the eurozone is M3. Source: OECD, Bank of England, J.P. Morgan Asset Management.
Note: Year on year growth in outstanding loans, excluding mortgages. Source: Federal Reserve, Bank of England, ECB, J.P. Morgan Asset Management.
20
Demographics
Percentage of population, by age cohort World
Age 60 Nigeria India Brazil US China UK Italy Germany Japan
50 80+
40 60-79
30 40-59
20 20-39
10 0-19
51%
39%
34%
27%
25%
24%
19%
18%
18%
TOC
4.7
2.6
2.2
2.1
1.5
1.9
1.4
1.4
1.2
Note: Data as at 31 March 2011, ordered by size of youngest age group. Total fertility rate is the average number of children born per woman over natural life time. Source: US Census Bureau, J.P. Morgan Asset Management.
21
EUROPE
MSCI Europe ex UK Index at inflection points (local currency) Europe ex UK equity valuations Eurozone GDP and inflation Contribution to German GDP Eurozone market scorecard
23 24 25 26 27
22
TOC
19 February 2007 P/E 13.6 1,368 18 February 2011 P/E 11.3 993
+268%
800
-63%
+154%
-52%
+53% 30 September 2011 P/E 8.3 746 12 March 2003 P/E 12.7 538
400
600
TOC
Dec 95
Dec 97
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
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.
23
Europe
MSCI Europe ex UK Index dividend yield vs. ten-year EMU bond yield
8
%
TOC
Dividend yield
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09
1.9%
24
Inflation
Forecast GDP 2011: 1.7% 2012: 1.1% change year on year
5
Europe
%
4
Average 1.5%
-2
-4
TOC
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
25
Europe
1.5
1.5
Household Inventories
Government
1.0
1.0
Net exports
Net exports
0.5 0.5
Total
1.3%
TOC
0.0
0.0
26
Europe
Overall economy
Second-quarter GDP growth in the eurozone was 1.6% higher than in the same period in 2010. The regions growth continues to be divided between the core and peripheral economies. However, the strong growth seen in the core region earlier this year has weakened significantly.
Employment
Eurozone unemployment is rising again and currently stands at 10.0%. Unemployment in peripheral eurozone countries is likely to continue to rise as public sector spending cuts take effect against a background of weak or contracting private sector demand. Corporate earnings growth over the next 12 months is likely to reflect the pattern of GDP growth, with the core region outperforming the peripheral countries.
Corporate earnings
Interest rates
The European Central Bank (ECB) is likely to reduce its policy rate over the coming months. There is a risk that a tightening of fiscal policy will make it harder for cash-strapped peripheral economies to achieve the level of economic growth needed to meet their deficit reduction targets, hence the need for loose monetary policy.
Inflation
Eurozone headline CPI inflation stands at 2.5% year-on-year. The German rate (+2.6%), though below the eurozone average, is perhaps of greatest concern given that it was only +0.5% in February 2010.
TOC
The sovereign debt crisis continues to dominate headlines, while there is a growing risk of a return to recession in Germany and the core region.
Note: 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. Source: J.P. Morgan Asset Management.
27
UNITED STATES
US S&P 500 Index at inflection points (USD) US equity valuations US returns by style (USD) US GDP and inflation Contribution to US GDP US market scorecard
29 30 31 32 33 34
28
TOC
+101%
+231%
1,000
-49%
-57%
800
30 September 2011 P/E 11.0 1,131 9 March 2009 P/E 12.2 677
TOC
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.
29
US equity valuations
Forward P/E ratio S&P 500 Index
25
United States
20
10 Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09
8 6 4
TOC
2 Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09
1.9%
30
United States
2004
Russell 2000 18.3% S&P 400 Mid Cap 16.5% S&P 500 Value 15.7%
2005
S&P 400 Mid Cap 12.6% S&P 500 Value 5.8%
2006
S&P 500 Value 20.8% Russell 2000 18.4%
2007
Nasdaq 10.7%
2008
Russell 2000 -33.8% S&P 500 Growth -34.9% S&P 400 Mid Cap -36.2%
2009
Nasdaq 45.3%
2010
Russell 2000 26.9% S&P 400 Mid Cap 26.6%
YTD
S&P 500 Growth -5.6%
Q3 2011
S&P 500 Growth -11.6%
S&P 400 Mid Cap 37.4% S&P 500 Growth 31.6% Russell 2000 27.2%
Nasdaq -8.3%
Nasdaq -12.7%
Nasdaq 18.0%
S&P 500 Value -11.9% S&P 400 Mid Cap -13.0% Russell 2000 -17.0%
S&P 500 Value -16.3% S&P 400 Mid Cap -19.9% Russell 2000 -21.9%
Nasdaq 9.1%
Nasdaq 10.4%
TOC
Nasdaq 2.1%
Nasdaq -40.5%
31
Inflation
Forecast GDP 2011: 1.6% 2012: 2.2% Second quarter 2011 1.6% Average 2.1%
4
%
4
-2
-4
TOC
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
32
Contribution to US GDP
Second quarter 2011 United States
change quarter on quarter annualised
2.0
% Net exports
1.5
Residential investment
Net exports
Household
1.0
1.0
Household
Government
Total
0.5
1.3%
Business investment
0.5
Total
0.4%
TOC
0.0
0.0
33
US market scorecard
United States
Overall economy
Second-quarter GDP growth in the US rose 1.6% compared to the same quarter in 2010. Unemployment remains high, which together with renewed weakness in the housing market, is contributing to soft consumer demand growth.
Employment
Unemployment stands at 9.1%, higher than that of many other major developed economies. There remains some concern that we are seeing a jobless recovery, with high unemployment possibly emerging as a structural (rather than cyclical) problem.
Corporate earnings
Corporate earnings growth remains robust, with profit margins helped by ongoing weak wage growth.
Interest rates
The Federal Reserve has made it clear that there will not be an interest rate rise until 2013. A further round of quantitative easing (QE) is unlikely in the near term, given that headline CPI inflation is in firmly positive territory and that the Fed will want to see the results of its Operation Twist.
Inflation
The market does not appear overly worried about US inflation at 3.8%, perhaps because disinflationary forces, such as high unemployment and weak wage growth, remain strong.
TOC
Consumer confidence will remain precarious for as long as we have high unemployment, low wage growth and on-going weakness in house prices.
Note: 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. Source: J.P. Morgan Asset Management.
34
JAPAN
Japan TOPIX Index at inflection points (JPY) Japan equity valuations Japan GDP and inflation Japan market scorecard
36 37 38 39
35
TOC
Japan
3,000 2,500
2,000
-73%
26 February 2007 P/E 18.0 1,817 30 September 2011 P/E 11.4 761 +135% -60% 21 February 2011 P/E 13.6 975
1,500
1,000
TOC
Dec 89
Dec 91
Dec 93
Dec 95
Dec 97
Dec 99
Dec 01
Dec 03
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.
36
Japan
60
One year earnings growth forecast: 23% Average since 1989 30.9 30 September 2011 11.4
40
20
Dec 89
Dec 91
Dec 93
Dec 95
Dec 97
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
8 6 4 2 Dec 89 Dec 91
TOC
Note: Earnings growth forecast excludes negative earnings. Source: I/B/E/S, Tullett Prebon Information, J.P. Morgan Asset Management.
37
Inflation
change year on year
3
Japan
%
4
% Average 0.9%
2
1
0
-2
-4
-1
-6
-8
-2
TOC
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Source: Ministry of Internal Affairs and Communications, Economic & Social Research Institute, Bloomberg consensus forecasts, J.P. Morgan Asset Management.
38
Japan
Overall economy
Second-quarter GDP growth came in at -1.1% over the same period in 2010. The massive injection of liquidity into the economy by the Bank of Japan that followed the earthquake and tsunami, together with the reconstruction effort, has helped contain the negative effect of the strong yen on exports.
Employment
Unemployment stands at 4.3%, low by international standards but high for Japan.
Corporate earnings
The tsunami has had a significant impact on domestic output and profits. Power, autos and many other sectors, however, have recovered faster than had been expected and the biggest problem for the rest of 2011 will be how exporters cope with the strong yen.
Interest rates
The Bank of Japans call rate stands at 0.1%, slightly lower than the headline CPI inflation rate of 0.2% for the first time in more than a decade. However, we do not expect a rise in policy rates in the near future, given the structural problems facing the economy.
Inflation
Headline CPI inflation is currently 0.2% on a year-on-year basis. Given the sharp increase in liquidity since late March, on-going supply bottlenecks arising from the recent disasters and the reconstruction effort, continuing positive inflation is likely over the coming months. Given that one of Japans long-term problems is deflation, this can be regarded in a positive light. The post-tsunami recovery work will give a temporary boost to domestic demand within the Japanese economy over the coming years. But this should not distract the Japanese government from long-awaited supply-side reforms, which will stimulate competition and boost consumer demand.
TOC
Note: 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. Source: J.P. Morgan Asset Management.
39
EMERGING MARKETS
MSCI Asia ex Japan Index and emerging market returns Emerging markets indices and GDP growth China GDP and inflation Education
41 42 43 44
40
TOC
Returns MSCI EM MSCI EM Asia MSCI EM EMEA MSCI EM Europe MSCI EM Latin America
800
USD YTD Q3 -21.7% -22.5% -19.8% -21.1% -22.4% -24.2% -23.7% -29.5% -25.7% -24.5%
GBP YTD Q3 -21.3% -20.1% -19.4% -18.7% -22.0% -21.9% -23.3% -27.4% -25.3% -22.2%
600
+137%
TOC
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.
41
Brazil
BOVESPA
India
GDP % SENSEX 10 32,000 8
Russia
GDP % RTS
12 2,000 10
1,000
GDP % 15
6 16,000 4 2 0
8 8,000 6 4 4,000
-2
2 0
-10
China
MSCI China
Korea
GDP % KOSPI
S. Africa
GDP % FTSE-JSE All Share
100 80 60 40
16 14 12 10
GDP %
8 6 4 2 0
15.000 10.000
20
TOC
500
-4
-2
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.
42
Inflation
Forecast GDP 2011: 9.3% 2012: 8.7% change year on year
25
%
14
%
20
12
15
10
Average 9.6%
10
5
8
0
6
TOC
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
-5 Dec 99
Source: National Bureau Of Statistics of China, Bloomberg consensus forecasts, J.P. Morgan Asset Management.
43
Education
Emerging Markets PISA education survey: Comparing performance of selected countries
scores for 15 year olds
Rank
Top three 1 2 3 556 539 536
Reading
Shanghai-China Korea Finland 1 2 3 600 562 555
Maths
Shanghai-China Singapore Hong Kong-China 1 2 3 575 554 549
Science
Shanghai-China Finland Hong Kong-China
Selected others
8 17 20 22 25 53
Japan United States Germany France United Kingdom Brazil Peru Azerbaijan Kyrgyzstan
9 16 22 28 31 57 63 64 65
Japan Germany France United Kingdom United States Brazil Peru Panama Kyrgyzstan
5 13 16 23 27 53 63 64 65
Japan Germany United Kingdom United States France Brazil Azerbaijan Peru Kyrgyzstan
Bottom three
63 64 65
TOC
Source: OECD, Program for International Student Assessment (PISA), J.P. Morgan Asset Management.
44
FIXED INCOME
Fixed income returns US Deficit and foreign holders of Treasuries International yield curves ECB and Bank of England policy and real rates US Fed and Bank of Japan policy and real rates Investment grade and high yield bond spreads Emerging market sovereign debt and index weightings Banking stress and exposure
46 47 48 49 50 51 52 53
45
TOC
2010
21.3% Japan 2.5%
YTD
10.7% UK 10.7%
Q3 2011
9.8% US 6.5%
YTD
7.1%
Q3
3.1%
GBP Local
58.2% US 14.3%
9.5% US 9.0%
9.4% US 6.1%
8.8% UK 8.8%
7.5% UK 7.5%
GBP Local
13.6% UK 13.6%
-14.3% US -3.8%
TOC
Source: Barclays Capital, Bank of America Merrill Lynch, J.P. Morgan Asset Management.
46
100
% 90
80 70 60 50 40 30 20 10
6,000 USD bn
Surplus Receipts
OPEC
TOC
0 Mar 04
0 Mar 06 Mar 08 Mar 10 1994 1998 2002 2006 2010 2014 2018
*57% of assets on the Feds balance sheet. ** Other includes US deposit institutions, households , state and local government etc. Data as at July 2011. Source: US Treasury Department, J.P. Morgan Asset Management.
Source: OMB (Office of Management & Budget), J.P. Morgan Asset Management.
47
Germany Japan
1
Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11
3 2 1 0
TOC
6M 3
2Y
53 5Y
103
10Y
153
Maturity
203
253
303
30Y 353
48
Bank of England
8
%
6
%
6
-2
TOC
Dec 99
Note: Real interest rates are calculated using core CPI and repo rate. Source: ECB, Bloomberg consensus forecasts, J.P. Morgan Asset Management.
Note: Real interest rates are calculated using core CPI and base rate. Source: Bank of England, ONS, Bloomberg consensus forecasts, J.P. Morgan Asset Management.
49
Bank of Japan
Forecast Fed Funds 2011: 0.25% 2012: 0.25% Forecast Call rate 2011: 0.10% 2012: 0.10%
2.0
%
6
1.5
1.0
0.5
0
0.0
Dec 09
TOC
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Note: Real interest rates are calculated using core CPI and Fed Funds rate. Source: US Federal Reserve Bank, Bloomberg consensus forecasts, J.P. Morgan Asset Management.
Note: Real interest rates are calculated using core CPI and call rate. Source: Bank of Japan, Bloomberg consensus forecasts, J.P. Morgan Asset Management.
50
% 12
10 8 6 4 2 0
1,200
1,000
800 400
800
0 Dec 99
Dec 02
Dec 05
Dec 08
Source: Merrill Lynch US High Yield Master Index II, J.P. Morgan Asset Management.
600
% 16
12
400
257 Mortgages
200
82
200 0 Dec 01
TOC
0 Dec 99
Dec 01
Dec 03
Dec 05
Dec 07
Dec 09
Note: Investment grade based on Merrill Lynch Investment Grade, mortgages is the Barclays Capital Aggregate US MBS index, and emerging markets bond is JPMorgan EMBI+. Source: Merrill Lynch, BarCap, J.P. Morgan Asset Management.
51
Asia 22%
12
Mexico 13%
Europe 29%
Brazil 9% Venezuela 7%
Russia 10%
Ten-year US Treasury
India 14%
Asia 49%
Europe 16%
TOC
0 Dec 00
Dec 02
Dec 04
Dec 06
Dec 08
Dec 10
China 24%
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.
*Includes the Caribbean. Note: The EMBI and GBI-EM track total returns on sovereign issued debt. Figures may not sum due to rounding. Source: J.P. Morgan Asset Management.
52
Germany Germany
UK UK
Jul 08
Jul 09
Jul 10
Jul 11
Note: The five year credit default swap illustrates the cost of insuring USD 10m each year for five years. Source: Bloomberg, J.P. Morgan Asset Management.
France France
Ireland Greece
US UK Eurozone Switzerland
Spain Spain
Portugal
ROE* Europe
US US
Rest of
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-0.5 Dec 07
Dec 08
Dec 09
Dec 10
50
100
The Libor-OIS spread (LOIS) is the difference between three month Libor and the overnight index swap rate. The spread is an indicator of the willingness of banks to lend to each other. Source: Bloomberg, J.P. Morgan Asset Management.
53
The dollar Safe havens Commodities Gold and oil Correlation of returns (GBP) Property Cumulative returns on UK asset classes
55 56 57 58 59 60 61
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The dollar
Other Asset Classes USD per GBP
2.2
1.8
110 100
1.4
90 80
1.0 Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
70 Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
US Dollar TWI
30 September 2011 USD 1.34
110
Commodities Index
280
1.4
100
240 200
1.2
90
160 120
TOC
1.0 Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
80 Dec 04
Note: Indices rebased to 100 at December 2004. TWI is the Trade Weighted Index. Source: Federal Reserve, Goldman Sachs Commodity Index, J.P. Morgan Asset Management.
55
Safe havens
Other Asset Classes CHF per EUR
1.8
US Treasuries
CHF per EUR (lhs) MSCI Europe (rhs)
1,700
%
5.0
1,500
1,300
1.6
1,100
4.0
900
3.0
1.2 900
700
2.0
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1.0 Dec 06
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Commodities
Other Asset Classes Inflation adjusted commodity indices rebased to 1900 = 100
300 250 200 150 100 50 0 1900
300
Timber Cotton
Copper Wheat
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Note: Pfaffenzeller until 2003, indexed IMF commodity prices thereafter. Nominal prices adjusted using US consumer price index. Source: Pfaffenzeller, IMF, J.P. Morgan Asset Management.
70
60 50 40 30 20
300
200
100
TOC
10 0
Dec 99
Source: Goldman Sachs, National Bureau of Statistics of China, J.P. Morgan Asset Management.
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USD/bbl
USD/oz
2,000
140
120
1,600
100 1,200 80
60
800
40 400 20
TOC
0 Dec 69
Dec 79
Dec 89
Dec 99
Dec 09
0 Dec 69
Dec 79
Dec 89
Dec 99
Dec 09
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FTSE 100
MSCI EM 0.74
High yield bonds 0.51 0.40 0.30 0.26 0.43 0.55 0.32 0.27 0.54 0.40 -0.13 0.55 1,00
FTSE 100 MSCI Japan MSCI Asia Ex Japan MSCI Europe Ex UK S&P 500 MSCI EM MSCI World UK Gilts EM debt
1,00
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59
Property
Other Asset Classes UK house price to earnings ratio
6 5 4 3
Retail
6.0 5.5 2.2 5.9 1.5 6.2 5.5 4.6 0.5 1.5 Germany
Office
6.1 5.0 2.4 5.3 1.7 5.8 5.3 4.8 0.5 1.5
Residential
3.4 4.1 n/a n/a 1.0 n/a 3.1 4.5 n/a 1.4
2 1983
1986
1989
1992
1996
1999
2002
2005
2009
Ireland Italy Netherlands Spain Sweden Switzerland United Kingdom United States
Note: Calculated as the ratio of Nationwide first time buyers house prices to mean earnings. Source: Nationwide, ONS, J.P. Morgan Asset Management.
5 4 3 2
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*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/CaseShiller, OFHEO, UK Office for National Statistics, Bank of Spain, Ireland Central Statistics Office, Permanent TSB/ESRI, J.P. Morgan Asset Management.
1,000
Annualised real returns 1899 Q3 2011 2000 Q3 2011 Equities Bonds 5.1% 1.4% 0.9% -0.6% 2.7% 0.3% 1971-1982 1999 GBP 316 Equities GBP 272
100
Cash
10
1913-1922
1
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0 Dec 1899
Dec 1909
Dec 1919
Dec 1929
Dec 1939
Dec 1949
Dec 1959
Dec 1969
Dec 1979
Dec 1989
Dec 1999
Dec 2009
Note: J.P. Morgan estimate from 2008: equities are represented by FTSE 100, bonds by JPMorgan GBP Government Bond Index and cash by three month GBP Libor (prior to 2008 cash is short dated Treasury bills). Log scale accurately represents percentage changes in index levels. Source: Dimson, Marsh and Staunton ABN AMRO/LBS Global Investment Returns Yearbook 2008, J.P. Morgan Asset Management.
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Tom Elliott. vice president, is a global strategist within the Investment Marketing Team at J.P. Morgan Asset Management, responsible for investment communications through the Guide to the Markets suite of products. An employee since 1995, he worked in the Global Multi-Asset Group (GMAG) until 2006 and before that he was head of the Investment Writing Team. Previously. he worked at Euromoney Publications as a feature writer for a year and prior to that he spent four years at Greig Middleton & Co. as a graduate trainee and securities analyst. Tom obtained a BA in History from Sussex University and an MSc in Economic History from the London School of Economics. tom.cb.elliott@jpmorgan.com
Dan Morris. vice president, is a strategist responsible for delivering market analysis and insight to clients in Europe and Latin America. Prior to joining J.P. Morgan Asset Management, Dan was the Senior Equity Strategist at Lombard Street Research and before that part of the Institutional Investor-ranked portfolio strategy team at Banc of America Securities in New York. Dan began his career covering Latin American equity markets at BT Alex. Brown and Dresdner Kleinwort Benson. He holds an MBA from the Wharton School and a Masters in International Relations from Johns Hopkins' School of Advanced International Studies. His undergraduate degree is in Mathematics from Pomona College and he is a CFA charterholder. daniel.m.morris@jpmorgan.com
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Any views expressed are intended to give some insight into market events but are based on the personal opinions of Tom Elliott and Dan Morris. Their opinions may therefore diverge from other views within J.P. Morgan Asset Management, and do not necessarily reflect the Global Multi Asset Group (GMAG) team outlook, which is based on a 3-6 month time horizon and reflects the investment strategy of our GMAG Group.
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For more information, or to request a particular piece, please contact your local J.P. Morgan Asset Management representative.
THIS MATERIAL IS INTENDED FOR USE SOLEY BY PROFESSIONAL ADVISERS AND INSTITUTIONAL INVESTORS. NOT FOR PUBLIC DISTRIBUTION. Any forecasts, figures, opinions or investment techniques and strategies set out, unless otherwise stated, are J.P. Morgan Asset Managements own at date of this document. They are considered to be accurate at the time of writing. They may be subject to change without reference or notification to you. The views contained herein are not to be taken as an advice or recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support an investment decision. It should be noted that 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 may not be a reliable guide to future performance. Changes in exchange rate may have an adverse effect on the value price or income of the product. Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to market movements. Investments in emerging markets may be more volatile and therefore the risk to your capital could be greater. Further, the economic and political situations in emerging markets may be more volatile than in established economies and these may adversely influence the value of investments made. You should also note that if you contact J.P. Morgan Asset Management by telephone those lines could be recorded and may be monitored for security and training purposes. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. Products may not be authorised or its offering may be restricted in your jurisdiction. Prior to any application investors should inform themselves as to the requirements within your country for transactions in the Fund, any applicable exchange control regulation and the tax consequences of any transaction in the product. Shares may not be offered to or purchased directly or indirectly by US persons. All transactions should be based on the latest available simplified and full prospectuses and any local offering document. These documents together with the annual report, semi-annual report and the articles of incorporation for the Luxembourg domiciled products are available free of charge upon request from JPMorgan Asset Management (Europe) S..r.l., European Bank & Business Centre, 6 route de Trves, L-2633 Senningerberg, Grand Duchy of Luxembourg, your financial adviser or your J.P. Morgan Asset Management regional contact. In Switzerland: J.P. Morgan (Suisse) SA has been authorised by the Swiss Financial Market Supervisory Authority FINMA as Swiss representative and as paying agent of the funds, J.P. Morgan (Suisse) SA, 8, rue de la Confdration, PO Box 5507, 1211 Geneva 11, Switzerland. Issued by JPMorgan Asset Management (Europe) Socit responsabilit limite, European Bank & Business Centre, 6 route de Trves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. Material issued in the United Kingdom are approved for use by JPMorgan Asset Management (UK) Limited, 125 London Wall, London EC2Y 5AJ, England. JPMorgan Asset Management (UK) Limited is authorised and regulated by the Financial Services Authority. Registered in England No. 01161446. Registered address: 125 London Wall, London EC2Y 5AJ. Unless otherwise stated, all data is as of 30/09/11. Prepared by: Kerry Craig, Tom Elliott and Dan Morris
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