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1Q | 2015

As at 31 December 2014

Guide to the Markets


UK
Global Market Insights Strategy Team

Americas Europe Asia


Dr. David P. Kelly, CFA Stephanie H. Flanders Tai Hui
New York London Hong Kong
Andrew D. Goldberg Maria Paola Toschi Geoff Lewis
New York Milan Hong Kong
Anastasia V. Amoroso, CFA Vincent Juvyns Yoshinori Shigemi
Houston Luxembourg Tokyo
James C. Liu, CFA Manuel Arroyo Ozores, CFA Grace Tam, CFA
Chicago Madrid Hong Kong
Julio C. Callegari Tilmann Galler, CFA Ian Hui
So Paulo Frankfurt Hong Kong
David M. Lebovitz Dr. David Stubbs Ben Luk
New York London Hong Kong
Gabriela D. Santos Lucia Gutierrez
New York Madrid
Ainsley E. Woolridge Kerry Craig, CFA
New York London
Hannah J. Anderson Alexander W. Dryden
New York London
Abigail B. Dwyer Nandini L. Ramakrishnan
New York London

Past performance is no guarantee of comparable future results. For China and Australia distribution, please note this communication is
for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the full disclaimer at the end.
Unless otherwise stated, all data is as at 31 December 2014 or most recently available.
Page Reference
42. Bond and Equity Relative Valuations
UK Economy 43. UK FTSE 100 at Inflection Points (GBP)
44. UK FTSE 100 Equity Valuations
3. UK: GDP and Inflation
45. UK FTSE 100 Earnings and Profit Margins
4. Balance of UK Growth
46. MSCI Europe ex-UK Index at Inflection Points (Local Currency)
5. UK Labour Market
47. MSCI Europe ex-UK Equity Valuations
6. UK Cyclical Indicators
48. MSCI Europe ex UK Earnings and Profit Margins
7. UK Housing
49. US S&P 500 at Inflection Points
8. UK Household Sensitivity to Interest Rates
50. US S&P 500 Equity Valuations
9. UK Consumer Finances
51. US S&P 500 Earnings and Profit Margins
Global Economy 52.
53.
Interest Rates and Equities
Developed Markets Equity Valuations by Country
54. Emerging Markets Equity Valuations by Country
10. World Economic Data
55. Emerging Markets Valuations and Returns
11. Global Purchasing Managers (PMI) Index for Manufacturing
56. Emerging Markets Equity Composition
12. Economic Slack and the Equity Market
57. Emerging Markets: Performance, Dividends and Earnings Growth
13. Global Disinflationary Pressures
58. Equity Income
14. Economic and Monetary Policy Divergence
59. Equity Dividends and Valuations
15. US Dollar
60. Equity Correlations and Volatility
16. Sovereign Debt Stresses
61. Annual Returns and Intra-year Declines
17. Fiscal Austerity and Debt Levels
18. Global Trade: The Importance of Exports
19. Eurozone: GDP and Inflation Fixed Income
20. Eurozone Recovery Monitor
21. Eurozone Credit Demand and Supply 62. Fixed Income Sector Returns
22. Eurozone Divergences 63. Fixed Income Market Data
23. Europe Government Interest Rates 64. Policy and Real Rates
24. European Central Bank (ECB) 65. Fixed Income Interest Rate Risk
25. US Federal Reserve Policies 66. Liquidity and Duration Risks
26. US Economic Growth and the Composition of GDP 67. Global Bond Supply and Demand
27. US Employment 68. Government and Investment Grade Bond Yields
28. US Inflation 69. US High Yield Bonds
29. US Cyclical Indicators 70. European High Yield Bonds
30. US Consumer Finances 71. Emerging Markets Debt
31. Japan: GDP and Inflation 72. Emerging Markets Debt Composition
32. Japan: Abenomics and the Economy
33. China: GDP and Inflation Other Assets and Investor Behaviour
34. China: Growth and Transformation
35. China Financial Dynamics 73. Asset Class Returns
36. Emerging Markets Structural Dynamics 74. Correlation of Returns (UK)
37. Emerging Markets Challenges 75. Commodity Returns
38. Emerging Markets Currencies 76. Commodities
39. Emerging Markets Sensitivity 77. Oil Consumption and Production
78. Life Expectancy and Pension Shortfall
Equities 79. Consumer Confidence and the Stock Market
80. Industry Fund Flows
40. World Stock Market Returns 81. US Asset Returns by Holding Period
41. European Sector Returns 82. Returns in Different Inflation Environments
UK: GDP and Inflation

Real GDP Avg since Inflation Avg since


3Q14 Nov 2014
Change quarter on quarter 1999 Change year on year 1999
UK Economy

2 Real GDP 0.5% 0.7% 6 Headline CPI* 2.2% 1.0%


Core CPI 1.7% 1.2%
% %

5
1

Average
4

-1

-2
1

-3 0
'99 '01 '03 '05 '07 '09 '11 '13 '99 '01 '03 '05 '07 '09 '11 '13

Source: (Both charts) ONS, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and
energy. Guide to the Markets - UK. Data as at 31 December 2014.

3
Balance of UK Growth

Components of economic growth by sector UK growth and employment


Rebased to 100 at Q1 2008 Rebased to 100 at Q1 2008
UK Economy

110 104 Total employment


Services
105
Real GDP
100
Manufacturing 102
95

90
Production
85 Construction 100

80
'08 '09 '10 '11 '12 '13 '14

Current account 98
% of GDP 3Q14:
1 -6.0%
%
0
-1 96

-2
-3
-4 94

-5
-6
-7 92
'85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '08 '09 '10 '11 '12 '13 '14
Source: (All charts) ONS, FactSet, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as at 31 December 2014.

4
UK Labour Market

Unemployment rate Participation rate


Seasonally adjusted % of population aged 16+ working or looking for work
UK Economy

11 65
%
10 %
Oct 2014:
9 64 63.3%
8
Average: 7.0% 63
7

6
Oct 2014: 62
5
6.0%

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '74 '79 '84 '89 '94 '99 '04 '09 '14

Labour productivity Wage growth


Output per hours worked, index 2011 = 100 Change year on year CPI
8
100 % Nominal wages*
90 6
3Q14: Real wage growth**
98.8 4
80

70 2

60 0

50 -2
40
-4
'74 '79 '84 '89 '94 '99 '04 '09 '14 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (All charts) ONS, FactSet, J.P. Morgan Asset Management. *Nominal wages include bonuses. **Real wage growth is average nominal earnings less CPI.
Guide to the Markets - UK. Data as at 31 December 2014.

5
UK Cyclical Indicators

New car registrations Business confidence


Millions, 12-month rolling total Seasonally adjusted
UK Economy

2.7 103
Nov 2014: 101.6
Nov 2014: 2.5 102
2.5
101
Average: 2.3
2.3 100

2.1 99
98
1.9
97
1.7 96
'98 '00 '02 '04 '06 '08 '10 '12 '98 '00 '02 '04 '06 '08 '10 '12 '14

Retail sales growth* Industrial production


Change year on year Capital goods, index 2008 = 100
12 Nov 2014: 110 Oct 2014: 105.7
% 6.4%
105
8 100
95
4
90

0 85
80
-4
75
'98 '00 '02 '04 '06 '08 '10 '12 '14 '98 '00 '02 '04 '06 '08 '10 '12 '14
Source: (Top left) ECB, J.P. Morgan Asset Management. (Bottom left and right) ONS, FactSet, J.P. Morgan Asset Management. (Top right) OECD,
J.P. Morgan Asset Management. *Volume of sales rather than value of sales. Guide to the Markets - UK. Data as at 31 December 2014.

6
UK Housing

Home prices Housing starts*


Rebased to 100 at December 2002 Thousands per quarter, seasonally adjusted
UK Economy

180 55
Dwelling price (ONS) 3Q14:
32.9
Nationwide
45
170 Halifax

35
160
Average increase in households 2001-11: 39.5
25
150

15
140 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Mortgage approvals and housing transactions


130 Thousands, seasonally adjusted
160
Housing transactions
120 4Q14 % change 140 Mortgage approvals
(000s) y/y Nov 2014:
120
UK 189 8.3% 98.5
110 London 407 17.8% 100
Wales 142 1.4%
80
Scotland 143 4.2%
100 Ireland 121 8.1% 60
England ex-London 186 7.8% Nov 2014:
40 59.0
90
20
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Left) Halifax, ONS, Nationwide, J.P. Morgan Asset Management. (Top right) ONS, FactSet, J.P. Morgan Asset Management. (Bottom right) Bank of England,
HM Revenue & Customs, FactSet, J.P. Morgan Asset Management. *Data is for England only. Guide to the Markets - UK. Data as at 31 December 2014.

7
UK Household Sensitivity to Interest Rates

Household ownership Interest service ratio


% of total households Ratio of interest payments to profits or income
UK Economy

50 40
Renting Household sector (rhs) %
% %
Own home with mortgage 14
Corporate sector (lhs)
45 Own home without mortgage 35

40 30 12

35 25
10

30 20 Average: 8.3
8

25 15
Household sensitivity to interest rates
Payments as a % % of vulnerable
Policy rate* 6
income households**
20 10
at 0.5% 21% 8%
at 3.0% 28% 16%

15 5 4
'81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

Source: (Left) Bank of England, ONS, Department of Local Government and Communities, J.P. Morgan Asset Management. *Policy rate is the key interest rate set by the Bank
of England, known as the Bank Rate. **Vulnerable households are defined as those households whose mortgage repayment exceeds 35% of their take-home pay and
assumes incomes remain unchanged from today's levels. Estimates are provided by the Bank of England. (Right) ONS, J.P. Morgan Asset Management. Guide to the Markets -
8 UK. Data as at 31 December 2014.
UK Consumer Finances

Lending to individuals: Secured and unsecured lending Household debt


Seasonally adjusted, three-month annualised growth rate % of income
UK Economy

20 190 Forecast
% Unsecured %
16 180
Secured
170
12
160
8
150
4
140
0 130

-4 120
'99 '01 '03 '05 '07 '09 '11 '13 '04 '06 '08 '10 '12 '14 '16 '18 '20

Annual income generated by 100,000 investment in a one-year bank deposit


2007:
6,000 5,745 6
Income Inflation (y/y) %
5,000 5

4,000 4

3,000 3
Dec 2014:
2,000 1,065 2

1,000 1

0 0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Top left) Bank of England, FactSet, J.P. Morgan Asset Management. (Top right) OBR, J.P. Morgan Asset Management. (Bottom) Bloomberg, ONS,
J.P. Morgan Asset Management. Forecasts begin in December 2014. Orange marker points represent year on year inflation for that year and illustrate how the value of
income would have been eroded due to inflation. Guide to the Markets - UK. Data as at 31 December 2014.
9
World Economic Data

Selected countries
Gross domestic Real GDP Inflation Policy rate Unemployment
product (GDP) % % % %

per
billions 2014* 2015* 2014* 2015*
capita
Global Economy

Switzerland 50,006 400 1.8 1.8 0.0 0.1 -0.25 3.2


Sweden 34,814 336 1.9 2.4 -0.2 0.7 0.00 7.4
United States 34,308 10,856 2.3 3.0 1.7 1.5 0.25 5.8
Netherlands 32,007 538 0.7 1.4 0.4 0.7 0.05 8.0
Finland 30,328 160 -0.2 0.7 1.2 1.0 0.05 8.2
United Kingdom 29,289 1,857 3.0 2.6 1.5 1.4 0.50 6.0
Germany 28,921 2,376 1.5 1.2 0.9 1.1 0.05 6.6
France 27,749 1,752 0.4 0.8 0.6 0.6 0.05 9.9
Japan 22,574 2,873 0.3 1.0 2.8 1.5 0.10 3.5
Eurozone 22,538 8,730 0.8 1.1 0.5 0.6 0.05 11.5
Italy 21,441 1,318 -0.4 0.4 0.2 0.3 0.05 12.8
Spain 18,289 866 1.3 1.8 -0.1 0.3 0.05 23.7
Greece 14,571 157 0.3 1.7 -1.2 -0.1 0.05 25.5
Russia 8,857 1,271 0.5 -1.2 7.6 8.2 8.25 4.9
Brazil 6,950 1,397 0.2 0.9 6.3 6.4 11.75 4.8
China 4,474 6,038 7.4 7.0 2.1 2.0 5.60 4.1
India 976 1,192 5.4 5.5 7.2 6.7 8.00 8.8
Source: Bloomberg, FactSet, various national statistical agencies, J.P. Morgan Asset Management. Table ordered by GDP per capita. Nominal GDP figure is latest quarter
annualised. *Forecasts are Bloomberg consensus estimates. Guide to the Markets - UK. Data as at 31 December 2014.

10
Global Purchasing Managers Index (PMI) for Manufacturing
2012 2013 2014

May

May
Aug

Aug
Nov

Nov
Dec

Dec

Dec
Sep

Sep
Mar

Mar
Feb

Jun

Feb

Jun
Jan

Jan
Apr

Apr
Oct

Oct
Jul

Jul
Global 50.1 51.4 50.8 51.0 50.1 50.4 50.4 50.6 51.5 51.7 51.9 52.9 52.9 53.0 53.2 52.4 51.9 52.2 52.6 52.4 52.6 52.2 52.2 51.8 51.6
Global Economy

Eurozone 46.1 47.9 47.9 46.8 46.7 48.3 48.8 50.3 51.4 51.1 51.3 51.6 52.7 54.0 53.2 53.0 53.4 52.2 51.8 51.8 50.7 50.3 50.6 50.1 50.6

France 44.6 42.9 43.9 44.0 44.4 46.4 48.4 49.7 49.7 49.8 49.1 48.4 47.0 49.3 49.7 52.1 51.2 49.6 48.2 47.8 46.9 48.8 48.5 48.4 47.5
Europe

Germany 46.0 49.8 50.3 49.0 48.1 49.4 48.6 50.7 51.8 51.1 51.7 52.7 54.3 56.5 54.8 53.7 54.1 52.3 52.0 52.4 51.4 49.9 51.4 49.5 51.2

Italy 46.7 47.8 45.8 44.5 45.5 47.3 49.1 50.4 51.3 50.8 50.7 51.4 53.3 53.1 52.3 52.4 54.0 53.2 52.6 51.9 49.8 50.7 49.0 49.0 48.4

Spain 44.6 46.1 46.8 44.2 44.7 48.1 50.0 49.8 51.1 50.7 50.9 48.6 50.8 52.2 52.5 52.8 52.7 52.9 54.6 53.9 52.8 52.6 52.6 54.7 53.8

Ireland 51.4 50.3 51.5 48.6 48.0 49.7 50.3 51.0 52.0 52.7 54.9 52.4 53.5 52.8 52.9 55.5 56.1 55.0 55.3 55.4 57.3 55.7 56.6 56.2 56.9

UK
Developed

50.6 51.0 48.1 50.1 50.4 52.0 52.5 54.5 58.4 56.8 56.3 57.7 57.0 56.6 56.4 55.5 57.0 56.6 56.7 54.9 52.9 51.4 53.3 53.3 52.5

US 54.0 55.8 54.3 54.6 52.1 52.3 51.9 53.7 53.1 52.8 51.8 54.7 55.0 53.7 57.1 55.5 55.4 56.4 57.3 55.8 57.9 57.5 55.9 54.8 53.9

Japan 45.0 47.7 48.5 50.4 51.1 51.5 52.3 50.7 52.2 52.5 54.2 55.1 55.2 56.6 55.5 53.9 49.4 49.9 51.5 50.5 52.2 51.7 52.4 52.0 52.1

Brazil 51.1 53.2 52.5 51.8 50.8 50.4 50.4 48.5 49.4 49.9 50.2 49.7 50.5 50.8 50.4 50.6 49.3 48.8 48.7 49.1 50.2 49.3 49.1 48.7 50.2

Russia 50.0 52.0 52.0 50.8 50.6 50.4 51.7 49.2 49.4 49.4 51.8 49.4 48.8 48.0 48.5 48.3 48.5 48.9 49.1 51.0 51.0 50.4 50.3 51.7 48.9
Emerging

India 54.7 53.2 54.2 52.0 51.0 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 51.4 52.5 51.3 51.3 51.4 51.5 53.0 52.4 51.0 51.6 53.3 54.5

China 51.5 52.3 50.4 51.6 50.4 49.2 48.2 47.7 50.1 50.2 50.9 50.8 50.5 49.5 48.5 48.0 48.1 49.4 50.7 51.7 50.2 50.2 50.4 50.0 49.6

Korea 50.1 49.9 50.9 52.0 52.6 51.1 49.4 47.2 47.5 49.7 50.2 50.4 50.8 50.9 49.8 50.4 50.2 49.5 48.4 49.3 50.3 48.8 48.7 49.0 49.9

Taiwan 50.6 51.5 50.2 51.2 50.7 47.1 49.5 48.6 50.0 52.0 53.0 53.4 55.2 55.5 54.7 52.7 52.3 52.4 54.0 55.8 56.1 53.3 52.0 51.4 50.0

Lowest relative to 50 PMI 50 Highest relative to 50 PMI

Source: Markit, J.P. Morgan Economic Research, J.P. Morgan Asset Management. The Purchasing Managers Index (PMI) assesses the economic health of the
manufacturing sector by surveying output and employment intentions. Heatmap colours are based on PMI relative to 50, which indicates expansion or contraction of
the sector for the time period shown. Guide to the Markets - UK. Data as at 31 December 2014.
11
Economic Slack and the Equity Market

Developed markets real GDP Developed markets (DM) output gap* and equity market
Index 2010 = 100 Index level, output gap shown as % of potential GDP
120 2
DM stock market (log scale) DM output gap
%
Narrow output gap
Global Economy

1
115 1,000
900
800 0
700
110 Pre-2006 trend Potential 600
-1
500

105 400 -2

Actual 300
-3
100

200 -4

95

Wide output gap -5

90 100 -6
'04 '06 '08 '10 '12 '14 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Left) J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Right) MSCI, IMF World Economic Outlook October 2014, J.P. Morgan Asset Management.
*The output gap is the difference between actual output and the output that could be achieved if the economy were running at full capacity (also referred to as potential GDP).
DM stock market is the MSCI World Index. Guide to the Markets - UK. Data as at 31 December 2014.
12
Global Disinflationary Pressures

Long-term inflation expectations Contribution to the decline in eurozone inflation


5-year/5-year breakeven inflation Since January 2013
4.0 2.4 0.3 2.5
% %
% Eurozone (rhs) % 0.0
2.0
3.8 UK (lhs) 2.3 -0.3
Global Economy

US (lhs) 1.5
-0.6
3.6 2.2 -0.9 Food (lhs) 1.0
-1.2 Energy (lhs)
Industrial goods (lhs) 0.5
3.4 2.1 -1.5
Services (lhs)
-1.8 CPI* (rhs) 0.0
Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14
3.2 2.0

Eurozone inflation and consumer confidence


3.0 1.9 5 CPI* lagged six months (y/y) Consumer confidence 0
%
-5
4
2.8 1.8 -10
3
-15
2.6 1.7 2 -20
-25
1
2.4 1.6 -30
0
-35
2.2 1.5 -1 -40
Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Top and bottom right) Eurostat, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index.
5-year/5-year breakeven inflation expectations is the market expectation for inflation over 5 years beginning in 5 years time, derived from the breakevens in the long term
forwards market. Guide to the Markets UK. Data as at 31 December 2014.
13
Economic and Monetary Policy Divergence

Nominal GDP growth Market expectations for target policy rate


Rebased to 100 at Q1 2008
2.0
120 US
%
UK 1.8 US
UK
Global Economy

115 Eurozone
1.6 Dec 2016:
1.50%
Eurozone
110 1.4
core

1.2 Dec 2016:


105 1.30%
1.0
Dec 2015:
100 0.8 0.80%
Eurozone
periphery
0.6
95
Japan Dec 2015:
0.60%
0.4

90
0.2 Dec 2016: 0.10%
Dec 2015: 0.05%

85 0.0
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Source: (Left) Various national statistics agencies, FactSet, J.P. Morgan Asset Management. (Right) Bloomberg, J.P. Morgan Asset Management. Eurozone core is France
and Germany and eurozone periphery is Greece, Italy, Ireland, Portugal and Spain. There is no active Japanese futures market and therefore we cannot derive the market
expectations for Japans target policy rate. Guide to the Markets UK. Data as at 31 December 2014.
14
US Dollar

US Dollar Index
Avg since 1973 Nov 2014
Real broad effective exchange rate (REER)
130
US Dollar Index 95.7 89.0

120 1985: Plaza


Accord
Global Economy

110 1987: Louvre


1973-78: 1978-85: 1985-88: 1995-02: 2002-11:
-21.8% +52.6% -30.0% Accord +34.2% -28.6%
100
2011-14:
90 +10.5%

80
'73 '77 '81 '85 '89 '93 '97 '01 '05 '09 '13

Current account deficit US dollar performance vs. selected currencies


% of GDP 2014
7.0 2.4 16
% % 13.9 14.1
US net oil imports %
2.2 12.5
6.0 11.7
12
2.0 9.0
5.0
1.8 8 6.2
4.0
1.6 4 2.5
3.0 1.4
US current account deficit
0
2.0 1.2 Chinese British Canadian Swiss Mexican Euro Japanese
'99 '01 '03 '05 '07 '09 '11 '13 Renminbi Pound Dollar Franc Peso Yen
Source: (Top) US Federal Reserve, J.P. Morgan Asset Management. (Bottom left) BEA, FactSet, J.P. Morgan Asset Management. (Bottom right) FactSet,
J.P. Morgan Asset Management. Guide to the Markets - UK. Data as at 31 December 2014.

15
Sovereign Debt Stresses

GDP growth, debt-to-GDP and borrowing costs


8 Bubble size = 10-year
China
government bond yield
%
7 10%
Global Economy

Indonesia
6 5%
India

5
Real GDP growth (2013 2015F)

Malaysia

4 Korea
Singapore
Turkey
3 UK
Mexico US
Australia

2
Brazil Germany Japan
South Africa
1
France Portugal
Russia
Spain
EU

0 Greece
Italy

-1 Emerging markets
Developed markets
-2
0 20 40 60 80 100 120 140 160 180 % 240
200
Gross debt-to-GDP ratio (2014F)
Source: IMF World Economic Outlook October 2014, FactSet, Barclays, J.P. Morgan Asset Management. Borrowing costs based on local currency debt. EU overall borrowing
cost based on Barclays Capital Euro-Aggregate 7-10 Year Treasury Index. South Africas borrowing costs are based on seven-year government bond yield due to data
availability. Guide to the Markets - UK. Data as at 31 December 2014.
16
Fiscal Austerity and Debt Levels

Government fiscal tightening Government debt levels


Decline in structural deficit* as % of GDP Gross debt as % of GDP
Forecast
5 140
Italy
% 2010-2013 %
Global Economy

Portugal
2013-2016F
120
4
Ireland
US
100 Spain
France
3 UK

80

2 Germany

60

1
40

0 20
UK US Eurozone** Japan '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Source: (Both charts) IMF World Economic Outlook October 2014, FactSet, J.P. Morgan Asset Management. *Structural deficit is the cyclically adjusted budget deficit or the
deficit that would prevail if the economy were running at full capacity. **Eurozone data is change between 2013 and 2015 due to data availability. Guide to the Markets UK.
Data as at 31 December 2014.
17
Global Trade: The Importance of Exports

Exports as % of GDP
Goods exports only, 2013

Brazil 1.2 1.9 2.2 5.5 10.8% US Eurozone BRIC* Other

India 1.9 2.0 1.2 10.8 16.0%


Global Economy

China 4.3 3.0 1.5 16.1 24.9%

Russia 0.6 10.1 2.3 13.2 26.2%

US 1.2 1.2 7.0 9.4%

Japan 2.7 1.1 3.2 7.6 14.6%

Eurozone 1.9 2.5 14.1 18.5%

UK 1.7 7.9 1.0 9.0 19.6%

France 1.2 9.8 1.4 8.3 20.7%

Italy 1.7 9.9 1.8 11.2 24.6%

Germany 2.4 14.7 3.9 16.6 37.6%

0 5 10 15 20 25 30 35 % 40
Source: IMF, FactSet, J.P. Morgan Asset Management. Numbers represent goods exports only and would be higher if services were included. Values may not sum to total
exports due to rounding. *BRIC is Brazil, Russia, India and China. Guide to the Markets - UK. Data as at 31 December 2014.

18
Eurozone: GDP and Inflation

Real GDP Avg since Inflation Avg since


3Q14 Nov 2014
Change quarter on quarter 1999 Change year on year 1999

2 Real GDP 0.3% 0.2% 5 Headline CPI* 2.0% 0.3%

Core CPI 1.5% 0.7%


% %
Global Economy

4
1

Average
3
0

-1

-2
0

-3
'99 '01 '03 '05 '07 '09 '11 '13 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Both charts) Eurostat, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food, energy and
tobacco. Guide to the Markets - UK. Data as at 31 December 2014.

19
Eurozone Recovery Monitor

Manufacturing purchasing managers indices Economic sentiment Germany Italy Greece


Index level Index level
65 France Spain
120
60
55 110
Global Economy

50
100
45
40 90
35
Germany Italy Greece
80
30
France Spain
25 70
'07 '08 '09 '10 '11 '12 '13 '14 '06 '07 '08 '09 '10 '11 '12 '13 '14

Unemployment rate Retail sales growth


13 Eurozone Excluding motor vehicles, change year on year
% Oct 2014:
12 France %
1.4%
4
11 Germany

10 2

9 0
8
-2
7
-4
6

5 -6
'99 '01 '03 '05 '07 '09 '11 '13 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Top left) Markit, J.P. Morgan Asset Management. (Bottom left and bottom right) Eurostat, FactSet, J.P. Morgan Asset Management. (Top right) European
Commission, FactSet, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as at 31 December 2014.

20
Eurozone Credit Demand and Supply

Credit demand and eurozone GDP growth Eurozone bank loans outstanding
Net % of banks reporting positive loan demand, GDP growth Rebased to 100 as at December 2010, households and non-financial companies
100 4 110
Stronger
loan demand %
105
% 3
Global Economy

100
50 2 95
Non-periphery banks
90 Eurozone aggregate
1
85 Periphery banks

0 0 80
'10 '11 '12 '13 '14
-1
Eurozone bank lending
Change year on year
-50 -2 15
% House purchases
12 Non-financial companies
-3
9
Overall corporate (lhs)
6
-100 -4
Housing loans (lhs) 3

Consumer credit (lhs) -5 0


Weaker loan
Eurozone GDP growth demand -3
-150 (y/y) (rhs) -6
-6
'04 '05 '07 '08 '10 '11 '13 '14
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Left) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Top and bottom right) ECB, FactSet, J.P. Morgan Asset Management.
Guide to the Markets - UK. Data as at 31 December 2014.

21
Eurozone Divergences

Corporate lending rates Gross exports


Non-financial corporations, new business lending up to 1 million Rebased to 100 at December 2007, two-quarter moving average
7.5 140
%
130
6.5
120
Global Economy

Periphery
5.5
110

4.5 100
Spain Italy
90
3.5 Core Portugal Ireland
80
Germany France
2.5 70
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '07 '08 '09 '10 '11 '12 '13 '14

Inflation Unemployment rate for selected European countries


Change year on year 30
Greece
5 %
% 25 Spain
4
Portugal
3 20
Italy
2
Core 15 Ireland
1
10
0
-1 Periphery 5

-2 0
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Top left) ECB, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left, top and bottom right) Eurostat, FactSet, J.P. Morgan Asset Management.
Core includes Germany and France; periphery includes Spain, Italy, Greece, Portugal and Ireland. All aggregations are based on simple averages. Guide to the Markets - UK.
Data as at 31 December 2014.
22
Europe Government Interest Rates

Europe sovereign funding costs


10-year benchmark bond yield LTRO

35
31 Dec 2014 One-year
% yield change
Greece 9.4% +115 bps
Global Economy

30
Portugal 2.7 -336
Italy 1.9 -221
UK 1.8 -127 OMT
25 Spain 1.6 -253
Ireland 1.2 -221
Germany 0.5 -139
20

15

TLTRO
10

0
'06 '07 '08 '09 '10 '11 '12 '13 '14
Source: Tullett Prebon, FactSet, J.P. Morgan Asset Management. The ECB announced the second round of Long-Term Refinancing Operations (LTRO) in February
2012. The Outright Monetary Transaction (OMT) programme was formally outlined in September 2012. The ECB conducted the first round of Targeted Long-Term
Refinancing Operations (TLTRO) in September 2014. Guide to the Markets - UK. Data as at 31 December 2014.
23
European Central Bank (ECB)

ECB balance sheet: Assets Eurozone ABS* and covered bonds outstanding
trillions trillions
3.5 3 ABS
Covered bonds
Jun 2012 Dec 2014:
-31%
2
Global Economy

3.0

2.5
0
Jan 2005 Jun 2012: '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Q2
248% 2014
2.0
ECB balance sheet and the euro
trillions, real broad effective exchange rate (REER)
115 1.2

1.5 ECB balance sheet
110 1.6
(rhs, inverted)
105 2.0

1.0
100 2.4
Euro REER
95 (lhs) 2.8

0.5 90 3.2
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Left) ECB, FactSet, J.P. Morgan Asset Management. (Top right) ECB, European Covered Bond Council (ECBC), Security Industry and Financial Markets Association
(SIFMA), J.P. Morgan Asset Management. (Bottom right) ECB, J.P. Morgan Economic Research, J.P. Morgan Asset Management. *ABS is asset-backed securities. Yearly
covered bond amounts are from ECBC and 2Q14 amount is from ECB. Guide to the Markets - UK. Data as at 31 December 2014.
24
US Federal Reserve Policies

US Federal Reserve balance sheet: Assets Individual FOMC member forecasts for the federal funds rate
$ trillions From the December 2014 meeting
Forecast
5 5.0
$ %
Mid-point of FOMC forecasts
4 4.5
Other
Global Economy

3
4.0
2 US Treasuries
3.5
1
Agency MBS
3.0
0
'08 '09 '10 '11 '12 '13 '14 '15
2.5
US Federal Reserve MBS purchases
$ billions
120 2.0
$ New purchases*
100
Reinvested purchases* 1.5
80
60
1.0
40
20 0.5
0
0.0
2015 2016 2017 Longer run
Source: (All charts) US Federal Reserve, FactSet, J.P. Morgan Asset Management. *New purchases are the stated purchases from the US Federal Reserve.
Reinvested purchases are bonds purchased with the principal received from maturing bonds. Guide to the Markets - UK. Data as at 31 December 2014.

25
US Economic Growth and the Composition of GDP

Real GDP Avg since Components of GDP


Change quarter on quarter, SAAR 3Q14 3Q14 nominal GDP, $ trillions
1999
10 Real GDP 2.0% 5.0% 3.2% Housing
18
%
$
8 13.3% Investment ex-housing
16
Global Economy

6
14 18.2%
Government spending
4
12
Average
2
10

0
8
68.2% Consumption
-2 6

-4 4

-6 2

-8 0
-2.9% Net exports
-10 -2
'99 '01 '03 '05 '07 '09 '11 '13
Source: (Both charts) BEA, FactSet, J.P. Morgan Asset Management. SAAR denotes seasonally adjusted annual rate. Percentages may not sum to 100% due
to rounding. Guide to the Markets - UK. Data as at 31 December 2014.

26
US Employment

Unemployment rate Labour force participation rate


Seasonally adjusted % of population aged 16+ working or looking for work
11
67
% %
10 66
Global Economy

65
9
64

8 63
Nov 2014: 62.8%
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13

7
Employment cost index: Wages and salaries
Change year on year for private sector workers
Average: 6.1%
5
6
%
Nov 2014: 4
5.8%
5
3 Sep 2014:
2.2%
4
2

3 1
'65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
Source: (All charts) BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as at 31 December 2014.

27
US Inflation

Inflation Avg Avg US Federal Reserve inflation projections


Change year on year since since Nov 2014 Average PCE** projection, December 2014
1964 1999 2.5
15
Headline CPI* 4.2% 2.4% 1.3% % 2.00
2.0 1.85 1.90
%
Core CPI 4.1% 2.0% 1.7%
Global Economy

1.5 1.25 1.30


12

1.0

9 0.5

0.0
2014 2015 2016 2017 Longer run

6 Planned vs. actual wage rises


25 4.5
Wages & salaries*** %
%
lagged nine months (y/y) 4.0
20
3
3.5
15 3.0

10 2.5
0
% of small businesses planning to 2.0
5 raise worker pay
1.5
-3 0 1.0
'64 '69 '74 '79 '84 '89 '94 '99 '04 '09 '14 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Left) BLS, FactSet, J.P. Morgan Asset Management. (Top right) US Federal Reserve, J.P. Morgan Asset Management. (Bottom right) National Federation of
Independent Business (NFIB), BLS, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. **Personal consumption expenditure (PCE)
measures the prices paid by consumers for goods and services, excluding food and energy prices. ***Wages & salaries is the civilian employment cost index (ECI).
28 Guide to the Markets - UK. Data as at 31 December 2014.
US Cyclical Indicators

Light vehicle sales Manufacturing and trade inventories


Millions, SAAR Days of sales, seasonally adjusted
24
48
22
46
20 Dec 2014:
Global Economy

18 16.8 44
16 42 Oct 2014:
14 Average: 15.3 39.5
40
12
10 38

8 36
'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

Housing starts Real capital goods orders*


Thousands, SAAR Non-defense capital goods orders ex-aircraft, $ billions, seasonally adjusted
2,400 75
$
2,000 70
Nov 2014: Nov 2014:
1,028 65 61.0
1,600
60 Average: 57.4
1,200 Average: 1,349
55
800
50
400
45
0
'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top and bottom right and bottom left) US Census Bureau, FactSet, J.P. Morgan Asset Management. *Capital
goods orders deflated using the producer price index for capital goods. SAAR is seasonally adjusted annual rate. Guide to the Markets - UK. Data as at 31 December 2014.

29
US Consumer Finances

Household net worth US home sales, prices and housing starts


$ billions, SAAR 4Q14*: Rebased to 100 at December 1999
2Q07: $82,907 175
80,000 $67,874
$
70,000

60,000
Global Economy

150
50,000

40,000

30,000 +21.2%
125
20,000

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

US household debt service ratio 100


Debt payments as % of disposable personal income, seasonally adjusted
14
4Q07: 13.2%
% +42.9%
13 75
Price index

12 Existing home sales

50 Housing starts
11
4Q14*:
9.9% +115.0%
10
25
'79 '84 '89 '94 '99 '04 '09 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Top and bottom left) US Federal Reserve, FactSet, J.P. Morgan Asset Management. (Right) National Association of Realtors, US Census Bureau, FactSet,
J.P. Morgan Asset Management. Price index is the mean existing home sale price. SAAR is seasonally adjusted annual rate. *4Q14 numbers for US household net worth and
debt service ratio are J.P. Morgan Asset Management forecasts. Guide to the Markets - UK. Data as at 31 December 2014.
30
Japan: GDP and Inflation

Real GDP growth Avg since Inflation Avg since


3Q14 Nov 2014
Change quarter on quarter 1999 Change year on year 1999

3 Real GDP 0.2% -0.5% Headline CPI* -0.1% 2.4%


5
Core CPI -0.4% 2.1%
% %
Global Economy

2 4

Average
1 3

2
0

1
-1

0
-2

-1
-3

-2

-4

'99 '01 '03 '05 '07 '09 '11 '13 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Left) Japan Statistics Bureau & Statistics Centre, FactSet, J.P. Morgan Asset Management. (Right) Japan Ministry of Health, Labour and Welfare,
FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - UK.
Data as at 31 December 2014.
31
Japan: Abenomics and the Economy

Central bank balance sheet Japanese yen and the stock market
% of nominal GDP Projection*
90 20,000 130
Nikkei 225 Index per $
Japan
% Eurozone
US
Global Economy

60 18,000
UK Change in 2014 120
Yen -14.1%
Nikkei 225 7.1%
30
16,000
110

0
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 14,000

100
Japanese wage growth
Change year on year, three-month moving average
12,000
3
% Core inflation
2 Wage growth 90
10,000
1

0
80
8,000
-1

-2
6,000 70
'97 '99 '01 '03 '05 '07 '09 '11 '13 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Top left) US Federal Reserve, Bank of England, Bank of Japan, ECB, J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom left) Japan
Ministry of Health, Labour and Welfare, FactSet, J.P. Morgan Asset Management. (Right) FactSet, J.P. Morgan Asset Management. *Projections are based on central
banks stated economic intentions. Guide to the Markets - UK. Data as at 31 December 2014.
32
China: GDP and Inflation

Real GDP Growth and Li Keqiang Index* Inflation Nov 2014


Change year on year Change year on year Food CPI 2.3%
15 30 24
Real GDP growth Li Keqiang index % Headline CPI** 1.4%
% % 18 Core CPI 1.3%
Includes:
14 Electricity production
Global Economy

Loan growth
12
Railway freight 25
13 6

0
12 20
-6
11 '99 '01 '03 '05 '07 '09 '11 '13

15 Chinas share of global nominal GDP


10 35
%
30
9 10 25

20
8
15
5
10
7
5

6 0 0
'00 '02 '04 '06 '08 '10 '12 '14 1820 1870 1900 1930 1960 1990 2013
Source: (Left and top right) National Bureau of Statistics of China, FactSet, J.P. Morgan Asset Management. (Bottom right) Angus Maddison, J.P. Morgan Asset Management.
*Li Keqiang index refers to an unofficial economic index used to gauge economic activity in China. Popularised by Chinese Premier Li Keqiang, such an index may include a
variety of economic indicators. **CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Guide to the Markets - UK. Data as at 31 December
33 2014.
China: Growth and Transformation

GDP growth External Accounts


Change year on year 100 100
GDP growth Imports (lhs)
21 % $bn
Investment 80 Exports (lhs) 80
%
Consumption 60 Trade balance (rhs) 60
18
Global Economy

Net exports
40 40

15 20 20

0 0
12
-20 -20

-40 -40
9 '04 '06 '08 '10 '12 '14

Investment as a share of GDP


6 50 China
%
45
3
40

35 EM Asia ex-China
0
30

25
-3 DM
20
Latin America
-6 15
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '82 '86 '90 '94 '98 '02 '06 '10 '14

Source: (Left and top right) National Bureau of Statistics of China, FactSet, J.P. Morgan Asset Management. (Bottom right) IMF World Economic Outlook October 2014,
J.P. Morgan Asset Management. 2014 GDP figure is 3Q14 values. Guide to the Markets - UK. Data as at 31 December 2014.

34
China Financial Dynamics

Private non-financial debt 2013 public, household and non-financial corporate debt
% of GDP, quarters since the start of debt rise % of GDP
Public debt
230 350
Japan (1965)
% Non-financial corporate debt
% 300
China (1998) Household debt
250
Global Economy

180
200
150
130
100
50
80 0
1 27 53 79 105 131 Japan UK US Eurozone China Korea

Credit to private sector Foreign exchange reserves


% of GDP 2013: 140% % of GDP
140 50
% %
120 40

100 Average: 93% 30

80 20

60 10

40 0
'76 '80 '84 '88 '92 '96 '00 '04 '08 '12 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Source: (Top left) BIS, CEIC, Lombard Street Research, J.P. Morgan Asset Management. (Bottom left) World Bank, J.P. Morgan Asset Management. (Top right) BIS,
Lombard Street Research, IMF World Economic Outlook October 2014, J.P. Morgan Asset Management. (Bottom right) Bloomberg, Oxford Economics, FactSet,
J.P. Morgan Asset Management. Foreign exchange reserves are year-end percentages for all years until 2014; 2014 data is the most recent available data.
35 Guide to the Markets - UK. Data as at 31 December 2014.
Emerging Markets Structural Dynamics

Urbanisation and economic growth Share of global consumption


Urbanisation ratios and real GDP per capita, 1960-2013 % of global consumption
60,000 40 2012: 36%
%
$ 35
US
Global Economy

50,000 30
Japan

25
2012: 27%

40,000 20 EM consumption
GDP per capita

US consumption
15
'90 '94 '98 '02 '06 '10
30,000
South Contribution to global GDP growth*
Korea 6

%
20,000

10,000
China
0
India Global economic growth
0 EM growth
0 20 40 60 80 % 100 DM growth
-3
Urbanisation ratio '80 '84 '88 '92 '96 '00 '04 '08 '12
Source: (Left) IMF, J.P. Morgan Asset Management. (Top right) United Nations, J.P. Morgan Asset Management. (Bottom right) IMF World Economic Outlook October
2014, J.P. Morgan Asset Management. Urbanisation ratio refers to the proportion of the total population living within an urban area defined by national statistical offices.
*Forecast for 2014 from the IMF World Economic Outlook October 2014. Guide to the Markets - UK. Data as at 31 December 2014.
36
Emerging Markets Challenges

Consensus growth forecasts Real policy rates: Emerging and developed markets
Estimates for next 12 months 4
%
6.0 Brazil 8.5 3 Emerging
Thailand China (rhs) markets
% %
Turkey Indonesia (rhs) 2
5.0 8.0
Global Economy

India (rhs) 1
Russia

0
4.0 7.5
-1 Developed
-2 markets
3.0 7.0
-3
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
2.0 6.5
Relative EM / DM equity performance and USD REER*
Rebased to 1993 = 100
250 90
1.0 6.0 MSCI EM / MSCI DM

200
100
0.0 5.5
150
110
-1.0 5.0 100

USD REER (inverted) 120


50
-2.0 4.5
Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 0 130
'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Top right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. (Bottom right) MSCI, FactSet,
J.P. Morgan Asset Management. *REER is real effective exchange rate. Guide to the Markets - UK. Data as at 31 December 2014.

37
Emerging Markets Currencies

Currency performance in 2014 Emerging market real effective exchange rate (REER)
Performance against the US dollar Market cap weighted
135
Thai Baht -0.1

Philippine Peso -0.8


125
Global Economy

Indonesian Rupiah -1.7


115
Indian Rupee -2.0

Chinese Renminbi -2.4 105

South Korean Won -4.0


95
Malaysian Ringgit -6.3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Turkish Lira -8.1 Emerging market currency volatility Financial crisis


12
South African Rand -9.5 Asian crisis
%
Mexican Peso -11.1 10 Eurozone
crisis
Brazilian Real -11.2 8 Taper
Tantrum
Chilean Peso -13.4 6

Hungarian Forint -17.4 4

Colombian Peso -18.7 2


Russian Rouble -45.2
0
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
-50 -40 -30 -20 -10 % 0
Source: (Left) FactSet, J.P. Morgan Asset Management. (Top right) MSCI, FactSet, J.P. Morgan Asset Management. (Bottom right) Bloomberg, J.P. Morgan Asset Management.
Guide to the Markets - UK. Data as at 31 December 2014.

38
Emerging Markets Sensitivity

EM equity performance and US rate hikes Net oil consumption for selected emerging economies
MSCI EM Index in USD, rebased to 100 on the date of first rate hike Oil consumption minus oil production as a % of GDP

150 Qatar -33.7


30 Jun 2004
UAE -28.3
30 Jun 1999 Russia -14.2
Global Economy

4 Apr 1994 Colombia -7.4


Mexico -2.7
Egypt 0.6
125
Malaysia 0.9
Brazil 1.5
Peru 2.4
China 2.8
Indonesia 3.4
100 Turkey 3.4
Czech Rep. 3.5
Hungary 3.9
Poland 3.9
Philippines 4.3
Greece 4.7
75
Chile 5.4
South Africa 6.2
India 6.4
Korea 6.8
Taiwan 7.6
50 Thailand 7.7
-250 -125 0 125 250 %
-40 -30 -20 -10 0 10
Number of trading days before and after the first rate hike
Source: (Left) MSCI, US Federal Reserve, J.P. Morgan Asset Management. (Right) BP, various national statistics agencies, IMF, J.P. Morgan Asset Management.
Guide to the Markets - UK. Data as at 31 December 2014.

39
World Stock Market Returns

Ten-yr
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4Q14 Ann.
50.5% 19.6% 38.2% 1.3% 59.4% 30.5% 2.9% 17.3% 30.5% 20.8% 9.1% 12.0%
EM Euro ex-UK Asia ex-Jp TOPIX EM Sm all Cap S&P 500 Asia ex-Jp Sm all Cap S&P 500 S&P 500 Asia ex-Jp
Local 35.8% 22.5% 38.0% -40.6% 62.8% 24.4% 2.1% 19.7% 35.8% 13.7% 4.9% 10.0%

41.0% 17.3% 37.5% -12.8% 53.6% 23.7% 0.9% 17.2% 29.9% 11.7% 6.9% 11.1%
TOPIX Asia ex-Jp EM S&P 500 Asia ex-Jp Asia ex-Jp HDY Equity Euro ex-UK S&P 500 Asia ex-Jp Sm all Cap EM
45.2% 28.6% 33.6% -37.0% 67.2% 15.6% 1.5% 20.0% 32.4% 7.7% 5.1% 10.3%

37.7% 16.3% 15.5% -18.3% 28.9% 22.9% -2.2% 13.4% 26.3% 8.7% 4.1% 10.3%
Asia ex-Jp EM Euro ex-UK HDY Equity Sm all Cap EM FTSE 100 EM Euro ex-UK Sm all Cap Asia ex-Jp Sm all Cap
24.1% 28.8% 6.6% -34.4% 40.8% 14.4% -2.2% 17.4% 24.2% 6.7% 2.3% 8.2%

29.8% 14.4% 13.3% -19.1% 27.3% 19.5% -7.0% 13.0% 24.7% 8.4% 2.7% 9.9%
Equities

Sm all Cap FTSE 100 Portfolio Sm all Cap FTSE 100 TOPIX Portfolio Sm all Cap TOPIX HDY Equity Portfolio S&P 500
23.3% 14.4% 11.2% -40.4% 27.3% 1.0% -6.5% 18.4% 54.4% 8.7% 2.2% 7.7%

29.3% 13.7% 7.9% -21.9% 27.3% 18.7% -8.0% 11.6% 18.7% 7.6% 1.9% 9.4%
Portfolio HDY Equity HDY Equity Portfolio Portfolio S&P 500 Sm all Cap Portfolio FTSE 100 Portfolio HDY Equity Portfolio
23.2% 21.6% 4.7% -38.5% 35.6% 15.1% -8.7% 16.2% 18.7% 7.5% 1.1% 8.1%

24.5% 9.8% 7.4% -23.9% 23.2% 17.3% -11.9% 10.9% 17.6% 4.3% 1.1% 9.2%
Euro ex-UK Portfolio FTSE 100 Euro ex-UK HDY Equity Portfolio TOPIX S&P 500 Portfolio EM TOPIX HDY Equity
28.6% 18.6% 7.4% -42.7% 30.2% 11.9% -17.0% 16.0% 23.1% 5.6% 6.3% 7.7%

23.3% 3.1% 3.7% -28.3% 19.3% 12.6% -13.9% 10.3% 16.8% 2.7% -0.2% 7.7%
HDY Equity Sm all Cap S&P 500 FTSE 100 Euro ex-UK FTSE 100 Euro ex-UK HDY Equity HDY Equity TOPIX FTSE 100 Euro ex-UK
17.7% 13.6% 5.5% -28.3% 29.0% 12.6% -12.1% 14.0% 20.5% 10.3% -0.2% 6.3%

20.8% 1.6% -0.6% -33.9% 12.6% 12.1% -16.5% 10.0% 1.4% 0.7% -0.5% 7.0%
FTSE 100 S&P 500 Sm all Cap Asia ex-Jp S&P 500 HDY Equity Asia ex-Jp FTSE 100 Asia ex-Jp FTSE 100 Euro ex-UK FTSE 100
20.8% 15.8% -3.8% -47.7% 26.5% 8.0% -14.6% 10.0% 6.2% 0.7% 0.2% 7.0%

17.3% -10.5% -6.8% -35.2% -6.7% 5.7% -17.6% 2.8% -4.1% 0.0% -0.6% 4.4%
S&P 500 TOPIX TOPIX EM TOPIX Euro ex-UK EM TOPIX EM Euro ex-UK EM TOPIX
4.9% 3.0% -11.1% -45.7% 7.6% 5.1% -12.5% 20.9% 3.8% 7.4% 0.1% 3.9%

Source: MSCI, TOPIX, Standard & Poors, FactSet, J.P. Morgan Asset Management. Local return is analogous to the return from a hedged position. Annualised return covers the
period 2005 to 2014. HDY Equity is the MSCI AC World High Dividend Yield Index. Small Cap is the MSCI Europe Small Cap Index. Hypothetical portfolio (for illustrative
purposes only and shouldnt be taken as a recommendation): 15% EM, 10% Asia ex-Japan, 20% FTSE 100, 10% Europe ex-UK, 10% Japan, 10% HDY Equity, 20% S&P 500
40 and 5% Small cap. All indices are total return. Guide to the Markets - UK. Data as at 31 December 2014.
European Sector Returns

MSCI Europe Index


Cons. Health Cons.
Financials Industrials Energy Materials Telecom Utilities Tech Europe
staples care disc.

Europe weight

Growth weight

Value weight

4Q14

2014
Equities

Since market peak*

Since market low*

Beta to Europe

i
Beta to int. rates**

Forward P/E ratio

15-year avg

Trailing P/E ratio

15-year avg

Dividend yield

15-year avg

Source: FactSet, MSCI, J.P Morgan Asset Management. All calculations are total return in local currency, not annualised. *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. **Beta to int. rates is the regression coefficient based on a 10-year
regression of daily sector returns on the daily change in the 10-year German Bund yield. Guide to the Markets - UK. Data as at 31 December 2014.
41
Bond and Equity Relative Valuations

Histogram: S&P 500 earnings yield (inverse of P/E) Equity risk premium*
Number of days: 1964 2014 8
4,000 31 Dec 2014: lower
than 68% of days %
3,500 since 1964
3,000
2,500 6

Equities relatively
less expensive
2,000
1,500
1,000
4
500
Equities

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 %16
2 Average: 1.7%
Histogram: Nominal 10-year Treasury yield
Number of days: 1964 2014
31 Dec 2014: lower
2,500 than 96% of days
since 1964 0
2,000

Equities relatively
more expensive
1,500

1,000 -2

500

0 -4
2 3 4 5 6 7 8 9 10 11 12 13 14 15 %16 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
Source: (All charts) Tullett Prebon, Standard & Poors, FactSet, J.P. Morgan Asset Management. *The equity risk premium is the S&P 500 forward earnings yield less the US
Treasury 10-year yield. Guide to the Markets - UK. Data as at 31 December 2014.

42
UK FTSE 100 at Inflection Points (GBP)

FTSE 100 Index Characteristic Dec 1999 Oct 2007 Dec 2014
30 Dec 1999: Index level 6,930 6,722 6,566
31 Dec 2014:
P/E = 22.1x P/E ratio (fwd) 22.1x 12.6x 13.8x 31 Oct 2007: P/E = 13.8x
7,000 6,930 Dividend yield 2.2% 3.2% 3.5% P/E = 12.6x 6,566
Ten-year Gilt yld 5.5% 4.9% 1.8% 6,722

Total return:
+82%
6,000
Equities

5,000 -48% +139% -44% +129%

31 Dec 1996:
4,000 P/E = 14.0x
4,119
9 Mar 2009:
12 Mar 2003: P/E = 8.5x
P/E = 11.1x 3,542
3,287

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: FTSE, FactSet, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the
most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Return calculations shown
in green are based on the total return index. Guide to the Markets - UK. Data as at 31 December 2014.
43
UK FTSE 100 Equity Valuations

Forward P/E ratio Earnings yield and 10-year bond yield


14
24
x %
20 Earnings yield
12 (inverse of forward P/E)
31 Dec 2014:
16
Average: 14.0x 13.8x
10
12
Equities

8
8
'97 '99 '01 '03 '05 '07 '09 '11 '13

FTSE 100 dividend yield vs. UK corporate bonds 31 Dec 2014:


10 6 7.3%
%
UK
8
corporate
bond yield 4
6
31 Dec 2014: 31 Dec 2014:
3.5% 1.8%
4
2
Dividend yield 31 Dec 2014: 10-year Gilt yield
2
3.3%

0 0
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '97 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Top left and right) FTSE, Tullett Prebon, FactSet, J.P. Morgan Asset Management. (Bottom left) BofA/Merrill Lynch, FactSet, FTSE, 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 and is provided by FactSet
Market Aggregates. Earnings yield is calculated as the inverse of the forward P/E ratio. Guide to the Markets - UK. Data as at 31 December 2014.
44
UK FTSE 100 Earnings and Profit Margins

FTSE 100 earnings and performance FTSE 100: Geographical source of revenues
Index level, analyst estimates of the next 12 months of earnings
650 7,500
FTSE 100 profits FTSE 100 index level RoW*
10% Europe
7,000 Emerging (ex UK)
Markets 27%
600
15%

6,500
North
UK America
550 23% 24%
6,000
Equities

500 5,500 US and UK operating profit margins


Earnings per share/sales per share**
12
5,000 %
11 US
450
10
4,500
9
UK
400 8
4,000 7
Europe ex-UK
6

350 3,500 5
'07 '08 '09 '10 '11 '12 '13 '14 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Left) FTSE, FactSet, J.P. Morgan Asset Management. (Top right) FTSE, Thomson Reuters Datastream, Worldscope, J.P. Morgan Asset Management. (Bottom right)
MSCI, FTSE, Standard & Poors, FactSet, J.P. Morgan Asset Management. *Rest of world. **Data is last 12 months. Guide to the Markets - UK. Data as at 31 December 2014.

45
MSCI Europe ex-UK Index at Inflection Points (Local Currency)

MSCI Europe ex-UK Index


Characteristic Mar 2000 Jul 2007 Dec 2014
1,600
Index level 1,441 1,435 1,144 19 Jul 2007:
6 Mar 2000:
P/E = 26.3x P/E ratio (fwd) 26.3x 13.7x 14.2x P/E = 13.7x
1,441 Dividend yield 1.4% 4.6% 3.1% 1,435
Euro govt bond yld 5.6% 2.9% 1.0%
1,400

31 Dec 2014:
P/E = 14.2x
1,200 1,144
Total return
+162%
Equities

-58% +205% -58% +145%


1,000

800

600
31 Dec 1996: 12 Mar 2003:
P/E = 17.7x P/E = 12.1x 9 Mar 2009:
550 539 P/E = 8.3x
577

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: MSCI, FactSet, BofA/Merrill Lynch, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up
calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market
Aggregates. Euro government bonds is the BofA/Merrill Lynch Euro Government (7-10Y) Index. Return calculations shown in green are based on the total return index.
46 Guide to the Markets - UK. Data as at 31 December 2014.
MSCI Europe ex-UK Equity Index Valuations

Forward P/E ratio Earnings yield and 10-year bond yield


28 12
x
%
24
Earnings yield
(inverse of forward P/E)
20 10
31 Dec 2014:
16 14.2x
Average: 13.9x

12
8

8
Equities

'99 '01 '03 '05 '07 '09 '11 '13 31 Dec 2014:
6 7.0%
Europe ex-UK dividend yield vs. European corporate bonds
9
%
8
7 4
6 European corporate
5 bond yield
31 Dec 2014:
4 10-year European
3.1% 2 bond yield
3
2
Dividend yield 31 Dec 2014:
1 31 Dec 2014:
1.4% 1.0%
0 0
'01 '03 '05 '07 '09 '11 '13 '97 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Top left) FactSet, J.P. Morgan Asset Management. (Bottom left) Barclays, MSCI, FactSet, J.P. Morgan Asset Management. (Right) MSCI, BofA/Merrill Lynch,
FactSet, 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 and is provided by FactSet Market Aggregates. Earnings yield is calculated as the inverse of the forward P/E ratio. Guide to the Markets - UK.
47 Data as at 31 December 2014.
MSCI Europe ex-UK Earnings and Profit Margins

MSCI Europe ex-UK earnings and performance Economic growth and revenue growth estimates
Index level, analyst estimates of the next 12 months of earnings 12-month revenue growth & PMI for manufacturing (advanced 12 months)
12 1,300 15 70
MSCI Europe ex-UK MSCI Europe ex-UK index %
10
profits level
60
1,200 5
11
0 50
1,100
-5
40
10 -10
1,000 Revenue growth Manufacturing PMI
Equities

-15 30
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
9 900
US and European operating profit margins
Earnings per share/sales per share for MSCI Europe ex-UK and S&P 500*
11
800 %
8 10 US

700 9
Europe ex-UK
8
7
600 7

6
6 500
5
'07 '08 '09 '10 '11 '12 '13 '14 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Left) MSCI, FactSet, J.P. Morgan Asset Management. (Top right) Markit, MSCI, FactSet, J.P. Morgan Asset Management. (Bottom right) MSCI,
Standard & Poors, FactSet, J.P. Morgan Asset Management. *Data is last 12 months. Guide to the Markets - UK. Data as at 31 December 2014.

48
US S&P 500 at Inflection Points

S&P 500 Index


2,200 Characteristic Mar 2000 Oct 2007 Dec 2014 31 Dec 2014:
Index level 1,527 1,565 2,059 P/E = 16.2x
P/E ratio (fwd) 25.6x 15.2x 16.2x 2,059
2,000 Dividend yield 1.1% 1.8% 2.1%
10-year Treasury 6.2% 4.7% 2.2%

1,800
9 Oct 2007:
24 Mar 2000: P/E = 15.2x
P/E = 25.6x 1,565 +244%
1,600 1,527
Equities

1,400 Total return -47% +121% -55%


+116%

1,200

1,000

800 31 Dec 1996:


9 Oct 2002: 9 Mar 2009:
P/E = 16.0x P/E = 10.3x
P/E = 14.1x
741 677
777

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: Standard & Poors, FactSet, J.P. Morgan Asset Management. 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 the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Return calculations shown in
green are based on the total return index. Guide to the Markets - UK. Data as at 31 December 2014.
49
US S&P 500 Equity Valuations

Earnings yield and Baa corporate bond yield Forward P/E ratio 31 Dec 1999:
28 25.4x
11
x
%
24
10
31 Dec 2014: 20
Baa corporate 31 Dec 2014:
6.2%
bond yield 16.2x
9
16
Average:
16.2x
8 12
Equities

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
7
S&P 500 Shiller cyclically adjusted P/E
Adjusted using trailing 10-year average inflation-adjusted earnings
50 31 Dec 2014:
6 x 27.3x
40

5 30

Average:
30 Nov 2014: 20 16.5x
4 4.7%
10
Earnings yield
(inverse of forward P/E)
3 0
'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10
Source: (Left) Standard & Poors, Moodys, IBES, FactSet, J.P. Morgan Asset Management. (Top right) Standard & Poors, FactSet, 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 and is provided by
FactSet Market Aggregates. (Bottom right) Robert Shiller, FactSet, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as at 31 December 2014.
50
US S&P 500 Earnings and Profit Margins

S&P 500 earnings and performance US operating profit margins


Index level, analyst estimates of the next 12 months of earnings Earnings per share / sales per share for S&P 500*
130 12 3Q14**:
S&P 500 profits S&P 500 index level % 10.1%
$ 2,000 10

8
120

1,800 6

4
110
1,600 2
Equities

0
100 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
1,400
Employee compensation and profitability
% of GDP
90 60 12
1,200 Employee compensation Corporate profits
% %
58 10
80
1,000
56 8

54 6
70 800
52 4

60 600 50 2
'07 '08 '09 '10 '11 '12 '13 '14 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Source: (Left and top right) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom right) BEA, FactSet, J.P. Morgan Asset Management. *Data is last 12
months. **3Q14 profit margins are based on an estimate from Standard & Poors. Guide to the Markets - UK. Data as at 31 December 2014.

51
Interest Rates and Equities

Correlations between weekly equity returns and interest rate movements


Rolling two-year correlation of weekly returns of the S&P 500, MSCI Europe Index and the 10-year Treasury yield, 1980 - 2014
0.8 Market reaction when the US Fed raised rates

S&P 500
S&P 500
87 87-89 94-95 99-00 04-06
0.6 MSCI Europe price return
Positive
relationship Initial reaction -5% -8% -10% -7% -8%
between yield
0.4
movements and Subsequent
equity returns market 32% 27% 7% 18% 20%
reaction
0.2
Equities

Total reaction 26% 17% -2% 10% 11%


Correlation

0.0

-0.2
Negative
relationship
-0.4 between yield
movements and
equity returns
-0.6

-0.8
0 2 4 6 8 10 12 14 % 16
10-year Treasury yield
Source: Standard & Poors, US Treasury, MSCI, FactSet, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends.
The initial reaction represents the period during which, in our judgment, markets began pricing the first rate hike through the date of the second rate hike. The
subsequent market reaction is the period from the second rate hike to a point determined to be the end of the rate hiking cycle. The total reaction is the market
52 movement across the full rate hiking cycle. Guide to the Markets - UK. Data as at 31 December 2014.
Developed Markets Equity Valuations by Country

Developed markets
+6 Std Dev How to interpret this chart
+5 Std Dev
Expensive
Std dev from global average

+4 Std Dev relative to


+3 Std Dev world
+2 Std Dev Expensive
+1 Std Dev relative to
own history Current
Average

-1 Std Dev Average


-2 Std Dev Cheap relative
to own history Cheap
-3 Std Dev relative to
-4 Std Dev world
Equities

-5 Std Dev
Italy Spain UK France Germany Japan ACWI DM Index Switzerland US

Current composite Current 10-year average


index Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield
Italy -2.27 12.5x 0.9x 3.7x 3.5% 11.4x 1.0x 3.8x 4.4%
Spain -1.94 14.0 1.3 4.8 5.4 11.1 1.4 4.5 6.1
UK -0.76 13.8 1.8 7.3 3.9 11.7 1.8 7.1 3.8
France -0.68 13.8 1.4 7.7 3.3 11.6 1.3 6.0 3.9
Germany -0.58 12.9 1.6 7.5 2.9 11.6 1.5 5.3 3.5
Japan 0.63 14.3 1.4 8.1 1.8 16.5 1.2 6.2 2.1
ACWI 0.65 14.8 2.1 8.7 2.5 13.3 2.0 7.3 2.6
DM Index 1.00 15.4 2.2 9.3 2.4 13.6 1.9 7.5 2.7
Switzerland 1.32 15.7 2.5 11.3 3.2 13.9 2.3 10.2 3.1
US 2.55 16.4 2.8 11.0 1.9 14.2 2.3 8.7 2.1
Source: MSCI, FactSet, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (forward
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 normalised using means and average
variability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Guide to the Markets - UK.
53 Data as at 31 December 2014.
Emerging Markets Equity Valuations by Country

Emerging markets
+7 Std Dev How to interpret this chart
+6 Std Dev
Expensive
Std dev from global average

+5 Std Dev relative to


+4 Std Dev world
+3 Std Dev
Expensive
+2 Std Dev relative to
+1 Std Dev own history Current
Average
-1 Std Dev
Average
-2 Std Dev Cheap relative
-3 Std Dev to own history Cheap
-4 Std Dev relative to
Equities

-5 Std Dev
world
-6 Std Dev
Russia Brazil China EM Index Taiwan S. Korea ACWI S. Africa Mexico India

Current composite Current 10-year average


index Forward P/E P/B P/CF Dividend yield Forward P/E P/B P/CF Dividend yield
Russia -5.32 3.8x 0.4x 1.8x 6.6% 7.1x 1.1x 3.8x 2.7%
Brazil -2.50 10.2 1.2 5.2 4.5 10.0 1.9 5.7 3.3
China -2.31 9.4 1.4 4.0 3.2 11.8 2.1 4.5 2.8
EM Index -1.48 11.0 1.4 5.4 2.8 11.1 1.9 6.0 2.7
Taiwan -0.56 13.2 1.9 6.9 3.0 14.5 1.9 6.3 3.7
S. Korea 0.02 9.6 1.0 5.8 1.3 9.6 1.4 5.4 1.7
ACWI 0.65 14.8 2.1 8.7 2.5 13.3 2.0 7.3 2.6
S. Africa 1.36 15.7 2.6 11.0 3.0 12.0 2.5 8.8 3.2
Mexico 2.91 18.3 2.6 7.1 1.4 15.0 2.9 6.7 1.9
India 3.71 16.7 3.0 12.2 1.5 15.8 3.2 12.5 1.4
Source: MSCI, FactSet, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (forward
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 normalised using means and average
variability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Guide to the Markets - UK.
54 Data as at 31 December 2014.
Emerging Markets Valuations and Returns

MSCI Emerging Markets Index: Price to book MSCI Emerging Markets Index: Price to book and returns
Price to book ratio and next 12 months price return
3.00
100
x
% Current level
2.75
80
+2.0 Std dev

2.50
60

2.25 40
Equities

2.00 20

1.75 0
Average: 1.81x

1.50 -20
Dec 2014: 1.52x

1.25 -40

-2.0 Std dev


1.00 -60

0.75 -80
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 3.25
Source: (Both charts) MSCI, FactSet, J.P. Morgan Asset Management. Linear regression of price-to-book ratios on next 12 months price return from September 1995 through
December 2014 results in a R-squared of 0.17%. Guide to the Markets - UK. Data as at 31 December 2014.

55
Emerging Markets Equity Composition

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

17% 16% 17% 13% Defensive


EMEA
Ind. & mat.
Asia 14% Energy
Latin America
18% Financials
8%
Tech
68%
29% Consumer
Equities

MSCI Emerging Markets indices: Country index by sector


100 7% 4%
9% 10% Defensive
% 15% 17% 20% 15%
11% 18%
17% 18% Ind. & mat.
80 13% 9% 2% 11%
3%
10% 14% 4%
11% 11% 26% Energy
60
58% 18% 40% Financials
35% 17%
42% 41% 49%
40 Tech
23%
4% Consumer
20 15% 36%
12% 32%
25% 20% 22% 19%
10% 9%
0
Brazil Russia India China Mexico S. Korea Turkey Indonesia
Source: (All charts) MSCI, FactSet, J.P. Morgan Asset Management. Defensive is comprised of health care, telecommunication services and utility sectors. Ind. & mat. is
industrial and materials sectors. Percentages may not sum to 100 due to rounding. Guide to the Markets - UK. Data as at 31 December 2014.

56
Emerging Markets: Performance, Dividends and Earnings Growth

MSCI country performance MSCI EM Index: Long-term growth in dividends per share
2014, total return in USD (DPS) and earnings per share (EPS)
Rebased to 100 at December 1995
Russia -45.9
500
Hungary -27.4 EM DPS
Colombia -19.8 EM EPS (fwd)
450
Brazil -13.7
Poland -13.6 400 DM EPS (fwd)
Chile -12.2 DM DPS
S. Korea -10.7 350
Equities

Malaysia -10.7
300
Mexico -9.2
MSCI EM -1.8
250
DM Index 5.5
S. Africa 5.7 200
China 8.3
Thailand 16.8 150
Turkey 19.1
India 23.9 100

Philippines 26.4
Indonesia 50
27.2
Egypt 29.3
0
-50 -40 -30 -20 -10 0 10 20 30 40 % 50 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Left) MSCI, FactSet, J.P. Morgan Asset Management. (Right) MSCI, IBES, FactSet, J.P. Morgan Asset Management. Regular dividends only in local currency.
Guide to the Markets - UK. Data as at 31 December 2014.

57
Equity Income

S&P 500 total return index: Dividends and capital appreciation Capital appreciation
Average annualised returns
25 Dividends
%
20
15
13.9% 13.6% 12.6% 16.6%
10 15.3%
3.0% 1.6% 5.9%
5 4.4%
5.4% 6.0% 5.1% 1.8%
4.7% 3.3% 4.2% 4.4% 2.5% 2.7% 4.0%
0
-5.3% -2.7%
-5
-10
Equities

1926-1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010-2014 1926-2014

FTSE indices: Price vs. total return* Sources of income


Rebased to 100 at December 1999 8
250 +128%
% 6.6
High dividend yield total return 6.2
225
Total return 6
200
Price return Average CPI inflation
175 +58%
(12 months to Nov 2014) 3.8
150 4 3.5
3.2 3.3
2.9
125 -5%
100 1.8
2
75 0.5
50
0
25 Cash Gilts EM Converts UK FTSE 100 Global EM High
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 equity corp REITs debt yield
Source: (Top) Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left) FTSE, FactSet, J.P. Morgan Asset Management. High dividend yield is the FTSE 350 Higher Yield Index.
(Bottom right) Tullett Prebon, FTSE, BofA/Merrill Lynch, Barclays, FactSet, J.P. Morgan Asset Management. UK corporate: BofA/Merrill Lynch Sterling Corporate Index; Emerging markets debt:
EMBI+; High yield: BofA/Merrill Lynch High Yield Master II; Global REITs: NAREIT Index; Converts: Barclays Global Convertibles; EM equity; MSCI EM. Yields for the bond indices are yield-to-
58 worst and dividend yields for the equity indices. *Returns in local currency. Guide to the Markets - UK. Data as at 31 December 2014.
Equity Dividends and Valuations

Relative valuation of high dividend yielding equities Defensives vs. cyclicals PE ratio
Valuation vs. long-term average, three-month moving average MSCI All Country World Index Defensive
125 0.9 sectors more
expensive

US 0.8
120 Average: 0.73
Europe
0.7
115 Emerging markets
0.6
Cyclical
110 0.5 sectors more
expensive
Equities

0.4
105 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Number of companies yielding greater than 2% by region


100 Constituents of the MSCI All Country World Index
600
504
95 500

400
303
90 300 232
200
85 83
100

0
80 Emerging Europe US Japan
'00 '02 '04 '06 '08 '10 '12 '14 markets
Source: (Left) IBES, Compustat, FactSet, J.P. Morgan Asset Management. (Top and bottom right) MSCI, FactSet, J.P. Morgan Asset Management. Guide to the Markets - UK.
Data as at 31 December 2014.

59
Equity Correlations and Volatility

Global large-cap stocks Sovereign Debt


Correlations among stocks Crisis
70
% Lehman
Great Depression
60 1987 Crash Bankruptcy

50 Cuban Missile Crisis OPEC Oil


Crisis Tech Bust & 9/11
40

30

20 Dec 2014:
37.4%
10 Average: 27.0%
Equities

0
'26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10

Stock market volatility Volatility measures 2008 peak Average Latest


3.5 DJIA (left) 3.30% 0.71% 0.56% 90
% VIX (right) 80.9 20.0 19.2
3.0 75
DJIA volatility shown VDAX 74.0 22.2 19.5
2.5 in three-month
moving average 60
2.0
45
1.5
30
1.0

0.5 15

0.0 0
'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. (Bottom) CBOE, Deutsche Boerse, Dow Jones, FactSet,
J.P. Morgan Asset Management. Capitalisation-weighted correlation of top 750 stocks by market capitalisation, daily returns, 1926 2014. DJIA volatility is represented
as three-month moving average of the daily absolute percentage change in the Dow Jones Industrial Average. Guide to the Markets - UK. Data as at 31 December 2014.
60
Annual Returns and Intra-year Declines

FTSE AllShare Index intra-year declines vs. calendar year returns


Despite average intra-year drops of 15.8% (median 12.3%), annual returns are positive in 21 of 29 years Calendar year return
40 Intra-year decline
%
30
30
25
22 23
21
20
20 19 18
17 17
15 15
13
12 11 11
9 8
10 6
4
Equities

2
0
-2
-4 -4
-7
-10 -8 -6 -7
-9 -8 -10 -6 -10 -11 -10 -10
-12 -12 -12 -12
-13
-14 -15
-20 -18 -18 -17 -17
-19
-22
-25 -23
-25
-30
-30 -31 -33

-40 -37

-43

-50
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Source: FTSE, FactSet, J.P Morgan Asset Management. Returns are based on price only and do not include dividends. Intra-year decline refers to the largest market
fall from peak to trough within a short time period during the calendar year. Returns shown are calendar years from 1986 to 2014. Guide to the Markets - UK.
Data as at 31 December 2014.
61
Fixed Income Sector Returns

Ten-yr
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4Q14 Ann.
25.1% 2.9% 8.5% 45.1% 44.5% 17.1% 19.9% 15.8% 7.1% 19.0% 8.4% 10.0%
EM Debt Linkers Linkers Global Agg High Yield High Yield Linkers UK Corp High Yield Linkers Linkers High Yield
Local 11.9% 2.9% 8.5% 5.6% 60.9% 14.9% 19.9% 15.8% 8.1% 19.0% 8.4% 8.0%

13.3% 0.9% 7.6% 26.5% 15.4% 15.3% 16.8% 13.4% 1.8% 14.1% 6.1% 10.0%
High Yield UK Corp Global Agg Global IG UK Corp EM Debt UK Gilts High Yield UK Corp UK Gilts UK Gilts EM Debt
2.9% 0.9% 5.3% -5.1% 15.4% 11.8% 16.8% 18.0% 1.8% 14.1% 6.1% 7.7%

11.5% 0.2% 5.1% 25.0% 12.1% 10.6% 11.3% 12.9% 0.5% 12.8% 4.8% 7.8%
Portfolio UK Gilts UK Gilts EM Debt EM Debt Portfolio Portfolio EM Debt Linkers EM Debt Portfolio Linkers
7.3% 0.2% 5.1% -9.7% 25.9% 9.5% 11.1% 18.0% 0.5% 6.2% 3.4% 7.8%

9.0% -1.2% 4.9% 13.6% 11.2% 9.2% 10.0% 7.4% -1.5% 12.6% 4.4% 7.7%
Linkers Portfolio Global IG UK Gilts Portfolio Global IG EM Debt Portfolio Global IG UK Corp UK Corp Portfolio
9.0% 4.1% 3.2% 13.6% 17.3% 7.2% 9.2% 9.6% 0.1% 12.6% 4.4% 6.9%

8.5% -1.6% 4.7% 12.1% 6.4% 8.9% 6.4% 6.3% -1.9% 12.4% 4.0% 6.5%
Fixed Income

UK Corp High Yield EM Debt Portfolio Linkers Linkers Global Agg Global IG Portfolio Portfolio Global IG Global IG
8.5% 10.5% 6.5% -2.0% 6.4% 8.9% 5.4% 10.9% -1.2% 10.6% 1.8% 5.1%

8.1% -3.1% 4.4% 3.7% 6.1% 8.9% 5.9% 2.6% -4.2% 9.6% 3.0% 6.1%
UK Gilts EM Debt Portfolio Linkers Global IG Global Agg UK Corp UK Gilts UK Gilts Global IG EM Debt UK Gilts
8.1% 10.5% 4.4% 3.7% 16.6% 4.6% 5.9% 2.6% -4.2% 7.6% -0.9% 6.1%

7.9% -5.9% 1.6% 0.9% -1.0% 8.8% 5.1% 0.6% -4.4% 6.8% 2.9% 5.8%
Global IG Global IG High Yield High Yield UK Gilts UK Corp Global IG Linkers Global Agg Global Agg Global Agg UK Corp
3.5% 3.6% 2.0% -26.4% -1.0% 8.8% 4.8% 0.6% -0.1% 7.6% 2.2% 5.8%

6.8% -6.5% 0.6% -9.1% -4.8% 7.5% 4.0% -0.3% -10.0% 6.6% 2.3% 5.8%
Global Agg Global Agg UK Corp UK Corp Global Agg UK Gilts High Yield Global Agg EM Debt High Yield High Yield Global Agg
4.3% 3.6% 0.6% -9.1% 5.1% 7.5% 3.7% 5.7% -8.3% 3.2% -0.6% 4.7%

Source: Barclays Capital, BofA/Merrill Lynch, J.P. Morgan Economic Research, FTSE, J.P. Morgan Asset Management. Annualised return covers period 2005 to 2014. Linkers:
FTSE UK Gilts Indexed Linked Government; UK Gilts: JP Morgan UK Global Bond; EM debt: JP Morgan EMBI+; High yield: BofA/Merrill Lynch Developed Markets High Yield
Constrained; UK corp: Merrill Lynch Sterling Corporates; Global Agg: Barclays Global Aggregate; Global IG: Barclays Global Aggregate Corporates. Hypothetical portfolio (for
illustrative purposes only and shouldnt be taken as a recommendation): 35% Gilts; 15% EM debt; 15% high yield; 10% index linked; 10% UK corporate;15% global investment-
grade bonds. Multi-currency indices are hedged. Guide to the Markets - UK. Data as at 31 December 2014.
62
Fixed Income Market Data

Yield Return* 10-year correlation


Mkt. value Avg. 10-year 10-year
# of issues 31/12/2014 30/09/2014 4Q14 2014
($ billions) maturity Gilt Treasury
UK Gilts
1-3 years 6 229 1.9 years 0.51% 0.93% 1.08% 1.75% 0.63 0.54
5-7 years 5 228 5.9 1.32 1.95 3.79 7.92 0.95 0.79
10+ years 19 967 25.5 2.32 2.91 10.37 24.31 0.74 0.58
US Treasuries
1-3 years 95 2,528 2.0 years 0.68% 0.60% 0.19% 0.63% 0.48 0.65
5-7 years 39 986 6.1 1.85 2.04 1.83 4.84 0.78 0.95
10-20 years 14 128 13.4 2.31 2.71 4.83 14.53 0.84 1.00
Sector
Fixed Income

MBS 410 5,070 6.5 years 2.60% 2.88% 1.79% 6.08% 0.65 0.80
IG credit 8,914 7,583 8.8 2.57 2.61 0.06 3.15 0.17 0.25
High yield 3,366 2,128 6.3 6.68 6.04 -2.51 0.01 -0.20 -0.20
Floating rate 492 343 2.1 0.71 0.54 -0.16 0.65 -0.26 -0.21
Convertibles 821 358 0.0 3.20 3.12 1.09 6.02 -0.33 -0.41
EMD USD sovereign 328 516 12.3 5.66 5.32 -0.61 7.15 0.18 0.22
EMD USD corporate 553 412 6.7 5.78 4.99 -2.08 3.91 0.06 0.11
EMD LC sovereign 431 1,750 7.3 5.41 5.44 -4.19 -1.91 -0.13 -0.09

Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Fixed income sectors shown are represented by the following indices: UK Gilts Barclays Sterling Aggregate Gilts, US
Treasuries Barclays US Treasury indices, MBS Barclays US Aggregate Securitized-MBS, IG Credit Barclays Global Aggregate-Corporates, High Yield Barclays Global High Yield,
Floating rate Barclays US Floating Rate Notes, Convertibles Barclays Global Convertibles Composite, EMD USD sovereign Barclays Emerging Markets USD Aggregate-Sovereign, EMD
USD Corporate Barclays Emerging Markets USD Aggregate-Corporate, EMD LC sovereign Barclays Emerging Market Local Currency Government. *Return is in local currency of the
index and unhedged. Guide to the Markets - UK. Data as at 31 December 2014.
63
Policy and Real Rates

Bank of England US Federal Reserve


% 8
6 %
6
4
4
Base rate
2 31 Dec 2014: Fed funds
0.50% 2 31 Dec 2014:
0.25%
0
Real interest rate 0
Nov 2014: -0.67% Real interest rate
-2 Nov 2014: -1.46%
-2

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

European Central Bank Bank of Japan


Fixed Income

2.0 Call rate


% % 31 Dec 2014:
1.5 0.10%
4
1.0
0.5

Repo rate 0.0


2
31 Dec 2014: -0.5
0.05% Real interest rate
-1.0
Nov 2014: -2.06%
-1.5
0
Real interest rate -2.0
Nov 2014: -0.62% -2.5
'99 '01 '03 '05 '07 '09 '11 '13 '99 '01 '03 '05 '07 '09 '11 '13
Source: (Top left) Bank of England, ONS, FactSet, J.P. Morgan Asset Management. (Top right) US Federal Reserve, BLS, FactSet, J.P. Morgan Asset Management.
(Bottom left) ECB, Eurostat, FactSet, J.P. Morgan Asset Management. (Bottom right) Bank of Japan, Japanese Statistics Bureau & Statistics Centre, FactSet,
J.P. Morgan Asset Management. Real interest rate is policy rate less core CPI inflation. Guide to the Markets - UK. Data as at 31 December 2014.
64
Fixed Income Interest Rate Risk
Current and historical yields for selected indices Source: (Both charts)
Barclays, FactSet, J.P.
Last 10 years* Morgan Asset Management.
25
How to
% interpret this *Historical spread analysis is
based on the last 10 years
20 chart of data, with the exception of
10+ years UK Treasuries
Max
and local currency emerging
15 markets debt, which are
based on nine years and six
years of data, respectively,
10 Average due to data availability.
Fixed income sectors shown
Current are provided by Barclays
5 Capital and are represented
Min by Treasury UK: Barclays
Sterling Aggregate Gilts
0 Index; Floating Rate
UK Gilts 1-3 years 5-7 years 10+ years Floating Investment- High yield EMD USD EMD USD EMD LC Barclays US Floating Rate
Notes (BBB); IG credit:
rate grade credit sovereign corporate sovereign
Barclays Global Aggregate
Corporates Index; High
Fixed Income

yield: Barclays Global High


Illustration of the impact a 1% rise in local interest rates may have on selected indices Yield Index; EMD sovereign
Assumes a parallel shift in the yield curve and spreads are maintained ($): Barclays Emerging
Markets Sovereigns index;
EMD corporate ($): Barclays
0 Emerging Markets
Corporates Index; EMD
% sovereign (LC): Barclays
Emerging Market Local
-4 Price return Currency Government
Index.
Total return
For illustrative purposes
-8 only.
Change in bond price is
calculated using both
duration and convexity.
-12
Guide to the Markets - UK.
Data as at 31 December
2014.
-16
Floating Investment- EMD USD EMD USD EMD LC
UK Gilts 1-3 years 5-7 years 10+ years High yield
rate grade credit sovereign corporate sovereign
65
Liquidity and Duration Risks

US corporate debt market liquidity Mark to market: Interest rate risks


$ billions Estimated amount of yield increase to wipe out next years income
600 4,000 900
$ Dealer inventories (lhs) $ bps Current yield

IG corporate debt outstanding (rhs) 3,500 800


500 159
700
3,000
A 102 bps increase
600 93 in yield wipes out
400 102 income earned
2,500 through the end of
2015
500

300 2,000
Fixed Income

400
56
43
1,500 300
200
27
1,000 200
22

100 12
100
500

0
Global HY EMD USD EMD Global IG US IG US UK Gilt Euro
0 0 Sovereign Treasuries Aggregate
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Govt
Source: (Left) Federal Reserve Bank of New York, Barclays, J.P. Morgan Asset Management. (Right) Barclays, FactSet, J.P. Morgan Asset Management. Interest rate risks chart assumes
that all investments are issued at par and are made on 31 December 2014, with no re-investment of income and with no consideration to convexity characteristics. Fixed income sectors shown are
provided by Barclays Capital and are represented by Barclays Global High Yield, Barclays Emerging Market Local Currency Government, Barclays Emerging Markets USD Aggregate,
Barclays Global Credit Corporate, Barclays US Aggregate Credit - Corporate - Investment Grade, Barclays US Aggregate Government - Treasury (7-10 Y), Barclays UK Gilt (7-10 Y),
66 Barclays Euro Aggregate Government - Treasury (7-10 Y). Guide to the Markets - UK. Data as at 31 December 2014.
Global Bond Supply and Demand

Estimated global bond demand Estimated global bond supply


$ billions per annum $ billions per annum
Banks, pension funds, 4,500
4,500 Other bonds
insurance companies
$ Retail funds $ Government bonds
4,000 4,000
Foreign official

3,500 G4 central banks 3,500

3,000 3,000
Estimated
$2,600 bn
2,500 2,500
Estimated
2,000 $2,000 bn
2,000
Fixed Income

1,500 1,500

1,000 1,000

500 500

0 0

-500 -500
'07 '08 '09 '10 '11 '12 '13 '14 '15 '07 '08 '09 '10 '11 '12 '13 '14 '15

Source: (Both charts) Central bank sources, ICI, Bloomberg, IMF, J.P. Morgan Economic Research, J.P. Morgan Asset Management.Guide to the Markets - UK.
Data as at 31 December 2014.

67
Government and Investment Grade Bond Yields

Ten-year bond yields Investment grade bond yields


5.5 10

% %
8
5.0
US
UK 6
4.5
Germany
4
US
4.0
2 UK
Eurozone
3.5
0
'06 '07 '08 '09 '10 '11 '12 '13 '14
3.0
Yield curve steepness
Fixed Income

Ten-year government bond yield less two-year government bond yield


2.5 3.0
US
%
2.5 UK
2.0
Germany
2.0
1.5
1.5

1.0
1.0

0.5 0.5
'06 '07 '08 '09 '10 '11 '12 '13 '14 '10 '11 '12 '13 '14
Source: (Left and bottom right) Tullett Prebon, FactSet, J.P. Morgan Asset Management. (Top right) Barclays, FactSet, J.P. Morgan Asset Management. Investment grade
bond yields shown are provided by Barclays Capital and are represented by US: Barclays US Aggregate Corporate Investment Grade, UK: Barclays Sterling Aggregate
Non-Gilts Corporate, Eurozone: Barclays Euro-Aggregate Corporate. Guide to the Markets - UK. Data as at 31 December 2014.
68
US High Yield Bonds

US high yield spreads and defaults


20 Asset class Average Latest 2,000
% HY defaults (lhs) 4.0% 1.9% bps

15 HY spread (rhs) 576bps 571bps 1,500


Lev. loan spread (rhs) 440bps 526bps

10 1,000

5 500

0 0
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

US historical high yield recovery rates High yield issuance


Fixed Income

High yield bonds, cents on the dollar 2014:


$ billions
70 $342.9bn
400
60 $ Refinancing
Average: 41.8 cents Acquisition/LBO
50 300
General*
40
200
30
20
100
10
0 0
'82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Top) US Treasury, J.P. Morgan Economic Research, Credit Suisse, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the
total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. Leveraged loan spread is the discount
margin to maturity. (Bottom left and right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. *General issuance includes issuance for the purpose of
69 paying dividends. Guide to the Markets - UK. Data as at 31 December 2014.
European High Yield Bonds

Europe high yield: Spread to worst and default rates Asset class Average Latest
20 2,500
Default rate 2002: HY spread (rhs) 662bps 395bps
% bps
33% HY defaults (lhs) 5.2% 1.0%
2,000
15

1,500
10
1,000

5
500

0 0
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

European high yield issuance by credit rating Ratio of high yield to government bond yield
Fixed Income

billions 2014: Government bonds are 5-year German Bund and 5-year US Treasury
90 84.5bn 90
Unrated
x European
CCC
Global
60 B 60
BB

30 30

0 0
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Top) Credit Suisse, FactSet, J.P. Morgan Asset Management. (Bottom left) J.P. Morgan Economic Research, FactSet, J.P. Morgan Asset Management. (Bottom right)
FactSet, Barclays, J.P. Morgan Asset Management. European high yield is the BofA/Merrill Lynch European High Yield index. Global high yield is the Barclays High Yield index.
Guide to the Markets - UK. Data as at 31 December 2014.
70
Emerging Markets Debt

Emerging markets debt yields Real policy rates


6
14 Developed markets
%
4
Emerging markets
%
2

12 0

-2

-4
10

EM sovereign debt and Baa corporate bond yields


Fixed Income

7.0
8
%
6.5

6.0 EMBIG*

6 5.5

EM sovereign (local currency) 5.0

EM sovereign (USD) 4.5 Baa corporate


bond (USD)
EM corporate (USD)
4 4.0
'01 '03 '05 '07 '09 '11 '13 '09 '10 '11 '12 '13 '14
Source: (Left and top right) J.P. Morgan Economic Research, FactSet, J.P. Morgan Asset Management. (Bottom right) Moodys, J.P. Morgan Economic Research, FactSet,
J.P. Morgan Asset Management. EM sovereign (local currency) is the JP Morgan GBI-EM; EM sovereign (USD) is the JP Morgan EMBI+; EM corporate (USD) is the
JP Morgan CEMBI. *The JP Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in
71 developing nations. Guide to the Markets - UK. Data as at 31 December 2014.
Emerging Markets Debt Composition

EMBI Global*: Credit rating breakdown Emerging markets investable debt outstanding
% of the index $ trillions
3.5
100
% $ EM corporate (USD)
90 EM sovereign (USD)
3.0
EM sovereign (local currency)
80

Unrated 2.5
70
B
60 BB 2.0

IG
50
Fixed Income

1.5
40

30 1.0

20
0.5
10

0 0.0
1994-97 1998-01 2002-05 2006-09 2010-13 2014 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: (Both charts) J.P. Morgan Economic Research, J.P. Morgan Asset Management. *The JP Morgan EMBI Global (EMBIG) is a USD-denominated external debt index
tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. EM corporate (USD) is the CEMBI; EM sovereign (USD) is the JP Morgan EMBI Global;
EM sovereign (local currency) is the Global Bond Index Emerging Market Broad Diversified Index (GBI-EM). Guide to the Markets - UK. Data as at 31 December 2014.
72
Asset Class Returns

Ten-yr
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4Q14
Ann.
EME REITS EME Govt bonds EME REITS REITS REITS DM Equities REITS REITS EME
35.8% 34.4% 33.6% 9.1% 62.8% 27.6% 7.3% 20.1% 29.6% 27.1% 12.4% 10.3%

Cm dty EME Cm dty Cash HY bonds Cm dty EMD HY bonds Portfolio DM Equities DM Equities HY bonds
21.4% 28.8% 16.2% 6.9% 57.7% 16.8% 7.0% 19.2% 9.7% 10.4% 3.4% 8.3%

Hedge Hedge
DM Equities DM Equities IG bonds EMD HY bonds Govt bonds EMD Govt bonds Govt bonds EMD
Funds Funds
16.3% 16.1% -5.1% 34.2% 15.1% 5.5% 17.9% 8.1% 2.7% 7.8%
12.6% 9.7%
Hedge
Portfolio Portfolio EMD REITS EME IG bonds EME HY bonds IG bonds IG bonds REITS
Funds
12.8% 7.4% -14.7% 27.4% 14.4% 4.8% 17.4% 6.5% 7.6% 1.8% 7.5%
13.9%
Hedge
EMD Portfolio Cash DM Equities EMD HY bonds DM Equities EME Portfolio Portfolio DM Equities
Funds
12.3% 12.8% 6.1% 26.5% 12.8% 3.6% 16.4% 3.8% 7.0% 1.5% 6.9%
-19.1%
Hedge Hedge
REITS HY bonds Govt bonds Portfolio Portfolio Cash Portfolio REITS EME Portfolio
Funds Funds
8.3% 12.2% 5.6% -22.6% 26.2% 1.2% 12.6% 3.2% 5.6% 6.8%
10.9% 0.7%
Hedge Hedge
EMD DM Equities HY bonds Cm dty Portfolio Portfolio IG bonds Cash EMD Cash
Funds Funds
10.0% 5.2% -25.2% 18.9% 10.7% -1.1% 10.9% 0.5% 4.8% 0.2%
7.6% 5.8%
Investor Behaviour

Hedge Hedge Hedge Hedge


Other Assets and

HY bonds Cash EMD Cm dty DM Equities Govt bonds EME IG bonds


Funds Funds Funds Funds
5.6% 4.8% 5.2% -35.6% 10.6% 0.1% 0.1% 5.1%
18.6% -2.5% 7.7% 4.1%

Govt bonds IG bonds IG bonds REITS IG bonds IG bonds DM Equities Govt bonds IG bonds HY bonds HY bonds Govt bonds
5.0% 3.6% 3.2% -37.3% 16.6% 7.2% -5.0% 4.5% 0.1% 2.6% -1.6% 4.6%

Cash Govt bonds HY bonds DM Equities Cash Govt bonds EME Cash EMD Cash EMD Cash
4.9% 3.3% 2.0% -38.3% 2.2% 3.6% -12.5% 1.4% -4.1% 0.6% -1.7% 2.9%

IG bonds Cm dty REITS EME Govt bonds Cash Cm dty Cm dty Cm dty Cm dty Cm dty Cm dty
3.5% 2.1% -17.8% -45.7% 1.0% 1.0% -13.3% -1.1% -9.5% -17.0% -12.1% -1.9%

Source: FTSE, MSCI, Barclays, Bloomberg/UBS, FactSet, J.P. Morgan Asset Management. Returns are in base currency of the index. Annualised period covers 2005 to 2014. Govt bonds: Barclays Global
Aggregate Government Treasuries; HY bonds: Barclays Global High Yield; EMD: Barclays Emerging Markets (USD); IG bonds: Barclays Global Aggregate Corporates; Cmdty: Bloomberg UBS
Commodity; REITS: FTSE NAREIT All REITS; DM Equities: MSCI World; Hedge funds: Credit Suisse/Tremont Hedge Fund; Cash: JP Morgan Cash United Kingdom (3M). Hypothetical portfolio (for
illustrative purposes only and shouldnt be taken as a recommendation): 12.5%: government bonds; 15%: IG bonds; 15%: EM equities; 30%: World equities; 7.5%: HY bonds; 5%: EMD; 5%: commodities;
73 5%: cash; and 5%: REITS. Multi-currency indices are hedged. Guide to the Markets - UK. Data as at 31 December 2014.
Correlation of Returns (UK)
10-year correlations

MSCI MSCI
FTSE Asia High yield Global Hedge Leveraged Real
S&P 500 Europe MSCI EM UK Gilts EM debt Cmdty
100 ex-Japan bonds bonds funds loans estate
ex-UK
FTSE 100 1.00 0.78 0.91 0.76 0.80 -0.13 0.58 0.65 -0.03 0.49 0.64 0.53 0.11

S&P 500 0.65 1.00 0.80 0.69 0.69 0.01 0.39 0.46 0.27 0.36 0.37 0.33 0.12
MSCI Europe
ex-UK 0.89 0.65 1.00 0.79 0.81 -0.06 0.59 0.61 0.10 0.43 0.55 0.41 0.09
MSCI Asia
ex-Japan 0.62 0.56 0.58 1.00 0.97 -0.02 0.62 0.61 0.09 0.44 0.56 0.43 -0.06

MSCI EM 0.63 0.54 0.62 0.96 1.00 -0.05 0.66 0.63 0.04 0.53 0.61 0.46 -0.02

UK Gilts -0.17 0.05 -0.21 0.05 0.00 1.00 0.17 -0.21 0.62 -0.12 -0.38 -0.35 -0.10

EM debt 0.52 0.15 0.49 0.56 0.63 0.17 1.00 0.75 0.04 0.37 0.52 0.53 -0.06
High yield
bonds 0.66 0.33 0.62 0.57 0.65 0.03 0.79 1.00 -0.29 0.33 0.78 0.88 -0.13

Global bonds 0.05 0.44 0.04 0.27 0.18 0.66 0.03 0.04 1.00 0.06 -0.46 -0.51 -0.32
Investor Behaviour
Other Assets and

Cmdty 0.55 0.40 0.47 0.37 0.39 -0.08 0.35 0.55 0.22 1.00 0.46 0.25 0.19

Hedge funds 0.64 0.38 0.70 0.49 0.50 -0.14 0.42 0.61 -0.14 0.27 1.00 0.80 0.13
Leveraged
loans 0.55 0.32 0.56 0.52 0.58 -0.13 0.56 0.81 -0.01 0.50 0.68 1.00 -0.05
Real
estate -0.14 -0.03 -0.09 -0.37 -0.41 -0.43 -0.61 -0.55 -0.55 -0.51 -0.10 -0.39 1.00

Three-year correlations
Source: Citigroup, Barclays, Credit Suisse, NCREIF, Standard & Poors, MSCI, Federal Reserve, Bloomberg, J.P. Morgan Economic Research, Bloomberg/UBS, J.P. Morgan Asset Management. Pan
Europe bonds: Citigroup Europe Government Bond; EM debt: JP Morgan EMBI Global; High yield bonds: JP Morgan Domestic High Yield; Global bonds: Barclays Global Aggregate; Lev. Loans: Credit
Suisse Leveraged Loans; Cmdty: Bloomberg/UBS Commodity; Hedge Funds: CS/Tremont Multi-Strategy; Real estate: blended index, which includes NCREIF Property Index data and Federal Reserve
estimates of changes in capital value. Ten-year correlation values are calculated for period December 2004 to December 2014. All indices except Real Assets are total return based on monthly return data
74 in euros; real asset correlations are based on quarterly data and are as at 30 September 2014. Guide to the Markets - UK. Data as at 31 December 2014.
Commodity Returns

Ten-yr
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4Q14 Ann.
Copper Nickel Wheat Gold Copper Silver Gold Corn Crude Oil Coffee Wheat Gold
56.1% 167.2% 52.1% 2.4% 129.6% 81.6% 9.6% 18.9% 6.8% 37.7% 21.8% 8.0%

Nat. gas Copper Crude Oil Corn Nickel Coffee Corn Wheat Nat. gas Nickel Corn Copper
52.8% 45.1% 40.1% -23.1% 54.6% 66.8% 1.1% 9.7% 5.0% 7.3% 19.7% 6.9%

Silver Corn Gold Silver Silver Nickel Crude Oil Silver Copper Gold Gold Silver
25.0% 40.0% 24.2% -26.6% 47.4% 32.0% -3.7% 7.0% -8.8% -1.8% -2.3% 6.0%

Crude Oil Silver Silver Coffee Alum inum Corn Silver Gold Nickel Alum inum Copper Nickel
21.9% 37.8% 9.1% -27.3% 33.6% 30.5% -10.2% 6.0% -20.1% -3.1% -5.9% 0.4%

Alum inum Wheat Copper Nat. gas Gold Copper Coffee Copper Alum inum Wheat Alum inum Corn
15.5% 20.0% 4.1% -38.0% 22.7% 29.4% -11.2% 4.9% -20.8% -9.5% -6.4% -3.1%

Gold Alum inum Corn Wheat Coffee Gold Alum inum Alum inum Wheat Corn Nickel Coffee
13.8% 19.4% -2.3% -39.4% 10.1% 28.5% -21.7% -4.1% -27.2% -13.3% -7.6% -5.8%

Nickel Gold Coffee Alum inum Crude Oil Wheat Copper Nickel Gold Copper Silver Alum inum
Investor Behaviour
Other Assets and

-8.1% 16.0% -6.4% -41.0% 4.2% 21.0% -24.5% -10.3% -28.7% -16.6% -8.8% -6.1%

Wheat Coffee Nickel Copper Corn Alum inum Nickel Crude Oil Corn Silver Coffee Wheat
-8.8% 1.0% -16.9% -53.8% -10.3% 5.2% -24.7% -11.8% -30.3% -20.5% -15.8% -8.1%

Coffee Crude Oil Alum inum Crude Oil Wheat Crude Oil Wheat Nat. gas Coffee Nat. gas Nat. gas Crude Oil
-11.7% -16.7% -18.9% -53.9% -26.1% 3.7% -34.0% -30.7% -30.6% -30.8% -32.5% -9.4%

Corn Nat. gas Nat. gas Nickel Nat. gas Nat. gas Nat. gas Coffee Silver Crude Oil Crude Oil Nat. gas
-18.4% -72.1% -22.9% -56.8% -51.6% -40.7% -47.1% -41.6% -36.7% -41.7% -40.7% -34.1%

Source: Bloomberg, UBS, FactSet, J.P. Morgan Asset Management. Returns are in base currency of the index. Annualised period covers 2005 to 2014.
Guide to the Markets - UK. Data as at 31 December 2014.

75
Commodities

Commodity volatility Gold price


Standard deviation of weekly returns, 10 years
2,500
Inflation-adjusted gold price
Natural gas 5.9
Crude oil 4.5 $/oz. Gold price
31 Jan 1980:
Grains 3.5 $2,086
Industrial metals 3.5 2,000
Precious metals 3.2
Bloomberg/UBS 2.5
Cmdty Index
ACWI 2.3
Livestock 1.9 1,500
0 2 4 6 %

Commodity prices and US inflation


Change year on year
8 80 1,000 31 Dec 2014:
% Headline CPI* Bloomberg/UBS % $1,199
6 Commodity Index 60
Investor Behaviour
Other Assets and

4 40

2 20
500
0 0

-2 -20

-4 -40

-6 -60 0
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '69 '74 '79 '84 '89 '94 '99 '04 '09 '14
Source: (Top and bottom left) Bloomberg, UBS, MSCI, J.P. Morgan Asset Management. (Right) BLS, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer
Price Index. Guide to the Markets - UK. Data as at 31 December 2014.

76
Oil Consumption and Production

Oil production by country Middle East energy production & chokepoints


Millions of barrels per day % of global liquid fuel production, 2013
Kuwait
14 Syria 3.1%
0.1%
Suez Canal
12 2.2%
Iraq Iran
3.4% 3.5%
10

US Libya Egypt
8 Saudi Arabia 1.1% 0.8% Saudi Arabia
Russia 12.9%
Strait of
6 Hormuz
'01 '03 '05 '07 '09 '11 '13 17.0%
Sudan
UAE
Crude oil prices Change in 0.3%
3.6%
$ per barrel 2014
140 Brent Crude -46% Bab el-Mandeb
$ 3.4%
WTI -47%
Investor Behaviour

120
Other Assets and

Selected producers Selected consumers


100 Percent of global total, 2013 Percent of global total, 2013

United States 14% Canada 5% United States 21% India 4%


80
Saudi Arabia 13% United Arab Emirates 4% China 11% Russia 4%
Russia 12% Iran 4% Eurozone 11% Brazil 3%
60
Africa 10% Brazil 3% Japan 5% Saudi Arabia 3%

40 China 5% Eurozone 1% Africa 4% Germany 3%


'10 '11 '12 '13 '14
Source: (Top left) EIA, J.P. Morgan Asset Management. (Bottom left) FactSet, J.P. Morgan Asset Management. (Right) EIA, IMF, J.P. Morgan Asset Management.
Guide to the Markets - UK. Data as at 31 December 2014.

77
Life Expectancy and Pension Shortfall

If youre 65 today, the probability of living to a specific age Perceived retirement shortfall by country
100 Expected savings
94% 25 shortfall (years)
Men Savings expected
% to last (years)
Women

80 78% Couple at least one 20


lives to specified age
70% 7 11
66%
10
15 8 10
60 8 10
8 8
10 5
6
47%
10

40 36%
14
12
Investor Behaviour

11 11
Other Assets and

5 10 10 10
9 9 9 9
8

20

UK

France

Canada

Brazil

Mexico

UAE
US

Australia
Average

Singapore

India
China
0
80 years 90 years
Source: (Left) ONS 2010-2012 Life Tables, J.P. Morgan Asset Management. (Right) The Future of Retirement: A new reality study by HSBC, J.P. Morgan Asset Management.
Figures represent the expected portion of retirement that will not be covered by retirement savings based on survey data.
Guide to the Markets - UK. Data as at 31 December 2014.
78
Consumer Confidence and the Stock Market

Eurozone consumer confidence


5
Average 12-month MSCI Europe Index return:
Aug 2000:
-23.8%
After a peak: -3.4% After a trough: +27.4% Total period: +8.1% Jun 2007:
-22.5%
0
Jul 1989:
+4.4%
May 1986: Jun 1995:
-5 +12.1% +17.7%
Nov 2010:
-8.3%
-10

Dec 2014
-15
Feb 1988:
+19.6%

-20 Nov 1996:


+30.1%
Investor Behaviour
Other Assets and

Mar 2003:
+32.5%
-25

Dec 2012:
-30 +18.1%
Mar 1993:
+19.4% Mar 2009:
+44.7%
-35
'85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
Source: European Commission, FactSet, J.P. Morgan Asset Management. 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. Guide to the Markets - UK. Data as at 31 December 2014.
79
Industry Fund Flows

Cumulative mutual fund flows Cumulative flows into US equity funds


US-domiciled funds, $ billions Includes both mutual funds and ETFs, $ billions,
$1,175bn 800
1,200
Equity funds $
$ Bond funds 400
Institutional
1,000 +$626 billion
0

$837bn Retail
-400 -$643 billion
800

-800
'07 '08 '09 '10 '11 '12 '13 '14
600
Monthly mutual fund flows
Net new cash flow to US mutual funds, $ billions
80
$ Equity funds
400 60
Investor Behaviour

Bond funds
Other Assets and

40
20
200
$107bn 0
$64bn
-20

0 -40
1997-2000 2009-2012
-60
Tech bubble Post crisis '10 '11 '12 '13
Source: (Left) Strategic Insight, FactSet, J.P. Morgan Asset Management. (Top and bottom right) Investment Company Institute, FactSet, J.P. Morgan Asset Management.
Latest data November 2014. Guide to the Markets - UK. Data as at 31 December 2014.

80
US Asset Returns by Holding Period

Range of equity and bond total returns


Annualised total returns, 1950 - 2014
75
Large cap equity
% Bonds
61% 50/50 portfolio
50
48% 49%

30%
25
24% 24%
21%
17% 17% 18%
15%
13%
4% 4%
1% 1%
0
-1% -3% 0%
-7% -3%
Investor Behaviour
Other Assets and

-18%
-24%
-25

-43%

-50
1-yr rolling 5-yr rolling 10-yr rolling 20-yr rolling
Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Returns shown are per annum and are calculated based on monthly returns from 1950 to November 2014
and includes dividends. Guide to the Markets - UK. Data as at 31 December 2014.

81
Returns in Different Inflation Environments

Rising inflation scenarios Falling inflation scenarios

High and rising inflation High and falling inflation


Occurred in 14 years since 1972 Occurred in 6 years since 1972 Environment
30 30 30 average 30
% % % 22% %
inflation
20 20 20 14% 20
13% 12% 11% 12%
8% 9%
10 7% 7% 10 10 10
2% 0% na na
0 0 0 0
-1%
-10 -10
-10 -10 -8%

Govt High Real Utilities Hedge


-20 Govt High Real Utilities Hedge -20
-20 -20 Equities Cash Cmdty bonds
Equities Cash Cmdty bonds yield* estate funds** yield* estate funds**
Median
inflation:
Low and rising inflation Low and falling inflation 3.2%
Occurred in 7 years since 1972 Occurred in 14 years since 1972
30 30 30 30
Investor Behaviour

% %
Other Assets and

20%
17%
% %
20 17% 16% 20
13% 20 20
11% 13%
11%
10 4% 10 10 6% 5% 6% 7% 10
3% 4% 3%
0 0 0 0

-10 -10 -10 -10

-20 Govt High Real Utilities Hedge -20 -20 Govt High Real Utilities Hedge -20
Equities Cash Cmdty bonds yield* funds** Equities Cash Cmdty bonds yield* estate funds**
estate
Source: (All charts) BLS, Barclays Capital, Robert Shiller, Federal Reserve, NCREIF, Dow Jones, Strategas/Ibbotson, J.P. Morgan Asset Management. Period returns are the arithmetic average of the
nominal annual returns for the years specified by category. High or low inflation distinction reflects whether inflation was in the top or bottom quartile based on data from 1972-2013. *High yield returns
based on the period 1984-2013. **Hedge funds Rising or falling inflation distinction is relative to the previous year. Commodities returns are based on GSCI, equities on the S&P 500 total return index,
govt bonds are the Barclays Aggregate US Treasury Index, high yield is the Barclays US Corporate High Yield Index, real estate is a blended index based on NCREIF and Federal Reserve data, utilities is
82 a blended index based on the DJ Utilities Average Index and. Guide to the Markets - UK. Data as at 31 December 2014.
J.P. Morgan Asset Management
All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees The MSCI All Country Asia Pacific ex-Japan Index is a free float-adjusted market capitalization weighted index that is
or expenses. designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The
The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index MSCI All Country Asia Pacific ex-Japan Index consists of the following 11 developed and emerging market countries:
includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, and
500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an Thailand.
ideal proxy for the total market. An investor cannot invest directly in an index. The MSCI China Index is an unmanaged index considered representative of stocks of China.
The S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market, The MSCI KOKUSAI Index is a free float-adjusted market capitalization index that is designed to measure the equity market
representing all major industries. performance of developed markets excluding Japan. The MSCI KOKUSAI Index consists of the following 23 developed
The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong,
capitalization. Ireland, Israel, Italy, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United
Kingdom, and the United States*.
The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000.
The Nikkei 225 Index is a price-weighted average of the 225 top-rated Japanese companies listed in the first section of the
The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book Tokyo Stock Exchange.
ratios and higher forecasted growth values.
The Tokyo Price Index (TOPIX) is a capitalization-weighted index lists all firms that are considered to be under the 'first
The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book section' on the TSE, which groups all of the large firms on the exchange into one pool. The second section groups all of the
ratios and lower forecasted growth values. remaining smaller firms.
The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. The FTSE 100 Index is an index of the 100 largest companies (by market capitalization) in the United Kingdom.
The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to- The FTSE All Share Index is an index of the 630 largest companies (by market capitalization) in the United Kingdom.
book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index.
The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes.
The Russell Midcap Value Index measures the performance of those Russell Midcap companies with lower price-to- As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth
book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index. Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. using different attributes - three for value and five for growth including forward-looking variables. The objective of the index
The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price-to-book design is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each
ratios and higher forecasted growth values. targeting 50% of the free float adjusted market capitalization of the underlying country index. Country Value/Growth indices
are then aggregated into regional Value/Growth indices. Prior to May 30, 2003, the indices used Price/Book Value (P/BV)
The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either
ratios and lower forecasted growth values. "value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index.
The Russell Top 200 Index measures the performance of the largest cap segment of the U.S. equity universe. It includes The following MSCI Total Return IndicesSM are calculated with gross dividends:
approximately 200 of the largest securities based on a combination of their market cap and current index membership and This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to
represents approximately 68% of the U.S. market. individuals resident in the country of the company, but does not include tax credits.
The MSCI EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed
to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets market equity performance in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed
outside of North America. market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands,
The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the The MSCI Pacific IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market
following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, performance in the Pacific region. As of June 2007, the MSCI Pacific Index consisted of the following 5 Developed Market
India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South countries: Australia, Hong Kong, Japan, New Zealand, and Singapore.
Africa, Taiwan, Thailand, and Turkey.
Credit Suisse/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index, LLC. It is an asset-weighted
The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is hedge fund index and includes only funds, as opposed to separate accounts. The Index uses the Credit Suisse/Tremont
designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWI database, which tracks over 4500 funds, and consists only of funds with a minimum of US$50 million under management, a
consisted of 45 country indices comprising 23 developed and 22 emerging market country indices. 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net
The MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group, within each of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC.
country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of
USD200-1,500 million. a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only.
All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great
majority being pension funds. As such, all properties are held in a fiduciary environment.

83
J.P. Morgan Asset Management
The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry The Euro Stoxx 600 Index represents large, mid and small capitalisation companies across 18 European countries.
performance, and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American The JPMorgan GBI-EM Global Diversified consists of regularly traded, liquid fixed-rate, domestic currency government
Stock Exchange or the NASDAQ National Market List. bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed
The Dow Jones Industrial Average measures the stock performance of 30 leading blue-chip U.S. companies. within this index.
The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents twenty The JPMorgan Corporate Emerging Markets Bond Index (CEMBI): The CEMBI tracks total returns of US dollar-
two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc. denominated debt instruments issued by corporate entities in Emerging Markets countries, and consists of an investable
West Texas Intermediate (WTI) is the underlying commodity for the New York Mercantile Exchange's oil futures contracts. universe of corporate bonds. Both indices are also available in Diversified version.
The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged, long-only investment The JPMorgan CEMBI Index is a USD denominated external debt index tracking bond issued by sovereigns and quasi-
in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully sovereigns in the developing nations.
collateralized basis with full reinvestment. Individual components qualify for inclusion in the index on the basis of liquidity The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high
and are weighted by their respective world production quantities. yield corporate debt market.
The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing
denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government exposure to the systematic risk of the market (i.e., a beta of zero).
and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among
subdivided into more specific indexes that are calculated and reported on a regular basis. several hedge fund strategies. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible
This U.S. Treasury Index is a component of the U.S. Government index. bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage.
The Barclays Capital High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) The Barclays U.S. Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate
bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) note market.
are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue *Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy, and are based on a
zeroes, step-up coupon structures, and 144-As are also included.
December 8, 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were
The Barclays Capital 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data). Presumed to be excluded
have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard
or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and
non convertible. Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate representation of returns in the category.
CS/Tremont later published a finalized November return of -40.56% for the month, reflecting this mark-down. CS/Tremont
The Barclays Euro-Aggregate Index consists of bond issued in the euro or the legacy currencies of the sovereign countries assumes no responsibility for these estimates.
participating the European Monetary Union (EMU).
The Global Bond Index Emerging Market Broad Diversified Index (GBI-EM) is a comprehensive global local emerging The Office of National Statistics (ONS) Index is a mix-adjusted average housing price index. The index is calculated
markets index, and consists of liquid, fixed-rate, domestic currency government bonds. monthly using mortgage financed transactions that are collected via the Regulated Mortgage Survey by the Council of
Mortgage Lenders.
The Barclays Global Aggregate Corporate Index consists of corporate issues in Europe, the US and Asia-pacific regions.
The Barclays Capital Global High Yield Index is an unmanaged index considered representative of fixed rate, The Nationwide House Price Index is a mix adjusted index which is derived from Nationwide lending data on a monthly
noninvestment-grade debt of companies in the U.S., developed markets and emerging markets. basis across the UK.
The Barclays Capital Emerging Markets Index includes USD-denominated debt from emerging markets in the following The Halifax House Price Index is constructed from mortgage data derived from Halifax lending data on a quarterly basis
regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays across the UK.
Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability. The MSCI AC World High Dividend Yield Index is composed of those securities that have higher-than-average dividend
The Barclays Capital MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and yield within its parent index, a track record of consistent dividend payments and the capacity to sustain future dividend
Freddie Mac. Aggregate components must have a weighted average maturity of at least one year, must have $250 million payments.
par amount outstanding, and must be fixed rate mortgages.
The Barclays Capital Corporate Bond Index is the Corporate component of the U.S. Credit index.
The Barclays Capital TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury.
The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local
market debt instruments issued by sovereign and quasi-sovereign entities.
The Li Keqiang Index is a composite measure composed of Chinas electricity production, financial institution loans and
railway freight.

84
J.P. Morgan Asset Management Risks & Disclosures

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Past performance is no guarantee of comparable future results.


Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Prepared by: Stephanie Flanders, David Stubbs, Vincent Juvyns, Maria Paola Toschi, Kerry Craig,
Alexander Dryden, Nandini Ramakrishnan.
Brazilian recipients:

Unless otherwise stated, all data as at 31 December 2014 or most recently available.

Guide to the Markets UK

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