2021 outlook global equities

S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L

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2021 Outlook

Global EquitiesDecember 2020

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1

The Big PictureAs we enter 2021, we reiterate our positive view of the global markets for the next 12 months. We advise investors add to cyclicals, especially those exposed to inventory

replenishment, infrastructure, clean investments or the digital transformation of the global economy. We focus on “return to normal” opportunities as we clear the US

Presidential election, expect balanced government and see COVID-19 impact waning. As “mobility” improves in 2021, pent-up demand for corporate investment and consumer

spending should help many sectors experience a v-shaped recovery. We further believe balancing “normalcy” opportunities with secular trends like renewables and environmental

technologies will be a winning combination for global investors.

So what’s changed? Confidence in the restoration of growth and further earnings revisions. 2021 and 2022 should be good recovery years and Emerging Markets should

lead. China, South Korea and India are poised for above-average multi-year growth. Hong Kong and Singapore are service economies with pent-up demand. The region is

further supported by technology investment, consumerism, a weakening dollar and lower geopolitical risks. Asia’s improved growth will help Germany’s export-driven businesses

across the consumer and industrial sectors. We remain constructive on the U.S., as exposures to secular growth sectors like Healthcare and Technology continue compounding

earnings at above-average rates. A broadening of the markets from the mega-caps toward small and mid-cap stocks and cyclical industries, like Industrials and Basic Materials,

seems likely given operating leverage and earnings revisions.

1Total Return= Price Return + Annualized Dividends in local terms. *Represents world headline inflation. Source: J.P. Morgan Private Bank, Bloomberg Finance L.P.. Local currency terms. Data as of

November 27, 2020. CY= calendar year

For illustrative purposes only. Estimates, forecasts and comparisons are as of the dates stated in the material. This information does not reflect the performance of any specific investment

scenario. The views and strategies described herein may not be suitable for all investors, and more complete information is available which discusses risks, liquidity, and other matters of interest. This

information is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Outlooks and past performance are no guarantee of future results. It is not possible to invest

directly in an index. Please refer to “Definition of Indices and Terms” for important information.

Global2021 Equity Outlook

December 2021 Equity Outlook

Region IndexLevel on

1127/20Price

P/E Forward

MultipleEarnings Growth

Annualized

Dividend YieldPrice Return1 Total Return 1

United States S&P 500 3,638 3,950 – 4,050 20.0x 24 – 26% 2.0% 9 - 11% 11 - 13%

Europe STOXX Europe 600 393 425-435 16.5x 25 – 30% 3.0% 8 – 10% 11- 13%

Japan Topix 1778 1,840 - 1,890 16.0x 14 – 16% 2.4% 3 - 6% 6 - 9%

Asia MSCI Asia ex-Japan 807 870 - 910 15.0x 25 – 27% 2.5% 8 – 13% 10 - 15%

China MSCI China 108 120 - 124 14.3x 20 – 22% 2.2% 11 - 15% 13 - 17%

FX & Commodities Assumptions

Year EUR/USD USD/JPY USD/CNH GBP/USD WTI Crude Oil

2021 1.23 101 6.30 1.35 $55/bbl

Macro Assumptions

Region

2021 Real

GDP

Estimate

2021 Core

Inflation

Estimate

2022 Real

GDP

Estimate

2022 Core

Inflation

Estimate

U.S. 4.3% 1.6% 3.6% 1.8%

Eurozone 4.3% 1.2% 4.2% 1.2%

China 8.2% 1.2% 5.5% 1.4%

World 5.8% 1.8%* 4.5% 1.9%*

Fixed Income Assumptions

Year US 10Y Fed Funds Rate

2021 1.35% 0.00-0.25%

2

U.S. Equities: The recovery from COVID-19 continues to defy low expectations

Source: J.P. Morgan Private Bank. Data as of November 27th 2020. Downside case is not recessionary but represents PB view of markets in adverse, low growth scenario. It is not possible to invest

directly in an index. Please see Index Definitions at the end of the presentation. YE= Year-End. Total Return= Price Return + Annualized Dividends in local terms. For illustrative purposes only. This

information does not reflect the performance of any specific investment scenario.



information is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Outlooks and past performance are no guarantee of future results. It is not possible to

invest directly in an index. Please refer to “Definition of Indices and Terms” for important information.

United States2021 Equity Outlook

4-6%

1-2% 24-26%

0%

10%

20%

30%

Sales Growth MarginExpansion

ShareRepurchases & Tax

EPS Growth

14-18%

Downside

Case

Base

Case

Upside

Case

2021 EPS growth: 12-14% 24-26% 27-30%

2022 EPS growth: 7-9% 10-12% 15-17%

(x) Fwd P/E Multiple: 19x 20x 22x

(=) 2021 Price Outlook: 3,150-3,250 3,950-4,050 4,400-4,600

Price Appreciation: (13)-(11)% 9-11% 21-26%

2021 Total Return incl. Dividends: (11)-(9)% 11-13% 23-28%

Year-end 2020 Base Case established at 3,950-4,050

• We anticipate new highs in the major U.S. markets as low interest rates and early

cycle dynamics lead to positive earnings revisions.

• The markets started looking through the terrible COVID crisis in April, with a

renewed focus on interest rate sensitive sectors of the economy. As improved

treatment options and life-saving vaccines become available, the long road “back

to normal” starts.

• Economic growth (GDP) in the U.S. is expected to be robust and is currently above

market expectations. This is supportive of slightly higher-than-normal sales growth.

• We expect ~25% earnings growth in 2021 followed by double-digit (~11%) growth

in 2022 as operating margins near the 2018 highs.

• Given the expected split outcome of the US elections (Presidency and Congress

Democrat, Senate Republican), we expect little change in corporate tax rates. We

expect share buybacks to increase during the 2H of 2021 with modest impact until 2022.

Downside risks:

• COVID responses prove disappointing and economic growth sputters

• Growth surprises on the upside leading to fears over dovish Fed policies

• Tax rate increases and regulatory burdens increases

LTM EPS Index Level Dec 2021 Base Price Outlook:

3,950–4,050

800

1,200

1,600

2,000

2,400

2,800

3,200

3,600

4,000

4,400

$20

$50

$80

$110

$140

$170

$200

$230

'08 '10 '12 '14 '16 '18 '20 '22 '24

LTM EPS (LHS)

S&P 500 (RHS) 2019 EPS:

$163, +1%

2020e EPS:

$140, -15%

2021e EPS:

$175, +24%

2022e EPS:

$198, +12%

S&P 500 performance tracks earnings growth longer-term

S&P 500 breakdown of potential returns2021 Base Case of 24-26% earnings growth

3

U.S. Equities: Our base case calls for two years of above trend earnings growth

Our bottom up approach to S&P 500 earnings

Source: Factset, J.P. Morgan Private Bank as of November 27th 2020.






Net Income ($B) y/y growth

Sectors Market Cap

Weights 2019 2020e 2021e 2022e 2020e 2021e 2022e

Healthcare 14% $218 $238 $262 $282 9% 10% 7%

Consumer Disc 11% 106 71 108 117 -33% 52% 8%

Consumer Staples 7% 90 92 96 102 2% 4% 6%

Technology 27% 264 277 318 350 5% 15% 10%

Energy 2% 53 0 30 45 -100% - 49%

Financials 10% 246 165 210 250 -33% 27% 19%

Comm Services 11% 135 133 160 177 -2% 20% 11%

Utilities 3% 43 45 47 50 3% 5% 6%

Materials 3% 34 29 34 38 -16% 20% 11%

Industrials 8% 123 65 119 140 -47% 83% 18%

Real Estate 3% 38 35 38 40 -7% 8% 5%

S&P 500 100% $1,350 $1,150 $1,422 $1,591 -15% +24% +12%

$163 ~$140; -15% y/y ~$175; +25% y/yImplied

EPS ($)~$198; +13% y/y

4

U.S. Equities: Valuations appear reasonable given the low interest rate environment

Sources: Factset, Bloomberg Finance L.P.,J.P. Morgan Private Bank. Earnings yield = 1/S&P 500 NTM P/E. Data as of November 27, 2020. P/E= Price to earnings ratio. NTM= Next twelve months.





S&P 500 valuations are above Long Term PE averages BUT…

The S&P 500 is currently trading above its

long-term NTM P/E average. We expect

multiples to contract slightly in 2021 as

earnings grow into elevated multiples.

The equity risk premium (ERP) rose

dramatically in early 2020 as the global

economy shut down and investors fled risk

assets. Since then, we have seen the ERP

recede to its longer-term average as left-tail

risks subsided.

We expect the ERP to remain close to its

20-year average in 2021. Assuming a year-

end 2021 outlook for the 10-year Treasury

yield of 1.35%, we anticipate an ERP of

~350-365 bps. This supports a ~20-21x

forward P/E multiple for the market.

From a bottom-up perspective and looking

at relevant valuation metrics for each

sector, we also coalesce around a 20x

NTM P/E multiple for the overall S&P 500.

…we expect the ERP to remain close to it’s LT average (~350bps) as uncertainty fades


S&P 500 NTM P/E Equity Risk Premium (Earnings yield – US 10Y Treasury yield)

7x

11x

15x

19x

23x

27x

31x

35x

1999 2003 2007 2011 2015 2019

RecessionS&P 500 Fwd NTM PE+/- 1Stdev20Yr Avg ex-Dot-Com

PeriodAverage

Multiple

5-year Average 17.3x

20-year ex-Dot.com 15.8x

20-year Average 16.1x

Current 21.9x

Dec 2021 Private Bank

Outlook20x

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

202

0

Equity Risk Premium

20Y Average

20Y average:

3.5%

Equity

markets

cheap

Equity

markets

expensive

5

U.S. Equities: We expect slight multiple contraction for year-end 2021 from current levels

Sources: Standard & Poor’s, FactSet.. Data as of November 27, 2020.





Valuation seems likely to remain elevated during the early part of this cycle We expect multiples to contract in 2021

as earnings grow into currently elevated

multiples

We estimate earnings will grow ~25% in

2021 and ~11% in 2022 given improving

top line growth and expanding margins

after significant cost cutting in 2020.

As a result, we expect multiples to

contract slightly as earnings rebound

from trough levels and grow into the

current price.

The ERP should coalesce around its

longer-term average (335-350bps), which

suggests a 20-21x multiple on a 10-year

forecast of 1.35% by YE 2021.


12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21

3/23/20: 13.0x

NTM PEs troughed

Current: 21.9x

PB expected P/E,

12/31/2021: 20.5x

5Y Average: 17.5x

Implied 2021 P/E fusing

10Y @1.35% and

normalized ERP: 21.4x

S&P 500 NTM P/E

6

U.S. Equities: Sensitivity Analysis of the S&P 500 to the 10 Year and the ERP

Sources: Bloomberg Finance L.P.,J.P. Morgan Private Bank. Equity Risk Premium = Earnings Yield – 10Y Treasury. Earnings yield= 1/(P/E) . Data as of November 19, 2020.





We expect the ERP to remain close to it’s LT average (~350bps) We factor in S&P 500 earnings of $175 in

CY 2021 and $198 for CY 2022.

If the $198 earnings estimates are too

high by 10% (for example, higher taxes

or slower recovery), when combined with

a 1% 10-year and ERP 4%, SPX ~

$3,550

In a bullish scenario, we may see an

earnings recovery that is stronger than

expected by $10, rates rising to just 1%

and ERP normalizing to 3.5%, S&P 500

~$4,500


Equity Risk Premium

2.50% 2.75% 3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50%

10

Y

0.35% $6,947 $6,387 $5,910 $5,500 $5,143 $4,829 $4,552 $4,304 $4,082

0.60% $6,387 $5,910 $5,500 $5,143 $4,829 $4,552 $4,304 $4,082 $3,882

0.85% $5,910 $5,500 $5,143 $4,829 $4,552 $4,304 $4,082 $3,882 $3,701

1.10% $5,500 $5,143 $4,829 $4,552 $ 4,304 $4,082 $3,882 $3,701 $3,536

1.35% $5,143 $4,829 $4,552 $4,304 $4,082 $3,882 $3,701 $3,536 $3,385

1.60% $4,829 $4,552 $4,304 $4,082 $3,882 $3,701 $3,536 $ 3,385 $3,246

Where we expect to be under

our base case by year-end 2021

7

U.S. Equities: Value or Growth? We like both

Sources: Bloomberg Finance L.P.,J.P. Morgan Private Bank. Data as of November 27, 2020. Value uses the Russell 1000 Value Index and Growth uses the Russell 1000 Growth index,),





Russell 1000 value outperformance since 2009

We expect Value and Growth to both

work higher in 2021.

Value outperformance since the end of

the GFC has correlated with the direction

of 10-year interest rates. However, those

instances have proved to be short-lived.

Value performance during early stages of

the business cycle has struggled in the

prior two recoveries.

In 2021, we expect only slightly higher

interest rates, making both factors

investible.

We prefer investors focus on “cyclicals”

over “defensives” given the early cycle

dynamics at work.

Russell 1000 valuation remains attractive


Value rally Total Return, %

From ToMonths

elapsed

Change

in 10Y

yield

Value GrowthValue-

Growth

Mar-09 Sep-09 6 60 bp 68% 53% 15%

Dec-09 Apr-10 5 43 12 9 2

Nov-10 Apr-11 5 64 13 10 3

Sep-11 Feb-12 5 17 20 17 3

Jul-12 Aug-13 13 140 30 22 8

Oct-13 Nov-13 1 8 7 6 1

Feb-14 Apr-14 2 (4) 3 -1 4

Mar-15 May-15 2 20 0 -1 1

Jan-16 Mar-16 1 (12) 10 5 5

Jul-16 Dec-16 5 100 12 5 6

Nov-17 Jan-18 2 17 8 8 0

Sep-20 Nov-20 3 17 10 0 10

Median 4 19 bp 11% 7% 4%

Average 4 39 16 11 5

0.7x

0.9x

1.1x

1.3x

1.5x

1.7x

1.9x

2.1x

2.3x

2.5x

'96 '99 '02 '05 '08 '11 '14 '17

Growth relative toValue20Y Average

+/- 1stdev

Russell 100 Growth vs. Russell 100 Value NTM P/E

Current:1.6x

Long-term average: 1.3x

The factor shifts have been tied to interest rates, which should remain at low levels

8

U.S. Equities: Key takeaways from our favorite 4 sectors


Our favorite cyclical sector as relative performance rebounds from multi-

generational lows and valuations remain attractive on normalized EPS.

• Faster-than-expected global recovery could lead to positive earnings

surprises as utilization rates and margins expand.

• Residential building driving broad industrial growth supports the near-term,

while the Internet of Things, de-globalization and factory automation could

aid the intermediate-term.

• Stimulus from Infrastructure and “Green” initiatives could have impact on

2021 valuation and 2022 growth.

• Strong retail demand and lean inventories worldwide offer an ideal setup

for transports and machinery companies.

Pref. subsectors: Transport, Construction, Infrastructure, Machinery

Risks: tax rates, oil exposed firms remain under structural pressure, air travel

recovery

• Continued innovation in drug development and medical tools/devices

• Solid positive earnings expected for both 2020 and 2021

• Pick-up in elective procedures post COVID boosts ’21 growth

• Attractive, discounted valuation versus broader market and other

defensive sectors

Pref. subsectors: Life Sciences & Tools, Medical Devices, Biotech/Pharma

Risks: high profile drug trial failures, drug pricing reform, elective procedures

suspension, prolonged resurgence of COVID

A sector with both growth and defensive characteristics, trading at a relative

discount

Industrials Technology

Healthcare Materials

• Once exclusively composed of classic super-cyclicals, the sector is now

dominated by high quality companies, growing margins with lower

volatility.

• Specialty chemicals and industrial gases, which have consolidated,

account for ~55% of the sector.

• With volumes recovering from depressed levels, inventories lean around

the globe and a weakening dollar, there are opportunities in some deeper

cyclicals and metals for earnings upside.

Pref. subsectors: Industrial Gases, Specialty Chemicals, Copper

Risks: commodity price weakness, USD strength, global industrial downturn

Driven by the industrial economy, there are opportunities in both stable growth

and cyclicals at reasonable valuations

Sources: Bloomberg Finance L.P.,J.P. Morgan Private Bank. Data as of November 23, 2020.





Technology is a beneficiary of several secular themes, strong relative long-term

growth and improving profitability

• Digitization of all businesses remains the key driver of growth

• COVID crisis made technology even more valuable to businesses and

consumers

• Expanding cash flow margins and high sustainable growth

• Expected low interest rates help long-duration, growth assets maintain

higher valuations

• Semiconductors offer the best risk/reward benefiting from the

cyclical rebound, diminishing trade tensions and secular growth

from the transition to the digital economy

Pref. subsectors: Semiconductors, GARP Software, Fintech

Risks: regulatory, trade disruption, tax rates

9

U.S. Equities: How we view the rest of the sectors







Sector Preferred sub-sectors Commentary

Consumer

Discretionary

Home builders

Travel/Leisure

The consumer sector was a strong performer in 2020 with the majority of the sector benefiting from

pandemic trends i.e. e-commerce, athleisure. That said, as the positive vaccine news has shifted the

conversation towards economies reopening, we prefer to be selective and invest in cyclically exposed

consumer segments.

FinancialsDiversified Financials

Money Center Banks

Outlook for a steeper yield curve assisting NII expectations. 2H 2021 reserve releases and lower expenses

should help bank profitability rebound meaningfully in 2021. Balance sheets remain healthy and banks are

waiting for the needed approval from the Fed to resume shareholder capital returns, which could happen in

2H of 2021, benefiting ROEs. Less regulatory scrutiny than feared given election outcome offset by

structurally lower interest rates.

Communication

Services Internet

Entertainment

The very profitable Internet behemoths outweigh the transitioning media and communication companies.

Digital advertising has reaccelerated as the economy bottomed in April. The sector is sensitive to

regulatory oversight and the impact of business confidence on the advertising market. Gaming

opportunities accelerate with new consoles in 2020-2021.

Real Estate

(REITs)

Specialized REITs

Towers

This sector is driven by tech-enabled growth, interest rate dynamics and long-term COVID impacts. The

biggest risk remains in-city focused commercial REITs, lodging, malls and retail. We prefer REITs

benefiting from technology, including 5G communications (Towers) and data centers. Residential supply

shortages should help the single and multifamily housing segments recover quickly.

Utilities Regulated Utilities

Usually a defensive hedge, this sector’s growth relies on infrastructure opportunities that may improve

given President Biden’s infrastructure plans. However, 2021/2022 earnings growth is low relative to other

sectors given the sector’s defensive tilt, making it less attractive in the current economic environment.

Consumer

StaplesBeverages

The pandemic benefited the sector as consumers stocked up on essentials. Looking ahead, this creates a

comparative headwind for most of the segments while cyclical industries face easing comps. Valuation

remains elevated.

Energy Conglomerates

The combination of a sharp drop in demand, competition from renewable energy and volatile supply

arrangements torpedoed prices in 2020. The recent rally in the space has reflected an improved forward

curve and the tactical trading environment. We are reluctant to add strategic new capital to the entire

sector given the worsening regulatory environment.

10

European Equities: attractive cyclical exposures, growth supported by The EU Green Deal

Source: J.P. Morgan Private Bank. Data as of November 27th 2020. Downside case is not recessionary but represents PB view of markets in adverse, low growth scenario. It is not possible to invest







Europe2021 Equity Outlook

End of 2021 Base Case for SXXP outlook: 425-435

• Our 2021 EPS growth of 25-30% reflects the significant rebound that we expect

as the region recovers from the COVID-19 crisis and relaxes lockdown measures

• The economic rebound is further supported by the EU Green Deal, which will help

further fuel growth beyond 2021 and we also expect earnings to be strong in 2022

(+15-20%)

• We believe that margin expansion will be the largest driver of EPS growth in 2021

and 2022

• Sales growth will improve in 2021 and 2022 but will have a smaller impact on EPS

compared to margin expansion

• Share buybacks will also be positive

Downside risks to our view

• Longer and more severe COVID-19 restrictions in 2021 which impacts economies

re-opening or leads to forced closures

• A slower-than-expected recovery of cyclical industries

Downside

Case

Base

Case

Upside

Case

2021 EPS growth: 11-13% 25-30% 28-30%

2022 EPS growth: 7-9% 15-20% 17-20%

(x) Fwd P/E Multiple: 16x 16.5x 17x

(=) 2021 Price Outlook: 335-345 425-435 450-460



STOXX 600 breakdown of returns 2021 outlook: Base Case of 25-30% earnings growth

4-5%

20-23%1-2% 25-30%

0%

5%

10%

15%

20%

25%

30%

35%

Sales Growth MarginExpansion

ShareRepurchases

EPS Growth

€ 12.0

€ 17.0

€ 22.0

€ 27.0

€ 32.0

08' 09' 10' 11' 12' 13' 14' 15' 16' 17' 18' 19' 20' 21' 22' 23'

0

100

200

300

400

500

600

LTM EPS Index Level

STOXX 600 performance tracks earnings trends long-term

Dec 2021 Base Price Target:

425-435

2019 EPS:

€25.3, -1%

2020 EPS:

€17.6, -

30%

2021e EPS:

€22.3,

+27%

2022e EPS:

€26.1,

+17%

11

European Equities: The market has re-rated since March is now stabilizing around 16.5x

Sources: Bloomberg Finance L.P. J.P. Morgan Private Bank. Data as of November 25, 2020. LTA is long-term average.





Multiples should stabilize from here as profits rebound in 2021 We expect P/E multiples to stabilize in

2021

The European market has re-rated 70%

from March 2020 from 10x to 17x P/E,

which is in-line with market re-rating in

2008-2009.

With earnings bottoming in 2020 and a

rebound in profits in both 2021 and 2022,

we think the P/E will stabilize and move

to 16.5x. We still believe that the

European P/E ratio will be above its 5-

year average of 14x and 15-year average

of 12.4x

We continue to believe that the European

market will continue to trade at a 17.5%

discount to the S&P, which is in-line with

its historical average

Stoxx 600 NTM P/E


10x

11x

12x

13x

14x

15x

16x

17x

18x

Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21

12m Fwd P/E

Average

5Y Average: 14x

NTM PEs

troughed

3/18/2020: 10x

Current: 17.2x

15Y Average: 12.4x

12/31/2021: 16.5x

12

European Equities: Germany and the UK trade at a discount on relative and an absolute

basis






Multiples should stabilize from here as profits rebound in 2021 The German and UK markets remain

attractively valued

The DAX Index trades at the higher end

of historical valuations, but still remains

cheaper than most other European

countries and trades at a discount to the

broader European market

The UK (FTSE100) also remains

inexpensive at around 13x Fwd 18m P/E,

trading at a discount to peers and just

slightly above its long-term average


5x

7x

9x

11x

13x

15x

17x

19x

21x

S&P 500 STOXX 600 GermanDAX

Swiss SMI French CAC UK FTSE-100

UK FTSE250

SpanishIBEX 35

Italian FTSEMIB

Min/ Max Current 18M Fwd PE 10Y Median

13

21%

17%

13%

10%10%

7%6%

5% 5% 4%2%

0%

10%

20%

European Equities: Our favorite themes and sectors


The EU Green Deal will accelerate growth in different sectors and is focused on

investing into green buildings and clean energy

Sectors: Utilities, Industrials, Materials

• Government support for the energy transition has opened new areas

of growth, in particular for Utilities and Industrials

• European companies are leading this transition and have re-rating

potential

• We prefer companies in these sectors that are exposed to

renewables, as well as secular trends like digitalization and

electrification

Risks: Less fiscal support from national governments, limited private

investments

The European Green Deal Secular growth

Re-Opening Beneficiaries Our top sectors are ~60% of Stoxx 600 market cap

Sources: Bloomberg Finance L.P. J.P. Morgan Private Bank. Data as of November 25, 2020




invest directly in an index. Please refer to “Definition of Indices and Terms” for important information. .

Sectors: Technology, Healthcare

• Digitalization of all businesses remains the key driver of growth

• Faster adoption of EVs (fueled by government incentives) and more

advanced assistance systems, are driving up semiconductor, sensor and

software demand within Autos

• Healthcare companies trade at an attractive valuation vs the broader

market. We expect continued positive earnings growth over the next

years, with several upcoming key drug launches

Risks: Regulation, US / China trade disruption, Competition

Several sectors in Europe continue to benefit from secular growth trends,

supporting long-term growth and profitability

We expect consumer spending to rebound in 2021 and 2022

Sectors: Consumer Discretionary

• Fiscal policies are supporting EV penetration

• Many companies still have a travel overhang risk and the resumption of

travel should lead to positive earnings upgrades

• Acceleration in e-commerce could further support growth

• We also continue to like housebuilders on pent-up demand, government

support and attractive dividend yields

Risks: Slower-than-expected economic recovery

14

European Equities: Focusing on secular drivers with a cyclical tilt







Sector Preferred sub-sectors Commentary

Consumer

Staples

Packaged Food &

Beverages

Personal care

We continue to like food and personal care segments as they offer strong like-for-like growth, as well as

defensive and stable earnings growth. We also like beverages as they were hit by travel restrictions in

2020 and 2021 should see earnings upgrades as travel resumes. We continue to avoid tobacco due to

structural challenges, lower volume and regulatory turmoil.

Energy Integrated Oils

The sector is facing multiple issues at the same time: the cost of renewable energy is going down and

government support is accelerating the shift to renewable energy. This means that energy companies

need to invest (capex or M&A) in renewables.

Real Estate Specialized REITs The recovery for commercial and retail REITs is very unclear at this time.

Financials Insurance We remain negative on European banks given further margin compression.

Telecom Telecom CarriersWhile the sector displays some defensive characteristics, we believe CapEx could start to move higher,

reducing free cash flow and shareholder returns. Higher leverage is also a longer-dated concern.

15

European Equities: Continue to like a barbell approach: Switzerland (SMI) and Germany

(DAX). Upgrading the UK (FTSE100) as a tactical opportunity







Country Commentary

Pre

ferr

ed

Mark

ets Germany

DAX

We continue to like the German DAX on its exposure to emerging markets, an expected strong earnings rebound in

2021 and 2022 and its exposure to industrials and materials sectors. The DAX has a 23% exposure to EM and

another 10% exposure to APAC regions. We continue to like DAX’s high exposure to the industrials and materials

sectors, which are more cyclical areas of the market.

Switzerland

SMI

We continue to like Switzerland as part of the barbell approach. We like its exposure to healthcare and a stable

dividend yield.

Tacti

cal

op

po

rtu

nit

y

UK

FTSE100

We believe that there is an attractive investment opportunity in the UK now given its significant underperformance vs.

European and global markets over the last five years. We are now at an inflection point at which both the Brexit

deadline is approaching, with a deal becoming more likely, and economies / companies are starting to recover from

the COVID-19 crisis. This creates a favorable backdrop for the UK market. The FTSE100 also is fundamentally

attractive, offering a high dividend yield, having meaningful revenue exposure to global markets, but also to the UK,

and trading at an attractive valuation vs. peers and history.

France

CAC 40

We closed our CAC 40 trade in November 2020 to take profits following a sharp market move on the back of COVID-

19 vaccine news. The risk-reward at current levels is less attractive.

Spain

IBEXWe don’t recommend this region due to its high exposure to the banking sector.

Italy

FTSEMIBWe don’t recommend this region due to its high exposure to the banking sector.

16

European Equities: Germany and the UK trade at a discount on relative and an absolute

basis







Sales exposure by regions The German DAX has the highest

exposure to EM and APAC regions (23%

and 10%) among the largest European

indices.

The DAX Index has the highest exposure

to the industrials and materials sectors

among the largest European indices

(32% for DAX vs 24% for SXXP).

The DAX Index is also expected to post

one of the strongest earnings recovery in

2021 and 2022. 2022 earnings are

expected to be more than 20% higher

compared to 2019 earnings.

A quarter of revenues in the UK FTSE

100 are generated in EM regions, which

positions the index well to benefit from

the broader global recovery.

% Sales

Country IndexNorth

America

Western Europe

ex-UKUK EM APAC

South

AmericaOthers

United Kingdom UKX Index 21% 19% 23% 24% 1% 1% 13%

France CAC Index 14% 59% 0% 17% 4% 3% 10%

Germany DAX Index 24% 46% 1% 23% 10% 2% 4%

ItalyFTSEMIB

Index31% 46% 0% 14% 1% 6% 9%

Norway OSEBX Index 12% 66% 1% 12% 0% 3% 10%

Spain IBEX Index 19% 45% 6% 19% 2% 14% 11%

Sweden OMX Index 23% 40% 2% 19% 3% 2% 17%

Switzerland SMI Index 31% 36% 0% 14% 5% 2% 19%

17

European Equities: Dividends are still attractive

Sources: Bloomberg Finance L.P. J.P. Morgan Morgan Markets Research, November 23, 2020





Dividend yields in Europe are higher than those in the U.S. even after cute this year

The majority of cuts came from Industrials and Banks

Stoxx 600 # of companies cut dividendsDividend Yields

The European market continues to offer

an attractive dividend yield even after a

challenging period of dividend cuts

and cancellations.

Historically, dividends are more resilient

than earnings during recessions.

The majority of dividends cuts in 2020

were coming from industrials and

financials (banks). However, healthcare,

utilities and consumer staples have

proven to be more resilient mainly due to

strong balance sheets and liquidity.

The current dividend yield in Europe is

around 3% which is higher than in the US

even after significant dividend cuts this

year.


1.5%

1.8%

2.0%

2.3%

2.5%

3.0%

3.4%

1.6%

2.0%

2.1%

2.3%

2.7%

3.4%

3.9%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

US

MSCI World

MSCI EM

Japan

Eurozone

Australia

UK

2020e 2020e (ex. Commodities)

3

4

8

9

11

11

12

17

40

57

60

0 20 40 60

Utilities

Energy

Health Care

Real Estate

Cons. Staples

Technology

Comm. Serv

Materials

Cons. Discr.

Financials

Industrials

Stoxx600 Dividend Cuts YTD

18

Asia ex-Japan Equities: Recovery, regionalization and policy support to drive upside

Source: J.P. Morgan Private Bank. Data as of November 27, 2020. Downside case is not recessionary but represents PB view of markets in adverse, low growth scenario. It is not possible to invest

directly in an index. Please see Index Definitions at the end of the presentation. YE= Year-End. Total Return= Price Return + Annualized Dividends in local terms.





End 2021 Base Case for MSCI Asia ex-Japan (AxJ) estimated at 870-910

• As the region (slowly) recovers from the pandemic, the cyclical rebound is

gaining steam, with the Regional Comprehensive Economic Partnership (RCEP)

signed in November 2020, involving every market in Asia (except India and

Taiwan). Helped by the accommodative policy stance, we expect earnings

growth of 25-27% in 2021 and mid-to-high teens in 2022.

• Our weak USD view provides a favorable backdrop for this under-owned region,

evidenced by net fund outflows in 2020, supporting valuation at 15x+ P/E.

• We broaden our positive view from China and Korea (the two markets with most

visible earnings growth and cheap valuations) to rate-sensitive laggards (HK and

Singapore), as well as India. India is a key beneficiary of the recovery trade with

balanced exposure to industrials, resources and financials.

Risks to our view

• Escalating geopolitical tensions could reverse at least part of the re-rating

• Pandemic resurgence to result in weaker economic rebound

• US dollar strength

2021 Base Case of 25%-27% Earnings Growth MSCI Asia Ex-Japan Breakdown Return 2021

200

400

600

800

1000

0

10

20

30

40

50

60

70

'09 '11 '13 '15 '17 '19 '21 '23

LTM EPS (LHS)

MSCI Asia ex-Japan (RHS)

MSCI AXJ Performance Tracks Earnings Growth Longer Term

LTM EPS, $ Index Level

2020e EPS:

$40.6, * -3%

2021e EPS:

$51.1, *

+26%

2022e EPS:

$59.3, *

+16%

Dec 2021 Base Price

Outlook: 870-910

2019 EPS:

$41.6, -5%

Downside

Case

Base

Case

Upside

Case

2021 EPS growth: 20-21% 25-27% 27-29%

2022 EPS growth: 10-13% 15-17% 18-20%

(x) Fwd P/E Multiple: 12.4x 15.0x 15.3x

(=) 2021 Price Outlook: 627-656 870-910 935-972



12-14%

9%

25-27%

0%

5%

10%

15%

20%

25%

Sales Growth Margin Expansion FX EPS Growth

4%

Asia ex-Japan2021 Equity Outlook

19

Asia ex-Japan Equities: When reasonable valuation meets upward earnings revision

Sources: (left) Bloomberg Finance L.P. / J.P. Morgan Private Bank as of November 2020 (right) Federal Reserve, Bloomberg Finance L.P., /J.P. Morgan Private Bank, as of October 2020





Consensus Earnings Inflecting Higher

Consensus has been ratcheting up earnings

expectations since 2H20. This is driven by

normalization of economic activities in the region

and improved optimism of a cyclical recovery

given progress on vaccine development in 4Q20.

Our earnings growth forecasts of mid-20% in

2021 and mid-to-high teen in 2022 assume more

cyclical markets like China, Korea, HK,

Singapore and India to deliver upside to

consensus in 2022 as conditions normalize,

whereas others in the region to disappoint.

Price-to-Book at ~1.6x sees upside to early-

cycle levels. Apart from light investor

positioning, Asia equities see tailwinds including

weak USD, low interest rates, and positive

sentiment towards risk assets. Free cash flow

yield sits at a decent 3.4%.

Base-case range from 15.0x next twelve

months (NTM)’ P/E, at a discount to current

16x, as earnings are well set for an upward path.

Ample global liquidity at low rates for longer,

coupled with no worsening of risk factors

(geopolitical, pandemic, etc), would bring the

index closer to our upside case.

Valuation Reasonable in Early Cycle

MSCI Asia ex-Japan earnings revisions

35

40

45

50

55

60

65

2019 2020 2021 2022

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

2005 2010 2015 2020

BEst P/Bk (Blended 12 Months) Average

MSCI Asia ex-Japan Price-to-Book valuation history


20

MSCI AxJ trades at ~16x P/E,

warranted by the mid-teen earnings

growth expected in 2022.

We are positive on China equities

given highly visible 20%+ earnings

growth in 2021 and mid-teen growth in

2022, supported by domestic demand

and policy tailwinds.

Risk-reward of South Korean

equities is favorable. Current low-teen

multiple offers a great entry level, on

projected 45%/20% earnings growth in

2021/22 as cyclical sectors continue to

recover.

We turn positive on Hong Kong (HK),

Singapore and India, on their high

sensitivity to vaccine development and

global re-opening. HK and Singapore

are rate-sensitive laggards, while India

has balanced cyclical exposure to

financials, industrials, and resources.

Asia’s Forward P/E vs JPM PB’s 2022e Earnings Growth Forecast

5%

10%

15%

20%

25%

5x

10x

15x

20x

25x+/-1 Standard Deviation Average Current '22 Earnings growth Max/Min

Asia ex-Japan Equities: Preferred markets at reasonable valuation relative to growth







21






Sectors Commentary

Pre

ferr

ed

Ma

rke

ts

China

High earnings growth visibility is underpinned by cyclical recovery and policy support, A stronger CNH is a tailwind. The upcoming 14th Five-Year Plan

(14FYP) will likely entail specific measures to boost domestic consumption and spur investments in renewables and digital infrastructure, which

should mitigate any worsening of geopolitical risks, and support valuation above the historical average. We recommend tranche-in to Hang Seng

Technology Index. A-shares (at 15x P/E) remain our preferred long-term strategic exposure, for which we anticipate high-teen returns.

KoreaEarnings growth is accelerating to 45% in 2021, supported by semiconductor demand from smartphones, devices, servers and a cyclical rebound

in the automobile market. Having experienced fund outflows in 2020, Korea at 1x P/B provides an excellent entry point versus prior peak 1.4x.

Hong Kong

Vaccine development and effective COVID control raise hopes of a recovery in HK, which is heavily leveraged to rate-sensitive financial services,

trade services, and tourism sectors (including HK and Macau). As policies are increasingly friendly towards the new economy sectors, the local

index will undertake a structural shift away from the old economy sectors and lead to a gradual re-rating..

Singapore

Among the worst performing regional markets in 2020, Singapore is highly geared to value/cyclical sectors. Financials are reasonably priced,

given they are well run and generate solid ROEs. Investors seeking yield may consider high-yield REITs with exposure to secular growth areas, e.g.

data centers, logistics and business parks.

India

We expect India to catch up to other parts of the region due to a domestic recovery, evidenced by normalizing macro prints in late 2020. We

estimate ~25% earnings rebound in 2021. While valuation is not cheap, it is supported by continued fund inflows, with upside possible from cyclical

sectors (over 50% of index). We view the market as highly sensitive to vaccine development.

Indonesia

Favorable set-up, including USD weakness and low DM rates, bodes well for Indonesia, where foreign ownership is skewed to the low end of the

historical range. The Omnibus Law increases Indonesia’s competency as a destination of supply chain shift, expected to garner more foreign direct

investment and boost employment.

TaiwanThe market is heavily concentrated in technology (70% of index). While it should continue to benefit from the favorable semiconductor market

dynamics and rising 5G momentum, valuation is high at 17x P/E, commanding an outsized ~30% premium to Korea.

AustraliaTo mitigate the muted economic outlook, additional monetary stimulus was announced in November. Rate cuts and an outsized bond purchase

programs should help the 2021 growth profile and benefit earnings for cyclical segments including select commodities, e.g. iron ore.

Thailand

Though RCEP bodes well for Thailand given merchandise exports represent a notable part of GDP, we find it hard to be more excited about Thailand

at this juncture. No end in sight to lockdown against international tourism makes the Street’s 2021 earnings growth forecast of 32% highly prone to

downside risk. Coupled with the ongoing political gridlock, risk-reward does not appear favorable considering valuation already at 20x P/E.

PhilippinesWith the central bank having slashed the benchmark policy rate by 200 bps to 2% in 2020, we expect consumption to stay challenged by the lingering

pandemic and torrid weather. Notwithstanding limited liquidity, valuation remains expensive in 19x P/E and 1.6x P/B.

Malaysia

Helped by policy support, high frequency indicators have signaled continued recovery in domestic activity. However, this low-beta market trades at a

P/E at 15x, which seems to have already priced in palm oil price rebound and post-outbreak business recovery (with earnings expected to grow only

10% in 2022).

Asia ex-Japan Equities: China has the highest earnings visibility; Korea, HK, Singapore and

India have upside due to cyclicality


22

End of 2021 Base Case for MSCI China set at 120-124

• Fueled by post-COVID cyclical recovery and the imminent 14th Five-Year Plan, we

expect profit growth of China equities to meaningfully accelerate in 2021 (from +2%-

3% in 2020). We foresee a solid rebound in consumption and industrial activities,

improved operating leverage, and a stronger CNH.

• Our base case valuation conservatively assumes a contraction in P/E to 14.3x (from

the current 15x).

• We are positive on discretionary, tech and industrials, which benefit from the

ongoing cyclical recovery and policy stimulus from the dual circulation loop and new

Infrastructure initiatives.

Risks to our view

• Geopolitical risks or tensions to exacerbate and widen valuation discount

• Greater-than-expected COVID resurgence to impede sentiment and growth

• CNH appreciates less or more than expected

• Credit tightening or weaker stimulus versus our expectations

30

50

70

90

110

130

2

3

4

5

6

7

8

9

'09 '11 '13 '15 '17 '19 '21 '23

LTM EPS (LHS)

MSCI China (RHS)

MSCI China Performance Track’s Earnings Growth Longer Term

LTM EPS, HK$ Index Level

2020e EPS:

$6.1, +2%

2021e EPS:

$7.4, * +21%

2022e EPS:

$8.5,* +16%Dec 2021 Base Price

Outlook: 120–124

2021 Base Case of 25%-27% Earnings Growth

10-12%

4%20-22%

0%

5%

10%

15%

20%

25%

Sales Growth Margin Expansion FX EPS Growth

6%

MSCI China Breakdown of Potential Return

Downside

Case

Base

Case

Upside

Case

2021 EPS growth: 15-16% 20-22% 22-23%

2022 EPS growth: 12-13% 15-16% 16-17%


(=) 2021 Price Outlook: 87-89 120-124 132-136



2019 EPS:

$5.9, +2%

China Equities: Growth fueled by cyclical and policy forces

Sources: Source: J.P. Morgan Private Bank. Data as of November 27, 2020. Downside case is not recessionary but represents PB view of markets in adverse, low growth scenario. It is not possible to

invest directly in an index. Please see Index Definitions at the end of the presentation. YE= Year-End





China2021 Equity Outlook

23

Sources: NBS, J.P. Morgan Global Research. Data as of November 20, 2020.





5

10

15

20

25

-30

-20

-10

0

10

20

2015 2016 2017 2018 2019 2020

Consumption Emerging as the Growth

Driver

Total retail

sales growth

(LHS)

Online retail sales

as % of total (RHS)

Retail sales ex Auto growth

(LHS)

% share

Consumption takes over production-side

activities and leads the recovery of the Chinese

economy. Retail sales have seen a remarkable

recovery, and remain strong fuelled by services,

buoyed by consumer confidence amid a stabilizing

labor market.

The State Council announced intent to roll out

more policies to stimulate travel, automobile and

home appliance consumption. The government is

expected to promote upgrade into more

environmentally-friendly vehicles and home

appliances, two of the largest categories within China

retail.

E-commerce has grown to 25% of China retail. E-

commerce platforms are seeking to sustain top-line

performance through investing in under-penetrated

high-growth areas, including grocery. Regulatory

tightening on antitrust issues remains a key risk to

watch.

Fixed asset investment is expected to grow in high

single digits as the government targets investment

in new infrastructure with a focus on digitization,

5G, AI, data centers, and EV charging facilities.

YoY growth %

-30

-20

-10

0

10

20

30

40

Fixed Asset Investment Stabilizing

YoY growth %

Manufacturing

Infrastructure

Real Estate

China Equities: Quality growth underpinned by domestic consumption and infrastructure

buildout


24






SectorsPreferred Sub

SectorsCommentary

Pre

ferr

ed

Se

cto

rs

Consumer

Discretionary

Automobiles (including

EV), Home appliances,

Tourism, E-commerce

We expect more policies to support automotive upgrades and accelerate EV penetration, as part of the long-term decarbonization focus. Home

appliance manufacturers should benefit from normalized channel inventories and drive volume and margin recovery on higher ASPs and subsidies.

E-commerce platforms find new growth engines in underpenetrated categories, e.g. grocery, with valuation supported by the inclusion in the

Stock Connect to offset any regulatory overhang.

Technology

Smartphone ODM, data

centers, cloud,

connectivity solutions

2021 will likely mark a fast ramp-up in 5G penetration. This should drive stronger smartphone shipments, capacity utilization, and margin

performance. Momentum of cloud migration and data center expansion should continue, given under-spending in China vs. the US, and

China’s next 5-year focus on new infrastructure.

Industrials

Railway equipment,

construction, airport

operator

Industrial profits stand to grow, given accelerating growth and increasing operating leverage. Resumption of construction activities is accelerated by

the 14th Five-Year plan, which, together with the 2060 carbon neutrality target, should drive the highway-to-railway transformation and support

replacement demand for railway equipment. Airports’ earnings are rebounding on passenger traffic recovery and potential easing of

international travel restrictions.

Ta

cti

ca

l

Se

cto

rs Materials

EV battery materials,

Cement, Gold

Solid EV demand and tight supply bode well for battery materials. Industry leaders supplying to global battery makers continue to benefit from

healthy order backlogs. Infrastructure buildout is likely to trend up further in select regions, such as the Greater Bay Area, which underpins demand

for construction materials.

FinancialsStock exchange,

Brokers, Insurers

Insurers should see a strong recovery of life business premium growth given the low base in 2020. Continued ADR delisting threat could be a

blessing in disguise to the domestic brokers and stock exchange, helped by HK’s friendly stance towards secondary listings. Banks still face

ongoing challenges from NIM compression and SOE defaults, though we expect them to pay decent dividend and see improving loan demand with

involvement in digital currency as a tailwind.

Communication

Services Internet

While stellar growth of online gaming is tapering off, leading players’ strong new game pipelines should mitigate the high base effect. Ad revenues

are trending up with demand strengthening. Antitrust legislations come mid-2021 and the US ban to invest in telecom operators serve as key

concerns.

HealthcareOnline health services

providers, CDMOs

Recurring national drug procurement with extended categories and drug reimbursement list expansion will accelerate consolidation. Online health

services providers benefit from favorable policies, and strong R&D outsourcing trend demand continues to sustain the growth of CDMOs. However,

valuation remains a key risk to the sector, trading at 3 standard deviations above its 10-year average.

Utilities Renewable power With the government committed to fighting climate change, we anticipate more policy support for clean energy, at the expense of traditional coal-

fired power plants.

Consumer Staples

Modern grocery

retailers, hygienic

products

We expect COVID-19, like prior public health crises in China, to structurally change consumer behavior, accelerating the shift of grocery retail from

the traditional wet markets to modern and online marketplaces, and the premiumization of hygienic product consumption.

Property Big-cap developersOutlook is improving given stronger CNH, potential rate cut and steady property sales. Credit spreads, nonetheless, will likely widen given concerns

from the fixed income market which would increase developers’ funding costs.

Energy Integrated oil A global recovery may support oil price stabilization, though we are mindful of supply cut reversals. We are opportunistic at the right levels on names

geared toward integrated oil businesses, which will benefit from stabilizing oil prices and traffic recovery.

China Equities: Growth fueled by cyclical and policy forces


25

Japan Equities: Global cyclical recovery to drive above-trend earnings growth through 2022

Source: J.P. Morgan Private Bank. Data as of November 27th, 2020. Downside case is not recessionary but represents PB view of markets in adverse, low growth scenario. It is not possible to invest







Japan2021 Equity Outlook

Year end 2021 Base Case for Topix outlook set at 1,840-1,890

Having beaten September quarterly earnings forecasts by 29%, earnings are

estimated to meaningfully be revised upwards for FY21 (March). With the recent

positive COVID-19 vaccine news, this bodes well for earnings to recover close to

2019 levels in 2021.

We do expect a modest headwind from a stronger USDJPY assumption for 2021. PB

expectations are for 101, which compares unfavourably to the average of 107 in 2020.

Earnings are expected to rebound strongly in 2021 by 14-16%. With the emergence of

a vaccine earlier than expected, this increases the prospects for a sustainable

improvement in manufacturing activity that benefits more cyclically-exposed indices such

as the Topix. We are increasingly confident that 2022 will be another year of above

average earnings growth of 16-17%. In our upside case, our target corresponds to a

P/B ratio of 1.43x, historically a peak valuation level for the Topix.

Risks to our view

Any negative news flow in the development of COVID-19 vaccines

Impact of a significantly stronger or weaker JPY

Any changes in the US/China trade relationship and the impact on global trade

600

1000

1400

1800

2200

-40

0

40

80

120

160

'09 '11 '13 '15 '17 '19 '21 '23

LTM EPS (LHS)

TOPIX (RHS)

2022 earnings to re-converge with the Topix

LTM EPS, ¥ Index Level Dec 2021 Base Price Outlook:

1,840–1,8902022e EPS:

¥117, +17%2019 EPS:

¥101, -14%

2020e EPS:

¥89,* -11%

2021e EPS:

¥100,* +15%

Topix breakdown of returns2021 Price Outlook: Base Case of 14-16% earnings growth

7-8%

1% 14-16%

0%

5%

10%

15%

20%

Sales Growth Margin Expansion ShareRepurchases

EPS Growth

6-7%

Downside

Case

Base

Case

Upside

Case

2021 EPS growth: 7-8% 14-16% 15-17%

2022 EPS growth: 15-17% 16-17% 19-20%


(=) 2021 Price Outlook: 1,530-1,570 1,840-1,890 1,980-2,020



26

Japan Equities: Valuation expected to stay above historical average as the earnings

rebound extends well into 2022

Sources: Left chart: J.P. Morgan Private Bank, Bloomberg Finance L.P.. Data as of November 20, 2020. Topix NTM P/E trading average and range within +/-1 standard deviation are calculated based

on weekly data from November 20, 2005 to November 20, 2020, excluding the outlier period post Global Financial Crisis from March 20, 2009 to September 11, 2009. Right chart: J.P. Morgan

Investment Bank, DataStream Data as of November 20, 2020.





We expect Japan to trade above its LT historical average

Global Mfg PMI and Topix earnings revision index

Topix NTM P/E

We believe the multiple can reach 18-19x as 2021

earnings are still likely to be affected by COVID-

19. A full normalization of earnings is not expected

until a vaccine is widely available. The market is

likely to look through recovering earnings in 2021,

with earnings growth expected to also be in the

mid-teens in 2022. At that point, we expect

multiples to moderate to lower levels.

Japanese corporate earnings are very sensitive to

global manufacturing PMI. The continued

improvement in global manufacturing PMI is

driving upward Japanese earnings revisions that

have significant potential for recovery. To put this

into perspective, Topix earnings peaked in 2017 at

121. We are only forecasting earnings to start

approaching these levels in 2022

Japanese corporate balance sheets remain

strong. Since the COVID-19 outbreak, the

percentage of non-financial Topix companies that

are in net cash has increased to 55%, and over

38% of Topix non-financial companies have net

cash of over 20% of book value. As we approach

line of sight towards economic normalcy,

Japanese corporates will once again be able to

supplement dividends with additional shareholder

returns in the form of buybacks.


5x

10x

15x

20x

25x

30x

35x

2005 2008 2011 2014 2017 2020

PeriodAverage

Multiple

15Y ex. GFC 15.0x

+1 Std Dev 18.4x

-1 Std Dev 11.5x

Current 17.7x

Dec 2021 PB Outlook 16.0x

38

40

42

44

46

48

50

52

54

56

58

60

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

Revision index (lhs)

Global manufacturing PMI (rhs)

(3m moving avg, %) (DI)

27

Japan Equities: Increasing exposure to cyclicality and return-to-normalcy opportunities

Sources: J.P. Morgan Private Bank, Bloomberg Finance L.P.. Data as of November 20, 2020. For illustrative purposes only. This information does not reflect the performance of any ,specific investment

scenario.

For illustrative purposes only. Estimates, forecasts and comparisons are as of the dates stated in the material. This information does not reflect the performance of any specific investment scenario.

The views and strategies described herein may not be suitable for all investors, and more complete information is available which discusses risks, liquidity, and other matters of interest. This information is not

intended as an offer or solicitation for the purchase or sale of any financial instrument. Outlooks and past performance are no guarantee of future results. It is not possible to invest directly in an index.

Please refer to “Definition of Indices and Terms” for important information.


Sector Preferred Sub-sectors Commentary

Pre

ferr

ed

S

ec

tors

Consumer

Discretionary

Consumer Durables

Autos

We prefer companies that have strong market positions with secular growth, that can expand overseas and that are in the midst

of a new multi-year earnings growth cycle. Auto related names with EV exposure, and retail are seeing pent-up demand after a

difficult demand environment over the last two years.

Industrials

Machinery

Professional Services

Transportation

Trading Companies

Earnings for the industrial/machinery companies troughed in 2Q’20 but saw a meaningful recovery in 3Q’20. Recruitment-centric

professional services are already seeing job-seeking demand rebound to pre-COVID-19 levels and we think there is more upside.

The pick up in manufacturing activity is driving demand for transportation services which should benefit the shipping companies .

StaplesBeverages

Personal Products

Earnings for a number of high quality companies in the sector with strong brands have been severely impacted by COVID-19.

With a faster-than-expected development of a working vaccine, this is increasing visibility towards a recovery in demand for these

products in the near future. Companies geared towards consumer demand in Asia, particularly China, stand best to capitalize.

TechnologyIT Services

Semiconductors

The secular opportunity in IT services is likely to get a further boost from government-led efforts to digitize services. The

establishment of a digital office by the Suga government shows focus and intent on digitization. Semiconductor companies are

seeing stronger demand from a number of applications from memory, enterprise, gaming, 5G handsets, and automobile.

Ta

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Se

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Financials Mega Cap Banks

With the recent vaccine news, there is increasing line-of-sight to when economies can resume normalcy, which should drive

longer term US interest rates higher and help to alleviate concerns over credit provisions. The US yield curve already steepening,

and valuations for Japanese mega banks trading at historical troughs vs. Topix, we think risk reward is attractive.

MaterialsMetals & Mining

Chemicals

The rebound in manufacturing activity is spurring demand for basic resources, where COVID-19 has led to supply constraints due

to reduced labor availability, logistical challenges, and likely reduced capacity expansions.

Communication

Services

Entertainment

Interactive Media & Svs

Prime Minister Suga is likely to increase rhetoric towards reducing fees and prices that Japanese telecos charge consumer, a

potential headwind for the sector. However, as the economy rebounds, we would look to add cyclical risk.

Real Estate REITsRetail and hospitality REITs are likely to see a rebound from depressed levels of demand due to the Go To Travel campaign

launched by the Japanese gov’t. However, demand levels seen in 2019 will unlikely be reached until sometime in 2022+.

Healthcare Medical DevicesLong-term beneficiary of aging population. Our preference is for medical device companies with strong market positions and

stable growth. However, high valuations and the defensive earnings streams keep us from being more positive on the sector.

Utilities UtilitiesLow energy prices for LNG will impact the price of electricity in Japan, and price competition due to excess capacity to the market.

There may be some potential rebound in industrial demand post COVID-19, but we prefer other sectors to play this theme.

Energy Refiners Sector is ~1% of Topix.

28

Definitions of indices and terms

Standard and Poor's 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in

the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941-43 base period.

The EURO STOXX 50 Index, Europe's leading blue-chip index for the Eurozone, provides a blue-chip representation of supersector leaders in the Eurozone. The index covers 50

stocks from 12 Eurozone countries. The Index is licensed to financial institutions to serve as underlying index for a wide range of investment products such as Exchange Traded Funds

(ETF), Futures and Options and structured products.

STOXX Europe 600 Index (SXXP Index): An index tracking 600 publicly-traded companies based in one of 18 EU countries. The index includes small cap, medium cap, and large

cap companies. The countries represented in the index are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Holland, Iceland, Ireland, Italy, Luxembourg, Norway,

Portugal, Spain, Sweden, Switzerland, and the UK.

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is

supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

The MSCI China Index captures large and mid-cap representation across China H shares, B shares, Red chips and P chips. With 144 constituents, the index covers about 85% of this

China equity universe.

The MSCI AC Asia ex Japan Index captures large and mid-cap representation across 2 of 3 Developed Markets countries (excluding Japan) and 8 Emerging Markets countries* in

Asia. With 609 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. Developed Markets countries in the index include:

Hong Kong and Singapore. Emerging Markets countries include: China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.

The MSCI AC Asia Pacific ex Japan Index captures large and mid-cap representation across 4 of 5 Developed Markets countries* (excluding Japan) and 8 Emerging Markets

countries* in the Asia Pacific region. With 700 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

The Ibovespa Index is a gross total return index weighted by traded volume and is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Bovespa Index

has been divided 10 times by a factor of 10 since Jan 1, 1985:12/02/85, 08/29/88, 04/14/89, 01/12/90, 05/28/91, 01/21/92, 01/26/93, 08/27/93, 02/10/94, and 03/03/97.

The MSCI Emerging Markets Index captures large and mid-cap representation across 23 Emerging Markets (EM) countries. With 834 constituents, the index covers approximately

85% of the free float-adjusted market capitalization in each country. EM countries include: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia,

Korea, Malaysia, Mexico, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand,Turkey and United Arab Emirates

The MSCI Emerging Markets (EM) Latin America Index captures large and mid-cap representation across 5 Emerging Markets (EM) countries in Latin America. With 130

constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. EM Latin America countries include: Brazil, Chile, Colombia, Mexico,

and Peru.

The IBEX 35 is the official index of the Spanish Continuous Market. The index is comprised of the 35 most liquid stocks traded on the Continuous market. It is calculated, supervised

and published by the Sociedad de Bolsas. The equities use free float shares in the index calculation. The index was created with a base level of 3000 as of December 29, 1989.

29

The OMX Stockholm 30 Index (OMX) consists of the 30 most actively traded stocks on the Stockholm Stock exchange and is a market weighted price index.

The Swiss Market index (SMI) consists of the largest and most liquid stocks traded on the Geneva, Zurich and Basel exchanges

The Oslo Stock Exchange Benchmark index (OSEBX) is a total return index that functions as an indicator of the overall performance of the Oslo exchange.

The JPM Domestic High Yield Index (JPDDHYI) is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market.

The Bloomberg Barclays US Aggregate Bond Index is a broad -ased benchmark measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.

MSCI Emerging Markets Index Local (MSELEGF) captures large and mid cap representation across 5 Emerging Markets (EM) countries in Latin America. With 130

constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. EM Latin America countries include: Brazil, Chile, Colombia,

Mexico, and Peru.

MSCI All Country Asia Ex-Japan Local (MSELCAXJ) captures large and mid cap representation across 2 of 3 Developed Markets countries (excluding Japan) and 8 Emerging

Markets countries* in Asia. With 609 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. Developed Markets

countries in the index include: Hong Kong and Singapore. Emerging Markets countries include: China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.

MSCI Emerging Markets (EM) Latin America Index captures large and mid cap representation across 5 Emerging Markets (EM) countries in Latin America. With 130

constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. EM Latin America countries include: Brazil, Chile, Colombia,

Mexico, and Peru.

CAC 40 Index (CAC 40) reflects the performance of the 40 largest equities listed in France, measured by free-float market-capitalization and liquidity.

Deutsche Borse AG German Stock Index (DAX) is a total return index of 30 selected German blue chip stocks traded on the Frankfurt Stock Exchange.

FTSE MIB (FTSEMIB) the Index consists of the 40 most liquid and capitalized stocks listed on the Borsa Italiana.

FTSE 100 (UKX) a capitalization-weighted index of 100 most highly capitalized companies that trade on the London Stock Exchange.

FTSE 250 (MCX) a capitalization-weighted index of 250 most highly capitalized companies outside of the FTSE 100 that trade on the London Stock Exchange.

Russell 1000 Value (RLV): Measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

Russell 1000 Growth (RLG): Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The index

consists of 23 developed market country indexes.

Definitions, Continued

30

The base year for Purchasing Managers’ Indexes™ (PMIs) are based on monthly surveys of carefully selected companies. These provide an advance indication of what is

really happening in the private sector economy by tracking variables such as output, new orders, stock levels, employment and prices across the manufacturing, construction,

retail and service sectors. The PMI surveys are based on fact, not opinion, and are among the first indicators of economic conditions published each month. The data are

collected using identical methods in all countries so that international comparisons may be made.

Bloomberg Commodity Index (BCOM) is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3

by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification. Roll period typically occurs from 6th-10th

business day based on the roll schedule.

SPDR Gold Shares is an investment fund incorporated in the USA. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion,

less the Trust's expenses. The Trust holds gold and is expected from time to time to issue Baskets in exchange for deposits of gold and to distribute gold in connection with

redemptions of Baskets.

WTI Crude Oil is the world's most actively traded commodity, and the NYMEX Division light, sweet crude oil futures contract is the world's most liquid forum for crude oil trading,

as well as the world's largest-volume futures contract trading on a physical commodity. Because of its excellent liquidity and price transparency, the contract is used as a principal

international pricing benchmark. The contract trades in units of 1,000 barrels, and the delivery point is Cushing, Oklahoma, which is also accessible to the international spot

markets via pipelines.

CPI is the consumer price index.

Outlook Cases: The upside case represents the Private Bank’s most optimistic scenario for markets. The base case represents the Private Bank’s view of the most likely

outcome for markets. The downside case represents the Private Bank’s view for market outcomes in an adverse scenario.

PPI is the Producer Price Index

S&P Banks Industry Group (S5BANKX Index) is a capitalization-weighted index composed of large cap, highly liquid banks in the S&P 500 based in the United States.

2 Year Treasury Yield (USGG2YR Index) is the yield to maturity on 2 year treasury note.

10 Year Treasury Yield (USGG10YR Index) is the yield to maturity on 10 year treasury bond.

S&P 500 Tech (S5INFT Index) is a capitalization-weighted index composed of large cap, highly liquid tech companies in the S&P 500 based in the United States

P/E (Price to Earnings): A valuation ratio of a company’s current share price compared to its per share earnings. Calculated as market value per share divided by earnings per

share (EPS).

Definitions, Continued

31

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2021 outlook global equities

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