guide to the markets - j.p. morgan · 2018-10-10 · sector purchase programme. 33% is the ecb...

Guide to the MarketsEurope | |

MARKET INSIGHTS

4Q 2017 As of 30 September 2017

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Global Market Insights Strategy Team

Julio CallegariSao Paulo

Manuel Arroyo Ozores, CFAMadrid

Lucia Gutierrez MelladoMadrid

Vincent JuvynsLuxembourg

Tilmann Galler, CFAFrankfurt

Maria Paola ToschiMilan

Tai HuiHong Kong

Ian HuiHong Kong

Marcella ChowHong Kong

Dr. Jasslyn Yeo, CFASingapore

Kerry Craig, CFAMelbourne

Chaoping Zhu, CFAShanghai

Nandini RamakrishnanLondon

Michael Bell, CFALondon

Jai MalhiLondon

Ambrose CroftonLondon

Alex Dryden, CFANew York

Dr. David Kelly, CFANew York

Samantha AzzarelloNew York

Gabriela SantosNew York

David LebovitzNew York

Jordan JacksonNew York

Abigail Yoder, CFANew York

John ManleyNew York

Tyler VoigtNew York

Hannah AndersonHong Kong

Yoshinori ShigemiTokyo

Shogo MaekawaTokyo

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Page reference Europe economy4. Eurozone: GDP and inflation5. Eurozone growth monitor6. Eurozone: Unemployment and labour costs7. European politics8. Eurozone credit conditions9. Eurozone debt10. UK economic indicators11. Brexit: UK trade

Global economy12. World economic data13. Global Purchasing Managers’ Index (PMI) for manufacturing14. Global growth15. Global inflation dynamics16. Global monetary and fiscal policy17. Global currency trends18. Central bank policies19. US: GDP and inflation20. US growth monitor21. US: Cyclical sectors22. US labour market23. US inflation and wages24. US wages and interest rates25. US Federal Reserve outlook26. Long-term drivers of US economic growth27. US consumer and business environment28. Japan: GDP and inflation29. Japan economic indicators30. China economic indicators31. China financial dynamics32. China monetary conditions and housing33. China credit growth34. EM: Economic snapshot35. Emerging market adjustments36. Globalisation and trade

Equities37. World stock market returns38. European sector returns and valuations39. Relative equity valuations40. European equities41. MSCI Europe performance and drivers42. MSCI Europe equity valuations43. MSCI Europe Index at inflection points44. European small capitalisation equities45. UK equities

46. US S&P 500 at inflection points47. US equities48. US S&P 500 equity indicators49. US equity markets and reflation50. US corporate fundamentals and activity51. US bear markets52. Interest rates and equities53. Japanese equities performance and drivers54. Japanese equities: Corporate governance55. Developed market equity valuations by country56. Emerging market equity valuations by country 57. Emerging markets: Valuations and returns58. Emerging markets: Investment drivers59. Emerging markets: Flows, earnings and income60. Equity income61. Correlation and volatility

Fixed income62. Global fixed income: Yields and returns63. Fixed income interest rate risk64. Inflation implications for fixed income65. Historical impact of Fed tightening66. Historical yields of government bonds 67. Government bonds68. Global investment-grade bonds69. Global investment-grade bond market70. US high yield bonds71. European high yield bonds72. Emerging market debt

Other assets73. Commodities74. Oil market drivers 75. Gold market dynamics76. Risk-adjusted returns and downside protection77. Alternative strategies78. Correlation of returns (EUR)79. Asset markets in coming years

Investing principles80. Life expectancy 81. Cash investments82. The power of compounding83. Annual returns and intra-year declines84. Impact of being out of the market85. US asset returns by holding period86. Asset class returns (EUR)

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|GTM – Europe

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Eurozone: GDP and inflation

Contribution to eurozone real GDP growth Contribution to eurozone CPI inflation% contribution to GDP growth, change year on year % contribution to headline inflation, change year on year

Source: (Left) Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) Eurostat, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food, alcohol, tobacco and energy. Guide to the Markets - Europe. Data as of 30 September 2017.

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ECB inflation target

Change in inventories

Net exports

Investment

ConsumptionGDP

Government

Euro

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Food, alcohol, tobaccoCore rate

EnergyCPI*

Average since 2000 2Q17

1,3% 2,3%

5

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500

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105

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115

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85

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110

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

Eurozone growth monitor

Change in unemployment and unemployment rateThousands of people per three months (LHS); % rate (RHS)

Retail sales and industrial productionIndex level

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

Source: (Left and top right) Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Eurostat, Markit, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns in all charts indicate recession. Guide to the Markets - Europe. Data as of 30 September 2017.

Unemployment rate

Change inunemployment

Recession

Euro

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Industrial production (LHS)

Retail sales (RHS)

PMI GDP

-6

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35

40

45

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55

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

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|GTM – EuropeEurozone: Unemployment and labour costs

Unemployment rate Unit labour costs% Rebased to 100 as of December 1998

Source: (Left) Eurostat, FactSet, J.P. Morgan Asset Management. (Right) ECB, FactSet, J.P. Morgan Asset Management. Guide to the Markets - Europe.Data as of 30 September 2017.

FranceEurozone

Average of Portugal, Spain, Italy

GermanySpain

Ireland

FranceGreece

GermanyEuro

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45

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55

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PD M5S FI LN FdI

European politics

Italian election polling Survey results: Do you support the euro?% % answering “yes” as of May 2017

Source: (Left) Termometropolitico.it, J.P. Morgan Asset Management. M5S is 5 Star Movement, PD is Democratic Party, FI is Forza Italia, LN is Lega Nord, Fdl is Brothers of Italy. (Right) Eurobarometer survey, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Nov ’16

Nov ’13

May ’17

Italy France Spain Germany

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GTM – Europe |Eurozone credit conditions

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

Bank loans to households and non-financial corporations EUR billions, net lending flow, three-month moving average

Corporate lending rates to smaller companies% interest, non-financial corporations*

Source: (Left) ECB, Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top and bottom right) ECB, FactSet, J.P. Morgan Asset Management. *Interest on new business lending up to €1 million, on a 1-5 year maturity. Guide to the Markets - Europe. Data as of 30 September 2017.

Euro

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ItalyGermany

Stronger loan demand

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

Housing loans (LHS)

Overall corporate (LHS)

Weaker loan demand

SpainFrance

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Eurozone debt

Eurozone debt and ECB PSPP* purchases Euro area net bond supply in 2017**EUR billions EUR billions

Source: (Left) ECB, Eurostat, J.P. Morgan Asset Management. (Right) ECB, J.P. Morgan Securities Research, J.P. Morgan Asset Management. *PSPP is Public Sector Purchase Programme. 33% is the ECB purchase limit. **Gross issuance and gross minus redemptions and PSPP are 2017 figures for YTD plus estimates for remainder of the year. Net bond supply is gross bond issuance minus redemptions minus PSPP purchases in 2017. Guide to the Markets - Europe.Data as of 30 September 2017.

Euro

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Total outstanding debt

Cumulative ECB PSPP purchases

33% limit

Gross bond issuance

Net bond supply

PSPP purchases in 2017

Gross bond issuance minus redemptions

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UK economic indicators

Source: (Top left) FactSet, OECD, J.P. Morgan Asset Management. (Bottom left) ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) GFK, ONS, Thomson Reuters Datasteam, J.P. Morgan Asset Management. (Bottom right) Bloomberg, ONS, J.P. Morgan Asset Management. *Nominal wages include bonuses. Guide to the Markets - Europe. Data as of 30 September 2017.

Real GDP growth comparisonIndex level, rebased to 100 at 1Q08

Unemployment rate and consumer confidenceIndex level (LHS); % (RHS)

Current account% of GDP

Real wage growth% change year on year

USUKGermany

FranceJapan

Headline CPIReal wage growth

Nominal wage growth*

Current account balanceTrade balanceInvestment income

Euro

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Consumer confidence

Unemployment rate

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3

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

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0 50 100 150 200 250 300 350

EU27

US

Australia

Japan

Singapore

Hong Kong

Canada

Saudi Arabia

India

China

Switzerland

Brexit: UK trade

UK exports and imports of goods and servicesGBP billions

Source: UK ONS Pink Book, JP. Morgan Asset Management. Data is latest available, measured at end of 2015. Middle East includes Israel, Saudi Arabia, residual Gulf Arabian countries and other near and middle eastern countries. Asia includes China, Hong Kong, India, Indonesia, Iran, Japan, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand. Guide to the Markets - Europe. Data as of 30 September 2017.

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Euro

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

Services

Services

Goods

Goods

Exports:

Imports:

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Selectedcountries

Gross domestic product (GDP)

Real GDP%

Inflation%

Policy rate %

Unemployment %

EUR per capita

EUR billions 2017* 2018* 2017* 2018*

Switzerland 70.337 591 1,3 1,7 0,5 0,6 -0,75 3,0United States 52.386 16.878 2,2 2,3 2,0 2,0 1,25 4,4Sweden 47.801 470 2,8 2,4 1,8 1,8 -0,50 6,0Netherlands 41.520 705 2,3 1,9 1,3 1,4 -0,40 7,2Finland 39.043 215 2,5 1,5 1,0 1,2 -0,40 7,5Germany 38.217 3.131 2,1 1,8 1,7 1,6 -0,40 5,6United Kingdom 34.541 2.272 1,5 1,3 2,6 2,5 0,25 4,3France 33.961 2.198 1,7 1,6 1,1 1,2 -0,40 9,2Japan 33.519 4.282 1,5 1,1 0,5 0,7 0,10 2,8Eurozone 31.770 10.711 2,1 1,8 1,5 1,4 -0,40 9,1Italy 27.521 1.636 1,4 1,2 1,4 1,2 -0,40 11,2Spain 24.063 1.115 3,1 2,5 1,9 1,4 -0,40 17,2Greece 15.491 173 1,0 2,0 1,2 1,0 -0,40 21,1Russia 9.231 1.329 1,7 1,7 4,0 4,0 8,50 5,2Brazil 8.612 1.788 0,6 2,4 3,5 4,0 8,25 8,2China 7.313 10.264 6,7 6,4 1,7 2,2 4,35 4,0India 1.595 2.113 7,1 6,8 4,5 3,6 6,00 8,4

World economic data

Source: Bloomberg, 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 - Europe. Data as of 30 September 2017.

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51,0 51,0 50,7 50,9 50,0 50,6 50,2 50,1 50,4 51,0 50,8 51,1 52,0 52,1 52,7 52,8 53,0 53,0 52,7 52,6 52,6 52,7 53,2 53,2

52,5 52,3 52,0 52,1 50,8 50,9 50,5 50,4 51,2 51,5 51,2 51,5 52,6 53,0 53,8 54,2 54,1 53,9 54,1 54,1 53,9 54,0 54,2 54,6

49,0 49,2 49,0 49,4 48,9 50,2 49,6 49,5 49,3 50,3 50,1 50,3 51,0 50,8 51,1 50,8 51,3 51,6 50,9 50,6 50,8 50,9 51,7 51,3

52,3 52,8 53,2 52,3 51,2 51,6 51,7 51,5 52,8 52,0 51,7 52,6 53,5 53,7 54,9 55,2 55,4 56,2 56,7 57,0 57,4 56,6 57,4 58,150,6 50,6 51,4 50,0 50,2 49,6 48,0 48,4 48,3 48,6 48,3 49,7 51,8 51,7 53,5 53,6 52,2 53,3 55,1 53,8 54,8 54,9 55,8 56,152,1 52,9 53,2 52,3 50,5 50,7 51,8 52,1 54,5 53,8 53,6 54,3 55,0 54,3 55,6 56,4 56,8 58,3 58,2 59,5 59,6 58,1 59,3 60,654,1 54,9 55,6 53,2 52,2 53,5 53,9 52,4 53,5 51,2 49,8 51,0 50,9 52,2 53,2 53,0 55,0 55,7 56,2 55,1 55,2 55,1 56,3 56,351,3 53,1 53,0 55,4 54,1 53,4 53,5 51,8 52,2 51,0 51,0 52,3 53,3 54,5 55,3 55,6 54,8 53,9 54,5 55,4 54,7 54,0 52,4 54,347,3 48,1 50,2 50,0 48,4 49,0 49,7 48,4 50,4 48,7 50,4 49,2 48,6 48,3 49,3 46,6 47,7 46,7 48,2 49,6 50,5 50,5 52,2 52,853,6 53,3 54,2 54,3 52,9 54,9 52,6 51,5 53,0 50,2 51,7 51,3 52,1 53,7 55,7 55,5 53,8 53,6 55,0 55,9 56,0 54,6 56,1 55,453,4 54,9 55,9 55,3 51,6 53,0 53,9 54,1 52,9 55,5 51,1 54,9 58,5 57,4 60,3 62,1 60,9 65,1 62,5 58,7 62,3 60,4 54,7 63,749,6 49,0 49,9 50,2 51,1 53,0 53,1 55,3 51,5 51,5 51,6 54,4 55,2 55,9 56,2 54,6 57,8 58,6 57,4 55,6 60,1 60,9 61,2 61,754,5 52,4 51,2 52,2 50,9 51,3 49,6 50,5 53,1 48,4 53,0 55,6 54,2 53,4 55,8 55,4 54,6 54,3 57,2 56,4 54,2 55,2 56,7 55,954,1 52,8 51,2 52,4 51,3 51,5 50,8 50,7 51,3 52,9 52,0 51,5 53,4 54,1 54,3 55,0 54,2 53,3 52,8 52,7 52,0 53,3 52,8 53,150,2 52,5 51,9 51,5 53,5 58,1 53,4 51,0 51,8 56,4 46,9 49,8 50,9 54,2 55,4 51,2 59,3 57,5 59,2 54,8 55,0 56,0 59,8 54,252,4 52,6 52,6 52,3 50,1 49,1 48,2 47,7 48,1 49,3 49,5 50,4 51,4 51,3 52,4 52,7 53,3 52,4 52,7 53,1 52,4 52,1 52,2 52,948,3 48,6 48,2 48,4 48,0 49,7 49,4 49,2 48,6 50,6 50,0 50,1 51,2 50,9 51,9 51,0 51,7 51,2 50,3 49,6 50,4 51,1 51,6 51,047,8 46,9 47,8 48,9 48,7 50,6 50,9 50,6 51,9 48,4 50,4 50,9 48,7 49,7 49,0 50,4 49,3 50,5 51,2 50,6 49,5 48,6 50,7 50,449,1 49,1 50,7 49,5 48,7 49,5 50,0 50,1 50,5 50,1 48,6 47,6 48,0 48,0 49,4 49,0 49,2 48,4 49,4 49,2 50,1 49,1 49,9 50,647,8 49,5 51,7 50,6 49,4 51,1 49,7 48,5 50,5 51,0 51,8 52,2 52,7 54,7 56,2 55,6 54,5 56,2 54,4 53,1 53,3 53,6 54,3 54,250,7 50,3 49,1 51,1 51,1 52,4 50,5 50,7 51,7 51,8 52,6 52,1 54,4 52,3 49,6 50,4 50,7 52,5 52,5 51,6 50,9 47,9 51,2 51,244,1 43,8 45,6 47,4 44,5 46,0 42,6 41,6 43,2 46,0 45,7 46,0 46,3 46,2 45,2 44,0 46,9 49,6 50,1 52,0 50,5 50,0 50,9 50,953,0 53,0 52,4 52,2 53,1 53,2 52,4 53,6 51,1 50,6 50,9 51,9 51,8 51,1 50,2 50,8 50,6 51,5 50,7 51,2 52,3 51,2 52,2 52,850,2 50,1 48,7 49,8 49,3 48,3 48,0 49,6 51,5 49,5 50,8 51,1 52,4 53,6 53,7 54,7 52,5 52,4 50,8 52,4 50,3 52,7 51,6 51,9

Global Purchasing Managers’ Index (PMI) for manufacturing

Source: FactSet, Markit, J.P. Morgan Asset Management. The Global Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions. The results are rebased such that a score of 50 means that economic conditions are neither accelerating nor deteriorating. Guide to the Markets - Europe. Data as of 30 September 2017.

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India

Indonesia

Greece

Germany

USUK

EurozoneFrance

ItalySpain

Ireland

AustraliaJapanChina

Korea

GlobalDevelopedEmerging

Taiwan

MexicoBrazil

Russia

SwitzerlandSweden

Euro

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Lowest relative to 50 PMI Highest relative to 50 PMI50

Jan

Mar

Nov

Dec May

Jul

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

2015 2016

Jun

Jul

Aug

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2017

Feb

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Sep

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Global growth

Components of global growth Global GDP growth and MSCI ACWI EPS growth% change year on year % change year on year (LHS); % change year on year (RHS)

Source: (Left) Thomson Reuters Datastream, J.P. Morgan Asset Management. *2017 are based on Oxford economics GDP estimates. Chart is based on end of year GDP. (Right) MSCI, IBES, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. Nominal GDP used is based on purchasing power parity (PPP) valuation of country GDP. Guide to the Markets - Europe. Data as of 30 September 2017.

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InflationReal GDP

Nominal GDP

EPS

Nominal GDP

8,5

5,8

5,0 5,1 5,0

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1,4 1,5 1,6 1,6 1,8 1,7 1,6 1,6 1,5 1,6 1,5 1,5 1,7 1,7 1,8 1,9 2,3 2,1 1,9 2,0 1,8 1,7 1,7 1,9

0,0 0,2 0,4 0,5 0,8 0,5 0,5 0,5 0,5 0,6 0,5 0,6 0,9 1,1 1,2 1,5 2,0 2,1 1,8 1,9 1,6 1,4 1,5 1,7

3,6 3,5 3,6 3,5 3,5 3,7 3,4 3,4 3,2 3,2 3,2 2,9 3,1 3,1 3,1 3,0 3,2 2,4 2,5 2,6 2,6 2,5 2,4 2,7

-0,1 0,1 0,1 0,2 0,3 -0,2 0,0 -0,2 -0,1 0,1 0,2 0,2 0,4 0,5 0,6 1,1 1,8 2,0 1,5 1,9 1,4 1,3 1,3 1,50,1 0,2 0,1 0,3 0,3 -0,1 -0,1 -0,1 0,1 0,3 0,4 0,4 0,5 0,5 0,7 0,8 1,6 1,4 1,4 1,4 0,9 0,8 0,8 1,0-0,1 0,2 0,2 0,2 0,4 -0,2 0,1 -0,3 0,0 0,2 0,4 0,3 0,5 0,7 0,7 1,7 1,9 2,2 1,5 2,0 1,4 1,5 1,5 1,80,2 0,3 0,2 0,1 0,4 -0,2 -0,2 -0,4 -0,3 -0,3 -0,2 -0,2 0,1 -0,2 0,1 0,5 1,0 1,6 1,4 2,0 1,6 1,2 1,2 1,4-1,1 -0,9 -0,4 -0,1 -0,4 -1,0 -1,0 -1,2 -1,1 -0,9 -0,7 -0,3 0,0 0,5 0,5 1,4 2,9 3,0 2,1 2,6 2,0 1,6 1,7 2,0-0,8 -0,1 -0,1 0,4 -0,1 0,1 -0,7 -0,4 -0,2 0,2 0,2 0,4 -0,1 0,6 -0,2 0,3 1,5 1,4 1,7 1,6 1,5 0,9 0,9 0,6-0,1 -0,1 -0,1 0,2 0,0 -0,2 -0,6 -0,2 -0,2 0,1 0,1 -0,4 -0,3 -0,4 -0,2 -0,2 0,2 0,3 0,6 0,7 0,0 -0,6 -0,2 0,40,9 0,9 0,8 0,7 1,3 0,8 1,2 1,0 0,8 1,2 1,1 1,2 0,8 1,1 1,3 1,7 1,5 1,9 1,4 2,0 1,8 1,8 2,3 2,2-1,3 -1,1 -1,2 -1,4 -1,5 -0,9 -1,0 -0,5 -0,5 -0,6 -0,5 0,0 -0,3 -0,3 -0,2 -0,2 0,3 0,7 0,5 0,7 0,4 0,4 0,6 0,5-0,1 -0,1 0,1 0,2 0,3 0,3 0,5 0,3 0,3 0,5 0,6 0,6 1,0 0,9 1,2 1,6 1,8 2,3 2,3 2,7 2,9 2,6 2,6 2,90,0 0,2 0,5 0,7 1,4 1,0 0,9 1,1 1,0 1,0 0,8 1,1 1,5 1,6 1,7 2,1 2,5 2,7 2,4 2,2 1,9 1,6 1,7 1,91,9 1,8 1,8 2,0 2,3 2,1 1,7 1,5 1,0 1,5 1,0 1,2 1,3 1,5 1,5 1,8 2,1 2,1 2,2 2,6 2,8 2,3 2,7 2,60,0 0,3 0,3 0,2 -0,1 0,2 0,0 -0,3 -0,5 -0,4 -0,4 -0,5 -0,5 0,1 0,5 0,3 0,4 0,3 0,2 0,4 0,4 0,4 0,4 0,71,6 1,3 1,5 1,6 1,8 2,3 2,3 2,3 2,0 1,9 1,8 1,3 1,9 2,1 2,3 2,1 2,5 0,8 0,9 1,2 1,5 1,5 1,4 1,86,8 6,2 4,9 3,4 4,1 4,4 4,4 3,6 3,3 3,5 3,2 2,8 3,1 3,3 3,6 3,0 3,5 3,8 3,6 4,2 4,3 4,4 3,9 3,80,5 0,8 0,8 1,1 0,6 1,1 0,8 1,0 0,8 0,7 0,4 0,5 1,3 1,5 1,5 1,3 2,0 1,9 2,2 1,9 2,0 1,9 2,2 2,60,3 0,3 0,5 0,1 0,8 2,4 2,0 1,9 1,2 0,9 1,2 0,6 0,3 1,7 2,0 1,7 2,2 -0,1 0,2 0,1 0,6 1,0 0,8 1,04,4 5,0 5,4 5,6 5,7 5,3 4,8 5,5 5,8 5,8 6,1 5,0 4,4 4,2 3,6 3,4 3,2 3,7 3,9 3,0 2,2 1,5 2,4 3,49,5 9,9 10,5 10,7 10,7 10,4 9,4 9,3 9,3 8,8 8,7 9,0 8,5 7,9 7,0 6,3 5,4 4,8 4,6 4,1 3,6 3,0 2,7 2,52,5 2,5 2,2 2,1 2,6 2,9 2,6 2,5 2,6 2,5 2,7 2,7 3,0 3,1 3,3 3,4 4,7 4,9 5,4 5,8 6,2 6,3 6,4 6,7

15,7 15,6 15,0 12,9 9,8 8,1 7,3 7,3 7,3 7,5 7,2 6,9 6,4 6,1 5,8 5,4 5,0 4,6 4,3 4,1 4,1 4,3 3,9 3,3

Global inflation dynamics

Source: Bank of Mexico, DGBAS, ECB, FactSet, Federal Reserve, Goskomstat of Russia, IBGE, India Ministry of Statistics & Programme Implementation, Japan Ministry of Internal Affairs & Communication, Korean National Statistical Office, Melbourne Institute, National Bureau of Statistics China, Riksbank, Statistics Indonesia, Swiss National Bank, UK Office for National Statistics (ONS), J.P. Morgan Asset Management. Figures are % change year on year. Heatmap colours are based on z-score of year on year inflation rate relative to five-year history. Guide to the Markets - Europe. Data as of 30 September 2017.

GTM – Europe |

Glob

al e

cono

my

15

Jan

Mar

Sep

Nov

Dec May

Jul

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

2015 2016

Jun

Jul

Aug

Sep

Oct

2017

Feb

Apr

Jun

Aug

India

Indonesia

Greece

Germany

USUK

EurozoneFrance

ItalySpain

Ireland

AustraliaJapanChina

Korea

GlobalDevelopedEmerging

Taiwan

MexicoBrazil

Russia

SwitzerlandSweden

Euro

zone

Dev

elop

edEm

ergi

ng

16

|GTM – Europe

-500

0

500

1,000

1,500

2,000

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

-0.6

0.2

1.0

1.8

Global monetary and fiscal policy

Change in deficit excluding debt interest, 2016-2018% of potential GDP

Market expectations for policy rate%

G4 central bank asset purchasesUSD billions, rolling 12-month flows

Source: (Top left) Bloomberg, J.P. Morgan Asset Management. Expectations calculated using OIS forwards. (Bottom left) Bank of England (BoE), Bank of Japan (BoJ), European Central Bank (ECB), US Federal Reserve (Fed), Bloomberg, J.P. Morgan Asset Management. *Balance sheet forecast assumptions: BoE to have zero net purchases until the end of ’19; BoJ to have an ann. pace of 60tn yen until the end of ’17, then a reduction in the ann. monthly purchase rate by 10tn yen each quarter until Oct ’18, when purchases continue at an ann. monthly pace of 20tn yen; ECB to keep purchases at EUR 60bn per month from Oct ’17 to Dec ’17 and then reduce monthly purchases to EUR 40bn in Jan ’18, then to EUR 20bn in Jul ’18 and to zero asset purchases at the end of ’18; Fed forecast is based on a monthly reduction of USD 10bn, starting in Oct ’17 and then stepping up the monthly reduction by a further USD 10bn in each subsequent quarter until reaching a maximum of USD 50bn reduction per month, depending on the monthly maturity schedule of the balance sheet. (Right) OECD, J.P. Morgan Asset Management. Figures correspond to the estimated change in the primary balance or structural deficit excluding net interest payments as a share of GDP. Guide to the Markets - Europe. Data as of 30 September 2017.

-1.5

-1.0

-0.5

0.0

0.5

1.0

Tighter policy

Looserpolicy

Dec ‘17 Dec ‘18Glob

al e

cono

my

16

Forecast*

Dec ‘19

US

Eurozone

Japan

UK1,3

-0,1

1,6

0,0

-0,3

1,7

-0,1

0,9

0,0

0,8

0,4

-0,4

-0,5 -0,4-0,6 Switzerland

17

GTM – Europe |Global currency trends

US dollar real effective exchange rate

Euro real effective exchange rate

Index level, broad real effective exchange rate (REER)

GBP real effective exchange rateIndex level, broad real effective exchange rate (REER)

Glob

al e

cono

my

17

Index level, broad real effective exchange rate (REER)

Source: (Top) Thomson Reuters Datastream, US Federal Reserve, J.P. Morgan Asset Management. (Bottom left) European Central Bank, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Bank of England, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

70

80

90

100

110

'80 '85 '90 '95 '00 '05 '10 '1580

85

90

95

100

105

110

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

70

80

90

100

110

120

130

'73 '77 '81 '85 '89 '93 '97 '01 '05 '09 '13 '17

18

|GTM – EuropeCentral bank policies

Fed balance sheet: Assets ECB balance sheet: AssetsUSD trillions EUR trillions

Source: (Left) FactSet, US Federal Reserve, J.P. Morgan Asset Management. Fed balance sheet forecast is based on a monthly reduction of USD 10bn, starting in Oct 2017 and then stepping up the monthly reduction by a further USD 10bn in each subsequent quarter until reaching a maximum of USD 50bn reduction per month, depending on the monthly maturity schedule of the balance sheet. (Right) ECB, Thomson Reuters Datastream, J.P. Morgan Asset Management. Balance sheet forecast does not include Targeted Longer Term Refinancing Operations (TLTRO). Forecast assumption is for the European Central Bank to keep purchases at EUR 60bn per month from Oct 2017 to Dec 2017 and then reduce monthly purchases to EUR 40bn in Jan 2018, then to EUR 20bn in July 2018 and to zero asset purchases at the end of 2018. Guide to the Markets - Europe. Data as of 30 September 2017.

0

1

2

3

4

5

'03 '05 '07 '09 '11 '13 '15 '17 '19

Forecast

Treasuries

MBS

Other

Glob

al e

cono

my

18

0

1

2

3

4

5

6

'03 '05 '07 '09 '11 '13 '15 '17

Forecast

’19

19

|GTM – Europe

-2

-1

0

1

2

3

4

5

6

7

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

US: GDP and inflation

Contribution to US real GDP growth Inflation% contribution to GDP growth, change year on year % change year on year

Source: (Left) BEA, Haver Analytics, J.P. Morgan Asset Management. (Right) BLS, Thomson Reuters Datastream, 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 - Europe. Data as of 30 September 2017.

Average since 2000

August2017

Headline CPI* 2,2% 1,9%

Core CPI 2,0% 1,7%

Glob

al e

cono

my

19


2,0% 2,2%

-2

-1

0

1

2

3

4

5

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

Change in inventoriesNet exportsInvestment Consumption

GDP

Government

20

GTM – Europe |

0

40

80

120

160

200

300

400

500

600

700

'84 '94 '04 '14

-8

-3

2

7

12

-40

-20

0

20

40

60

'84 '88 '92 '96 '00 '04 '08 '12 '16

Business investment

0

1,000

2,000

3,000

50

70

90

110

130

150

'84 '94 '04 '14

US growth monitor

Corporate profits, business investment and employment growth

Initial jobless claims vs. consumer confidence

% change year on year

Jobless claims in thousands (LHS); index level (RHS)Housing starts and Conference Board Leading Economic IndexIndex level (LHS); thousands (RHS)

Source: (All charts) Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns in all charts indicate recessions determined by NBER. Guide to the Markets - Europe. Data as of 30 September 2017.

Consumer confidence

Jobless claims

Glob

al e

cono

my

Leading indicator

Housing starts

20

Profits

Employment

Recession

21

|GTM – Europe

45

50

55

60

65

70

75

80

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

US: Cyclical sectors

Light vehicle sales Real capital goods ordersMillions, seasonally adjusted annual rate Non-defense capital goods orders ex-aircraft, USD billions, SA

Source: (Left) BEA, FactSet, J.P. Morgan Asset Management. (Right) Census Bureau, FactSet, J.P. Morgan Asset Management, Capital goods orders deflated using the producer price index for capital goods with a base year of 2009. Guide to the Markets - Europe. Data as of 30 September 2017.

21

Average:62,3

August 2017:59,4

Average: 15,6

August 2017:16,0

Glob

al e

cono

my

22

GTM – Europe |US labour market

US unemployment rate and wage growth%, wage growth is year on year

Source: BEA, FactSet, J.P. Morgan Asset Management. Wage growth is average hourly earnings of total private production and non-supervisory employees.Guide to the Markets - Europe. Data as of 30 September 2017.

Unemployment

Wage growth

Glob

al e

cono

my

August 2017: 4,4%

August 2017: 2,3%

22

23

GTM – Europe |

-2.2

-1.2

-0.2

0.8

1.8

30

40

50

60

70

'89 '93 '97 '01 '05 '09 '13 '17

US inflation and wages

ISM Manufacturing and core inflation

Wage growth and companies planning to raise wages

Index level, advanced 18 months (LHS); absolute change in year on year core CPI in % (RHS)

% change year on year (LHS); % of businesses (RHS)Wage growth and US quit rate% change year on year (LHS); % of total employment (RHS)

Source: (Top) ISM, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. (Bottom left) BLS, NFIB, Thomson Reuters Datastream, J.P. Morgan Asset Management. NFIB companies planning to raise wages is a 12-month moving average. Wage growth is average hourly earnings of total private production and non-supervisory employees. (Bottom right) BLS, Thomson Reuters Datastream, J.P. Morgan Asset Management. US quit rate is a three-month moving average. Wage growth is average hourly earnings of total private production and non-supervisory employees Guide to the Markets - Europe. Data as of 30 September 2017.

1.0

1.4

1.8

2.2

2.6

1

2

3

4

5

'01 '03 '05 '07 '09 '11 '13 '15 '17-3

2

7

12

17

22

1

2

3

4

5

'01 '03 '05 '07 '09 '11 '13 '15 '17

Wage growth Wage growth

NFIB companies planning to raise wages

Glob

al e

cono

my

23

Recession

ISM Manufacturing

Core CPI

US quit rate

24

GTM – Europe |

1

2

3

4

5

6

0

2

4

6

8

10

12

'84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14 '17

US wages and interest rates

US wage growth and Fed funds rate% Fed funds rate (LHS); % change year on year (RHS)

Source: Thomson Reuters Datastream, US Federal Reserve, J.P. Morgan Asset Management. Wage growth is average hourly earnings of total private production and non-supervisory employees. Light grey columns indicate recessions determined by NBER. Guide to the Markets - Europe. Data as of 30 September 2017.

Wage growth

Fed funds rate

Glob

al e

cono

my

24

Recession

25

GTM – Europe |US Federal Reserve outlook

Federal funds rate expectations% Fed funds rate, FOMC and market expectations

Source: Bloomberg, Federal Reserve Bank of New York, US Federal Reserve, J.P. Morgan Asset Management. *Forecasts are median estimates of Federal Open Market Committee (FOMC) participants. Guide to the Markets - Europe. Data as of 30 September 2017.

Glob

al e

cono

my

Federal funds rate

Market expectations on 30 September 2017

US Fed FOMC median forecasts

25

FOMC September 2017 forecasts* 2017 2018 2019 2020

Change in real GDP, 4Q to 4Q 2,4 2,1 2,0 1,8

Unemployment rate, 4Q 4,3 4,1 4,1 4,2

PCE inflation, 4Q to 4Q 1,6 1,9 2,0 2,0

0

1

2

3

4

5

6

7

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

26

|GTM – Europe

0.0

0.4

0.8

1.2

1.6

'77-'86 '87-'96 '97-'06 '07-'16 '17-'26

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

'57-'66 '67-'76 '77-'86 '87-'96 '97-'06 '07-'16

Long-term drivers of US economic growth

Drivers of US GDP growthAverage year on year % change

Growth in US working age population% increase in civilian non-institutional population ages 16-64

US productivity% change year on year

Source: (Top left) Census Bureau, DOD, DOJ, J.P. Morgan Asset Management. *Forecast by J.P. Morgan Asset Management. (Bottom left) BLS, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. (Right) BEA, BLS, J.P. Morgan Asset Management. GDP drivers are calculated as the average annualised growth between 4Q of the first and last year. Future working age population is calculated as the total estimated number of Americans from the Census Bureau, controlled for military enrollment, growth in institutionalised population and demographic trends. Guide to the Markets - Europe. Data as of 30 September 2017.

Growth in workers + Growth in real output per worker

Growth in real GDP

Forecast*

1,4%

2,0%2,1%

1,5%

1,3%

0,4%

2,8% 1,0% 1,2% 1,6% 1,9% 0,9%

4,2%

3,0%

3,3%

3,1%3,2%

1,3%

Glob

al e

cono

my

26

Immigrant US born

-3

0

3

6

'81 '86 '91 '96 '01 '06 '11 '16

1,3%

1,0%

1,4%

0,6%

0,3%

Recession

27

|GTM – Europe

-20

-10

0

10

20

-30

-20

-10

0

10

20

30

40

'05 '07 '09 '11 '13 '15 '17

40

3331

30

27

20

4041

3739

36

3035

30

27.5

15 15

19

10

15

20

25

30

35

40

45

US consumer and business environment

National tax rate on corporate income%, including local government taxes

Future capex intentions and business investmentIndex level (LHS); % change year on year (RHS)

US savings rate% of disposable income

Source: (Top left) BEA, Dallas Fed, Kansas City Fed, New York Fed, Philadelphia Fed, Richmond Fed, Thomson Reuters Datastream, J.P. Morgan Asset Management. Capex intentions is an average index level of the five aforementioned Fed districts equally weighted, displayed using a three-month moving average. (Bottom left) BEA, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. (Right) Germany Federal Ministry of Finance, OECD, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

27

Glob

al e

cono

my

2006

2016

US Japan Italy Germany Canada UK

Headline rate

Future capex intentions

Business investment

0

2

4

6

8

10

12

14

'81 '86 '91 '96 '01 '06 '11 '16

Recession

28

|GTM – EuropeJapan: GDP and inflation

Real GDP growth Inflation% change quarter on quarter % change year on year

Source: (Left) Thomson Reuters Datastream, Japan Statistics Bureau & Statistics Centre, J.P. Morgan Asset Management. (Right) Japan Ministry of Internal Affairs & Communications, Thomson Reuters Datastream, 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 - Europe. Data as of 30 September 2017.


Real GDP 0,2% 0,6%

Average

Average since 2000

August2017

Headline CPI* 0,0% 0,7%Core CPI -0,1% 0,2%

Glob

al e

cono

my

28

-3

-2

-1

0

1

2

3

4

'01 '03 '05 '07 '09 '11 '13 '15 '17-5

-4

-3

-2

-1

0

1

2

3

'01 '03 '05 '07 '09 '11 '13 '15 '17

29

|GTM – Europe

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

-8

-4

0

4

8

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

Japan economic indicators

Bank lending and job-to-applicant ratio% lending growth year on year (LHS); ratio of number of jobs to applicants (RHS)

Real wage growth and labour market% change year on year, six-month moving average (LHS); % (RHS)

Tankan business conditionsIndex level

Source: (Top left) FactSet, J.P. Morgan Asset Management. (Bottom left and right) Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Glob

al e

cono

my

Job-to-applicant ratio

Bank lending (y/y)

29

Real wages

Unemployment rate (inverted)

-80

-60

-40

-20

0

20

40

60

'80 '84 '88 '92 '96 '00 '04 '08 '12 '16

Non-manufacturingManufacturing

30

GTM – Europe |China economic indicators

China industrial production and retail sales% change year on year

Fixed asset investment (FAI)% change year on year

Central government fiscal deficit % of GDP

Source: (Left) National Bureau of Statistics of China, Thomson Reuters Datastream, J.P. Morgan Asset Management. Industrial production is a three-month moving average and retail sales is a six-month moving average. (Top right) FactSet, National Bureau of Statistics of China, J.P. Morgan Asset Management. (Bottom right) BofA/Merrill Lynch, CEIC, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Glob

al e

cono

my

30

Industrial productionRetail sales Overall

Public

Private

-5-4-3-2-1012

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '170

5

10

15

20

25

'96 '00 '04 '08 '12 '16

31

GTM – Europe |

0

50

100

150

200

250

300

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

China financial dynamics

Public, household and non-financial corporate debt% of GDP, 1Q17

Chinese renminbiRebased index level (LHS); RMB per US dollar (RHS)

China FX reservesChange in monthly FX reserves (USD billions)

Source: (Left) BIS, J.P. Morgan Asset Management. Household and NFC debt is market value. Government debt is gross and nominal value. (Top right) BIS, FactSet, J.P. Morgan Asset Management. (Bottom right) People’s Bank of China, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Non-financial corporation debtPublic debtHousehold debt

Glob

al e

cono

my

31

USDRMB

Trade-weighted RMB

-130

-80

-30

20

70

120

'13 '14 '15 '16 '17

32

GTM – Europe |

-6

-4

-2

0

2

4

6

8

10

12

2

3

4

5

6

7

'11 '12 '13 '14 '15 '16 '17

China monetary conditions and housing

Chinese house prices vs. Shanghai Interbank Offered Rate%, three-month SHIBOR (LHS); % change year on year (RHS)

Chinese property inventoriesMonths of inventory

Policy rate and reserve ratio requirement (RRR)**% policy rate on one-year renminbi deposits (LHS); % RRR (RHS)

Source: (Left) BIS, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) CREIS, J.P. Morgan Securities Research, J.P. Morgan Asset Management. *Tier system used in China to rank cities based on GDP, politics and population. (Bottom right) FactSet, People’s Bank of China (PBoC), J.P. Morgan Asset Management. **Average RRR for large and small banks. Guide to the Markets - Europe. Data as of 30 September 2017.

SHIBOR

Low 2nd tier averageTop 2nd tier average

1st tier* average

32

Glob

al e

cono

my

RRR

0

5

10

15

20

25

'12 '13 '14 '15 '16 '17

PBoC 1 year deposit rate

China house price growth

33

|GTM – Europe

0

10

20

30

40

50

60

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

China credit growth

China credit growth China new bank credit breakdown by borrowers% change year on year % of total credit extended

Source: (Left) People’s Bank of China, J.P. Morgan Asset Management. The augmented credit measure consists of all reported bank claims on the domestic economy, plus bankers’ acceptances, entrusted loans, trust loans, new net corporate bond and non-financial equity financing, issuance of asset-backed securities and interbank loans. Total social financing is a measure of total funds provided to the economy, tabulated from bank loans to individuals and corporations, as well as equity and bond financing to non-financial corporations. RMB bank lending is the sum of all bank-reported claims on domestic borrowers. (Right) CEIC, People’s Bank of China, J.P. Morgan Asset Management. *NBFI are Non-Bank Financial Institutions. Guide to the Markets - Europe. Data as of 30 September 2017.

Total social financing

Augmented credit

RMB bank lending

Households NBFI*Corporations Government

Glob

al e

cono

my

33

0

20

40

60

80

100

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 YTD

34

|GTM – Europe

-4

-2

0

2

4

6

8

10

'00 '02 '04 '06 '08 '10 '12 '14 '16 '181

3

5

7

9

11

13

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Forecast

EM: Economic snapshot

EM GDP growth EM inflation% change year on year % change year on year

Source: (All charts) IMF, national statistics agencies, J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. Manufacturing countries are China, India, Malaysia, Mexico, Philippines, Poland, Romania, Thailand, Turkey, Vietnam. Commodity countries are Argentina, Brazil, Chile, Colombia, Indonesia, Kazakhstan, Peru, Russia, South Africa, Venezuela. GDP and inflation aggregates are calculated using the mid-weight average, which is the mean of GDP-weighted average and simple average. Forecasts are from J.P. Morgan Global Economic Research. Guide to the Markets - Europe. Data as of 30 September 2017.

34

Glob

al e

cono

my

Commodity countries

Manufacturing countries

Forecast

Commodity countries

Manufacturing countries

35

GTM – Europe |

-30

-20

-10

0

10

20

30

'92 '96 '00 '04 '08 '12 '1620

25

30

35

5

10

15

20

25

30

35

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

Emerging market adjustments

EM currencies vs. US dollar% from fair value, relative to US dollar

“Fragile Five” current account balance% of GDP

EM foreign exchange reserves vs. external debt% of GDP

Source: (Left) J.P. Morgan Asset Management. Based on nominal exchange rates relative to PPP exchange rates and adjusted for GDP per capita. EM currencies used are a weighted average of JPM GBI-EM Global Diversified Index countries. (Top right) Haver Analytics, J.P. Morgan Asset Management. “Fragile Five” are Brazil, India, Indonesia, South Africa and Turkey. (Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Guide to the Markets - Europe.Data as of 30 September 2017.

Glob

al e

cono

my

35

External debt

EM reserves

+1 std. dev.

-1 std. dev.

Average

EM currencies cheap relative

to USD

EM currencies expensive

relative to USD

-4

-2

0

2

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

36

|GTM – EuropeGlobalisation and trade

Exports of goods Global export volumes% of GDP, 2016 % change year on year, three-month moving average

Source: (Left) IMF Direction of Trade, IMF World Economic Outlook October 2016, J.P. Morgan Asset Management. (Right) CPB Netherlands, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Glob

al e

cono

my

China

EM ex-China

US

Eurozone

Other

36

Brazil

US

Eurozone

Canada

India

China

Russia

Mexico

Japan

Korea

DMGlobalEM

-2

-1

0

1

2

3

4

5

6

7

8

'12 '13 '14 '15 '16 '170 10 20 30 40 50

37

26,7% Asia ex-Jp

38,0%

-23,0% TOPIX -40,6%

73,4% MSCI EM

62,8%

35,4% Small Cap

24,4%

5,5% US S&P 500

2,1%

20,8% Asia ex-Jp

19,7%

27,2% Small Cap

35,8%

29,5% US S&P 500

13,7%

24,4% TOPIX 12,1%

16,6% Small Cap

14,5%

17,1% Asia ex-Jp

27,9%

4,2% MSCI EM

7,7%

9,4% US S&P 500

6,9%

26,1% MSCI EM

33,6%

-33,7% US S&P 500

-37,0%

67,2% Asia ex-Jp

67,2%

28,3% Asia ex-Jp

15,6%

3,5% HDY Equity

1,5%

18,1% Europe 16,4%

26,7% US S&P 500

32,4%

19,7% Asia ex-Jp

7,7%

12,9% US S&P 500

1,4%

15,3% US S&P 500

12,0%

14,3% MSCI EM

23,9%

3,0% Asia ex-Jp

6,7%

8,4% Small Cap

6,4%

4,6% Portfolio

11,1%

-37,9% HDY Equity

-34,4%

40,2% Small Cap

40,8%

27,5% MSCI EM

14,4%

-5,7% Small Cap

-8,7%

16,8% MSCI EM

17,4%

21,5% TOPIX 54,4%

16,5% Small Cap

6,7%

11,5% Small Cap

2,8%

14,9% MSCI EM

10,1%

10,1% Europe 12,2%

2,7% Europe 3,5%

6,3% Asia ex-Jp

5,1%

3,2% Europe 6,5%

-38,6% Small Cap

-40,4%

37,6% Portfolio

35,8%

23,9% TOPIX 1,0%

-5,8% Portfolio

-7,5%

16,3% Small Cap

18,4%

20,5% Europe 22,3%

16,2% HDY Equity

8,7%

8,8% Europe 5,4%

14,3% HDY Equity

13,1%

8,2% Portfolio

15,9%

2,6% Small Cap

5,4%

6,1% HDY Equity

5,2%

-1,0% HDY Equity

4,7%

-40,3% Portfolio -40,1%

34,0% HDY Equity

30,2%

23,1% US S&P 500

15,1%

-7,5% Europe -8,8%

15,6% Portfolio

17,1%

15,3% Portfolio

23,6%

15,3% Portfolio

8,2%

8,3% Portfolio

1,9%

10,1% Portfolio

9,0%

4,4% Small Cap

13,3%

2,2% Portfolio

4,9%

6,0% Portfolio

4,9%

-4,9% US S&P 500

5,5%

-43,3% Europe -38,5%

32,5% Europe 28,6%

20,9% Portfolio

11,1%

-9,6% TOPIX -17,0%

14,2% US S&P 500

16,0%

13,9% HDY Equity

20,5%

11,8% MSCI EM

5,6%

6,3% HDY Equity

0,2%

8,9% Asia ex-Jp

6,4%

4,0% TOPIX 12,5%

1,1% HDY Equity

3,7%

4,5% MSCI EM

4,7%

-8,8% Small Cap

-3,8%

-49,8% Asia ex-Jp

-47,7%

22,5% US S&P 500

26,5%

16,2% HDY Equity

8,0%

-14,3% Asia ex-Jp

-14,6%

13,6% HDY Equity

14,0%

-1,1% Asia ex-Jp

6,2%

10,1% TOPIX 10,3%

1,5% Asia ex-Jp

-5,3%

6,6% TOPIX 0,3%

3,0% HDY Equity

10,9%

0,9% TOPIX 4,7%

3,5% TOPIX 1,0%

-14,5% TOPIX -11,1%

-50,8% MSCI EM

-45,7%

1,5% TOPIX 7,6%

11,7% Europe 7,5%

-15,4% MSCI EM

-12,5%

5,9% TOPIX 20,9%

-6,5% MSCI EM

3,8%

7,4% Europe 5,2%

-4,9% MSCI EM

-5,4%

3,2% Europe 7,9%

1,9% US S&P 500

14,2%

0,8% US S&P 500

4,5%

3,2% Europe 3,5%

World stock market returns

Source: FactSet, MSCI, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. Annualised return covers the period 2007 to 2016. HDY Equity: MSCI AC World High Dividend Yield Index; Small Cap: MSCI The World Small Cap Index. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 30% Europe; 20% S&P 500; 15% EM; 10% Asia ex-Japan; 10% TOPIX; 10% HDY equity and 5% small cap. All indices are total return.Guide to the Markets - Europe. Data as of 30 September 2017.

GTM – Europe |

EUR

Local

Equi

ties

37

20102007 201620122008 2011 QTD2009 2013 2014 2015 10-yr ann.YTD

38

21,4% 12,8% 13,7% 10,5% 13,1% 7,9% 6,9% 3,8% 3,7% 4,8% 100%

5,2% 15,4% 24,9% 14,8% 18,7% 9,6% 0,4% 1,7% 0,6% 8,3% 100%

36,9% 10,4% 2,8% 6,5% 7,7% 6,3% 13,2% 6,0% 6,7% 1,4% 100%

4,5 0,0 -1,5 4,5 3,6 9,5 10,1 0,7 3,9 5,6 3,5

16,0 11,0 10,0 10,7 17,3 14,5 0,9 3,9 13,7 20,0 12,2

-16,3 122,8 137,8 96,2 62,3 26,6 41,2 47,6 6,7 42,4 42,8

256,2 219,7 247,7 333,9 280,7 200,2 93,8 121,8 87,8 260,2 206,2

1,36x 0,65x 0,64x 0,96x 1,12x 1,28x 1,00x 0,81x 0,86x 0,98x 1,00x β

11,7x 16,1x 19,7x 12,6x 16,9x 15,5x 15,2x 15,2x 14,5x 19,8x 14.9x

10,4x 14,9x 16,2x 13,4x 14,2x 12,6x 11,3x 47,0x 12,7x 18,1x 13.5x

13,2x 16,9x 20,5x 13,7x 18,6x 16,7x 19,5x 17,1x 14,4x 22,0x 16,3x

12,2x 15,8x 16,7x 15,1x 15,4x 14,5x 12,2x 14,7x 12,8x 12,1x 13,9x

3,9% 2,8% 2,8% 2,7% 2,4% 2,7% 5,7% 4,8% 4,7% 1,4% 3,2%

4,0% 2,8% 2,8% 2,8% 2,8% 2,8% 4,4% 4,7% 5,0% 1,8% 3,4%

Wei

ghts

Ret

urn

P/E

Div

European sector returns and valuations

Source: FactSet, MSCI, Thomson Reuters Datastream, J.P Morgan Asset Management. All calculations are total return in local currency, not annualised. Technology and Telecomms have 10-year rather than 15-year numbers on forward and trailing P/E due to data availability. *Financials no longer includes real estate, which is now a separate section making up 2,6% of the MSCI Europe Value index and 0,5% of the MSCI Europe growth index. It is not included in the chart due to a lack of historical data for the sector. **“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. Guide to the Markets - Europe. Data as of 30 September 2017.

GTM – Europe |

MSCI Europe Index

Europe weight

3Q17

YTD

Since market peak**

Since market low***

Forward P/E ratio

15-year average

Trailing P/E ratio

15-year average

Dividend yield

15-year average

Growth weight

Value weight

Beta to Europe

Financials* Health care

Cons. staples

Cons. disc. Industrials Materials Energy Telecom Utilities Tech Europe

Equi

ties

38

Wei

ghts

Ret

urn

P/E

Div

39

|GTM – Europe

0.0x

0.4x

0.8x

1.2x

1.6x

2.0x

2.4x

2.8x

3.2x

3.6x

4.0x

4.4x

4.8x

5.2x

0x

5x

10x

15x

20x

25x

30x

35x

40x

Price-to-book

Pric

e-to

-ear

ning

s40

60

80

100

120

140

160

180

200

220

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

Relative equity valuations

Global earnings Global valuations EPS, US dollar, rebased to 100 in January 2009 Current and 25-year historical valuations

Source: (Left) FTSE, IBES, MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) FactSet, MSCI, Standard & Poor’s,J.P. Morgan Asset Management. Valuations refer to NTMA P/E for Europe ex-UK, US, Japan, UK and P/B for emerging markets. Valuation and earnings charts use MSCI indices for all regions/countries, except for the US, which is the S&P 500. Guide to the Markets - Europe. Data as of 30 September 2017.

Equi

ties

Japan

Europe

US

EM

39

Axis

US Japan EM

75x

25-year range25-year average

Current

UKEuropeex-UK

40

GTM – Europe |

-80

-60

-40

-20

0

20

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

30

40

50

60

70

80

90

100

110

120

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

6

7

8

9

10

11

12

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

European equities

European earnings vs. the euroLast 12 months’ earnings per share, euros (LHS); US dollars per euro (RHS)

Europe vs. US operating profits margins%, earnings per share / sales per share

European equities flowsEUR billions, cumulative

Source: (Left) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) GFICC Quantitative Research Group, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Equi

ties

40

S&P 500

MSCI Europe

MSCI Europe EPS

EURUSD

Jan ’16 Apr ’16 Jul ’16 Oct ’16 Jan ’17 Apr ’17 Jul ’17

41

GTM – Europe |

84

88

92

96

100

104

600

800

1,000

1,200

1,400

1,600

1,800

60

70

80

90

100

110

120

130

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

90 46 42 16 13 8 8 7 6 6 4 30

5

10

15

20

25

JulJun Aug OctMayApr

MSCI Europe performance and drivers

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

Eurozone yearly earnings trendEPS, rebased to 100 in January

European 2Q earnings by sectorEPS, % change year on year

Source: (Left) IBES, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) IBES, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Securities Research, J.P. Morgan Asset Management. EPS is earnings per share. Earnings are 2Q EPS growth figures. Guide to the Markets - Europe. Data as of 30 September 2017.

MSCI Europe index levelMSCI Europe EPS

Equi

ties

41

2013 2014 2015

2016 2017

Jan Feb Mar Sep Nov Dec

42

|GTM – Europe

0

10

20

30

40

'80 '84 '88 '92 '96 '00 '04 '08 '12 '16-1

0

1

2

3

4

5

6

7

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15

79

11131517192123

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

MSCI Europe equity valuations

Dividend yield and 10-year bond yield% yield

MSCI Europe forward P/E ratiox, multiple

MSCI Europe cyclically adjusted P/E ratiox, adjusted using trailing 10-year average inflation-adjusted earnings

Source: (Top left) IBES, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) FactSet, MSCI, J.P. Morgan Asset Management. (Right) MSCI, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Equi

ties

30 September 2017:14,9x

Average: 13,5x

Average: 17,7x


Dividend yield

10-year German Bund yield

30 September 2017:3,2%

30 September 2017:0,5%

42

43

GTM – Europe |

600

1,000

1,400

1,800

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

16 Jul 2007: P/E = 13,3x

1.641

4 Sep 2000: P/E = 22,0x

1.623

31 Dec 1996: P/E = 14,6x

714

MSCI Europe Index at inflection points

MSCI Europe Index

Source: FactSet, MSCI, Tullett Prebon, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Return calculations shown in green are based on the total return index. Guide to the Markets - Europe. Data as of 30 September 2017.

Characteristic Sep 2000 Jul 2007 Sep 2017Index level 1.623 1.641 1.601P/E ratio (fwd) 22,0x 13,3x 14,9xDividend yield 1,8% 2,8% 3,2%German 10-year 5,3% 4,6% 0,5%

12 Mar 2003: P/E = 14,4x

676

9 Mar 2009:P/E = 9,2x

714

-55% +180%

-54%

Total return:+133%

30 September 2017:P/E = 14,9x

1.601

+206%Equi

ties

43

44

GTM – Europe |

0.0

0.5

1.0

1.5

2.0

2.5

-20

-10

0

10

20

-30

-20

-10

0

10

20

30

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

European small capitalisation equities

Small cap relative performance and economic performance% change year on year, relative performance (LHS); % (RHS)

Risk-adjusted returns by company size and holding periodSharpe ratio level*

European small cap: Price-to-book ratiox, multiple

Source: (Left) Markit, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Bloomberg, MSCI, J.P. Morgan Asset Management. *Risk-adjusted returns are calculated assuming the risk-free rate is equal to zero. (Bottom right) Citibank, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

MSCI small cap minus large cap performance

12-month percentage change in eurozone composite PMI

Equi

ties

Small capsMid capsLarge caps

Average: 1,8x


1-year 5-year 10-year

44

45

GTM – Europe |

1,500

2,000

2,500

3,000

3,500

4,000

4,500

180

200

220

240

260

280

300

320

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

5

10

15

20

0 1 2 3 4 5

UK equities

FTSE All-Share earnings and performanceIndex level, next 12 months’ earnings estimates (LHS); index level (RHS)

Commodities weights% of index

Dividend yield and ex-energy dividend yield% yield

Source: (Left) FTSE, IBES, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. (Top right) FactSet, FTSE, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. (Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. UK is MSCI UK, Japan is Topix, eurozoneis Euro Stoxx 50, US is S&P 500. Guide to the Markets - Europe. Data as of 30 September 2017.

FTSE All-Share index levelFTSE All-Share EPS

Equi

ties

Dividend yieldDividend yield ex-energy

45

UK

Eurozone

MSCI EM

Japan

US

MSCI World

FTSE All-Share MSCI Europe ex-UK

S&P 500 MSCI Japan

46

GTM – Europe |

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

US S&P 500 at inflection points

S&P 500 Index

Source: FactSet, Standard & Poor’s, Tullett Prebon, J.P. Morgan Asset Management. The P/E ratios are forward P/E ratios. Return calculations shown in green are based on the total return index. Guide to the Markets - Europe. Data as of 30 September 2017.

24 Mar 2000:P/E = 22,6x

1.527

9 Oct 2002:P/E = 15,4x

777

9 Oct 2007:P/E = 14,8x

1.565

9 Mar 2009:P/E = 10,8x

677

31 Dec 1996:P/E = 15,7x

741

-47%

-55%

+121%

Total return:+116%

Characteristic Mar 2000 Oct 2007 Sep 2017Index level 1.527 1.565 2.519P/E ratio (fwd) 22,6x 14,8x 17,9xDividend yield 1,1% 1,7% 1,9%US 10-year 6,2% 4,6% 2,3%

+346%

30 September 2017:P/E = 17,9x

2.519

Equi

ties

46

47

GTM – Europe |

600

900

1,200

1,500

1,800

2,100

2,400

2,700

200

300

400

500

600

700

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

-45

-30

-15

0

15

30

45

30

35

40

45

50

55

60

65

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

60

70

80

90

100

110

120

130

140

150

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

US equities

S&P 500 earnings and performanceIndex level, next 12 months’ earnings estimates (LHS); index level (RHS)

Initial jobless claims vs. S&P 500 performanceThousands, three-month moving average (LHS); index level (RHS)

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

Source: (Left) IBES, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) BLS, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) ISM, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017..

Equi

ties

S&P 500 index levelInitial jobless claims

47

EPS ISM manufacturing

S&P 500 index levelS&P 500 EPS

48

GTM – Europe |

0

10

20

30

40

50

'00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10

600

1,000

1,400

1,800

2,200

2,600

85

90

95

100

105

110

115

120

125

130

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

101214161820222426

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

US S&P 500 equity indicators

Leading economic indicator vs. S&P 500 performanceIndex level

Forward P/E ratiox, multiple

S&P 500 Shiller cyclically adjusted P/Ex, adjusted using trailing 10-year average inflation-adjusted earnings

Source: (Left) Conference Board, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) IBES, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Robert Shiller, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.


Average:16,8x

Equi

ties

48

S&P 500Leading economic indicator

Average: 15,8x

31 Jul 1999: 24,5x


49

GTM – Europe |

1.2

1.6

2.0

2.4

2.8

60

70

80

90

100

110

120

130

'15 '16 '17

1

2

3

4

5

6

60

70

80

90

100

110

120

130

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

US equity markets and reflation

S&P 500 average P/E ratio in various inflation environments1872-2016

US bond yield vs. value/growth performance*Relative index level (LHS); % (RHS)

US bond yield vs. banks/staples performance**Relative index level (LHS); % (RHS)

Source: (Left) Robert Shiller, J.P. Morgan Asset Management. (Top right) Russell, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. (Bottom right) MSC, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. *Value index is the Russell 1000 value index. The growth index is the Russell 1000 growth index. **MSCI USA index used for both banks and consumer staples. Guide to the Markets - Europe. Data as of 30 September 2017.

Equi

ties

US 10-year yield

Value/growth

US 10-year yieldBanks/staples

49

8

9

10

11

12

13

14

15

16

17

18

-1 to 0 0 to 1 1 to 3 3 to 5 5 to 7 7 to 10 10 to15

>15US inflation ranges (% CPI y/y)

S&P

500

trai

ling

P/E

50

|GTM – Europe

0.0

0.5

1.0

1.5

2.0

1.3

1.5

1.7

1.9

2.1

2.3

2.5

'00 '02 '04 '06 '08 '10 '12 '14 '1636

38

40

42

44

46

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

20

40

60

80

100

120

140

160

15

20

25

30

35

40

45

50

'01 '03 '05 '07 '09 '11 '13 '15 '17

US corporate fundamentals and activity

Source: (Top left) FactSet, J.P. Morgan Asset Management. (Top right) Bloomberg, J.P. Morgan Asset Management. (Bottom left) BEA, J.P. Morgan Asset Management. (Bottom right) Bloomberg, Thomson Reuters Datastream, J.P. Morgan Asset Management. M&A activity is the quarterly value of officially announced transactions, and capital expenditures are private non-residential fixed domestic investment. Guide to the Markets - Europe. Data as of 30 September 2017.

Non-financial corporate debt% of GDP

Capital expenditure and M&A activityUSD trillions

Share buybacks

Dividends per share

Capital expenditures Global M&A activity

2Q17:45,3%

50

Equi

ties

S&P 500 corporate cash% of total assets

Cash returned to S&P 500 shareholdersUSD (LHS); USD billions, four-quarter moving average (RHS)

51

|GTM – Europe

-100

-80

-60

-40

-20

0

'28 '33 '38 '43 '48 '53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08 '13

US bear markets

S&P 500 declines from all-time highs, %

Characteristics of past bear and bull markets*

Source: FactSet, NBER, Robert Shiller, Standard & Poor’s, J.P. Morgan Asset Management. *A bear market represents a 20% or more decline from the previous market high using a monthly frequency; a bull market represents a 20% increase from a market trough. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. Guide to the Markets - Europe. Data as of 30 September 2017.

Equi

ties

20% market decline

51

Market correctionsBear markets Macro

environment Bull markets Return before peak

Market Bear DurationRecession

Bull Bull Duration 12 months 24 monthspeak return (months) start date return (months) % %

1 Crash of 1929 – excessive leverage, irrational exuberance Sep 1929 -86% 33 - - -2 1937 Fed Tightening – premature policy tightening Mar 1937 -60 63 Jun 1932 324% 58 27% 119%3 Post WWII crash – post-war demobilisation, recession fears May 1946 -30 37 Apr 1942 158 50 27 574 Flash crash of 1962 – flash crash, Cuban Missile Crisis Dec 1961 -28 7 Jun 1949 436 152 28 235 Tech crash of 1970 – economic overheating, civil unrest Nov 1968 -36 18 Jun 1962 107 78 15 356 Stagflation – OPEC oil embargo Jan 1973 -48 21 May 1970 74 32 16 317 Volcker Tightening – campaign against inflation Nov 1980 -27 21 Oct 1974 126 75 32 488 1987 crash – programme trading, overheating markets Aug 1987 -34 3 Aug 1982 229 61 36 809 Tech bubble – extreme valuations, “dot com” boom/bust Mar 2000 -49 31 Dec 1987 582 150 19 39

10 Global Financial Crisis – leverage/housing, Lehman collapse Oct 2007 -57 17 Oct 2002 101 61 16 31Current cycle – – – Mar 2009 272 103

MEDIAN – - 42% 21 158% 68 27% 39%

7

9

8

6

5

4

3

2

1

10Recession

52

GTM – Europe |Interest rates and equities

Correlations between weekly equity returns and interest rate movementsRolling two-year correlation of weekly returns of the S&P 500, MSCI Europe Index and the 2-year Treasury yield, 1983-2017

Source: MSCI, Standard & Poor’s, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Guide to the Markets - Europe. Data as of 30 September 2017.

S&P 500

MSCI Europe

Equi

ties

52

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

0 2 4 6 8 10

Cor

rela

tion

2-year Treasury yield

Positive relationship between yield movements and equity returns

Negative relationship between yield movements and equity returns

53

GTM – Europe |

0

20

40

60

80

100

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

20

30

40

50

60

70

80

90

100

110

120

130

'08 '10 '12 '14 '16

70

80

90

100

110

120

130

400

600

800

1,000

1,200

1,400

1,600

1,800

'07 '09 '11 '13 '15 '17

Japanese equities performance and drivers

TOPIX earnings and performanceIndex level, next 12 months’ earnings estimates (LHS); index level (RHS)

TOPIX vs. USDJPYIndex level (LHS); yen per US dollar (RHS)

Stock market composition% of total stock market

Source: (Left) Thomson Reuters Datastream, IBES, TOPIX, J.P. Morgan Asset Management. EPS is earnings per share. (Top right) Thomson Reuters Datastream, TOPIX, J.P. Morgan Asset Management. (Bottom right) MSCI, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

TOPIX EPS TOPIX index level

Equi

ties

53

USDJPY

TOPIX

Defensive Cyclicals

US Europe Japan

54

GTM – Europe |

0

10

20

30

40

50

60

2014 2016

Japanese equities: Corporate governance

Listed companies’ dividend pay-out and share buybacksYen trillions

Companies citing ROE & ROA targets in medium-term plans% of 841 companies

Appointment of outside directors at Japanese companiesTotal

Source: (Left) Nomura, J.P. Morgan Asset Management. *Share buyback data is for repurchases of common stock, excluding repurchases from Resolution and Collection Corp. and repurchases of preferred stock collected by Nomura. 2017 figures for share buybacks and dividends are estimates. (Top right) Goldman Sachs,Japan Investor Relations Association, J.P. Morgan Asset Management. ROE is return on equity and ROA is return on assets. (Bottom right) Goldman Sachs, Tokyo Stock Exchange, J.P. Morgan Asset Management. Companies are TSE1 companies. Guide to the Markets - Europe. Data as of 30 September 2017.

Equi

ties

DividendsShare buybacks*

ROEROA

54

One independent external directorAt least one external director, not independent

At least two external directors

0

4

8

12

16

20

'90 '95 '00 '05 '10 '150

20

40

60

80

100

120

2010 2012 2014 2016

55

|GTM – Europe

Current Composite Index

Current Average since 2004

Fwd. P/E Fwd. P/B Fwd. P/CF Div. Yld. Fwd. P/E Fwd. P/B Fwd. P/CF Div. Yld.

Italy -2,1 13,4x 1,3x 5,7x 4,2% 11,7x 1,2x 4,6x 4,5%Spain -2,0 13,4 1,3 5,4 3,9 11,8 1,6 5,0 4,8UK -0,7 14,3 1,8 9,2 4,3 12,5 1,8 7,9 4,0Germany -0,6 13,4 1,6 8,3 3,1 12,0 1,5 6,6 3,3France 0,0 15,8 1,6 8,9 3,1 12,9 1,5 6,9 3,5Japan 0,1 14,3 1,3 8,0 2,2 15,4 1,3 7,1 1,8ACWI 1,3 16,0 2,1 10,2 2,6 13,7 1,9 8,7 2,8DM 1,6 16,6 2,2 10,6 2,6 14,1 1,9 8,6 2,7Switz. 2,0 17,9 2,5 13,3 3,3 14,3 2,3 11,7 3,0US 3,6 18,1 2,9 12,3 2,0 14,8 2,3 9,8 2,1

Developed market equity valuations by country

Developed markets

Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (P/E), price to forward book value (P/B), price to forward cash flow (P/CF) and price to forward dividends. Results are then normalised using means and average variability since 2004 (inception of series). The grey bars represent one standard deviation either side of the average relative valuation to the All Country World Index (ACWI) since 2004. DM Index is the MSCI The World Index. Guide to the Markets - Europe. Data as of 30 September 2017.

Equi

ties

Average

Current

Std

dev

from

glo

bal a

vera

ge55

+2,5 Std dev

Average

-2,5 Std dev

+5,0 Std dev

-5,0 Std devItaly Spain UK Germany France Japan ACWI USSwitz.DM Index

How to interpret this chartExpensive relative to

own history

Cheap relative to

own history

Expensive relative to

world

Cheap relative to

world

56

|GTM – Europe

Current Composite Index

Current Average since 2004

Fwd. P/E Fwd. P/B Fwd. P/CF Div. Yld. Fwd. P/E Fwd. P/B Fwd. P/CF Div. Yld.

Russia -5,2 5,8x 0,6x 3,5x 6,1% 6,9x 0,9x 4,5x 2,8%Korea -1,0 9,0 1,1 5,2 1,8 9,6 1,2 5,9 1,7Brazil -0,9 12,8 1,7 8,0 3,4 9,7 1,7 7,8 4,1Taiwan -0,7 13,9 1,8 8,8 4,1 13,6 1,7 8,3 3,9EM -0,5 12,6 1,6 7,9 2,6 11,0 1,6 7,7 3,0China 0,7 13,6 1,7 8,5 2,1 11,4 1,7 7,5 2,9S. Africa 1,0 15,6 1,9 12,5 3,1 12,0 2,0 8,9 3,7ACWI 1,3 16,0 2,1 10,2 2,6 13,7 1,9 8,7 2,8Mexico 1,4 16,9 2,3 9,0 2,5 14,9 2,5 8,7 2,3India 4,8 18,8 2,8 12,6 1,5 15,5 2,6 11,4 1,8

Emerging market equity valuations by country

Emerging markets

Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (P/E), price to forward book value (P/B), price to forward cash flow (P/CF) and price to forward dividends. Results are then normalised using means and average variability since 2004 (inception of series). The grey bars represent one standard deviation either side of the average relative valuation to the All Country World Index (ACWI) since 2004. Guide to the Markets - Europe. Data as of 30 September 2017.

How to interpret this chart

Std

dev

from

glo

bal a

vera

ge

Equi

ties Russia Korea Brazil ACWIChinaEMTaiwan S. Africa IndiaMexico

56


own history

Cheap relative to

own history


world

Cheap relative to

world

Average

Current

+2 Std dev

Average

-2 Std dev

+4 Std dev

-4 Std dev

+6 Std dev

-6 Std dev

57

|GTM – Europe

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

Emerging markets: Valuations and returns

MSCI Emerging Markets Index: Price-to-book ratio MSCI Emerging Markets Index: Price-to-book and returnsx, multiple Price-to-book ratio and next five-year annualised % price return*

Source: (All charts) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Dots represent monthly data points January 1997 through September 2017. Guide to the Markets - Europe. Data as of 30 September 2017.

Average: 1,8x

-2,0 std. dev.

+2,0 std. dev.

Equi

ties


Current level

57

-20

0

20

40

60

0.75 1.25 1.75 2.25 2.75 3.25

58

GTM – Europe |

50

100

150

200

250

300

50

100

150

200

250

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

Emerging markets: Investment drivers

EM vs. DM growth and equity performance% next 12 months’ growth estimates (LHS); index level (RHS)

EM equity relative performance and commoditiesRelative index level rebased to 100 at 1997 (LHS); index level (RHS)

Relative EM / DM equity performance and USD REERRelative index level rebased to 100 at 1997 (LHS); index level (RHS)

Source: (Left) Consensus Economics, J.P. Morgan Asset Management. “EM – DM GDP growth” is consensus estimates for emerging markets growth in the next 12 months minus consensus estimates for developed markets growth in the next 12 months, provided by Consensus Economics. (Top right) Bloomberg, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) BIS, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Equi

ties

EM growth & equity outperformance

EM growth & equity underperformance

EM minus DM GDP growth

MSCI EM relative to MSCI DM

58

MSCI EM relative to MSCI DM

Bloomberg Commodity Index

85

100

115

13025

75

125

175

225

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

USD REER (inverted)

MSCI EM / MSCI DM

10

40

70

100

130

160

-1

0

1

2

3

4

5

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

59

GTM – Europe |

322

195

123

38

0

200

400

-40

-30

-20

-10

0

10

20

30

40

50

60

70

Aug ’15

507090

110130150170190210

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Emerging markets: Flows, earnings and income

Total non-resident flows into EM assetsUSD billions

EM earnings expectations by regionConsensus EPS for next 12 months, US dollar, rebased to 100 in 2006

Number of companies yielding greater than 3% by regionConstituents of the MSCI All Country World Index

Source: (Left) IIF, J.P. Morgan Asset Management. IIF estimates for last two months. (Top right) IBES, MSCI, Thomson Reuters Datastream,J.P. Morgan Asset Management. EPS is earnings per share. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Guide to the Markets - Europe.Data as of 30 September 2017.

Equi

ties

EM Latin America

EM Asia

Emerging markets Europe US Japan

59

EM debt EM equities

2010-2017 average: $19bn

Aug ’14 Feb ’15 Feb ’16 Aug ’16 Feb ’17 Aug ’17

EM Europe

60

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0

100

200

300

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

0.00.5

0.8

2.3 2.33.2

4.24.8

5.4

0

1

2

3

4

5

6

Equity income

S&P 500 total return index: Dividends and capital appreciation

MSCI Europe indices: Price vs. total return*

%, average annualised returns

Rebased to 100 at start of 2000Sources of income% yield

Source: (Top) Ibbotson, Standard & Poor’s, J.P. Morgan Asset Management. (Bottom left) FTSE, Thomson Reuters Datastream, J.P. Morgan Asset Management. High dividend yield is the MSCI Europe High Dividend Index. *Returns in local currency. (Bottom right) Barclays, BofA/Merrill Lynch, FTSE, Thomson Reuters Datastream, Tullett Prebon, J.P. Morgan Asset Management. Euro corporate: Bloomberg Barclays Euro Aggregate Credit - Corporate; Converts: Bloomberg Barclays Global Convertibles; EM equity: MSCI EM; Global REITs: FTSE NAREIT Index; High yield: BofA/Merrill Lynch Developed Markets High Yield Constrained; EM debt: J.P. Morgan EMBI Global. Yields for the bond indices are yield to worst and dividend yields for the equity indices. Guide to the Markets - Europe. Data as of 30 September 2017.

Eurozone average inflation: 1,3% (12 months to August 2017)

DividendsCapital appreciation

Equi

ties

High dividend yield total returnTotal returnPrice return

+175%

+88%

+6%

Bunds Eurocorp

Converts MSCIEurope

Global REITS

EMECash High yield

EM debt

60

4.7% 5.4% 6.0% 5.1% 3.3% 4.2% 4.4% 2.5%1.8%

2.1% 4.0%

13.9%

-5.3%

3.0%

13.6%

4.4%1.6%

12.6% 15.3%

-2.7%

10.5% 5.8%

-10

0

10

20

1926-1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010-2016 1926-2016

61

GTM – Europe |

September 2017:0,39

Correlation and volatility

Cross country equity index correlation

Days when the MSCI World has moved +/- 1%

%, rolling six-month average pairwise correlations

Source: (Top) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Correlation calculated from 10 developed market indices. (Bottom left) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Bloomberg, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Equi

ties

61

Pre-crisis average: 0,58

Post-crisis average: 0,65

VIX volatility indexIndex level, implied volatility of S&P 500 index options

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

'98 '01 '04 '07 '10 '13 '16

0

10

20

30

40

50

60

70

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '170

20

40

60

80

100

120

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

Average: 54 days

YTD: 3 days

Number of days, price return in US dollars

62

|GTM – Europe

Euro HY

8,8% Euro HY

8,8%

22,4% US IG 7,5%

13,4% EM Debt

1,8%

21,0% US HY 17,5%

5,5% Euro HY

5,5%

1,7% Euro HY

1,7%

9,9% US HY 7,5%

2,8% US HY 7,4%

20,9% EM Debt

6,2%

12,3% US Treas.

0,8%

12,9% EM Debt

9,6%

1,8% Euro IG 1,8%

1,2% Infl Linked

1,2%

9,0% EM Debt

6,6%

2,4% Euro IG 2,4%

19,6% US Treas.

5,1%

10,6% US IG -0,7%

10,1% Euro HY 10,1%

-0,4% Infl Linked

-0,4%

1,1% Euro IG 1,1%

7,8% US IG 5,5%

2,2% Euro Gov

2,2%

16,7% US HY 2,5%

6,5% Portfolio

0,2%

9,3% US IG 6,1%

-0,4% Euro Gov

-0,4%

0,6% Euro Gov

0,6%

6,9% Portfolio

5,6%

-2,7% Portfolio

-0,4%

15,4% Portfolio

7,3%

6,3% US HY -4,6%

8,0% Portfolio

6,3%

-2,8% Portfolio

3,4%

-0,7% Portfolio

1,2%

6,9% Euro HY

6,9%

-3,9% Infl Linked

-3,9%

13,1% Euro Gov

13,1%

1,6% Euro Gov

1,6%

4,7% Euro IG 4,7%

-3,1% EM Debt

8,6%

-1,4% EM Debt

2,2%

6,3% US Treas.

4,0%

-5,8% US IG -1,5%

8,4% Euro IG 8,4%

0,8% Infl Linked

0,8%

4,1% US Treas.

1,0%

-4,5% US HY 7,0%

-1,6% US HY 2,0%

5,0% Euro Gov

5,0%

-7,0% US Treas.

-2,7%

5,5% Euro HY

5,5%

0,5% Euro HY

0,5%

3,8% Infl Linked

3,8%

-6,2% US IG 5,2%

-2,2% US IG 1,3%

4,5% Euro IG 4,5%

-12,3% EM Debt

-8,3%

5,3% Infl Linked

5,3%

-0,6% Euro IG -0,6%

3,2% Euro Gov

3,2%

-8,8% US Treas.

2,3%

-3,2% US Treas.

0,4%

3,0% Infl Linked

3,0%

Global fixed income: Yields and returns

Fixed income sector returns

Source: (All charts) Barclays, BofA/Merrill Lynch, FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. YTM = Yield to maturity. Annualisedreturn covers period 2007 to 2016. US HY: BofA/Merrill Lynch US High Yield Constrained; EM Debt: J.P. Morgan EMBI+; Euro HY: BofA/Merrill Lynch Euro Non-Financial High Yield Constrained; US IG: Bloomberg Barclays US Agg. – Corporate – Investment Grade; US Treasuries: Bloomberg Barclays US Agg. Gov. –Treasury; Euro IG: Bloomberg Barclays Euro Agg. – Credit – Corporate; Euro Gov.: Bloomberg Barclays Euro Agg. Government; Infl Linked: Bloomberg Barclays Euro Gov. Inflation-Linked. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 20% Euro Gov.; 15% US Treasuries; 10%Linkers; 15% US IG; 10% Euro IG; 10% US HY; 5% Euro HY; 15% EM Debt. Returns are unhedged in euro and local currencies. 10 years of weekly data is used to calculate the correlation to the UST and bunds. Guide to the Markets - Europe. Data as of 30 September 2017.

|

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€:

Lcl:

EU IG

US Treasury

US Corporate IG

Infl Linked

Euro Gov

EM Debt

Portfolio

US HY

62

Characteristics Correlation to:

YTM(%)

Size

(EUR bns)Duration(years)

10-year Bund

10-year UST

5,9 1.112 3,5 -0,1 0,0

5,6 297 7,0 0,1 0,1

3,2 4.314 7,5 0,5 0,5

3,1 240 3,1 -0,1 -0,1

2,5 - 6,4 0,4 0,4

1,9 6.241 6,2 0,6 0,7

0,8 1.829 5,3 0,4 0,3

0,6 6.043 7,4 0,5 0,3

-0,2 490 8,0 0,3 0,2

2016201510-yr ann.20142013 YTD 3Q17

63

|GTM – Europe

-20

-15

-10

-5

0

5

-5

0

5

10

15

20

25

Fixed income interest rate risk

Current and historical yields for selected indices

Illustration of the impact a 1% rise in local interest rates may have on selected indices

% yield, fluctuations over the last 10 years*

% change, assumes a parallel shift in the yield curve and spreads are maintained

Source: (Both charts) Barclays, Bloomberg, FactSet, J.P. Morgan Asset Management.

*Historical yield range based on the last 10 years of data, with the exception of local currency emerging markets debt, which is based on eight years, due to data availability.

Fixed income sectors shown are provided by Barclays and are represented by: Treasury Europe: Bloomberg Barclays Pan-European Aggregate Government – Treasury; Floating rate: Bloomberg Barclays US Floating Rate Notes (BBB); IG credit: Bloomberg Barclays Global Aggregate – Corporates; High yield: Bloomberg Barclays Global High Yield; Convertibles: Bloomberg Barclays Credit/Rate Sensitive;EMD sovereign USD: Bloomberg Barclays Emerging Markets – Sovereigns; EMD corporate ($): Bloomberg Barclays Emerging Markets –Corporates; EMD sovereign (LC): Bloomberg Barclays Emerging Market Local Currency Government. For illustrative purposes only.Change in bond price is calculated using both duration and convexity, with the exception of Convertibles, which is historical change.

Guide to the Markets - Europe.Data as of 30 September 2017.

How to interpret this chart

Average

Current

Max

Min

Treasury: Europe 1-3 years 5-7 years 10+ years

Investment-grade credit

Highyield

EMD USD sovereign

EMD USD corporate

EMD LC sovereign

Floatingrate

Price returnTotal return

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63

Convertibles

Treasury: Europe

1-3 years 5-7 years 10+ years Investment-grade credit

High yield

EMD USD sovereign

EMD USD corporate

EMD LC sovereign

Floatingrate Convertibles

64

|GTM – Europe

-4

-3

-2

-1

0

1

2

3

4

5

6

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

Inflation implications for fixed income

10-year break-even inflation Real 10-year government bond yields% %, nominal yield minus CPI

Source: (Left) Bloomberg, J.P. Morgan Asset Management. Break-even inflation is the difference in yield between nominal and inflation-protected government bonds. (Right) Thomson Reuters Datastream, J.P. Morgan Asset Management. Real yield is the difference between 10-year government bond yields and CPI. Guide to the Markets - Europe. Data as of 30 September 2017.

UK

US

Germany

64

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UK

US

Germany

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

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

65

|GTM – Europe

0

6

12

18

24

'75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15

Rate hiking cycle

Historical impact of Fed tightening

Federal funds rate and US 10-year Treasury yield%

Source: Bloomberg, Standard & Poor’s, Thomson Reuters Datastream, US Federal Reserve, J.P. Morgan Asset Management. Averages do not include the current cycle. US investment grade is the Citigroup USBIG Corporate All Maturities index. The emerging market debt is the J.P. Morgan EMBI+ Composite index. Averages do not include the current cycle. Between 1979 and 1982, the FOMC changed its approach to monetary policy, focusing on the money supply, rather than the Federal funds rate. In the fall of 1982, however, the Federal Reserve shifted back to its approach of targeting the “price” rather than the “quantity” of money. Thus, because the Federal funds rate was not the FOMC’s key policy tool, we exclude increases in the Federal funds rate between 1979 to 1982 in our analysis of rate hike cycles.Guide to the Markets - Europe. Data is as of 30 September 2017.

Market reaction in prior rate hiking cycles

May 1983 –August 1984

March 1988 –February 1989

February 1994 –February 1995

June 1999 –May 2000

June 2004 –June 2006

Average of past five rate hiking cycles

December 2015 –Present

Federal funds rate (change in bps) 294 325 300 175 425 304 100

10-year Treasury yield (change in bps) 204 92 188 49 51 117 4

2-year Treasury 10,0% 3,8% 1,7% 2,9% 3,0% 4,3% 1,3%

10-year Treasury 3,7% 2,1% -6,9% 0,6% 3,6% 0,6% 3,6%

30-year Treasury 0,5% 2,8% -10,9% 1,8% 8,2% 0,5% 8,8%

US investment grade 1,3% 5,4% -3,0% 0,2% 6,1% 2,0% 11,7%

Emerging market debt - ‐ -21,4% 16,9% 27,4% 7,6% 19,5%

S&P 500 -3,0% 10,6% 0,7% 9,7% 16,2% 6,8% 26,2%US dollar 10,2% 1,7% -4,7% 3,4% -5,8% 0,9% -7,6%

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etur

n

US 10-year Treasury

Federal funds rate

66

GTM – Europe |

-2

0

2

4

6

8

10

12

14

16

18

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Historical yields of government bonds

10-year government bond yields%

Source: FactSet, Tullett Prebon, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

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UK

Germany

US

Japan

66

67

GTM – Europe |

-8-6-4-20246

'71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15

Government bonds

Global government bond net supplyUSD billion

Source: (Left) Copyright 2017 Morgan Stanley. 2017 and 2018 are estimates. (Top right) Bloomberg, Thomson Reuters Datastream, US Federal Reserve, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. (Bottom right) Bloomberg, BofA/Merrill Lynch, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

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Yield below 1%

Yield below 0%

Global government bond yields% of BofA/Merrill Lynch Global Government Bond Index

US yield curve%, 10-year yield minus Fed funds rate Recession

67

US

UK

EurozoneJapan

Net supply

0

20

40

60

80

'14 '15 '16 '17-1,000

-500

0

500

1,000

1,500

'12 '13 '14 '15 '16 '17 '18e

68

GTM – Europe |

-50

0

50

100

150

200

'13 '14 '15 '16 '170

100

200

300

400

500

600

700

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

6

8

10

12

14

16

1

2

3

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

Global investment-grade bonds

Investment-grade spreadsBasis points, option-adjusted spread over local government bond yield

US IG leverage measuresx, leverage (LHS); x, interest coverage ratio (RHS)

Source: (Left) Bloomberg, BofA Merrill Lynch, J.P. Morgan Asset Management. (Top right) J.P. Morgan Securities, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. (Bottom right) Thomson Reuters Datastream, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

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UK IG

US IG energy

US IGEuro IG

68

USD billions, rolling 12-month totalForeign net purchases of US corporate bonds

Net leverage

Interest coverage

69

|GTM – Europe

0

20

40

60

Global investment-grade bond market

Global investment-grade bond marketUSD billions, % of total

Market capitalisation by duration bucket% of total in each currency

Cumulative number of issuers, as a % of total index issuers%, of total index issuers

Source: (All charts) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

GBPUSD

EUR

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1-3 years 3-7 years 7-10 years 10+ years

USD EUR GBP

USD EUR GBP CAD Other

Number of issuers

69

0.0

0.2

0.4

0.6

0.8

1.0

0 100 200 300 400 500

$6,14066%

$2,14323%

$4965%

$2563%

$2373%

70

GTM – Europe |

0

50

100

150

200

250

<1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8+

0

500

1,000

1,500

2,000

2,500

0

5

10

15

'87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

BB

3

4

5

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

US high yield bonds

US high yield spreads and defaults%, Fed funds rate and defaults (LHS); basis points, spread over 10-year US Treasury (RHS)

US high yield leverage measuresx, leverage and interest coverage ratio

Source: (Top) Credit Suisse, J.P. Morgan Economic Research, US Treasury, J.P. Morgan Asset Management. HY index is the J.P. Morgan Domestic High Yield index. 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. (Bottom left) Bloomberg, BofA/Merrill Lynch, J.P. Morgan Asset Management. Maturity schedule is calculated using BofA/Merrill Lynch US High Yield Constrained Index (HUC0). (Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. Guide to the Markets - Europe.Data as of 30 September 2017.

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Federal funds rate (LHS)

Asset class Average since 1986 LatestHY spread – bps (RHS) 556 393

HY defaults (LHS) 3,9%1,1% total index

2,1% energy

Interest coverage ratio

Net leverage

70

BCCC & lower

US high yield maturity scheduleUSD billions

Years to maturity

71

GTM – Europe |

0

5

10

15

20

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '170

500

1,000

1,500

2,000

2,500

BB

0

10

20

30

40

50

<1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8+3

4

5

6

7

'06 '08 '10 '12 '14 '16

Asset class Average LatestHY spread - bps (RHS) 619 262HY defaults (LHS) 4,6% 0,3%

European high yield bonds

European high yield: Spread to worst and default rates

Default rate 2002: 34%

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%, defaults (LHS); basis points, spread (RHS)

71

x, leverage and interest coverage ratioEuropean high yield leverage measures

Interest coverage ratio

Net debt / EBITDA

BCCC & lower

Source: (Top) BofA/Merrill Lynch, Credit Suisse, FactSet, J.P. Morgan Asset Management. Spread to worst is BofA/Merrill Lynch Euro Non-Financial High Yield Constrained. Default rates are reported by JPMAM GFICC Quantitative Research Group. The calculation universe is based on par value percentage of the BofA ML Global High Yield Index (HW00) that is covered by Moody’s and filtered for EUR Developed Markets Ex-Financial. (Bottom left) Bloomberg, BofA/Merrill Lynch, J.P. Morgan Asset Management. Maturity schedule is calculated using BofA/Merrill Lynch Euro Developed Markets Non-Financial High Yield Constrained Index (HECM).(Bottom right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. EBITDA is earnings before interest, tax, depreciation and amortisation. Guide to the Markets - Europe. Data as of 30 September 2017.

European high yield maturity scheduleEUR billions

Years to maturity

72

GTM – Europe |

5.4

3.9

6.4

4.6 5.1

6.8

5.1

3.7

0

5

10

15

20

25

-2

0

2

4

6

8Developed markets

Emerging markets

Emerging market debt

Emerging market debt yields% yield

Real 10-year government bond yields% yield, local currency

Cumulative emerging markets debt flowsUSD millions

Source: (Left) J.P. Morgan Dataquery, J.P. Morgan Asset Management. All indices are J.P. Morgan regional debt indices, yield to maturity. (Top right) Bloomberg, J.P. Morgan Asset Management. (Bottom right) JPMAM GFICC Quantitative Research Group. EM sovereign (local currency) is the J.P. Morgan GBI-EM; EM sovereign (USD) is the J.P. Morgan EMBI+; EM corporate (USD) is the J.P. Morgan CEMBI. Blend is flows into funds with all three EMD sub-types. Guide to the Markets - Europe. Data as of 30 September 2017.

Fixe

d in

com

e

72

Hard currency corporateHard currency government

BlendLocal currency government

Total

10-year range10-year average

Current

USD Sovereigns

EM Local US HY Euro HYUSD Corporates

USD Europe

Sov.

USD LatinAmerica

Sov.

USD AsiaSov.

Jan ‘16

-6,000

6,000

18,000

30,000

42,000

54,000

Jul ‘16 Jan ‘17 Jul ‘17

73

GTM – Europe |

0

20

40

60

80

100

120

140

160

180

200

'07 '09 '11 '13 '15 '17

0

2

4

6

0

40

80

120

2001 2006 2011 2016

50

150

250

350

450

550

0

200

400

600

800

'95 '00 '05 '10 '15

Commodities

Metal pricesIndex level, rebased to 100 at Jan 2007

China’s imports of key commoditiesMillions of metric tonnes

Gross fixed capital formation in commodity industryIndex level, rebased to 100 at Jan 1995

Source: (Left) Bloomberg, J.P. Morgan Asset Management. (Top right) China Customs, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom right) Australia Bureau of Statistics, Thomson Reuters Datastream, Worldscope, J.P. Morgan Asset Management. *Global data defined as global listedintegrated oil and gas. Guide to the Markets - Europe. Data as of 30 September 2017.

Oth

er a

sset

s

Crude oil (LHS)

Copper (RHS)Iron ore (LHS)

73

Australian mining

Global oil and gas*

Nickel

Copper

Zinc

Aluminium

74

GTM – Europe |

88

90

92

94

96

98

100

102

'12 '13 '14 '15 '16 '17 '18

0

600

1,200

1,800

200

400

600

'07 '09 '11 '13 '15 '17

0

40

80

120

160

'92 '96 '00 '04 '08 '12 '16

Oil market drivers

Crude oil pricesUSD per barrel

US rig count vs. oil inventories*Thousands of barrels (LHS); rigs (RHS)

Global oil supply and demand Millions of barrels per day

Source: (Left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Top right) Baker Hughes, Bloomberg, US Department of Energy, J.P. Morgan Asset Management. *Excluding US strategic petroleum reserve. (Bottom right) Bloomberg, EIA, J.P. Morgan Asset Management. Forecast from EIA, six-month moving average. Guide to the Markets - Europe. Data as of 30 September 2017.

Oth

er a

sset

s

Forecast

Demand

Supply

Inventories

74

YTD change Change since 2016 lowBrent crude +2,0% +68,7%

Average: $50

30 Sep 2017: $58

Share of total oil supply

In % 2012 1Q 2017 2Q

OPEC 42% 40%

US 12% 20% Rigs

75

|GTM – Europe

0

500

1,000

1,500

2,000

2,500

'78 '82 '86 '90 '94 '98 '02 '06 '10 '14

Gold market dynamics

Gold vs. US 10-year Treasury real yields Gold price$ per Troy ounce (LHS), % inverted (RHS) $ per Troy ounce

Source: (Left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) Thomson Reuters, J.P. Morgan Asset Management. Inflation-adjusted gold price is the historic gold price in today’s money, converted using the US Consumer Price Index. The 2001 low is defined as April 2001, and the 2011 peak is defined as August 2011. Guide to the Markets - Europe. Data as of 30 September 2017.

Oth

er a

sset

s

Inflation-adjusted gold price

Gold price

Real yields (inverted)

Gold

75

Change since 2001 low

Change since 2011 peak

YTD change

Gold +386,6% -29,7% +10,9%

30 Sep 2017: $1.284

-1.0

-0.5

0.0

0.5

1.01,000

1,300

1,600

1,900

'12 '13 '14 '15 '16 '17

76

GTM – Europe |

1.3

-1.1

0.5 0.4

2.9

-3.8

1.0

-0.7

-4

-2

0

2

4

Risk-adjusted returns and downside protection

Risk-adjusted returns of a 50/50 portfolioSharpe ratio of a portfolio of 50% global equities and 50% global bonds*

Six-month stock and bond correlationsOf total return on US equities (S&P 500) and US Treasuries (10-yr)

Hedge fund returns in different market environments%, average total return in up and down months, 2001-2016

Source: (Left) MSCI, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management. *The equity index is the MSCI World (EUR hedged) and the bond index is the JP Morgan Global Bond index (EUR hedged). The portfolio is rebalanced monthly. Sharpe ratio is calculated as (Return - Risk free rate) / Volatility. (Top right) Bloomberg, J.P. Morgan Asset Management. (Bottom right) Barclays, Hedge Fund Research, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. **HFRI FW is Hedge Fund Research Index Fund Weighted. ***US bonds is the Bloomberg Barclays US Aggregate Bond Index. Downside protection refers to attempting to minimise the impact of any falls in the underlying investments. Guide to the Markets - Europe. Data as of 30 September 2017.

HFRI FW**US bonds***

HFRI FW**S&P 500

S&P 500 up S&P 500 down Bond downBond up

5-year Sharpe ratio

3-year Sharpe ratio

Oth

er a

sset

s

76

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17

-1

0

1

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

77

GTM – Europe |

0

4

8

12

16

'70 '80 '90 '00 '10

-5

0

5

10

15

20

25

30

Alternative strategies

Manager dispersion: Public and private markets*%, annual returns

Public vs. private equity returns%, MSCI AC World total return vs. Global Buyout & Growth Equity Index**

Infrastructure returns%, OECD allowed RoE over cost of debt

Source: (Left) Cambridge Associates, Lipper, J.P. Morgan Asset Management. *Manager dispersion is based on the time period from 31 December 2009 through 31 December 2014, except for private equity, which is based on the five-year period ending 31 March 2014 due to returns being reported with a lag. (Top right) Cambridge Associates, Deutsche Bank, FactSet, MSCI, National Venture Capital Association, J.P. Morgan Asset Management. **Data as of 4Q16. (Bottom right) Bloomberg, Regulatory Research Associates, J.P. Morgan Asset Management. Light grey columns in all charts indicate recessions determined by NBER. Guide to the Markets - Europe. Data as of 30 September 2017.

MSCI ACWI

Recession

Electric

Natural gas

10-yr US Treasury

Utility bond

Median

Public Private

25th percentileGlobal Buyout & Growth Equity Index

Oth

er a

sset

s

5 years

77

10 years 15 years 20 years

75th percentile

10.8

4.4

9.7

6.1

12.5

9.4

13.2 12.7

0

4

8

12

16

78

1,00 0,80 0,87 0,66 0,86 -0,03 0,28 0,76 -0,20 0,47 0,80 0,14

0,88 1,00 0,72 0,72 0,74 -0,10 0,49 0,47 0,11 0,47 0,58 0,25

0,84 0,73 1,00 0,62 0,97 -0,03 0,45 0,83 -0,09 0,59 0,82 -0,08

0,95 0,90 0,78 1,00 0,67 -0,06 0,41 0,29 0,17 0,35 0,41 0,18

0,89 0,74 0,97 0,85 1,00 0,04 0,51 0,74 0,02 0,46 0,75 -0,08

0,08 0,09 0,15 0,09 0,16 1,00 0,27 -0,03 0,41 -0,37 -0,15 -0,23

0,73 0,82 0,66 0,79 0,69 0,50 1,00 0,13 0,78 0,31 0,12 -0,08

0,09 -0,03 0,52 0,01 0,41 0,07 0,04 1,00 -0,40 0,51 0,86 -0,16

0,53 0,63 0,46 0,59 0,49 0,69 0,94 -0,09 1,00 -0,03 -0,42 -0,15

0,41 0,56 0,47 0,44 0,37 -0,08 0,57 0,32 0,43 1,00 0,58 0,18

0,80 0,50 0,70 0,69 0,78 0,11 0,50 0,31 0,34 0,19 1,00 0,06

0,07 0,12 -0,24 0,25 -0,15 -0,01 0,23 -0,79 0,30 -0,08 -0,19 1,00

Correlation of returns (EUR)

Source: Barclays, Bloomberg, Citigroup, J.P. Morgan Economic Research, MSCI, NCREIF, Standard & Poor’s, US Federal Reserve, 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: Bloomberg Barclays Global Aggregate; Cmdty: Bloomberg 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. All indices are total returns based on quarterly return data in euros; real estate correlations are lagged by one quarter. Guide to the Markets - Europe. Data as of 30 September 2017.

GTM – Europe |10-year correlations

3-year correlations

MSCIEurope S&P 500 MSCI EM MSCI Asia

ex-JapanPan Europe

bonds EM debt High yieldbonds

Globalbonds Cmdty Hedge

fundsReal

estateMSCI Japan

MSCIEurope

S&P 500

MSCI EM

MSCI Asiaex-Japan

Pan Europebonds

EM debt

High yieldbonds

Global bonds

Cmdty

HedgefundsRealestate

MSCI Japan

Oth

er a

sset

s

78

79

GTM – Europe |

-6 -4 -2 0 2 4 6 8 10

Asset markets in coming years

Past and expected returns% per year

Source: 2017 Long-term capital market assumptions, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management, October 2016. Returns are in euros.The projections in the chart above are based on J.P. Morgan Asset Management’s (JPMAM) proprietary long-term capital markets assumptions (10 – 15 years) for returns of major asset classes. The resulting projections include only the benchmark return associated with the portfolio and does not include alpha from the underlying product strategies within each asset class. The assumptions are presented for illustrative purposes only. The individual asset class assumptions are not a promise of future performance. Guide to the Markets - Europe. Data as of 30 September 2017.

EM equity

Private equity

UK large cap

Eurozone large cap

EM local currency debt

US direct real estate

US large cap

Global direct infrastructure equity

Diversified hedge funds hedged

Commodities

European high yield bonds

Euro cash

Euro government bonds

World government bonds

US high yield bonds hedged

Oth

er a

sset

s

79

Expected return in coming 10-15 years

Return over past 10 years

80

GTM – Europe |

66

23

76

35

92

50

0

20

40

60

80

100

Life expectancy

Probability of reaching ages 80 and 90% probability, persons aged 65, by gender and combined couple

Source: ONS 2012-2014 Life Tables, J.P. Morgan Asset Management. Guide to the Markets - Europe. Data as of 30 September 2017.

Men

Women

Couple – at least one lives to specified age

80 years 90 years

Inve

stin

g pr

inci

ples

80

81

|GTM – Europe

-1

0

1

2

3

4

5

-1,000

0

1,000

2,000

3,000

4,000

5,000

'01 '03 '05 '07 '09 '11 '13 '15 '170

1

10

100

1,000

10,000

1899 1919 1939 1959 1979 1999

Cash investments

Income generated by €100.000 in a three-month bank deposit Total return of $1 in real termsEUR (LHS); % change year on year (RHS) USD, log scale, total returns

Source: (Left) Bloomberg, Eurostat, J.P. Morgan Asset Management. (Right) Barclays, FactSet, Shiller, Siegel, Standard & Poor’s, J.P. Morgan Asset Management.Pre 2010 returns: Shiller, Siegel; from 2010: Equities: S&P 500; Bonds: Bloomberg Barclays US Treasury 20+ year Total Return Index; Cash: Bloomberg Barclays US Treasury Bills Total Return Index. Guide to the Markets - Europe. Data as of 30 September 2017.

Sep 2017: €0

2007: €4.650

Inflation (y/y)Income Equities: $1.691

Bonds: $12

Cash: $2

Annualised real returns

1899–2016 2000–2016

Equities 6,5% 3,1%

Bonds 2,1% 4,4%

Cash 0,6% -0,6%

Inve

stin

g pr

inci

ples

81

82

|GTM – Europe

0

20,000

40,000

60,000

80,000

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '160

100,000

200,000

300,000

400,000

500,000

600,000

700,000

25 30 35 40 45 50 55 60 65

The power of compounding

€5.000 invested annually with 5% growth per year €5.000 investment with/without income reinvestedEUR EUR, MSCI Europe returns

Source: (Left) J.P. Morgan Asset Management. For illustrative purposes only, assumes all income reinvested, actual investments may incur higher or lower growth rates and charges. (Right) Bloomberg, MSCI, J.P. Morgan Asset Management. Based on MSCI Europe index and assumes no charges. Guide to the Markets - Europe. Data as of 30 September 2017.

Inve

stin

g pr

inci

ples

Starting at age 35

Starting at age 25

Without dividends reinvested

With dividends reinvested

Age

€71.635

€27.709

82

€639.199

€353.803

83

GTM – Europe |

13

2

15

34

16

39

21

-18

22

28

-19

13

6

34

-8

12

20

35

20

28

-4

-18

-31

17

9

22

16

3

-41

23

4

-12

12

18

2 24

9

-11-15

-7-4

-11

-3

-10

-35

-6

-11

-24

-11

-18

-4

-16

-6 -5

-12

-31

-9-12

-35 -37

-22

-8-6

-12 -12

-48

-26

-15

-25

-15-12 -12

-17-15

-4

-50

-40

-30

-20

-10

0

10

20

30

40

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Annual returns and intra-year declines

MSCI Europe Index intra-year declines vs. calendar-year returnsDespite average intra-year drops of 15,6% (median 12,0%), annual returns are positive in 29 of 37 years%

Source: FactSet, MSCI, J.P Morgan Asset Management. Returns are based on local 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 1980 to 2017.Guide to the Markets - Europe. Data as of 30 September 2017.

Intra-year decline

Calendar-year return

Inve

stin

g pr

inci

ples

83

YTD

84

GTM – Europe |

3,4%

-0,8%

-5,7%

-9,5%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Impact of being out of the market

Returns of MSCI EuropeEUR, value of a €10.000 investment between 2001 and 2016 with annualised return (%)

Source: FactSet, MSCI, J.P. Morgan Asset Management. For illustrative purposes only. Assumes all income is reinvested; returns calculated daily over the time period assuming no return on each of the specified number of best days. Guide to the Markets - Europe. Data as of 30 September 2017.In

vest

ing

prin

cipl

es

Initial investment

Fully invested

84

Missed 10 best days Missed 30 best days Missed 50 best days

85

GTM – Europe |

48% 49%

30%24% 24% 21%

17% 17% 18%13% 15%

-18%-24%

-7% -3% -1% -3% 0%1%

4%1%

4%

-50

-25

0

25

50

75

61%

-43%

US asset returns by holding period

Range of equity and bond total returns%, annualised total returns, 1950-present

Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Large cap equity represents the S&P 500 Composite and Bonds represents the Strategas/Ibbotson US Government Bond Index and US Long-term Corporate Bond Index. Returns shown are per annum and are calculated based on monthly returns from 1950 to latest available and include dividends. Guide to the Markets - Europe. Data as of 30 September 2017.

1-yr rolling 5-yr rolling 10-yr rolling 20-yr rolling

Large cap equityBonds50/50 portfolio

Inve

stin

g pr

inci

ples

85

86

Asset class returns (EUR)

Source: Barclays, Bloomberg, FactSet, FTSE, MSCI, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Annualised return covers the period from 2007 to 2016. Vol. is the standard deviation of annual returns. Govt bonds: Bloomberg Barclays Global Aggregate Government Treasuries; HY bonds: Blomberg Barclays Global High Yield; EMD: J.P. Morgan EMBI+; IG bonds: Bloomberg Barclays Global Aggregate – Corporates; Cmdty: Bloomberg UBS Commodity; REITS: FTSE NAREIT All REITS; DM Equities: MSCI World; EME: MSCI EM; Hedge funds: Credit Suisse/Tremont Hedge Fund; Cash: JP Morgan Cash Index ECU (3M). Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 30% DM equities; 10% EM equities; 15% IG bonds; 12,5% government bonds; 7,5% HY bonds; 5% EMD; 5% commodities; 5% cash; 5% REITS and 5% hedge funds. All returns except Hedge Funds are unhedged. All returns are total return, in EUR. Guide to the Markets - Europe. Data as of 30 September 2017.

GTM – Europe |

Inve

stin

g pr

inci

ples

20102007 20122008 2011 20162009 2013 2014 201510-yr ann. Vol.QTD

86

YTD

EME 26,1%

Govt bonds 15,9%

EME 73,4%

REITS 36,4%

EMD 12,9%

REITS 18,3%

DM Equities 21,9%

REITS 44,8%

REITS 13,9%

HY bonds 17,7%

EME 14,3%

EME 4,2%

HY bonds 9,8%

EME 30,8%

Hedge Funds 10,6%

Cash 5,7%

HY bonds 54,4%

EME 27,5%

REITS 10,9%

HY bonds 17,8%

Hedge Funds 9,1%

EMD 20,9%

EMD 13,4%

Cmdty 15,2%

Hedge Funds 4,5%

DM Equities 1,3%

EMD 9,0%

REITS 23,5%

Cmdty 5,1%

IG bonds -3,9%

DM Equities 26,7%

Cmdty 24,9%

Govt bonds 9,9%

EME 16,8%

Portfolio 3,6%

DM Equities 20,1%

DM Equities 11,0%

EME 14,9%

DM Equities 4,0%

Hedge Funds 0,9%

REITS 7,1%

HY bonds 19,2%

Cash 4,4%

EMD -5,0%

Portfolio 25,8%

HY bonds 22,8%

IG bonds 7,8%

EMD 16,2%

HY bonds 2,7%

IG bonds 17,5%

HY bonds 8,4%

EMD 12,9%

Portfolio 0,3%

Portfolio 0,1%

DM Equities 6,8%

DM Equities 17,7%

Portfolio 0,7%

Hedge Funds -19,0%

REITS 23,5%

DM Equities 20,1%

HY bonds 6,6%

DM Equities 14,7%

Cash 0,2%

Portfolio 15,7%

Govt bonds 7,7%

REITS 12,6%

Cash -0,2%

Cash -0,1%

Portfolio 6,5%

Cmdty 16,6%

Govt bonds -0,3%

Portfolio -20,8%

EMD 22,0%

EMD 19,6%

Cash 1,7%

Portfolio 10,9%

REITS -1,3%

HY bonds 13,9%

IG bonds 7,4%

DM Equities 11,4%

HY bonds -2,3%

HY bonds -0,8%

IG bonds 6,4%

Portfolio 12,0%

DM Equities -1,2%

HY bonds -23,1%

Hedge Funds 18,6%

Portfolio 18,7%

Portfolio 1,4%

IG bonds 9,5%

IG bonds -4,0%

Govt bonds 13,0%

Portfolio 6,0%

Portfolio 9,9%

EMD -3,1%

Cmdty -1,1%

Govt bonds 5,3%

EMD 11,6%

IG bonds -3,7%

Cmdty -32,7%

Cmdty 15,8%

Govt bonds 13,3%

DM Equities -1,8%

Hedge Funds 7,3%

EME -6,5%

EME 11,8%

Cash 0,1%

IG bonds 7,4%

IG bonds -4,1%

IG bonds -1,4%

EME 4,5%

Hedge Funds 9,8%

EMD -4,0%

REITS -34,1%

IG bonds 15,5%

IG bonds 13,2%

Hedge Funds -2,4%

Cash 1,2%

Govt bonds -8,4%

Hedge Funds 3,7%

Hedge Funds -1,1%

Govt bonds 4,7%

REITS -4,8%

EMD -1,4%

Hedge Funds 3,0%

IG bonds 7,6%

HY bonds -7,0%

DM Equities -37,2%

Cash 2,3%

Hedge Funds 10,2%

Cmdty -10,4%

Govt bonds 0,3%

EMD -12,3%

Cash 0,3%

EME -4,9%

Cash -0,2%

Govt bonds -5,3%

Govt bonds -2,0%

Cash 1,7%

Govt bonds 7,4%

REITS -25,9%

EME -50,8%

Govt bonds -0,6%

Cash 1,1%

EME -15,4%

Cmdty -2,6%

Cmdty -13,4%

Cmdty -5,5%

Cmdty -16,1%

Hedge Funds -1,7%

Cmdty -13,3%

REITS -2,3%

Cmdty -3,4%

Cash 1,9%

J.P. Morgan Asset Management: Index definitionsAll indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. The S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market, representing all major industries.The Russell 3000 Index® measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell 1000 Index ® measures the performance of the 1,000 largest companies in the Russell 3000. The Russell 1000 Growth Index ® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index ® measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap Index ® measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell Midcap Growth Index ® measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The Russell Midcap Value Index ® measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index. The Russell 2000 Index ® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.The Russell 2000 Growth Index ® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Value Index ® measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell Top 200 Index ® measures the performance of the largest cap segment of the U.S. equity universe. It includes approximately 200 of the largest securities based on a combination of their market cap and current index membership and represents approximately 68% of the U.S. market. The MSCI® EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America. The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWIconsisted of 45 country indices comprising 23 developed and 22 emerging market country indices. The MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group, within each country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of USD200-1,500 million.The MSCI All Country Asia Pacific ex-Japan Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The MSCI All Country Asia Pacific ex-Japan Index consists of the following 11 developed and emerging market countries: Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, and Thailand.

The MSCI China Index is an unmanaged index considered representative of stocks of China.The MSCI KOKUSAI Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets excluding Japan. The MSCI KOKUSAI Index consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States*.The Nikkei 225 Index is a price-weighted average of the 225 top-rated Japanese companies listed in the first section of the Tokyo Stock Exchange.The Tokyo Price Index (TOPIX) is a capitalization-weighted index lists all firms that are considered to be under the 'first section' on the TSE, which groups all of the large firms on the exchange into one pool. The second section groups all of the remaining smaller firms.The FTSE 100 Index is an index of the 100 largest companies (by market capitalization) in the United Kingdom.The FTSE All Share Index is an index of the 630 largest companies (by market capitalization) in the United Kingdom.The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes - three for value and five for growth including forward-looking variables. The objective of the indexdesign is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each 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) ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either "value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index.The following MSCI Total Return IndicesSM are calculated with gross dividends:This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to individuals resident in the country of the company, but does not include tax credits.The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Pacific IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of June 2007, the MSCI Pacific Index consisted of the following 5 Developed Market countries: Australia, Hong Kong, Japan, New Zealand, and Singapore. Credit Suisse/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index, LLC. It is an asset-weighted hedge fund index and includes only funds, as opposed to separate accounts. The Index uses the Credit Suisse/Tremont database, which tracks over 4500 funds, and consists only of funds with a minimum of US$50 million under management, a 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC. The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of 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. The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance, and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.

J.P. Morgan Asset Management: Index definitionsThe Dow Jones Industrial Average measures the stock performance of 30 leading blue-chip U.S. companiesThe Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents twenty two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc.West Texas Intermediate (WTI) is underlying commodity in the New York Mercantile Exchange's oil futures contracts. The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. The Bloomberg Barclays U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. This U.S. Treasury Index is a component of the U.S. Government index. The Bloomberg Barclays High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. The Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. The Bloomberg Barclays Euro-Aggregate Index consists of bond issued in the euro or the legacy currencies of the sovereign countries participating the European Monetary Union (EMU).The Global Bond Index Emerging Market Broad Diversified Index (GBI-EM) is a comprehensive global local emerging markets index, and consists of liquid, fixed-rate, domestic currency government bonds.The Bloomberg Barclays Global Aggregate Corporate Index consists of corporate issues in Europe, the US and Asia-pacific regions. The Bloomberg Barclays Global High Yield Index is an unmanaged index considered representative of fixed rate, noninvestment-grade debt of companies in the U.S., developed markets and emerging markets.The Bloomberg Barclays Emerging Markets Index includes USD-denominated debt from emerging markets in the following regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability.The Bloomberg Barclays MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. Aggregate components must have a weighted average maturity of at least one year, must have $250 million par amount outstanding, and must be fixed rate mortgages.The Bloomberg Barclays Corporate Bond Index is the Corporate component of the U.S. Credit index.The Bloomberg Barclays 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 China’s electricity production, financial institution loans and railway freight.The Euro Stoxx 600 Index represents large, mid and small capitalisation companies across 18 European countries. The JPMorgan GBI-EM Global Diversified consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index.The JPMorgan Corporate Emerging Markets Bond Index (CEMBI): The CEMBI tracks total returns of US dollar-denominated debt instruments issued by corporate entities in Emerging Markets countries, and consists of an investable universe of corporate bonds. Both indices are also available in Diversified version. The JPMorgan CEMBI Index is a USD denominated external debt index tracking bond issued by sovereigns and quasi-sovereigns in the developing nations. The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market.

The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing exposure to the systematic risk of the market (i.e. a beta of zero).*The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among several hedge fund strategies. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage.The Bloomberg Barclays U.S. Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate note market.*Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy, and are based on a December 8, 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data). Presumed to be excluded from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard 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 assumes no responsibility for these estimates.The Office of National Statistics (ONS) Index is a mix-adjusted average housing price index. The index is calculated monthly using mortgage financed transactions from the Regulated Mortgage Survey by the Council of Mortgage Lenders. The Nationwide House Price Index is a mix adjusted index constructed from Nationwide lending data across the UK.The Halifax House Price Index is constructed from mortgage data derived from Halifax lending data across the UK.The MSCI AC World High Dividend Yield Index is composed of those securities that have higher-than-average dividend yield within its parent index, a track record of consistent dividend payments and the capacity to sustain future dividend payments.

J.P. Morgan Asset Management: Risks and disclosures

The Market Insights programme provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the programme explores the implications of current economic data and changing market conditions.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results.

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority; in other EEA jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E); in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Korea by JPMorgan Asset Management (Korea) Company Limited; in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in the United States by JPMorgan Distribution Services Inc. and J.P. Morgan Institutional Investments, Inc., both members of FINRA/SIPC.; and J.P. Morgan Investment Management Inc.

In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other countries in APAC, to intended recipients only.

Copyright 2017 JPMorgan Chase & Co. All rights reserved.

Prepared by: Tilmann Galler, Vincent Juvyns, Maria Paola Toschi, Michael Bell, Nandini Ramakrishnan, Jai Malhi and Ambrose CroftonUnless otherwise stated, all data as of 30 September 2017 or most recently available.Guide to the Markets - EuropeJP-LITTLEBOOK

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