Guide to the Markets Guide to the Markets - Asia - MARKET INSIGHTS - JP Morgan Asset Management
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Guide to the Markets - Asia
MARKET INSIGHTS
Guide to the Markets
Asia | 2Q 2020 | As of March 31, 2020Global Market Insights Strategy Team GTM – Asia | 2
Dr. David Kelly, CFA
New York
Karen Ward
Samantha Azzarello London Tilmann Galler, CFA Tai Hui
Hong Kong Chaoping Zhu, CFA
New York Frankfurt
Shanghai
David Lebovitz
New York
Michael Bell, CFA
Dr. Cecelia Mundt Maria Paola Toschi Marcella Chow
London
New York Milan Hong Kong
Yoshinori Shigemi
Gabriela Santos Tokyo
New York
Hugh Gimber, CFA
London Ian Hui Agnes Lin
Alex Dryden, CFA Vincent Juvyns
Hong Kong Taipei
New York Luxembourg
Shogo Maekawa
Tokyo
John Manley
New York
Ambrose Crofton, CFA
London
Meera Pandit, CFA Dr. Jasslyn Yeo, CFA
Manuel Arroyo Ozores, CFA
New York Singapore
Madrid
Kerry Craig, CFA
Jordan Jackson
Melbourne
New York Jai Malhi, CFA
London
Tyler Voigt, CFA
New York
Lucia Gutierrez Mellado
Jennie Li
Max McKechnie Madrid
New York
LondonPage reference GTM – Asia | 3
Regional and local economy Fixed income
4. Asia: Economic snapshot 47. Global fixed income: Yields and returns
5. ASEAN: Economic snapshot 48. Global fixed income: Return composition
6. ASEAN: Monetary and fiscal policy 49. Global fixed income: Valuations
7. China: Economic snapshot 50. Global fixed income: Bond yields and returns
8. China: Cyclical indicators 51. Global fixed income: Negative-yielding debt and bond market size
9. China: Policy stimulus timeline 52. Global fixed income: Yields and risks
10. China: Monetary policy 53. Global fixed income: Interest rate sensitivity
11. China: Fiscal policy 54. Global fixed income: U.S. business cycles and yield curve
12. China: Credit and leverage 55. U.S. real yields
13. China: Exchange rate and foreign reserves 56. U.S. investment grade bonds
57. U.S. securitized assets
Global economy 58. U.S. high yield bonds
14. Global growth 59. Emerging market debt
15. Global Purchasing Managers’ Index (PMI) 60. China bonds
16. Global capital expenditures
17. Global supply chains Other asset classes
18. Global trade 61. Asset class returns
19. Barriers to trade 62. Volatility
20. Global inflation 63. Market performance in drawdowns
21. Central bank policy rates 64. U.S. dollar
22. Central bank balance sheets 65. Currencies
23. Eurozone & Japan: Monetary policy 66. Emerging market external positions
24. Government debt and fiscal balance 67. Commodities
25. Political calendar 68. Gold
26. United States: Election 69. Oil: Short-term market dynamics
27. United States: Economic growth and the composition of GDP 70. Alternative sources of income
28. United States: Business cycle thermometer 71. Understanding alternatives
29. United States: Consumer finances
30. United States: Employment and wages Investing principles
31. United States: Inflation 72. Real return on cash and yields
32. United States: Monetary policy 73. Annual returns and intra-year declines
33. Eurozone: Economic snapshot 74. Fixed income annual returns and intra-year declines
75. The compounding effect
Equities 76. Portfolio construction, asset class returns and volatility
34. Global and Asia equity market returns 77. The benefits of diversification and long-term investing
35. Global equities: Return composition
36. Global equities: Profit margins
37. Global equities: Earnings expectations
38. Global equities: Valuations
39. Global equities: High dividend
40. Global equities: Growth versus value
41. Emerging market equities: Performance drivers
42. APAC ex-Japan equities: Exports & earnings
43. Korea & Taiwan: Exports & earnings
44. China: Equities snapshot
45. United States: Earnings and sector valuations
46. United States: Bear markets and subsequent bull returns
3Asia: Economic snapshot GTM – Asia | 4
EM Asia ex-China* manufacturing PMI and real GDP growth EM Asia ex-China* investment and exports
local economy
Index Year-over-year change Year-over-year change, 3-month moving average
Regional and
60 12% 30%
Manufacturing PMI GDP growth
58
10%
20%
56
8%
54 Nominal investment
10%
6%
52
50 4% 0%
48
2%
-10%
46
Export volumes
0%
44
-20%
-2%
42
40 -4% -30%
'03 '05 '07 '09 '11 '13 '15 '17 '19 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
Source: IHS Markit, J.P. Morgan Economic Research, National Statistics Agencies, J.P. Morgan Asset Management; (Right) Netherlands Bureau of Policy Analysis.
PMI = Purchasing Managers’ Index. PMIs are relative to 50, which indicates contraction (below 50) or expansion (above 50) of the sector.
*Emerging Market (EM) Asia ex-China includes Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
4ASEAN: Economic snapshot GTM – Asia | 5
Exports Consumption growth
local economy
Year-over-year change, 6-month moving average Year-over-year change
Regional and
40% 20%
15%
Philippines
30% Malaysia
10% Vietnam
Malaysia
5%
Vietnam
Singapore
20% 0%
Philippines
Thailand Indonesia
-5%
Singapore '12 '14 '16 '18 '20
10%
Current account balance
Share of GDP
25%
Singapore
Thailand 20%
0%
15%
10% Philippines Thailand
-10% Indonesia 5% Malaysia
0%
-5% Vietnam
Indonesia
-20% -10%
'12 '14 '16 '18 '20 '12 '14 '16 '18 '20
Source: FactSet, National Statistics Agencies, J.P. Morgan Asset Management; (Top right) OECD; (Bottom right) Bangko Sentral ng Pilipinas, Bank Indonesia, Bank
Negara Malaysia, Bank of Thailand, State Bank of Vietnam, Statistics Singapore.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
5ASEAN: Monetary and fiscal policy GTM – Asia | 6
Central bank policy rates* Government deficit or surplus
local economy
Per annum Share of GDP
Regional and
7% 3%
Singapore
Vietnam 2%
6%
1%
5% 0%
Philippines
Indonesia
-1%
Thailand
4%
-2%
Philippines
Indonesia
-3%
3%
-4% Malaysia
Malaysia
2% -5%
-6%
Vietnam
1%
Thailand
-7%
0% -8%
'17 '18 '19 '20 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Source: Bangko Sentral ng Pilipinas, Bank Indonesia, Bank Negara Malaysia, Bank of Thailand, FactSet, State Bank of Vietnam, J.P. Morgan Asset Management;
(Right) Bureau of Treasury Philippines, Ministry of Finance Indonesia, Statistics Singapore.
*The central banks’ policy rates used are: Bank Indonesia 7-day reverse repo rate (Indonesia), overnight policy rate (Malaysia), Bangko Sentral ng Pilipinas overnight
reverse repurchase facility (Philippines), one-day repurchase rate (Thailand) and Vietnam Base Rate (Vietnam). Singapore is not included as the Monetary Authority of
Singapore targets the exchange rate of the Singapore dollar, rather than interest rates, to manage monetary policy.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
6China: Economic snapshot GTM – Asia | 7
Contribution to real GDP growth Caixin/Markit Purchasing Managers’ Indices
local economy
Year-over-year change Level
Regional and
20% 70
Gross capital formation (investment) 65
60 Services
Consumption
55
16% Net exports
50
GDP 45
Manufacturing
40 3/2020: 50.1
12% 35
30
2019: 6.1% 2/2020: 26.5
25
20
8% '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Electricity consumption
4% Year-to-date, year-over-year change
50%
40%
0% 30%
20%
Tertiary
10%
-4%
0%
Secondary 2/2020: -3.1%
-10%
-8% -20% 2/2020: -12%
'80 '85 '90 '95 '00 '05 '10 '15 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Source: J.P. Morgan Asset Management; (Left) CEIC, National Bureau of Statistics of China; (Top right) Caixin/Markit, J.P. Morgan Economic Research; (Bottom right)
CEIC, China Electricity Council.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
7China: Cyclical indicators GTM – Asia | 8
Retail and online sales Fixed asset investment
local economy
Year-over-year change, 3-month moving average Year-to-date, year-over-year change
Regional and
12% 50%
Online sales
45% 40%
8%
30% Private State-owned enterprises
4% 35%
20%
0% 10%
25%
0%
-4%
15% -10%
-8% Total
-20%
Retail sales
-12% 5% -30%
'16 '17 '18 '19 '20 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Property prices and land sales CPI and PPI inflation
Year-to-date, year-over-year change Year-over-year change
30% 90% 8%
Land area sold*
25% 75% 6%
20% 60%
4% Headline CPI
15% 45%
10% 30% 2%
Core CPI
5% 15% 0%
0% 0%
-2% PPI
-5% -15%
-4%
-10% -30%
-15% Residential property prices (lagged 12m) -45% -6%
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Source: CEIC, National Bureau of Statistics of China, J.P. Morgan Asset Management.
CPI = Consumer Price Index; PPI = Producer Price Index.
*Land area sold is cut off in 2011 to maintain a more reasonable scale, as growth in land area sold exceeded 90% year-over-year.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
8China: Policy stimulus timeline GTM – Asia | 9
Chinese policy measures
local economy
Regional and
Monetary policy Liquidity support to Loan prime 5bps cut in MLF, LPR and 7- 10bps rate cuts Targeted RRR
small and medium- rate (LPR) day reverse repo rates. 5bps to reverse repo, cuts of 50bps
Fiscal policy sized banks reform cut in 14-day reverse repo rate MLF and LPR to 100bps
2018 1Q 2019 2Q 2019 3Q 2019 4Q 2019 Jan 2020 Feb 2020 Mar 2020
50bps targeted 100bps RRR RRR cut up to 50bps RRR cut, 50bps RMB 800 billion 20bps cut to 7-day
RRR cuts; cut 350bps for small 100bps targeted RRR cut re-lending loans reverse repo rate.
200bps overall and medium- RRR cut and 5bps to SMEs, with Additional RMB 1 trillion
RRR cuts sized banks drop in LPR rate interest subsidy re-lending loans to SMEs.
RMB 1.95 Social security contribution
trillion in local Local Cut in VAT rate RMB 1 trillion of 2020 special local waived, tax declaration Purchase tax
government government and firms’ government bond quota allocated postponed, exemption extended
special bonds bond issuance social security early; equity capital requirement* VAT waiver or cut for small to end-2022 for new
issued push contributions loosened to promote investment business to May 31 energy vehicles.
2018 1Q 2019 2Q 2019 3Q 2019 4Q 2019 Jan 2020 Feb 2020 Mar 2020
1ppt cut to value- Special deductibles Policy support Advance 5G, industrial internet, health care
added tax (VAT) introduced to for infra- special infrastructure highlighted in
rate; individual individual income structure local bond infrastructure investment plan
income tax cut tax system investment* issuance
Source: Various news sources, J.P. Morgan Asset Management.
Required Reserve Ratio (RRR), Medium-term Lending Facility (MLF), Loan Prime Rate (LPR), and reserve repo rates are all monetary policy tools. SMEs stand for
small and medium enterprises.
*Under the new rules, some of the proceeds from local government special bond issuances can be used as equity capital and this capital can then be leveraged up
with debt funding from financial institutions to amplify fiscal support for infrastructure investment.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
9China: Monetary policy GTM – Asia | 10
Liquidity injection by the PBoC Reserve requirement ratio***
local economy
Regional and
RMB billions, net injection RMB billions, net injection 22%
2,400 600
Open market operation*
20%
Monetary policy tools**
2,000 500 18% Large banks
16%
1,600 400
14% Small- and medium-sized banks
1,200 300 12%
10%
800 200 '10 '12 '14 '16 '18 '20
Key policy rates
400 100 Per annum
7.5% Loan prime rate (1-year)****
0 0 6.0%
Lending rate (1-year)
4.5%
-400 -100 Medium-term lending
facility (1-year)
3.0%
-800 -200 Interbank repo (7-day)
1.5%
Deposit rate (1-year)
Total, 6-month moving average
-1,200 -300 0.0%
'14 '15 '16 '17 '18 '19 '20 '15 '16 '17 '18 '19 '20
Source: CEIC, People’s Bank of China (PBoC), J.P. Morgan Asset Management; (Bottom right) National Interbank Funding Center.
*Open market operation (OMO) includes reverse repo, repo and central bank bill issuance by the People’s Bank of China.
**Monetary policy tools include short-term liquidity operations (SLO), standing liquidity facility (SLF), medium-term liquidity facility (MLF) and pledged supplementary
lending (PSL). ***The PBoC also announced targeted RRR cuts in 2019 and 2020, the actual RRR rates implemented are 100 to 150 bps below the official RRR for
most banks. ****Starting from August 2019, the PBoC releases a monthly 1-year and 5-year loan prime rate (LPR) based on quotes from 18 banks. For this new
monthly quote, banks are required to submit them in the form of open market operation rates (especially MLF) plus a margin to the national inter-bank lending center.
The central bank requests all commercial banks to reference the finalized LPR to price their new lending and use LPR as the benchmark rate in floating rate loan
10 contracts going forward.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.China: Fiscal policy GTM – Asia | 11
Fiscal revenue and expenditure* Fiscal balance
balance***
local economy
Year-over-year change, 3-month moving average % of nominal GDP
Regional and
30% 0%
Fiscal expenditure
20%
Budget deficit
-2%
10%
0% -4%
Fiscal revenue Actual deficit
-10%
-6%
-20%
'14 '15 '16 '17 '18 '19
-8%
Local government bond issuance** Augmented deficit
RMB billions
1,000
Special bonds -10%
800 General bonds
600 -12%
400
-14%
200
0 -16%
Jan '18 May '18 Sep '18 Jan '19 May '19 Sep '19 Jan '20 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Source: CEIC, J.P. Morgan Asset Management; (Top and bottom left) Ministry of Finance of China; (Right) Agricultural Development Bank of China, China Development
Bank, China Trustee Association, People’s Bank of China, Wind. *Fiscal revenue includes taxes, government funds, which are mostly derived from local government
land sales, and other government revenues. Fiscal expenditure includes government spending of funds raised from taxes, government funds and general bond
issuance. **A general local government bond is issued to raise funds and offset fiscal deficit so as to maintain the ordinary operation of local government. It is backed by
the future fiscal revenue of the local government. A special local government bond is issued to support the investment in a specific infrastructure or public project. It is
backed by the future revenue from the project. ***Actual deficit = fiscal revenue - fiscal expenditure (as shown in top left chart). Budget deficit = actual deficit adjusted
with the fiscal stability fund. Augmented deficit is an estimate of all the fiscal resources motivated by the government to support economic growth, i.e. fiscal balance plus
11 investment via local government financing vehicles, policy banks and other channels. 2019 and 2020 are J.P. Morgan Asset Management estimates.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.China: Credit and leverage GTM – Asia | 12
Difference between credit* growth and nominal GDP growth
local economy
Percentage points, year-over-year change, 3-month moving average
Regional and
30
Rapid rebound in CPI & PPI
25 COVID-19
Tightening: 125bps
20 Interbank virus
rate hikes, BASEL III
adoption liquidity Loosening: outbreak
15 Loosening:
Loosening: crunch 165bps rate Loosening:
216bps rate cuts, A-share
56bps rate cuts, LGFV RRR cuts
10 4tn stimulus market crash
cuts, trust debt swap***
5 Tightening
boom Tightening: shadow
banking tightening Rate cut
0
-5 Global Financial Crisis Wenzhou small and medium enterprise (SME) crisis**
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Total social financing Chinese credit impulse and global new orders
RMB billions Year-over-year change, 3-month moving average % of nominal GDP, year-over-year change Difference from one year ago
5,000 Total social financing 200% 20% 8
Bank loans +
Global composite PMI - New orders
direct financing 15% 6
4,000
Off-balance sheet 150%
10% 4
3,000 financing
100% 5% 2
2,000 0% 0
50% -5% -2
1,000
-10% -4
0%
0
-15% -6
Credit impulse**** (advanced 6 months)
-1,000 -50% -20% -8
'15 '16 '17 '18 '19 '20 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Source: CEIC, People’s Bank of China, J.P. Morgan Asset Management; (Top) China Central Depository & Clearing Co., Shanghai Clearing House; (Bottom right)
Ministry of Finance of China. Credit growth, and credit impulse, to GDP growth ratio utilize rolling 12-month nominal GDP and credit stock. CPI stands for consumer
price index and PPI stands for producer price index. *Stock of credit to the real economy, defined as the net total social financing plus government financing.
**Wenzhou SME crisis refers to the wave of bankruptcies and funding problems faced by a large number of SMEs in Wenzhou in 2011. ***LGFV refers to local
government financing vehicle. ****Credit impulse measures the year-over-year change of credit flow (net total social financing plus government financing) as a
percentage of nominal GDP.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
12China: Exchange rate and foreign reserves GTM – Asia | 13
Chinese yuan exchange rate: CFETS CNY* vs. USD USD / CNY and change in FX reserves
local economy
Index, Jan. 2016 = 100
Regional and
106 120 6.0
USD / CNY (inverted)
Stronger yuan
104 90
6.2
102
USD / CNY 60
100 6.4
30
98
0 6.6
96
-30
94 6.8
-60
92
CFETS CNY index
7.0
-90
90
Weaker yuan
Change in monthly FX reserves (USD billions)
88 -120 7.2
'16 '17 '18 '19 '20 '13 '14 '15 '16 '17 '18 '19 '20
Source: FactSet, J.P. Morgan Asset Management; (Left) China Foreign Exchange Trade Center, J.P. Morgan Economic Research; (Right) People’s Bank of China.
*CFETS RMB index is the China Foreign Exchange Trade System basket of 24 currencies traded against the Chinese renminbi. Past performance is not a reliable
indicator of current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
13Global growth GTM – Asia | 14
Contribution to real GDP growth
Year-over-year change Global
5% EM ex-China
DM ex-U.S.
U.S.
4%
Global economy
China
3%
2%
1%
0%
-1%
-2%
-3%
'80 '85 '90 '95 '00 '05 '10 '15
Source: World Bank, J.P. Morgan Asset Management. EM stands for emerging markets, DM for developed markets.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
14Global Purchasing Managers’ Index (PMI) GTM – Asia | 15
Global manufacturing and services PMI Global manufacturing PMI breakdown
Index
Aug '19
May '19
Nov '19
Jun '19
Sep '19
Dec '19
Feb '20
Apr '19
Oct '19
Jan '20
Mar '20
Jul '19
65
Global 47.1 47.6
Services
DM* 49.5 46.0
60
Global economy
EM** 44.6 49.1
U.S. (Markit) 50.7 48.5
U.S. (ISM) 50.1 49.1
55 Euro area 49.2 44.5
Germ any 48.0 45.4
France 49.8 43.2
50 Italy 48.7 40.3
Spain 50.4 45.7
UK 51.7 47.8
Australia 50.2 49.7
45
Japan 47.8 44.8
China (Markit) 40.3 50.1
China (NBS) 35.7 52.0
40 Korea 48.7 44.2
Taiw an 49.9 50.4
Indonesia 51.9 45.3
35 Manufacturing India 54.5 51.8
Russia 48.2 47.5
Brazil 52.3 48.4
Mexico 50.0 47.9
30
# m arkets above 50 13 9 6 3 6 6 6 5 7 7 7 3
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
Source: Australian Industry Group, Institute for Supply Management, J.P. Morgan Economic Research, Markit, J.P. Morgan Asset Management.
PMIs are relative to 50, which indicates deceleration (below 50) or acceleration (above 50) of the sector. Heatmap colors are based on PMI relative to the 50 level,
with green (red) corresponding to acceleration (deceleration). *Developed market includes Australia, Canada, Denmark, Euro area, Japan, New Zealand, Norway,
Sweden, Switzerland, UK and U.S. **Emerging market includes Brazil, Chile, China, Colombia, Croatia, Czech Republic, Hong Kong SAR, Hungary, India, Indonesia,
Israel, Korea, Malaysia, Mexico, Philippines, Poland, Romania, Russia, Saudi Arabia, Singapore, South Africa, Taiwan, Thailand, Turkey and Vietnam. Japan
December 2019 number is a flash estimate.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
15Global capital expenditures GTM – Asia | 16
Capital goods imports and investment goods output Global manufacturing PMI - New orders sub-index
Index, 7-month lead Year-over-year change, 3MMA Index
60 25% 60
Global Mfg. PMI – Investment Goods Output sub-index
58 20% 58
Global economy
56 56
15%
Consumer goods
54 54
10%
52 52
5%
50 50
0%
48 48
-5%
46 46
-10% Investment goods
44 44
42 -15% 42
Global (ex-China) capital goods imports growth*
40 -20% 40
'11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Source: Factset, J.P. Morgan Economic Research, National Statistics Agencies, J.P. Morgan Asset Management.
*The series aggregates monthly capital goods imports growth data of 29 developed and emerging markets, weighted by their nominal gross domestic product.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
16Global supply chains GTM – Asia | 17
Foreign value added in domestic exports Supplier delivery times
Source of foreign value add in exports as a % of total goods exports*, 2015 Manufacturing PMI subindex, G4** average
56
35% U.S. Japan Taiwan Other
53
China Korea Euro area
50
Global economy
30% 47
44
41
25%
38
35
'07 '09 '11 '13 '15 '17 '19
20%
Manufacturing as share of global total
30%
15%
2000 2008 2018
25%
10% 20%
15%
5% 10%
5%
0% 0%
U.S. China Japan Korea Taiwan Euro area U.S. China EU Japan Korea Taiwan ROW
Source: J.P. Morgan Asset Management; (Left) OECD Trade in Value Add; (Top right) J.P. Morgan Economics Research, Markit; (Bottom right) United Nations
Industrial Development Organization.
*Origin country of value-added to goods exported from each country to the world, divided by gross exports from each country. 2015 is the latest year for which country
by country data are available.
**G4 is defined as the four largest economies: China, Japan, Euro area, United States.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
17Global trade GTM – Asia | 18
Global trade activity Exports as a percentage of GDP – 2018
Year-over-year change, 3MMA Index, 4-month lead Goods share of GDP
20% 65
Global trade volume growth U.S. 8.1%
15% EU** 12.4%
60
Global economy
Japan 14.8%
10% U.S.
Canada 26.1%
EU
55
Japan
5%
India 11.9% China
Other
50 Brazil 13.0%
0%
China 18.7%
-5% Russia 27.1%
45
Mexico 36.9%
-10%
40
-15% Australia 17.9%
Korea 35.2%
35
-20% ASEAN 48.6%
New export orders* Taiwan 54.9%
-25% 30
'01 '03 '05 '07 '09 '11 '13 '15 '17 '19 0% 25% 50% 75%
Source: FactSet, J.P. Morgan Asset Management; (Left) Markit, Netherlands Bureau of Policy Research; (Right) International Monetary Fund.
*Series shown is the Global Manufacturing Purchasing Managers’ Index Sub-Index for new export orders.
**EU exports as a percentage of GDP exclude intra-EU trade as the European Union is considered one regional economy.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
18Barriers to trade GTM – Asia | 19
China & U.S. tariffs
Weighted average tariff rate on imports from other* China tariffs
25% Third round of Sec. 301 tariffs & on imports
U.S. U.S. steel &
retaliation (U.S. on USD 200B of from U.S.
solar aluminum
imports; China USD 60B)
20% panel & tariffs First round
washing of Sec. 301 Tariffs placed on
machine tariffs & remainder of imports
15%
Global economy
tariffs retaliation
(USD 34B)
10% U.S. tariffs on imports U.S. & China
from China U.S. & China decrease Sec.
Second round of
increase Sec. 301 tariff rates
5% Sec. 301 tariffs &
301 tariff rates
retaliation (USD 16B)
0%
Jan '18 May '18 Sep '18 Jan '19 May '19 Sep '19 Jan '20
Non-tariff barriers to trade** Effective weighted average tariff rate***
Number of measures in effect, 2017 10% 2017
6,000
Health and safety regulations Retaliation for new U.S. tariffs
8% U.S. steel & aluminum tariffs
5,000 Technical barriers
Anti-dumping duties U.S. tariffs on China in place
4,000 6%
Countervailing duties U.S. threatened tariffs on China
3,000
4%
2,000
2%
1,000
0 0%
U.S. China EU Japan Mexico Brazil India China Russia Japan UK EU U.S. Canada Mexico
Source: J.P. Morgan Asset Management; (Top) Chad Bown, China Ministry of Finance, International Trade Center, Peterson Institution for International Economics;
(Top and bottom right) Office of the U.S. Trade Representative, U.S. International Trade Commission; (Bottom left) United Nations. *Trade-weighted average tariffs
computed from product-level tariff and trade data, weighted by U.S. exports to the world and China's exports to the world in 2017. **Barriers can take the form of
health and safety regulations—sanitary production requirements or health and invasive species restrictions; technical barriers—minimum standards or certifications for
products sold in a certain country; anti-dumping duties—taxes on imports to prevent other countries offloading excess supply at artificially cheap prices; countervailing
duties—taxes on imports to offset subsidies received elsewhere. ***Value of imports-weighted average tariff for 2017, plus additional tariffs from trade actions in 2018
or 2019 related to U.S. trade disputes calculated as the additional tariffs collected as a result of each new action as a percent of total imports for that year.
19 Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.Global inflation GTM – Asia | 20
Headline consumer prices
Year-over-year change, quarterly
Below trend Inflation running Above trend
Legend
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan Feb
Global economy
Developed Markets
U.S. 2.5% 2.3%
UK 1.8% 1.7%
Eurozone 1.4% 1.2%
Japan 0.7% 0.5%
Australia 1.8% 1.6%
China 5.4% 5.2%
India 7.6% 6.6%
Korea 1.5% 1.1%
EM Asia
Taiwan 1.1% 0.4%
Indonesia 2.7% 3.0%
Malaysia 1.6% 1.3%
Thailand 1.1% 0.7%
Brazil 4.2% 4.0%
Other EM
Mexico 3.2% 3.7%
Russia -2.5% -2.8%
Turkey 12.2% 12.4%
South Africa 4.5% 4.6%
Source: Department of Statistics Malaysia, DGBAS, Eurostat, FactSet, Goskomstat of Russia, IBGE, India Ministry of Statistics & Programme Implementation, INEGI,
J.P. Morgan Economics Research, Korean National Statistical Office, Melbourne Institute, Ministry of Commerce Thailand, Ministry of Internal Affairs &
Communications Japan, National Bureau of Statistics China, Office for National Statistics UK, Statistics Indonesia, Statistics Institute Turkey, Statistics South Africa,
U.S. Department of Labor, J.P. Morgan Asset Management. Quarterly averages, with the exception of the two most recent figures, which are single month readings,
are shown. Colors are based on z-score of year-over-year inflation rate relative to each country’s own 10-year history where red (blue) indicates inflation above (below)
long-run trend. EM represents emerging markets.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
20Central bank policy rates GTM – Asia | 21
G4 central bank key policy rates Changes in central bank policy rates
Per annum Number of hikes or cuts***
7% Deposit 150
Policy rate
rate*
Eurozone 0.0% -0.5%
6% Japan** -0.1 to 0.0% -0.1% Developed markets
100 Rate hikes
UK 0.1% 0.1%
Global economy
Emerging markets
U.S. 0.0 to 0.25% 0.1%
5%
50
4%
0
3%
-50
2%
-100
Developed markets
1% Rate cuts
Emerging markets
-150
0%
-200
-1% '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 YTD
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '20
Source: J.P. Morgan Asset Management; (Left) FactSet; (Right) BIS.
G4 are the Bank of England, the Bank of Japan (BoJ), the European Central Bank and the U.S. Federal Reserve. *Key deposit rates that central banks charge
commercial banks on their excess reserves. **The BoJ has adopted a three-tier system in which a negative interest rate of -0.1% will be applied to the policy rate
balance of the aggregate amount of all financial institutions that hold current accounts at the BoJ. ***Count covers the 38 central banks included in the Bank for
International Settlements’ central bank policy monitor. Year-to-date data reflect most recently available as of 25/03/20. Past performance is not a reliable indicator of
current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
21Central bank balance sheets GTM – Asia | 22
Central bank bond purchases
12-month rolling flow of bond purchases by G4 central banks*, USD billions
6,000
Projections
5,000
Global economy
U.S.
Eurozone
UK
4,000
Japan
Net
3,000
2,000
1,000
0
-1,000
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Source: Bank of England, Bank of Japan, Bloomberg Finance L.P., European Central Bank, U.S. Federal Reserve, J.P. Morgan Asset Management.
*New purchases of bonds are based on period to period changes in average holdings during the quarter across various asset purchase programs as reported by each
respective G4 central bank (the Bank of England, the Bank of Japan, the European Central Bank and the U.S. Federal Reserve), announced purchase plans of these
central banks and J.P. Morgan Asset Management projections, converted to common currency by average monthly exchange rates.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
22Eurozone & Japan: Monetary policy GTM – Asia | 23
ECB bond purchases Bank of Japan’s holdings
Public sector bond purchases, EUR billions Share of market total
2,200 100%
Total outstanding debt
2,000 80%
Cumulative ECB PSPP purchases
Equity ETF market
33% limit*
Global economy
1,800 60%
1,600 40%
1,400 20% Government bond market
1,200 0%
'11 '12 '13 '14 '15 '16 '17 '18 '19 '20
1,000
Bank of Japan pace of purchases
800
JPY billions, rolling six-month average Share of total
120,000 35%
Government bonds Equity ETFs
600 100,000 Equity ETFs 30%
25%
400 80,000
20%
60,000
200 15%
40,000
10%
0
20,000 5%
0 0%
'14 '15 '16 '17 '18 '19 '20
Source: FactSet, J.P. Morgan Asset Management. (Left) ECB, Eurostat; (Top right) Bank of Japan, Investment Trusts Association of Japan; (Bottom right) Bank of
Japan.
*The ECB public sector purchase program (PSPP) had a limit of 33% for maximum share of an issuer’s outstanding securities that the ECB is prepared to buy. This
limit was initially set at 25% at the start of the PSPP and was revised upwards to 33% in September 2015. The ECB asset purchase program will now include the
pandemic emergency purchase program (PEPP) and PSPP where the 33% limit will not be binding.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
23Government debt and fiscal balance GTM – Asia | 24
Gross government debt and fiscal balance
% of GDP, 2020 estimates
250% Emerging Market Japan
Developed Market
Global economy
200%
Gross government debt
150% Italy
Singapore U.S.
France
100% Spain Canada
India
China UK
Malaysia Germany
South Korea Thailand
50%
Australia
Philippines
Taiwan
Indonesia
0%
-9% -8% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2%
Fiscal Balance
Source: Bloomberg, European Commission AMECO forecasts, Government Budgets, International Monetary Fund - World Economic Outlook, J.P. Morgan Asset
Management. Emerging and developed markets classification based on MSCI 2019 Annual Market Classification Review.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
24Political calendar GTM – Asia | 25
Developed markets political timeline
2021
June Global 21-22 November December UK
WTO Ministerial Global Brexit transition
meeting* G20 summit period ends
Global economy
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
10-12 June Global 13-16 July U.S. 24-27 August U.S. 3 November U.S. 20 Jan U.S.
G7 Summit U.S. Democratic U.S. Republican U.S. General election Presidential inauguration
candidate is candidate is selected
selected
Emerging markets political timeline
2021
November
6-9 Apr ASEAN 9 Jun OPEC ASEAN
ASEAN Summit* OPEC Meeting ASEAN Summit
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
15 April South Korea September Hong Kong October/November China
Legislative election Legislative Council Fifth Plenum of the 19th
election CPC Central Committee
Source: Bloomberg Finance L.P., J.P. Morgan Asset Management. *Events have been postponed until further notice.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
25United States: Election GTM – Asia | 26
U.S. presidential elections and the incumbency factor Congressional seat gain/loss by chamber*
Percent of times result occurred, 1796 through 2016 Avg. # of seats switching parties as a % of seats on ballot**
80%
20%
In 2020: Dems need Reps need
70% 68% House* Keep 17 (4%) Pick up 17 (4%)
Global economy
Senate* Pick up 4 (11%) Keep 3 (9%)
16%
60%
50%
12%
40%
32%
8%
30%
20%
4%
10%
0% 0%
Incumbent wins re-election Incumbent loses re-election Presidential Election Years Midterm Elections
Source: J.P. Morgan Asset Management; (Left) 270toWin; (Right) U.S. House of Representatives, U.S. Senate. *Seats in the House of Representatives are filled by
direct election every two years (members of the United States House of Representatives serve two-year terms), but only one-third of Senate seats are on the ballot
every two years (United States Senators serve six-year terms). As a result, during every presidential election year, the entire House and one-third of the Senate are up
for election. 2018 House of Representatives has one vacancy as the election result in one North Carolina district is still under dispute. The right chart assumes no
change in the White House and thus, a Republican Vice President to break any tie in a Senate vote. **Covers period 1932 – present.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
26United States: Economic growth and the composition of GDP GTM – Asia | 27
Real GDP Components of GDP
Year-over-year change 4Q19 nominal GDP, USD trillions
10% Real GDP 4Q19
23 3.8% Housing
Year-over-year change: 2.3%
21
8% Quarter-over-quarter SAAR* change: 2.1%
13.3% Investment ex-housing
Global economy
19
6% Average post-Global 17
17.6% Gov’t spending
Financial Crisis: 2.3%
Average: 2.8%
15
4%
13
2% 11
9
0% 68.1% Consumption
7
-2% 5
3
-4%
1
-6% -1
'69 '74 '79 '84 '89 '94 '99 '04 '09 '14 '19 -2.7% Net exports
Source: Bureau of Economic Analysis, FactSet, J.P. Morgan Asset Management.
*SAAR stands for seasonally adjusted annualized rate.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
27United States: Business cycle thermometer GTM – Asia | 28
U.S. business cycle indicators
Current percentile rank relative to range of data since Jan. 1990
100
Global economy
Latest
Elevated
75
50
Retrenched
25
3
months
ago
0
Consumer Wage Nonfarm Housing Light Vehicle Business Capex Durable Industrial Leading Credit Example
Confidence Growth Payrolls Starts Sales Confidence Orders Production Economic Conditions
Index
Consumers Businesses
Source: BEA, Conference Board U.S., FactSet, U.S. Census Bureau, U.S. Department of Labor, Wards Intelligence, J.P. Morgan Asset Management.
Indicators are: Consumer Confidence – Monthly survey index of how consumers perceive their own financial status and the general economy; Wage Growth – Average hourly
earnings of production and non-supervisory workers; Nonfarm Payrolls – Monthly change in U.S. nonfarm employment (three-month moving average); Housing Starts – Number of
private housing units that construction has started within a specified timeframe; Light Vehicle Sales – Cars and passenger trucks sold in a given month; Business Confidence –
Monthly survey of Chief Executive Officers about their outlook for the economy; Capex – Monthly new orders of non-defense capital goods (excluding aircraft); Durable Orders –
Monthly new orders of durable goods in the manufacturing sector, seasonally adjusted; Industrial Production – Monthly output of the industrial sector; Leading Economic Index – An
index aggregating values of 10 key variables intended to forecast future U.S. economic activity; Credit Conditions – Leading Credit Index that aggregates performance of six financial
28 market instruments to track credit conditions in the U.S. economy. Durable Orders percentile rank change from 3 months ago is -0.6 and therefore does not appear on the chart.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.United States: Consumer finances GTM – Asia | 29
Consumer balance sheet Household debt service ratio
4Q19, USD trillions outstanding, not seasonally adjusted Debt payments as % of disposable personal income, SA
14% 4Q07:
140 Total assets: $134.9tn 3Q07 Peak: $85.6tn
13.2%
1Q09 Low: $74.6tn
130 13%
120
Global economy
Homes: 24% 12%
110 1Q80:
11% 10.6%
1Q20**:
100 Other tangible: 5% 9.7%
10%
90 Deposits: 8%
9%
80 '80 '85 '90 '95 '00 '05 '10 '15 '20
70 Pension funds: 21% Household net worth
Not seasonally adjusted, USD billions 1Q20**:
60 $115,703
130,000
3Q07:
50 Other non-revolving: 2% 110,000 $71,338
Revolving*: 7%
40 Auto loans: 7% 90,000
Other liabilities: 9%
30 Other financial Student debt: 10% 70,000
assets: 42%
50,000
20 Total liabilities: $16.6tn
30,000
10
Mortgages: 66% 10,000
0 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Source: FactSet, FRB, J.P. Morgan Asset Management; (Top and bottom right) Bureau of Economic Analysis.
Data include households and nonprofit organizations. SA stands for seasonally adjusted.
*Revolving includes credit cards. Values may not sum to 100% due to rounding. **1Q20 figures for debt service ratio and household net worth are J.P. Morgan Asset
Management estimates.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
29United States: Employment and wages GTM – Asia | 30
Unemployment rate and average hourly earnings*
Percent of labor force, year-over-year change, seasonally adjusted
12%
Recessions
10%
Global economy
8%
Unemployment rate
6%
2/2020: 3.5%
4%
2% Average hourly 2/2020: 3.3%
earnings
0%
'85 '90 '95 '00 '05 '10 '15 '20
Source: FactSet, U.S. Bureau of Labor Statistics, J.P. Morgan Asset Management.
*Average hourly earnings are calculated from the wages of production and non-supervisory workers.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
30United States: Inflation GTM – Asia | 31
Headline and core consumer price index (CPI)
Year-over-year change, seasonally adjusted
15%
50-yr. avg. Latest
Headline CPI 3.9% 2.3%
Core CPI 3.9% 2.4%
12%
Global economy
Food CPI 3.9% 1.8%
Energy CPI 4.4% 2.8%
Headline PCE deflator 3.4% 1.8%
9% Core PCE deflator 3.4% 1.8%
6%
3%
0%
-3%
'75 '80 '85 '90 '95 '00 '05 '10 '15 '20
Source: Bureau of Economic Analysis, Department of Labor Statistics, FactSet, J.P. Morgan Asset Management.
Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of
consumer expenditures instead of the fixed-weight basket used in CPI calculations. Latest inflation numbers are February 2020 for CPI & sub-indexes and for PCE
deflators.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
31United States: Monetary policy GTM – Asia | 32
Federal funds rate expectations
Market expectations for the fed funds rate
6% Federal Reserve Policy Actions
Restarted unlimited asset purchase programs
Reduced reserve requirements for the banking sector
Global economy
5% Expanded the asset purchase program to include commercial mortgage-backed
securities
Restarted Term Asset-Backed Securities Loan Facility (TALF)
4% Launched a Primary (PMCCF) and Secondary Market Corporate Credit Facility
(SMCCF)
Allowed municipal debt to be eligible as collateral in Money Market Fund Liquidity
Facility (MMLF) and Commercial Paper Funding Facility (CPFF)
Federal funds rate
3%
Market expectations on 31/03/20
2%
1%
0.06% 0.11%
0%
'05 '07 '09 '11 '13 '15 '17 '19 '21
Source: Bloomberg Finance L.P., FactSet, U.S. Federal Reserve, J.P. Morgan Asset Management.
Market expectations are the federal funds rates priced into the Fed Fund futures market as of 31/03/20.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
32Eurozone: Economic snapshot GTM – Asia | 33
Eurozone PMIs Eurozone CPI inflation
Index, 3-month moving average Year-over-year change
65 3.5%
Mar ’20 3.0%
Eurozone Manufacturing PMI – 2.5%
37.0 ECB inflation target: 2%
New Export Orders 2.0%
Global economy
Germany Composite PMI 37.2
1.5%
60 France Composite PMI 30.2
1.0%
Italy Composite PMI* (Feb ’20) 50.7
0.5% Core CPI
0.0%
-0.5% Headline CPI
55 -1.0%
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Consumer confidence** and retail sales
Year-over-year change, 3-month moving average Index
50 5% 0
Retail sales
4%
-5
3%
2% -10
45 1%
0% -15
-1%
-20
-2% Consumer confidence
40 -3% -25
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Source: FactSet, J.P. Morgan Asset Management; (Left) J.P. Morgan Economic Research, Markit; (Top and bottom right) Eurostat; (Bottom right) European
Commission.
PMIs are relative to 50, which indicates contraction (below 50) or expansion (above 50) of the sector. Core CPI is defined as CPI excluding food and energy prices.
*Services component of Italy’s Composite PMI for March 2020 is not available as of 31/03/20.
**Eurozone consumer confidence as reported by the European Commission, which measures the level of optimism that consumers have about the economy in relation
to prior months and is typically below zero.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
33Global and Asia equity market returns GTM – Asia | 34
10-yrs ('10 - '20)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1Q '20 Ann. Ret. Ann. Vol.
India ASEAN U.S. India U.S. China A Japan Taiwan China U.S. Taiwan China U.S. China A
102.8% 32.4% 2.1% 26.0% 32.4% 52.1% 9.9% 19.6% 54.3% -4.4% 37.7% -10.2% 10.5% 24.5%
China A Korea ASEAN China Japan India China A U.S. Korea India China A China A Taiwan India
98.5% 27.2% -6.1% 23.1% 27.3% 23.9% 2.4% 12.0% 47.8% -7.3% 37.2% -11.6% 7.3% 22.8%
Taiwan Taiwan Europe ASEAN Europe U.S. U.S. Korea India Taiwan U.S. Japan China Korea
80.2% 22.7% -10.5% 22.8% 26.0% 13.7% 1.4% 9.2% 38.8% -8.2% 31.5% -16.6% 4.6% 20.6%
APAC APAC APAC
ASEAN India Korea Taiwan Taiwan Europe ASEAN Europe Taiwan Japan China
ex-JP ex-JP ex-JP
75.0% 20.9% -11.8% 22.6% 9.8% 10.1% -2.3% 7.1% 37.3% -8.4% 24.6% -19.0% 4.1% 20.3%
Equities
APAC APAC APAC
Japan Korea Korea China India ASEAN China A Japan China U.S. Europe
ex-JP ex-JP ex-JP
73.7% 18.4% -14.2% 21.5% 4.2% 8.3% -6.1% 6.2% 32.6% -12.6% 23.7% -19.6% 3.5% 17.1%
APAC APAC APAC APAC
Korea Japan Europe China ASEAN Korea Japan ASEAN Japan Europe
ex-JP ex-JP ex-JP ex-JP
72.1% 15.6% -15.4% 19.9% 4.0% 6.4% -6.3% 2.7% 30.1% -13.7% 20.1% -20.7% 3.1% 16.9%
APAC APAC APAC
China U.S. China Taiwan China China Taiwan Europe Korea China A Taiwan
ex-JP ex-JP ex-JP
62.6% 15.1% -18.2% 17.7% 3.7% 3.1% -7.6% 1.1% 28.5% -14.3% 19.5% -22.4% 2.6% 16.9%
APAC
Europe China Taiwan U.S. China A Japan Europe Europe China Korea Europe Korea ASEAN
ex-JP
36.8% 4.8% -20.2% 16.0% -2.6% -3.7% -9.1% 0.2% 26.2% -18.7% 13.1% -24.2% 2.6% 16.4%
U.S. Europe China A China A India Europe Taiwan India Japan Korea ASEAN ASEAN ASEAN Japan
26.5% 4.5% -20.5% 10.9% -3.8% -5.7% -11.0% -1.4% 24.4% -20.5% 8.8% -30.4% 1.4% 13.5%
Japan China A India Japan ASEAN Korea ASEAN China A U.S. China A India India India U.S.
6.4% -8.4% -37.2% 8.4% -4.5% -10.7% -18.4% -15.2% 21.8% -27.6% 7.6% -31.1% -0.4% 13.3%
Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management.
Returns are total returns based on MSCI indices, except the U.S., which is the S&P 500, and China A, which is the CSI 300 index in U.S. dollar terms. China return is
based on the MSCI China index. 10-yr total (gross) return data is used to calculate annualized returns (Ann. Ret.) and annualized volatility (Ann. Vol.) and reflect the
period 31/03/10 – 31/03/20. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
34Global equities: Return composition GTM – Asia | 35
Sources of global equity returns*
Total return, USD
40%
31.5%
2019 2020 YTD
30% 24.6%
Total return Multiple expansion**
20.1%
19.5% 18.9%
20% Currency return Dividend yield
EPS growth outlook***
10%
Equities
0%
-10%
-20% -16.6%
-19.6%
-20.7%
-24.2% -23.6%
-30%
U.S. Europe Japan Asia Pacific EM U.S. Europe Japan Asia Pacific EM
ex-Japan ex-Japan
Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. *All return values are MSCI Gross Index (official) data, except the U.S., which is the S&P
500. **Multiple expansion is based on the forward price-to-earnings ratio. ***Earnings per share (EPS) growth outlook is based on next 12 month aggregate (NTMA)
earnings estimates. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
35Global equities: Profit margins GTM – Asia | 36
MSCI AC World EPS and developed market inflation U.S. wage growth** and profit margins
Year-over-year change Year-over-year change Year-over-year change Year-over-year change
12% 50% 60 Recession 5.0
PPI inflation* Earnings per share Wage growth**
50 4.5
40 4.0
40%
30
3.5
8% 20
30% 3.0
10
2.5
0
20% 2.0
-10
4%
-20 1.5
Profit margins
10% -30 1.0
Equities
'90 '95 '00 '05 '10 '15 '20
0% 0%
Europe vs. U.S. operating profit margins
Earnings per share / sales per share
13%
-10%
12%
-4% S&P 500
-20% 11%
10%
-30% 9%
-8% 8%
-40% 7%
MSCI Europe
6%
-12% -50% 5%
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Source: FactSet, J.P. Morgan Asset Management; (Left) J.P. Morgan Economic Research; (Top right) U.S. Bureau of Economic Analysis, U.S. Department of Labor;
(Bottom right) Standard & Poor’s; (Left and bottom right) MSCI. *PPI is producer price index. **Wage growth is the year-over-year change in the average hourly
earnings of production and non-supervisory workers.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
36Global equities: Earnings expectations GTM – Asia | 37
Earnings growth Earnings revisions ratios
Earnings per share, year-over-year change, consensus estimates Net earnings revisions to consensus estimates, 13-week moving average
30% 60%
2018
U.S.
2019
25% 24%
40%
Initial 2020*
Japan
Current 2020
20%
20%
15%
15%
Equities
12% 13%
0%
10%
10% 9% 9%
8%
Europe
6%
5% -20%
5%
3%
2% 2%
0% -40%
-1% Asia Pacific
-1%
ex-Japan
-2%
-5%
U.S. EM Asia Pacific ex- Europe -60%
Japan '13 '14 '15 '16 '17 '18 '19
Source: IBES, MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Asia Pacific ex-Japan, EM, Europe and U.S. equity indices
used are the MSCI Asia Pacific ex-Japan, MSCI Emerging Markets, MSCI Europe and S&P 500, respectively. *Initial 2020 earnings are 2020 earnings expectations as
at 31/12/19. Consensus estimates used are calendar year estimates from IBES. Revisions are based on the current unreported year. Net earnings revisions is
(number of companies with upward earnings revisions – number of companies with downward earnings revisions) / number of total companies. Past performance is
not a reliable indicator of current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
37Global equities: Valuations GTM – Asia | 38
Equity market valuations – Price to earnings
Forward P/E ratios 15-yr. range
38.3 35.8
30x 15-yr. average
Latest
20x
15.5 15.4 16.4
15.4 14.9 15.7
13.2 13.6 14.2 13.4 14.1 15.1
14.7 12.6 12.5 13.6 13.6 13.6
11.4 11.7 12.2 14.7 13.7 10.9
13.0 12.2 12.0 11.4 9.6 11.2
10x 11.2 11.0 11.7 9.8 10.7 11.8 10.6
9.5 7.0
6.6
0x
S&P 500 Europe Asia Pac Emerging ASEAN China A China Hong India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Brazil Mexico Russia
Equities
ex-UK ex-Japan markets (CSI 300) Kong
Equity market valuations – Price to book
Trailing P/B ratios 15-yr. range
5.2 5.2
5x 15-yr. average
Latest
4x
3.4
3x 3.2 3.0
2.6 2.4 2.7
2.6
2.0 2.2 2.0
2x 1.9 2.0 1.8
1.7 1.7 1.7 1.6 1.9 1.8
1.7 1.6 1.5 1.9 1.6 1.8
1.6 1.5 1.5 1.4 1.6 1.4 1.4 1.4
1.3
1x 1.1 1.1 1.1 1.0
0.9 0.8
0x
S&P 500 Europe Asia Pac Emerging ASEAN China A China Hong India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Brazil Mexico Russia
ex-UK ex-Japan markets (CSI 300) Kong
Source: Bloomberg Finance L.P., China Securities Index, FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management.
Price-to-earnings (P/E) and price-to-book (P/B) ratios are in local currency terms. China A valuations based on the CSI 300 Index and use 10 years of data due to
availability. China valuation is based on the MSCI China. 15-year range for P/E and P/B ratios are cut off to maintain a more reasonable scale for some indices.
Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
38Global equities: High dividend GTM – Asia | 39
MSCI AC Asia Pacific ex-Japan: Performance comparison*
USD index, Jan. 2000 = 100
800
700
High Dividend Total Return index
600
Total Return index
500
Price index
400
300
200
100
0
Equities
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Risk and return profile** Number of companies yielding greater than 3% by region
Constituents of MSCI AC World Index
Annualized Annualized Risk-adjusted
400 367
return volatility return
350
MSCI World (DM) 5.9% 15.2% 0.39 300
250
250 220
MSCI World (DM) 200 169
8.0% 12.7% 0.63 143
High Dividend
150
MSCI AC Asia 100
6.6% 20.4% 0.33
Pacific ex-Japan 50
MSCI AC APAC 0
9.5% 13.4% 0.71 Asia Pac. ex- Europe U.S. EM ex-Asia Japan
ex-JP High Div
Japan
Source: FactSet, MSCI, J.P. Morgan Asset Management.
*Total returns based on MSCI indices in U.S. dollar terms. **Annualized return and volatility based on total monthly return data (USD) over the latest 15 years. Risk-
adjusted return is calculated as annualized return / annualized volatility.
Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
39Global equities: Growth versus value GTM – Asia | 40
Growth vs. value valuations* Growth vs. value relative performance and rates
MSCI World growth / value fwd. P/E ratio, # of std. dev. over / under average MSCI World value / growth performance 10-2 year spread
3 1.8 3.5%
Growth
underperforming
Growth expensive 1.7 value
2 relative to value
1.6
2.5%
1 1.5
1.4
Equities
0
1.3 1.5%
-1
1.2
Growth
1.1 outperforming
-2
value 0.5%
1.0
-3 Growth cheap relative
to value 0.9
Value vs. growth Spreads
-4 0.8 -0.5%
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Source: FactSet, MSCI, J.P. Morgan Asset Management.
*Growth is the MSCI World Growth index and value is the MSCI World Value index.
Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
40Emerging market equities: Performance drivers GTM – Asia | 41
EM vs. DM growth and equity performance EM price to book and subsequent returns
%, next 12 months’ growth estimates Index level %, next 12 months’ price return in USD
5% 160 100%
Current level
EM minus DM GDP growth 80%
60%
140 40%
4% EM growth & equity
20%
outperformance
0%
120
-20%
-40%
3%
100 -60%
-80%
Equities
0.8x 1.2x 1.6x 2.0x 2.4x 2.8x
2% 80
Relative EM / DM equity performance and USD REER
Relative index level, Dec. 1997 = 100 Index level
300 80
60 MSCI EM / MSCI DM
1% 250
90
EM growth & equity 200
40 100
underperformance
150
0% 110
20 100
120
50
MSCI EM / MSCI DM USD REER (inverted)*
-1% 0 0 130
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Source: FactSet, MSCI, J.P. Morgan Asset Management; (Left) J.P. Morgan Economic Research; (Top right) MSCI.
EM = Emerging markets; DM = Developed markets.
*REER is the real effective exchange rate. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.
41APAC ex-Japan equities: Exports & earnings GTM – Asia | 42
Domestic vs. exports-oriented Asian companies* Growth in nominal exports and earnings per share
MSCI AC Asia Pacific ex-Japan, earnings per share, Jan. 2009 = 100 USD, year-over-year change
600 80%
MSCI AC Asia
60% Pacific ex-Japan EPS
500
Less than 70% of
revenue derived
40%
domestically
400
20%
Equities
300
0%
200
-20% EM Asia ex-China exports**
Between 70% and
95% of revenue
100 More than 95% of derived domestically -40%
revenue derived
domestically
0 -60%
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
Source: FactSet, MSCI, J.P. Morgan Asset Management; (Right) CEIC, national statistics agencies.
Earnings per share (EPS) used is next 12 months’ aggregate estimate. *Universe of stocks within the MSCI AC Asia Pacific ex-Japan index are split into three buckets
depending on their revenue exposure to their domestic market. Over the time period examined (01/01/09 – 31/03/20), monthly adjustments are made to the buckets to
reflect changes in a company's operations over time. Subsequently, earnings-per-share (EPS) for each bucket is calculated by summing the market-value weighted
EPS for each company on a monthly basis over the examined period. Each EPS series is then indexed to 100 on 01/01/09. **EM Asia ex-China includes Hong Kong,
Korea, Malaysia, Singapore, Taiwan, Thailand and Vietnam. Overall exports aggregate is gross domestic product (GDP)-weighted. Past performance is not a reliable
indicator of current and future results. For illustrative purposes only.
42 Guide to the Markets – Asia. Data reflect most recently available as of 31/03/20.You can also read
