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Guide to the MarketsAustralia | |

MARKET INSIGHTS

2Q 2018 31 March 2018

Global Market Insights Strategy Team

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

Hannah AndersonHong Kong

Yoshinori ShigemiTokyo

Shogo MaekawaTokyo

Nandini RamakrishnanLondon

Michael Bell, CFALondon

Jai MalhiLondon

Ambrose CroftonLondon

Karen WardLondon

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

Dr. Cecelia MundtNew York

3

GTM – Australia 3|

Australian economy4. Economic growth and the composition of GDP5. Growth indicators6. Inflation7. Labour market8. Consumer finances9. Residential real estate10. Trade11. Government finances

Global economy12. Global growth13. Manufacturing momentum14. Globalisation and trade15. Capex and worker productivity16. U.S.: Economic growth17. U.S.: Inflation18. U.S.: Growth indicators19. U.S.: Labour market20. Eurozone economy21. Eurozone: Inflation and lending22. Japan: GDP and inflation23. Japan: Growth indicators24. China: GDP and inflation25. China: Growth indicators26. China: Financial dynamics27. China: Credit and leverage

Equities28. World equity market returns29. Global equities: Earnings and valuations30. Global equities: Profit margins31. Australia ASX 200 at inflection points32. Australia ASX 200 valuation measures33. Australia ASX 200 earnings34. Australian earnings and revisions35. Australia sector returns36. Volatility37. Correlation and market moves38. Global investing39. U.S.: S&P 500 at inflection points

Page reference

40. U.S. S&P 500 earnings and valuations41. Bear markets and subsequent bull runs42. Interest rates and equities43. Europe: Earnings and the euro44. Japan: Earnings and the Japanese yen45. Emerging markets valuations and returns46. Emerging markets equities: Relative performance47. Emerging markets: Earnings snapshot

Fixed income48. Fixed income sector returns49. Central bank policy rates50. Central bank balance sheets51. U.S. yield curve52. Australian interest rates and inflation53. Bond market dynamics54. The U.S. Federal Reserve outlook55. Fixed income interest rate risk56. Global investment-grade bonds57. U.S. high yield bonds58. Emerging market debt

Other asset classes59. Oil consumption and production60. Commodities61. Australian dollar62. Global currencies63. U.S. dollar drivers64. Emerging markets currencies65. Risk-adjusted returns and downside protection

Investing principles66. Asset class returns (AUD)67. Cash accounts68. Annual returns and intra-year declines69. Impact of being out of the market70. The power of compounding71. Life expectancy and pension shortfall72. Time, diversification and the volatility of returns

4


$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15-4%

-2%

0%

2%

4%

6%

8%

10%

Economic growth and the composition of GDP

Real GDP Components of GDPYear-over-year change

Source: Australian Bureau of Statistics, FactSet, J.P. Morgan Asset Management. *Values may not sum to 100% due to rounding. Guide to the Markets – Australia. Data as of 31 March 2018.

56.9% Consumption

23.5% Gov’t spending

11.6% Investment ex-housing

7.4% Housing

0.7% Net exportsAvg 1965 4Q17

Real GDP 3.4% 2.4%

Aust

ralia

nec

onom

y Nominal GDP, sum of last four quarters, AUD billions*

5


-$30

-$20

-$10

$0

$10

$20

$30

$40

'10 '11 '12 '13 '14 '15 '16 '17 '18'10 '11 '12 '13 '14 '15 '16 '170%

2%

4%

6%

8%

80

85

90

95

100

105

110

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17-30

-20

-10

0

10

20

30

80

85

90

95

100

105

110

115

120

Growth indicators

Source: FactSet, J.P. Morgan Asset Management; (Top left and right) Westpac; (Top left) National Australia Bank; (Bottom left and top right) ABS.*Fifth survey estimate is actual six months of spending plus estimates for next six months. Guide to the Markets – Australia. Data as of 31 March 2018.

Consumer confidence and business conditionsIndex, 3-month moving average

New capital expenditures% of GDP

Consumer confidence and retail salesYear-over-year change 3-month moving average

Capital expenditure intentionsFifth survey estimate* less estimate a year ago, billions

'89 '94 '99 '04 '09 '140%

2%

4%

6%

8% Non-residentialPublic engineering

ResidentialResources

Aust

ralia

nec

onom

y

Consumer confidence

Business confidence

Retail sales growth

Consumer confidence Non-miningMining

6


'99 '01 '03 '05 '07 '09 '11 '13 '15 '17-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

'84 '89 '94 '99 '04 '09 '14-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

Inflation

CPI and core CPI Goods and services inflationYear-over-year change Year-over-year change

Source: Australian Bureau of Statistics, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index, core CPI is the average of the trimmed mean and weighted median measures of inflation. Tradables represent approximately 35% of the CPI basket and non-tradables 65%. Core goods CPI is goods CPI excluding volatile items.Guide to the Markets – Australia. Data as of 31 March 2018.

Average 4Q17

Headline CPI* 3.7% 1.9%

Core CPI 3.8% 1.9%

Tradables 2.9% -0.3%

Non-tradables 4.2% 3.1%

Aust

ralia

nec

onom

y Average 4Q17

Services CPI 3.4% 1.8%

Core goods CPI 1.8% 1.3%

7


'99 '01 '03 '05 '07 '09 '11 '13 '15 '173.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

Labour market

Unemployment and underemployment ratesSeasonally adjusted

Employment changeMonthly change in trend series, thousands

Wage growthYear-over-year change, excluding bonuses

Source: Australian Bureau of Statistics, FactSet, J.P. Morgan Asset Management. Guide to the Markets – Australia. Data as of 31 March 2018.

Feb 2018:5.6%

'99 '01 '03 '05 '07 '09 '11 '13 '15 '171.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

4Q17:1.9%

Average: 3.2%

Aust

ralia

nec

onom

y Part timeFull time

4Q17: 8.3%

Underemployment rateUnemployment rate

-20

-10

0

10

20

30

40

50

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

8


'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '174%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

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

60%

80%

100%

120%

140%

160%

180%

200%

0%

5%

10%

15%

20%

Consumer finances

Household debt and savings ratio Household debt service ratioPercent of annualised household disposable income Interest payments to household disposable income, seasonally adjusted

Source: Australian Bureau of Statistics, FactSet, Reserve Bank of Australia, J.P. Morgan Asset Management. Guide to the Markets – Australia. Data as of 31 March 2018.

3Q17:8.9%

3Q08:13.2%

Savings rateHousehold debt

Aust

ralia

nec

onom

y

9

GTM – Australia 9|Residential real estate

Capital cities house pricesYear-over-year change, 3-month moving average

Mortgage lending

Auction clearance rate and house prices

Source: J.P. Morgan Asset Management; (Left and bottom right) RPD CoreLogic; (Top right) Australian Bureau of Statistics, FactSet.*Dwelling price is the year-over-year change in the hedonic index for eight capital cities. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Auction clearance rate (adv. 5 months) Dwelling prices*

3-month annualised growth rate

Owner-occupierInvestor

AdelaideBrisbane

Sydney

Perth

MelbourneCanberra

APRA threshold

3-month moving average Year-over-year

Aust

ralia

nec

onom

y

-10%

-5%

0%

5%

10%

15%

20%

35%

45%

55%

65%

75%

85%

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

0%

2%

4%

6%

8%

10%

12%

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

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

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

10


TradeIncome

'90 '95 '00 '05 '10 '1540

60

80

100

120

140

160

20

40

60

80

100

120

140

160

180

200

Trade

Terms of trade and commodity prices Current account % of nominal GDP

Exports by type

Source: Australian Bureau of Statistics, FactSet, J.P. Morgan Asset Management; (Left) Reserve Bank of Australia.Guide to the Markets – Australia. Data as of 31 March 2018.

Aust

ralia

nec

onom

y

Commodity pricesTerms of trade

Export / import prices RBA commodity price index

% of total exports, six-month moving average

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

5%

10%

15%

20%

25%

30%

35%

Natural gasIron oreCoal

Tourism

-8%

-6%

-4%

-2%

0%

2%

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

11


-5%-4%-3%-2%-1%0%1%2%3%

'71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13 '16 '19

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

Government spending Sources of revenue

Government finances

2017 Commonwealth budgetBudget, AUD billions*

Commonwealth budget surplus/deficit% of GDP, 2017-18 budget, end of fiscal year

Commonwealth gross debt2017-18 budget, end of fiscal year

Source: Australian Treasury, J.P. Morgan Asset Management. *Figures may not sum due to rounding.Guide to the Markets – Australia. Data as of 31 March 2018.

2017-18: -1.3%

Forecast

% of GDPTotal debt (bn)

2017-18 2018-19 2019-20 2020-21

Real GDP growth 2.50% 3.00% 3.00% 3.00%

Unemployment 5.50% 5.25% 5.25% 5.25%

Inflation (CPI) 2.00% 2.25% 2.50% 2.50%

Aust

ralia

nec

onom

y

Total spending: $464bn Borrowing: $20bn (4%)

Income:$210bn (45%)

Corp:$80bn (17%)

Sales:$67bn (14%)

Excise: $37bn (8%)

Other: $50bn (11%)

Social security:$164bn (35%)

Non-defence:$147bn (32%)

Health:$75bn (16%)

Defence: $30bn (6%)

Other: $48bn (10%)

Budget assumptions

Forecast

0%

5%

10%

15%

20%

25%

30%

35%

$0

$100

$200

$300

$400

$500

$600

$700

'71 '76 '81 '86 '91 '96 '01 '06 '11 '16 '21

12


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Real GDP growth

Global growth

Year-over-year change

Source: IMF, J.P. Morgan Asset Management. *Forecasts are from the IMF’s World Economic Outlook October 2017 edition.Guide to the Markets – Australia. Data as of 31 March 2018.

Glob

al e

cono

my

DM growth outperforms EM

EM growth outperforms DM

Forecast*

DM GDP growthEM GDP growth

EM less DM growth

13

GTM – Australia 13|Manufacturing momentum

PMI for emerging and developed markets* Accelerating manufacturing activity% of countries in expansionary territory

Source: AIG, FactSet, Markit, J.P. Morgan Asset Management. *The Purchasing Managers’ Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions.Guide to the Markets – Australia. Data as of 31 March 2018.

Glob

al e

cono

my

Developed markets

Emerging markets

PMI manufacturing

30

35

40

45

50

55

60

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '180%

20%

40%

60%

80%

100%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

14


0% 5% 10% 15% 20% 25% 30% 35% 40%

Brazil

India

China

Russia

Mexico

S. Korea

U.S.

EU

Japan

Australia

UK

Canada

Germany

-$800 -$600 -$400 -$200 $0 $200 $400 $600

China

EU

Mexico

Japan

Korea

Canada

Australia*

Globalisation and trade

Exports as a share of GDP U.S. trade balances with key partnersGoods exports, 2017 Goods and services, USD billions

Source: FactSet, J.P. Morgan Asset Management; (Left) IMF; (Right) U.S. Bureau of Economic Analysis. *Australian figure is for goods only.Guide to the Markets – Australia. Data as of 31 March 2018.

U.S.European UnionChinaEM ex-ChinaOther

ExportsTrade balance

Imports

15


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-6%

-4%

-2%

0%

2%

4%

6%

8%

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

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

Capex and worker productivity

Developed markets investment and productivity* Emerging markets investment and productivity*Year-over-year change Year-over-year change

Source: J.P. Morgan Economic Research, J.P. Morgan Asset Management. *Measured as GDP-weighted business investment in fixed capital and real output per worker. Excludes India and China. Guide to the Markets – Australia. Data as of 31 March 2018.

Glob

al e

cono

my

Productivity (lagged 2 qtrs) Capex Productivity Capex

16


2.8%

1.0%1.3%

1.7% 1.8%

0.9%

1.6%

2.2%1.9% 1.4% 1.1%

0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

'58-'67 '68-'77 '78-'87 '88-'97 '98-'07 '08-'17'69 '74 '79 '84 '89 '94 '99 '04 '09 '14-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

U.S.: Economic growth

Real GDP Drivers U.S. GDP growthYear-over-year change Average year-over-year

Source: FactSet, J.P. Morgan Asset Management; (Left) BEA; (Right) BLS. GDP drivers are calculated as the average annualised growth between 4Q of the first and last year Guide to the Markets – Australia. Data as of 31 March 2018.

Components of GDP 4Q17Consumption 69.1%Government spending 17.2%Investment ex-housing 12.8%Housing 3.9%Net exports -3.0%

Avg1969

4Q2017

Real GDP 2.7% 2.6%

Glob

al e

cono

my

4.5%

3.2% 3.3%3.1% 2.9%

1.4%

Growth in workers+ Growth in real output per worker

Growth in real GDP

17


'99 '01 '03 '05 '07 '09 '11 '13 '15 '17-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

U.S.: Inflation

Inflation U.S. goods and services inflationYear-over-year change Year-over-year change

Source: BEA, FactSet, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is CPI excluding food and energy. PCE is the Personal Consumption Expenditure deflator and employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations. Guide to the Markets – Australia. Data as of 31 March 2018.

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Avg1999

Feb 2018


Core CPI 2.0% 1.9%

PCE 1.8% 1.8%

Core PCE 1.7% 1.6%

Glob

al e

cono

my

Avg1999

Feb2018

Core goods CPI 0.0% -0.5%

Services CPI 2.8% 2.6%

18


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

2%

4%

6%

8%

10%

12%

50

60

70

80

90

100

110

'99 '01 '03 '05 '07 '09 '11 '13 '15 '178

10

12

14

16

18

20

22

24

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

400

800

1,200

1,600

2,000

2,400

U.S.: Growth indicators

Source: FactSet, J.P. Morgan Asset Management; (Top left and right) BEA; (Bottom left) U.S. Census Bureau; (Bottom right) Federal Reserve Bank of Philadelphia.Guide to the Markets – Australia. Data as of 31 March 2018.

Light vehicle salesMillions, seasonally adjusted annualised rate

Personal savings rate & consumer sentiment

Housing startsThousands, seasonally adjusted annualised rate

Private investment and capex intentions

Average: 15.7

Feb 2018:17.0

Feb 2018:1,236

Average: 1,300

Glob

al e

cono

my

% of disposable income Index

Advanced 3 months Year-over-year

Personal savings rate Sentiment

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

-20

-10

0

10

20

30

40

-30%

-20%

-10%

0%

10%

20%Capex, future plans Private capex

19


'01 '03 '05 '07 '09 '11 '13 '15 '171,000

2,000

3,000

4,000

5,000

6,000

1,500

2,000

2,500

3,000

3,500

'70 '80 '90 '00 '100%

2%

4%

6%

8%

10%

12%

U.S.: Labour market

Unemployment rate and wage growthWages of production and non-supervisory workers, SA

NFIB survey vs. Employment Cost Index

Total private job openings and quits

Source: BLS, FactSet, J.P. Morgan Asset Management; (Top right) National Federation of Independent Business.Guide to the Markets – Australia. Data as of 31 March 2018.

Feb 2018:4.1%

Oct 2009: 10.0%

Feb 2018: 2.5%

Wage growth

Unemployment rate

Job openings

Quits

Glob

al e

cono

my

Thousands, seasonally adjusted

Net percentage Year-over-year

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

5%

10%

15%

20%

25%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Companies planning to increase workers’ salaries

ECI (3-month lag)

20


'01 '03 '05 '07 '09 '11 '13 '15 '176%

7%

8%

9%

10%

11%

12%

13%

'01 '03 '05 '07 '09 '11 '13 '15 '17-5%-4%-3%-2%-1%0%1%2%3%4%

-40-35-30-25-20-15-10-50

Eurozone economy

Eurozone unemployment rateHarmonised rate, seasonally adjusted

Retail sales and consumer confidenceYear-over-year change, 6MMA Level

Business confidence and investmentIndex level Year-over-year change

Source: Eurostat, FactSet, J.P. Morgan Asset Management; (Top right) European Commission. Guide to the Markets – Australia. Data as of 31 March 2018.

Retail sales Consumer confidence

Glob

al e

cono

my

Jan 2018: 8.6%

Recession

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17-4

-3

-2

-1

0

1

2

-20%

-15%

-10%

-5%

0%

5%

10%

Business confidence Fixed investment

21


-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

'12 '13 '14 '15 '16 '17 '18 '05 '07 '09 '11 '13 '15 '171%

2%

3%

4%

5%

6%

7%

Eurozone: Inflation and lending

Eurozone CPI inflationContribution to headline inflation, year-over-year change

Eurozone bank lendingYear-over-year change

Corporate lending rates to smaller companies

Source: ECB, Eurostat, FactSet, J.P. Morgan Asset Management. *Core inflation is CPI inflation excluding energy, food, alcohol and tobacco.Guide to the Markets – Australia. Data as of 31 March 2018.

Glob

al e

cono

my

'09 '10 '11 '12 '13 '14 '15 '16 '17-4%

-2%

0%

2%

4%

Households

Non-financial corporations

Food, alcohol, tobaccoCore rate*EnergyCPI

ECB inflation target: 2%

France

Non-financial corporations, new business lending, 1-5 years, <EUR 1 million

GermanySpain

Italy

22


'99 '01 '03 '05 '07 '09 '11 '13 '15 '17-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Japan: GDP and inflation

Real GDP InflationYear-over-year change Year-over-year change

Source: FactSet, J.P. Morgan Asset Management; (Left) Japanese Cabinet Office; (Right) Ministry of Internal Affairs and Communication.*CPI is the consumer price index. Core CPI excludes food and energy prices. Guide to the Markets – Australia. Data as of 31 March 2018.

Avg1999

4Q2017

Real GDP 0.9% 2.1%

Avg1999

Feb2018


Core CPI -0.3% 0.3%

Average

Glob

al e

cono

my

23


'11 '12 '13 '14 '15 '16 '17-40%

-20%

0%

20%

40%

60%

80%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17-60

-50

-40

-30

-20

-10

0

10

20

'80 '85 '90 '95 '00 '05 '10 '15-6%

-4%

-2%

0%

2%

4%

6%

8% 1%

2%

3%

4%

5%

6%

Japan: Growth indicators

Tankan business conditionsDiffusion index, all enterprises

Unemployment and wage growthSeasonally adjusted

Operating profitsYear-over-year change

Source: FactSet, J.P. Morgan Asset Management; (Left) Bank of Japan; (Top right) Japanese Statistics Bureau and Statistics Centre, Ministry of Health, Labour and Welfare; (Bottom right) Ministry of Finance. Guide to the Markets – Australia. Data as of 31 March 2018.

Unemployment rate (inverted)Wage growth (6MMA)

Glob

al e

cono

my

Non-manufacturing

Manufacturing

Non-manufacturing

Manufacturing

24


-6%

-3%

0%

3%

6%

9%

12%

15%

18%

21%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17-9%

-6%

-3%

0%

3%

6%

9%

12%

China: GDP and inflation

Real GDP InflationYear-over-year change Year-over-year change

Source: FactSet, NBS China, J.P. Morgan Asset Management. Latest Chinese GDP growth figure is 4Q 2017. *CPI is the Consumer Price Index. PPI is the Producer Price Index.Guide to the Markets – Australia. Data as of 31 March 2018.

Consumption

GDP growthInvestment

Net exports Feb 2018:3.7%

Feb 2018: 2.9%

CPI*

PPI

Glob

al e

cono

my

25


-45%-30%-15%0%15%30%45%60%75%90%

-15%

0%

15%

30%

'10 '11 '12 '13 '14 '15 '16 '17 '18

China: Growth indicators

Source: CEIC, FactSet, NBS China, J.P. Morgan Asset Management. *Capacity utilisation rate is defined as the amount of capacity being used as a share of the total available to meet production demand. Guide to the Markets – Australia. Data as of 31 March 2018.

Retail and online salesYear-over-year change, 3-month moving average

Property price and land salesYear-over-year change

Capacity utilisationIndustrial capacity utilisation rate*

Fixed asset investment (FAI)Year-over-year change, year to date

Glob

al e

cono

my

TotalPrivate

State-owned enterprises

Retail sales

Online salesResidential property prices (lagged 12 months)

Land area sold

0%

10%

20%

30%

40%

'11 '12 '13 '14 '15 '16 '17 '1872%

73%

74%

75%

76%

77%

78%

79%

'13 '14 '15 '16 '17

25%

30%

35%

40%

45%

50%

9%

10%

11%

12%

Jan '16 Jul '16 Jan '17 Jul '17 Jan '18

26


Dec '14 Jun '15 Dec '15 Jun '16 Dec '16 Jun '17 Dec '170%

1%

2%

3%

4%

5%

6%

7%

Dec '15 Jun '16 Dec '16 Jun '17 Dec '1790

92

94

96

98

100

102

104

106

'01 '03 '05 '07 '09 '11 '13 '15 '17$0.0$0.5$1.0$1.5$2.0$2.5$3.0$3.5$4.0

China: Financial dynamics

Key policy ratesPer annum

Foreign exchange reservesUSD trillions

Chinese yuanRebased January 2016 = 100

Source: FactSet, J.P. Morgan Asset Management; (Top left) People’s Bank of China; (Bottom left) J.P. Morgan Economics Research; (Right) CEIC, 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 – Australia. Data as of 31 March 2018.

Feb 2018: $3.1tn

Glob

al e

cono

my

Lending rate (1-year)

Interbank repo rate (7-day)

Standing lending facility (7-day)

Deposit rate (1-year)

Interest on excess reserves

CFETS RMB Index*USD / CNY

27


'07 '08 '09 '10 '11 '12 '13 '14 '15 '1610%

20%

30%

40%

50%

80%

100%

120%

140%

160%

180%

200%

10%

15%

20%

25%

30%

35%

40%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

0.0x0.5x1.0x1.5x2.0x2.5x3.0x3.5x4.0x4.5x

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

China: Credit and leverage

Credit to GDP growth

Credit growth

Broad credit measure*, ratio, year-over-year growth, 3-month moving average

Year-over-year changeDebt level by sector

Source: J.P. Morgan Asset Management; (Top and bottom left) CEIC, China Central Depository & Clearing Co., People’s Bank of China, Shanghai Clearing House; (Bottom right) BIS. Credit growth to GDP growth ratio utilizes rolling 12-month nominal GDP and broad credit. *The broad 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. **Wenzhou SME crisis refers to the wave of bankruptcies and funding problems faced by a large number of small and medium enterprises (SMEs) in Wenzhou in 2011. Guide to the Markets – Australia. Data as of 31 March 2018.

Glob

al e

cono

my

% of GDP

Global Financial Crisis

Loosening financial conditions

Wenzhou SME crisis**

Interbank liquidity crunch A-share

market crashRate cut

Rapid rebound in inflation

Tightening financial conditions

Shadow banking concerns

RMB bank lendingTotal social financingAugmented credit

Government

Non-financial corporations

Households

28


2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q18 Ann. Vol. 25.5%

EM 33.6%

-7.8% Japan -40.6%

57.4% Small Cap

57.4%

13.1% Small Cap

13.1%

2.1% U.S.

2.1%

20.3% Australia

20.3%

53.6% U.S.

32.4%

24.3% U.S.

13.7%

25.6% Japan 12.1%

13.2% Small Cap

13.2%

27.5% EM

31.0%

3.5% EM

0.8%

9.8% U.S.

8.5%

Small Cap 19.4%

17.1% Small Cap

17.1%

-20.7% U.S.

-37.0%

38.8% EM

62.8%

4.6% EM

14.4%

-10.4% Portfolio

-9.8%

18.4% Europe 16.4%

47.4% Japan 54.4%

8.3% Portfolio

6.7%

14.0% U.S.

1.4%

12.5% U.S.

12.0%

20.0% Small Cap

20.0%

3.0% Japan -4.7%

5.4% Japan 4.2%

Japan 19.2%

16.1% Australia

16.1%

-32.1% Europe -38.5%

37.0% Australia

37.0%

1.7% Japan 1.0%

-10.5% Europe -8.8%

17.1% EM

17.4%

46.2% Europe 22.3%

7.3% EM

5.6%

10.2% Small Cap

10.2%

12.1% EM

10.1%

17.2% Japan 22.2%

1.2% U.S.

-0.8%

5.3% Portfolio

4.9%

EM 16.8%

8.2% Portfolio

12.5%

-32.7% Portfolio -41.0%

21.3% Portfolio

36.6%

1.6% Portfolio

8.2%

-10.5% Australia -10.5%

15.6% Portfolio

17.1%

30.4% Portfolio

21.8%

5.7% Japan 10.3%

9.8% Europe 5.4%

11.8% Australia

11.8%

16.9% Europe 13.7%

0.1% Europe -4.2%

4.1% Australia

4.1%

Portfolio 15.9%

2.7% Europe 6.5%

-38.4% Australia -38.4%

6.1% Europe 28.6%

1.6% Australia

1.6%

-12.5% Japan -17.0%

14.6% U.S.

16.0%

20.2% Australia

20.2%

5.6% Australia

5.6%

8.0% Portfolio

3.3%

9.7% Portfolio

10.0%

16.5% Portfolio

18.8%

-0.4% Portfolio

-2.6%

3.2% EM

4.5%

Europe 15.0%

-5.3% U.S. 5.5%

-41.0% EM

-45.7%

-2.0% U.S.

26.5%

1.0% U.S.

15.1%

-18.2% EM

-12.5%

6.6% Small Cap

6.6%

13.4% EM

3.8%

3.1% Europe 5.2%

2.6% Australia

2.6%

4.0% Japan 0.3%

12.8% U.S.

21.8%

-2.8% Small Cap

-2.8%

3.1% Europe 4.2%

U.S. 15.0%

-14.9% Japan -11.1%

-53.2% Small Cap

-53.2%

-18.8% Japan 7.6%

-8.3% Europe 7.5%

-21.4% Small Cap

-21.4%

6.2% Japan 20.9%

-0.8% Small Cap

-0.8%

-3.8% Small Cap

-3.8%

-3.9% EM

-5.4%

0.7% Europe 7.9%

11.8% Australia

11.8%

-3.9% Australia

-3.9%

-0.0% Small Cap

-0.0%

Australia 14.1%

10-years '08 - '17

World equity market returns

Source: FactSet, MSCI, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. Annualised return (Ann.) and volatility (Vol.) covers the period 2008 to 2017. Volatility is based on local currency returns. Small Cap: S&P ASX Small Ordinaries; EM: MSCI EM Index; Europe: MSCI Europe Index; Japan: TOPIX first section; Australia: ASX 200 Index; U.S.: S&P 500 Index. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 20% U.S.; 30% Australia; 15% EM; 15% Europe; 10% Japan; 10% small cap. All indices are total returns. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

AUD

Local

Equi

ties

29


16.415.3

14.9 13.9 13.1

1.8

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

U.S. World Australia Europe Japan EM

Price-to-book

Pric

e-to

-ear

ning

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

20

40

60

80

100

120

140

160

Global equities: Earnings and valuations

Forward earnings per share Global valuationsUSD, rebased to 100 Current and 20-year historical valuations*

Source: Bloomberg Finance L.P., FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. *Valuations refer to NTMA P/E for Europe, U.S., Japan, Australia and developed markets (world) and P/B for emerging markets. Valuation and earnings charts use MSCI indices for all regions/countries, except for the U.S. and Australia, which are the S&P 500 and ASX 200, respectively. Valuations for Australia start in 1999.Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Equi

ties

AustraliaEurope

EM

U.S.

Axis

20-year rangeCurrent

20-year average

Japan

45x

30


-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-12%

-8%

-4%

0%

4%

8%

12%

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '176%

7%

8%

9%

10%

11%

12%

Global equities: Profit margins

MSCI World EPS and inflationYear-over-year change

U.S. labour share of income and profit margins**

Europe vs U.S. operating profit marginsEarnings per share / sales per share

Source: FactSet, J.P. Morgan Asset Management; (Left) J.P. Morgan Economic Research; (Top right) U.S. Bureau of Economic Analysis; (Bottom right) Standard & Poor’s; (Left and bottom right) MSCI. *PPI is producer price index. **Employee compensation % nominal GDP, after-tax corporate profits with inventory & valuation adjustment % nominal GDP, SAAR. Guide to the Markets – Australia. Data as of 31 March 2018.

PPI Inflation* Earnings per share

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '1750%51%52%53%54%55%56%57%58%59%

3%

4%

5%6%

7%

8%

9%

10%

11%Profit marginRecession

Labour share

MSCI Europe

S&P 500

Equi

ties

31


2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Australia ASX 200 at inflection points

ASX 200 Index

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Local currency returns. P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom-up calculation based on the most recent price data divided by the mean consensus estimates for earnings in the next 12 months and is provided by FactSet Market Aggregates. Dividend yield is based on current data. Return calculations shown in green are based on the total return index. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

7 Mar 2002: P/E = 16.2x

3,498

13 Mar 2003:P/E = 12.6x

2,700

01 Nov 2007:P/E = 16.4x

6,829

10 Mar 2009:P/E = 15.7x

3,185

31 Dec 1996: 2,425

+207%

-20%

-50%

Total return:+77%

Equi

ties

31 Mar 2018:P/E = 14.9x

5,759

+169%

Characteristic Mar 2002 Nov 2007 Mar 2018Index level 3,498 6,829 5,759P/E ratio (fwd) 16.5x 16.4x 14.9xDividend yield 3.0% 3.7% 4.3%10-year Tsy 6.3% 6.3% 2.6%

32


8x

10x

12x

14x

16x

18x

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

Australia ASX 200 valuation measures

ASX 200 Index: Forward P/E ratio

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Dividend yield is calculated as the next 12-month consensus dividend divided by most recent price. Price-to-book ratio is the price divided by book value per share. Price-to-cash flow is price divided by NTM cash flow. EY minus corporate bond yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) less the yield on the AusBond Credit (5-10y) Index. *Average dates vary due to data availability, start date is 31 December 1999 except for P/B, which is January 2001, and EY spread, which is October 2003. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Equi

ties

Average: 14.1x

31 Mar 2018:14.9x

Valuation 31 Mar measure Description 2018 Avg* P/E Forward P/E 14.9x 14.1x Div. Yield Dividend yield 4.3% 4.6% P/B Price-to-book 2.0x 2.0x P/CF Price-to-cash flow 10.9x 9.6x EY Spread EY minus corp bond yield 3.2% 1.5%

33


'17

$300

$320

$340

$360

$380

$400

$420

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

Australia ASX 200 earnings

ASX 200 earnings and performance Annual earnings estimatesIndex level, analyst estimates of the next 12 months of earnings Monthly earnings per share consensus estimate

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17$280

$300

$320

$340

$360

$380

$400

$420

$440

$460

$480

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000ASX 200 index levelASX 200 EPS

Equi

ties

'18

'19'16

'15

'14

34


-100

-75

-50

-25

0

25

50

'15 '16 '17 '18

Australian earnings and revisions

ASX 200 earnings expectations by sector Earnings revisions by macro sectorConsensus EPS for next 12 months, rebased to 100 in 2010 Three-month earnings revisions*

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. *Revisions is the difference between the number of companies seeing upward and downward revisions to earnings estimates for the coming year. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Equi

ties

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

20

40

60

80

100

120

140

160

180

200

Materials

EnergyIndustrials

Telecoms

Staples

Discr.

Utilities

HealthCare

I.T.

Financials

IndustrialsResources

Financials

35

GTM – Australia 35|Australia sector returns

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. All calculations are total returns in local currency not annualised. Growth and value indices are sub-sets of the ASX 200 Index. Since market peak represents period 1 November 2007 to the end of the last quarter. Since market low is the period 10 March 2009 to the end of the last quarter. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Financials Materials RealEstate

HealthCare

Cons.Staples Industrials Energy Cons.

Discr. Telecom Utilities Australia

Equi

ties

Tech

ASX 200 weight 34.8% 17.9% 7.8% 7.8% 7.7% 7.3% 5.1% 4.6% 2.8% 2.0% 2.1% 100%

Growth 8.8% 29.2% 4.3% 14.7% 14.0% 10.1% 10.0% 3.5% 0.0% 3.5% 1.8% 100%

Value 76.0% 4.3% 13.0% 0.6% 0.8% 0.0% 0.5% 1.8% 2.5% 0.5% 0.0% 100%

1Q18 -5.9 -3.4 -5.3 6.9 0.4 -3.5 -6.6 -4.1 -11.0 -6.9 1.6 -3.9

2017 5.0 22.9 6.2 26.3 20.2 18.2 23.3 13.6 -21.3 9.0 26.0 11.8

Since Market Peak (November 2007)

47.4 -7.1 -1.8 251.8 79.6 15.8 -16.0 21.3 39.5 100.4 162.1 34.8

Since Market Low (March 2009)

259.9 75.3 285.0 294.2 156.6 257.8 4.6 231.5 94.1 253.2 211.9 169.3

Forward P/E Ratio 12.7x 13.7x 14.2x 26.6x 19.3x 21.1x 14.5x 17.5x 10.4x 19.0x 26.4x 14.9x

15-yr avg. 12.5x 13.4x 12.7x 20.7x 16.3x 17.5x 18.3x 14.6x 13.1x 18.5x 17.8x 13.9x

Trailing P/E Ratio 13.9x 15.6x 14.9x 30.7x 20.7x 22.5x 18.0x 19.6x 10.9x 21.7x 29.8x 16.5x

15-yr avg. 13.3x 15.1x 14.3x 23.6x 17.7x 20.4x 20.4x 15.6x 13.5x 20.3x 19.9x 15.0x

Dividend Yield 5.6% 3.7% 5.1% 1.7% 3.7% 3.8% 2.5% 3.6% 7.0% 5.3% 1.9% 4.3%

15-yr avg. 5.9% 2.9% 7.1% 2.2% 4.3% 4.4% 2.8% 4.6% 7.0% 5.5% 2.9% 4.6%

Wei

ghts

Ret

urn

(%)

P/E

Div

36


'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '170

10

2030

40

5060

7080

90

Volatility

VIX Index*

Source: FactSet, J.P. Morgan Asset Management.*The VIX-CBOE Volatility Index measures market expectations of near-term volatility conveyed by S&P 500 Index (SPX) option prices. **First day when VIX breaks 35; subsequent spikes above 35 within the next six months are not included. ***Number of days for VIX to return to its long-term average of 19.3 after initial VIX spikes above 35.Guide to the Markets – Australia. Data as of 31 March 2018.

Equi

ties

23 4 5

6

7 89

101

VIX breaks 35 in six months** Related event S&P 500 Performance VIX returns to long-term

average***(days)On the day After 1 month After 3 months After 12 months1 6-Aug-90 Recession – oil price shock and rate hikes -3.0% -4.2% -5.9% 16.8% 2182 30-Oct-97 Asian crisis -1.7% 7.5% 9.1% 21.6% 1133 27-Aug-98 Long-Term Capital Management -3.8% 0.6% 13.8% 29.3% 3094 17-Sep-01 Recession – collapse of dot-com bubble -4.9% 2.9% 9.2% -15.9% 1725 15-Jul-02 Enron accounting scandal -0.4% 1.3% -8.3% 9.0% 3046 17-Sep-08 Recession – global financial crisis -4.7% -14.8% -21.8% -7.9% 4767 7-May-10 Greece bailout package, austerity imposed -1.5% -5.0% 1.0% 21.2% 1578 8-Aug-11 European debt crisis, U.S. credit downgrade -6.7% 5.9% 12.7% 25.2% 1659 24-Aug-15 Chinese yuan devaluation -3.9% 2.1% 10.2% 15.5% 4410 5-Feb-18 Bond market re-pricing growth and rate hikes -4.1% 3.4% N/A N/A 9

Median -3.9% 1.7% 9.1% 16.8%Average -3.5% 0.0% 2.2% 12.8%Median ex-recession -3.8% 2.1% 9.6% 21.4%Average ex-recession -3.2% 2.3% 6.4% 20.3%

Recession

37


0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

020406080

100120140160

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Correlation and market moves

Cross country equity index correlation

Number of +/- 1% days for the ASX 200

%, rolling six-month average pairwise correlations

Source: FactSet, J.P. Morgan Asset Management; (Top) MSCI; (Bottom) Standard & Poor’s. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Average: 57

YTD:6 days

Equi

ties

Mar 2018:0.74

Pre-crisis average: 0.58

Post-crisis average: 0.64

38


EM, 13.9%U.S., 15.3%

EU, 16.5%

EM, 58.7%

Japan, 4.3%

Global investing

Sector exposure

Share of global GDP

% of MSCI World Index and MSCI Australia Index

Based on purchasing power parityShare of global equity marketMSCI AC World Index

Source: FactSet, J.P. Morgan Asset Management; (Top left) IMF; (Top right and bottom) MSCI. Share of global market capitalisation is based on float-adjusted MSCI data. Share of global GDP based on purchasing power parity (PPP) estimates for 2017. Percentages may not sum to 100% due to rounding. Guide the Markets – Australia. Data as of 31 March 2018.

WorldAustralia

Canada, 2.9%

Australia, 2.1%

Canada, 1.4%Other DM, 2.9% U.S., 52.2%

Equi

ties Australia, 1.0%

Japan, 8.0%

Europe ex-UK, 15.0%

UK, 5.6%

18% 18%13% 12% 12% 9% 6% 5% 3% 3% 3%

40%

1% 3%8% 5% 8% 6%

18%

2% 1%8%

0%

10%

20%

30%

40%

50%

Financials I.T. ConsumerDisc.

Health Care Industrials ConsumerStaples

Energy Materials Utilities Telecoms Real Estate

39


600

1,000

1,400

1,800

2,200

2,600

3,000

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

U.S. S&P 500 at inflection points

S&P 500 Index

Source: Compustat, FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Forward price-to-earnings ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months, and is provided by FactSet Market Aggregates. Returns calculations shown in green are based on total return index. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Equi

ties

24 Mar 2000: P/E = 24.4x

1,527

9 Oct 2002:P/E = 14.1x

777

9 Mar 2009:P/E = 10.3x

677

31 Dec 1996: P/E = 16.0x

741

9 Oct 2007:P/E = 14.8x

1,565

+121%-47%

-55%

Total return:+116%

31 Mar 2018:P/E = 16.4x

2,641

+372%

Characteristic Mar 2000 Oct 2007 Mar 2018Index level 1,527 1,565 2,641P/E ratio (fwd) 24.4x 14.8x 16.4xDividend yield 1.1% 1.7% 1.8%10-year Tsy 6.2% 4.6% 2.7%

40


-15%

-10%

-5%

0%

5%

10%

15%

20%

'12 '13 '14 '15 '16 '17 '18 '19

10x

14x

18x

22x

26x

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

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17$60

$80

$100

$120

$140

$160

500

1,000

1,500

2,000

2,500

U.S. S&P 500 earnings and valuations

S&P 500 earnings and performanceIndex level, analyst estimates of the next 12 months of earnings

S&P 500 forward P/E ratio

U.S. dollarYear-over-year change, quarterly, USD major currencies index

Source: FactSet, J.P. Morgan Asset Management; (Left and top right) Standard & Poor’s; (Bottom right) U.S. Federal Reserve, S&P 500 individual company 10k filings. *Forecast assumes no change in the U.S. dollar from its 31 December 2017 level. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

S&P 500 index levelS&P 500 EPS 31 Jan 1999: 24.3x

Average: 15.8x

Equi

ties

31 Mar 2018: 16.4x

S&P 500 revenues U.S. 57%International 43%

Forecast*1Q18:-8.7%

41


-100%

-80%

-60%

-40%

-20%

0%

1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

7

9

8

6

54

3

2

1

Market corrections

Bear markets Macro environment Bull markets

Mkt. Peak Bear return

Duration (months) Recession Commodity

spikeAggressive

FedExtreme

valuationsBull begin

dateBull

returnDuration (months)

1 Crash of 1929 - excessive leverage, irrational exuberance Sep 1929 -86% 32 Jul 1926 152% 37 2 1937 Fed tightening - premature monetary tightening Mar 1937 -60 61 Mar 1935 129 23 3 Post WWII crash - post-war demobilisation, recession fears May 1946 -30 36 Apr 1942 158 49 4 Flash crash of 1962 - flash crash, Cuban Missile Crisis Dec 1961 -28 6 Oct 1960 39 13 5 Tech crash of 1970 - economic overheating, civil unrest Nov 1968 -36 17 Oct 1962 103 73 6 Stagflation - OPEC oil embargo Jan 1973 -48 20 May 1970 74 31 7 Volcker tightening - whip inflation now Nov 1980 -27 20 Mar 1978 62 32 8 1987 crash - programme trading, overheating markets Aug 1987 -34 3 Aug 1982 229 60 9 Tech bubble - extreme valuations, dotcom boom/bust Mar 2000 -49 30 Oct 1990 417 113 10 Global financial crisis - leverage/housing, Lehman collapse Oct 2007 -57 17 Oct 2002 101 60

Current cycle Mar 2009 290 108 Averages - -45% 25 - 159% 54

Bear markets and subsequent bull runs

S&P 500 Composite declines from all-time highs

Characteristics of bull and bear 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. Periods of recession are defined using the NBER’s business cycle dates. Commodity spike is defined by a significant upward movement in oil prices. Periods of extreme valuation are defined as periods where the forward P/E multiple on the S&P 500 were approximately two standard deviations above the long-run average. Aggressive Fed tightening is defined as Federal Reserve monetary tightening that was unexpected and/or significant in magnitude. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

20% market decline*

Recession

Equi

ties

10

42

GTM – Australia 42|Interest rates and equities

Correlations between weekly equity returns and interest rate movementsRolling two-year correlation of weekly returns on the S&P 500 and the ASX 200 and the 10-year Treasury yield, 1972-2018

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Cor

rela

tion

10-year Treasury yield

S&P 500

ASX 200Positive

relationship between yield

movements and equity returns

Negative relationship

between yield movements and

equity returns

Equi

ties

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

43


90

92

94

96

98

100

102

104

106

108

110

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Europe: Earnings and the euro

Stoxx 50 yearly earnings trend European earnings vs. the euroEPS rebased to 100 in January of each year Last 12 months’ earnings per share EUR / USD

Source: FactSet, J.P. Morgan Asset Management; (Left) STOXX; (Right) MSCI.Guide to the Markets – Australia. Data as of 31 March 2018.

2017

2016

2015

2014

2018

Equi

ties

'99 '01 '03 '05 '07 '09 '11 '13 '15 '1740

60

80

100

120

140

160

180

200

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

MSCI Europe ex-UK EPS EUR / USD

44


¥0

¥2

¥4

¥6

¥8

¥10

¥12

¥100

¥200

¥300

¥400

¥500

¥600

¥700

¥800

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

'99 '01 '03 '05 '07 '09 '11 '13 '15 '172%

4%

6%

8%

10%

12%

14%

16%

3%

4%

5%

6%

7%

8%

9%

10%

11%

Japan: Earnings and the Japanese yen

Japanese yen and the stock marketProfits and return on equity

Domestic demand and corporate profitsJPY trillions

Source: FactSet, J.P. Morgan Asset Management; (Top Left) Japan Cabinet Office, MSCI; (Bottom Left) Economic and Social Research Institute, Ministry of Finance; (Right) Nikkei. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Australia. Data as of 31 March 2018.

'03 '05 '07 '09 '11 '13 '15 '176,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

¥70

¥80

¥90

¥100

¥110

¥120

¥130Nikkei 225 Index USD / JPYCorporate profit % GDP MSCI Japan ROE

Equi

ties

Domestic demand Ordinary profits

45

GTM – Australia 45|Emerging markets valuations and returns

MSCI Emerging Markets Index: Price-to-book ratio MSCI Emerging Markets: Price to book and returnsPrice-to-book ratio and next five-year annualised % total return

Source: FactSet, MSCI, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '170.75x

1.00x

1.25x

1.50x

1.75x

2.00x

2.25x

2.50x

2.75x

3.00x

Average: 1.77x31 Mar 2018:

1.76x

-2.0 Std dev

+2.0 Std dev

Current level

Equi

ties

-20%

-10%

0%

10%

20%

30%

40%

50%

0.75x 1.00x 1.25x 1.50x 1.75x 2.00x 2.25x 2.50x 2.75x 3.00x

46


'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '170

50

100

150

200

250 90

100

110

120

130

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '1740

80

120

160

200

240

280

100

200

300

400

500

Emerging markets equities: Relative performance

EM vs. DM growth and equity performanceMonthly, consensus expectations for GDP growth in 12 months

EM equity relative performance and commodity pricesRebased 1997 = 100

EM equity relative performance and the USDRebased to 100 in 1993

Source: FactSet, MSCI, J.P. Morgan Asset Management; (Left) J.P. Morgan Economic Research; (Top right) Bloomberg Finance L.P.*REER is the real effective exchange rate. Past performance is not a reliable indicator of current and future results.

Guide to the Markets – Australia. Data as of 31 March 2018.

MSCI EM / MSCI DM

EM less DM GDP growth

EM growth & equity outperformance

EM growth & equity underperformance

Equi

ties

MSCI EM / MSCI DM

Bloomberg commodity index

MSCI EM / MSCI DM

USD REER (inverted)*

0

20

40

60

80

100

120

140

160

-1%

0%

1%

2%

3%

4%

5%

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

47


'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '1840

60

80

100

120

140

160

180

200

'10 '11 '12 '13 '14 '15 '16 '1720

40

60

80

100

120

140

160

180

200

Emerging markets: Earnings snapshot

EM earnings expectations by sector EM earnings expectations by regionConsensus EPS for next 12 months, USD, rebased to 100 in 2010 Consensus EPS for next 12 months, USD, rebased to 100 in 2006


Equi

ties

EM Latin America

EM Asia

EM Europe

MaterialsEnergyIndustrials

Telecoms

StaplesDiscr.

Financials

I.T.

Utilities

HealthCare

48


2012 2013 2014 2015 2016 2017 1Q18 Ten-yr Ann 17.8%

Global HY 18.8%

25.3% Global HY

7.1%

16.0% EM Debt

6.2%

14.5% EM Debt

1.8%

15.3% Global HY

15.9%

5.1% Aus IG 5.1%

1.7% Global HY

-0.7%

9.1% Global HY

7.3%

16.6% EM Debt 18.0%

16.4% Global IG

0.3%

14.8% US Treas.

5.1%

13.4% US Treas.

0.8%

10.1% EM Debt

9.6%

3.5% Aus Gov

3.5%

1.2% US TIPS -0.8%

8.0% EM Debt

6.7%

9.9% Aus IG 9.9%

12.9% US Treas.

-2.7%

13.3% US TIPS

3.6%

10.9% US TIPS -1.4%

5.7% Portfolio

5.6%

2.0% Global HY

7.6%

1.1% Global IG

-0.8%

6.7% Aus IG 6.5%

9.8% Global IG

11.2%

9.3% Portfolio

-0.3%

12.8% Global IG

3.1%

8.5% Global IG

-3.6%

5.2% US TIPS

4.7%

1.0% Global IG

9.1%

1.0% Aus Gov

1.0%

6.6% Portfolio

6.0%

8.8% Portfolio

9.6%

6.4% EM Debt

-8.3%

11.6% Portfolio

6.2%

7.8% Global HY

-2.1%

4.8% Global IG

4.3%

0.8% Portfolio

5.2%

1.0% Portfolio

-0.3%

5.8% Aus Gov

5.9%

5.6% US TIPS

7.0%

6.1% US TIPS -8.6%

10.3% Aus Gov

10.3%

7.6% Portfolio

0.5%

3.8% Aus IG 3.8%

0.3% EM Debt

8.3%

0.8% Aus IG 0.8%

5.5% Global IG

4.3%

5.5% Aus Gov

5.5%

4.3% Aus IG 4.3%

9.2% Global HY

2.5%

3.0% Aus IG 3.0%

2.5% Aus Gov

2.5%

-4.6% US TIPS

3.0%

0.8% US Treas.

-1.2%

4.7% US TIPS

3.9%

0.7% US Treas.

2.0%

0.3% Aus Gov

0.3%

8.1% Aus IG 8.1%

2.3% Aus Gov

2.3%

1.5% US Treas.

1.0%

-5.3% US Treas.

2.3%

-0.1% EM Debt

-2.0%

4.4% US Treas.

4.2%

Fixed income sector returns

Fixed income sector returns

Source: Barclays, Bloomberg Finance L.P., BoA/ML, FactSet, J.P. Morgan Asset Management. Aus Gov: AusBond Treasury (0+Y); U.S. Treas.: Barclays US Aggregate Government – Treasury; Global IG: Barclays Global Aggregate – Corporate – Investment Grade; Aus IG: Bloomberg AusBond Credit (0+Y); Global HY: BoA/ML Global High Yield; EM Debt: J.P. Morgan EMBI+; U.S. TIPS: Bloomberg Barclays US Treasury Inflation Protected (TIPS). Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 25% Aus Gov, 15% Aus IG, 10% Global IG, 15% Global HY; EM Debt 10%, US Treas. 15%, US TIPS 10%. Correlation to U.S. Treasuries and Australian Treasuries are to the Barclays US Treasury (10Y) and Bloomberg AusBond Treasury (7-10Y), respectively, for the past 10 years. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

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Global HY

Global IG

Portfolio

Australia Gov

U.S. Treasuries

U.S. TIPS

EM Debt

Australia IG

Correl to TreasuriesYield Duration U.S. Australia

6.20% 7.9 Yrs 0.28 0.04

6.03 4.5 -0.22 -0.33

3.33

3.08 3.7 0.42 0.71

2.92 6.7 0.24 -0.07

2.55 6.1 0.99 0.74

2.41 6.2 0.72 0.99

0.69 5.0 0.55 0.28

AUD

LCL

49


Number of policy rate changes by central banks

Central bank policy rates

Central bank key policy ratesTarget rates

Source: J.P. Morgan Asset Management; (Left) Bank of Japan, European Central Bank, FactSet, Reserve Bank of Australia, U.S. Federal Reserve; (Right) Bloomberg Finance L.P. *Covers the 10 largest developed market central banks by assets.Guide to the Markets – Australia. Data as of 31 March 2018.

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17-1%

0%

1%

2%

3%

4%

5%

6%

7%

8% Policy rate Deposit rateRBA 1.50% 1.50%U.S. Fed 1.75% 1.75%ECB 0.00% -0.40%BoJ -0.10% -0.10%

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e

Developed market central banks easing or tightening policy*

Cuts

Hikes

0

5

10

15

20

25

30

35

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

50


-$1,000

-$500

$0

$500

$1,000

$1,500

$2,000

'16 '17 '18 '19

Central bank balance sheets

Central bank asset purchases12-month rolling bond purchases by G4 central banks*, USD billions

Source: Bloomberg Finance L.P., J.P. Morgan Asset Management.*New purchases of assets are based on monthly holdings as reported by each respective G4 central bank (the U.S. Federal Reserve (Fed), the European Central Bank (ECB), the Bank of Japan (BoJ) and the Bank of England (BoE)), announced purchase plans for the Fed, the ECB, the BoE and the BoJ, and J.P. Morgan Asset Management projections. Guide to the Markets – Australia. Data as of 31 March 2018.

Projection

U.S.Eurozone

JapanNet

UK

Fixe

d in

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e

51


'70 '75 '80 '85 '90 '95 '00 '05 '10 '15

-2%

-1%

0%

1%

2%

3%

U.S. yield curve

Yield curve spread Yield curve inversion and recessions10-year less 2-year U.S. Treasury Number of months

Source: FactSet, Federal Reserve, Standard & Poor’s, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Yield curve inversion

Time until market peak

Time from market peak to recession

Time fromcurve inverts to recession

Dec ’67 11 14 25

Mar ’73 7 2 9

Nov ’78 15 0 14

Aug ’80 3 8 11

Dec ’88 19 1 19

Mar ’00 5 7 12

Aug ’06 13 3 16

Median 11 3 14

Average 10 5 15

Recession

Fixe

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e

52


'70 '75 '80 '85 '90 '95 '00 '05 '10 '15-10%

-5%

0%

5%

10%

15%

20%

Australian interest rates and inflation

Nominal and real 10-year Treasury yields

Source: Australian Bureau of Statistics, FactSet, Tullett Prebon, J.P. Morgan Asset Management. *March real yield calculated using 4Q17 inflation. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

30 Jun 1982: 16.40%

31 Mar 2018: 2.58%

Nominal 10-year Treasury yield

Real 10-year Treasury yield

Avg. 1970-2017

31 Mar2018

Nominal yield 8.30% 2.58%

Real yield* 2.83% 0.68%

31 Mar 2018: 0.68%

Fixe

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com

e

53


'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '173

4

5

6

7

2%

4%

6%

8%

10%

0%

20%

40%

60%

80%

100%

3.3%

2.6%

2.5%2.3%

2.0%2.0%1.9%

2.0%

3.9%

2.7%

2.5%2.2%

1.9%1.7%1.6%

1.8%1.2%

1.6%

2.0%

2.4%

2.8%

3.2%

3.6%

4.0%Australian Treasury yield curve

10y1y 2y 3y 5y3m

Bond market dynamics

Yield curve

Developed market government bonds by yield Duration and yield of Barclays U.S. AggregateYears Yield

Source: FactSet, J.P. Morgan Asset Management; (Top) Tullet Prebon; (Bottom left) BofA/Merrill Lynch; (Bottom right) Barclays. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

7y 30y

31 Mar 2018

31 Mar 2017

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e Proportion of total

Below 0%

Below U.S. 10yAbove U.S. 10y

0% 2.7%

YieldDuration

54


0

10

20

30

40

50

60

0 10 20 30 40 50 60# of trading days

2.10%

2.90%

3.40%

2.90%

2.08%

2.44%2.52%

0%

1%

2%

3%

4%

5%

6%

7%

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21

The U.S. Federal Reserve outlook

Federal funds rate expectations Inflation expectations and bond yieldsFOMC and market expectations for the fed funds rate Changes in 10-year US Treasury yield, YTD

Source: FactSet, U.S. Federal Reserve, J.P. Morgan Asset Management. *Other drivers of changes in the 10-year U.S. Treasury are changing expectations for growth, currency, rates and investor repositioning. Guide to the Markets – Australia. Data as of 31 March 2018.

Longrun

Federal funds rate

FOMC long-run projection

FOMC year-end estimatesMarket expectations on 31 March 2018

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Change in inflation expectations

Change from other factors*

55


0%

5%

10%

15%

20%

Treasury:Australia

1-3 years 5-7 years 10+ years Investmentgrade credit

High yield EMD USDsovereign

EMD USDcorporate

EMD LCsovereign

Fixed income interest rate risk

Current and historical yields for selected indices

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

Last 10 years*

Assumes a parallel shift in the yield curve and spreads are maintained

Source: Barclays, FactSet, J.P. Morgan Asset Management. *Historical spread analysis is based on last 10 years of data, with the exception of EMD LC sovereign, which is based on seven years due to data availability. Fixed income sectors shown are provided by Barclays and are represented by: Treasury Australia; Bloomberg AusBond Treasury indices; Investment-grade credit: Barclays Global Aggregate – Corporates; High yield: Barclays Global High Yield; EMD USD sovereign: Barclays Emerging Markets – Sovereign; EMD USD corporate: Barclays Emerging Markets – Corporate; EMD LC sovereign: Barclays Emerging Markets Local Currency Government. For illustrative purposes only. Change in bond price is calculated using both duration and convexity. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Price return

Total return

Average

Current

Min

How to interpret this chart

Max

Fixe

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e

-12%

-9%

-6%

-3%

0%

3%

EMD LCsovereign

EMD USDcorporate

EMD USDsovereign

High yieldInvestmentgrade credit

10+ years5-7 years1-3 yearsTreasury:Australia

56


6x

8x

10x

12x

14x

16x

0.8x

1.2x

1.6x

2.0x

2.4x

2.8x

3.2x

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

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18'99 '01 '03 '05 '07 '09 '11 '13 '15 '170

100

200

300

400

500

600

Global investment-grade bonds

Global investment-grade bondsOption-adjusted spreads, basis points

U.S. IG leverage measuresLeverage* and interest coverage** ratio

U.S. IG issuanceGross issuance, USD trillion

Source: J.P. Morgan Asset Management; (Left) Barclays, BofA Merrill Lynch, FactSet; (Top and bottom right) J.P. Morgan Securities.*Leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). **Interest coverage is EBITDA over interest expense. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Europe

AustraliaU.S.

Non-financialsFinancials

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Interest coverageLeverage

YTD: $323bn

Average 31 Mar 18U.S. 160bps 109bpsEurozone 130 95Australia 130 96

57


0bps

500bps

1000bps

1500bps

2000bps

0%

5%

10%

15%

20%

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

$0

$50

$100

$150

$200

$250

1-2 2-3 3-4 4-5 5-6 6-7 7-8 8+ 3.0x

3.5x

4.0x

4.5x

5.0x

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

U.S. high yield bonds

U.S. high yield spread and default rate

U.S. high yield maturity scheduleUSD billions

U.S. high yield leverage measuresNet leverage* and interest coverage ratio**

Source: J.P. Morgan Asset Management; (Top and bottom right) J.P. Morgan Economic Research; (Bottom left) BofA/ML, Bloomberg Finance L.P. 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. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issue actually defaulting and reflects the possibility of the bond being called at an unfavourable time for the holder. *Net leverage is net debt divided by adjusted earnings before interest, tax, depreciation and amortization (EBITDA). **Interest coverage ratio is EBITDA over interest expense. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Asset class Average since 1986 Latest

HY spread (RHS) 573bps 410bpsHY default (LHS) 3.9% 2.2%

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BBBCCC and below

Years to maturity

58


3%

5%

7%

9%

11%

13%

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19-10%

-8%

-6%

-4%

-2%

0%

Emerging market debt

Headline inflationYear-over-year change, LatAm and EM Asia aggregates

Fiscal positionsNominal deficit, % of GDP

Source: J.P. Morgan Asset Management; (Left) J.P. Morgan Securities Research; (Top right) J.P. Morgan Economics Research; (Bottom right) IMF. *Latin America index excludes Argentina, Ecuador and Venezuela. Based on J.P. Morgan GBI-EM (EM sovereign (local currency)), J.P. Morgan EMBI+ (EM sovereign (USD)), J.P. Morgan CEMBI (EM corporate (USD)). Yield to worst is shown for EM sovereign (USD) and EM corporate (USD) indexes. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

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Average 31 Mar 18Sovereign (LCL) 6.7% 6.0%Sovereign (USD) 6.1% 6.2%Corporate (USD) 6.2% 5.5%

EM AsiaEM Latin America*

Yield to maturity

IMF forecast

EM EuropeEM AsiaEM Latin America

Emerging market yields

0%

2%

4%

6%

8%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

59


-1.0-0.50.00.51.01.52.02.53.0

'15 '16 '17 '18 '19

'12 '13 '14 '15 '16 '17900

950

1,000

1,050

1,100

1,150

1,200

1,250

0

500

1,000

1,500

2,000

2,500

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17$0

$25

$50

$75

$100

$125

$150

Oil consumption and production

Price of oilBrent crude, nominal prices, USD / barrel

Crude oil production growthYear-over-year change, millions barrels per day

U.S. crude oil inventories and rig count*Millions barrels Number of active rigs

Source: FactSet, J.P. Morgan Asset Management; (Top left) U.S. Energy Information Administration; (Bottom left) Baker Hughes, U.S. Department of Energy.*Weekly U.S. crude oil and petroleum ending inventory includes strategic petroleum reserve, and active rig count represents both natural gas and oil rigs.Guide to the Markets – Australia. Data as of 31 March 2018.

Inventories (incl. SPR)

Active rigs

31 Mar 2018: $69.30

Jul 2008: $145.65

Dec 2008: $34.27

Jun 2014: $115.60

Oth

er

asse

t cla

sses

Forecast

OPEC + RussiaU.S.

60


-15%

-10%

-5%

0%

5%

10%

15%

20%

'13 '14 '15 '16 '17 '18'99 '01 '03 '05 '07 '09 '11 '13 '15 '170

50

100

150

200

250

300

350

Commodities

Commodity pricesRBA commodity indices Mt Days

Chinese implied steel demand growth**Year-over-year change

Source: J.P. Morgan Asset Management; (Left) FactSet, Reserve Bank of Australia; (Top and bottom right) Bloomberg Finance L.P., National Bureau of Statistics of China. *Not plotted on chart. **Implied steel demand is Chinese steel production less net exports of steel.Guide to the Markets – Australia. Data as of 31 March 2018.

Oth

er

asse

t cla

sses

28 Feb 2018: 7.9%

Index weights 2017Bulk commodities 50.5%Rural commodities 14.7%Base metals 5.6%Other resources* 29.2%Index 100.0%

Iron ore: Chinese port inventories and days of supply

Days of supplyInventories at port

0

10

20

30

40

50

60

020406080

100120140160

'10 '11 '12 '13 '14 '15 '16 '17 '18

61


'13 '14 '15 '16 '17$20

$40

$60

$80

$100

$120

$140

$0.65

$0.70

$0.75

$0.80

$0.85

$0.90

$0.95

$1.00

Australian dollar

AUD trade-weighted index

Iron ore price and FXUSD per tonne

Short rates (bps) and FX2-year U.S. / Australia Treasury difference

Source: FactSet, J.P. Morgan Asset Management; (Bottom left) Commodity Research Bureau; (Bottom right) Tullett Prebon. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Oth

er

asse

t cla

sses

Iron ore price

AUD / USD

'13 '14 '15 '16 '17-50

0

50

100

150

200

250

$0.65

$0.70

$0.75

$0.80

$0.85

$0.90

$0.95

$1.00

Spread (bps)

AUD / USD

$A REER10-year moving average

+1.5 std dev

-1.5 std dev5060708090

100110120130140

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

62


-4

-2

0

2

4

Turkey Canada Mexico Indonesia Brazil AustraliaMalaysia Japan Russia UK Euro S. Africa U.S. India Taiwan Korea China Thailand

Global currencies

U.S. dollar performance

Real effective exchange rates*Number of standard deviations away from average

Source: FactSet, J.P. Morgan Asset Management; (Top) Bloomberg Finance L.P., U.S. Federal Reserve; (Bottom) J.P. Morgan Economic Research.*The real trade-weighted exchange rate index is the weighted average of a country’s currency relative to a basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one country’s currency, with other countries within the basket. **The Dollar Index is a trade-weighted index calculated using 7 major U.S. trade partners’ currencies – Australian dollar, British pound, Canadian dollar, euro, Japanese yen, Swedish kroner and Swiss franc. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Oth

er

asse

t cla

sses

'74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '1870

80

90

100

110

120

130

Fed hiking cycle

U.S. Dollar Index (DXY)**$US REER*

Min

Current

Max

Above average

Below average

63

GTM – Australia 63|U.S. dollar drivers

Current account balance Yield differential% of nominal GDP Index U.S. minus international 10-year yields* Index

Source: FactSet, Federal Reserve, J.P. Morgan Asset Management; (Left) U.S. Bureau of Economic Analysis; (Right) BIS, Federal Reserve, Tullett Prebon.*Interest rate differential is the difference between the 10-year U.S. Treasury yield and a basket of the 10-year yields of each of the countries included in the Federal Reserve’s Broad Nominal Trade-Weighted Index (except Chile, Saudi Arabia and Venezuela due to data limitations), weighted by each country’s share of total global debt securities outstanding. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Oth

er

asse

t cla

sses

Current account balance USD

Yield difference

USD

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '1885

90

95

100

105

110

115

120

125

130

135

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

85

90

95

100

105

110

115

120

125

130

135

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

'95 '98 '01 '04 '07 '10 '13 '16

64

GTM – Australia 64|Emerging markets currencies

EM currencies vs. U.S. dollarIndex level

Commodity prices and EM FXIndices

“Fragile Five” current account balance*% of GDP

Source: J.P. Morgan Asset Management; (Left) J.P. Morgan Economics Research; (Top right) Bloomberg Finance L.P., J.P. Morgan Economics Research; (Bottom right) FactSet, IMF. *”Fragile Five” are Brazil, India, Indonesia, South Africa and Turkey. Aggregate current account balance is weighted by individual country’s GDP. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018

Oth

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sses

Commodity prices

EM currencies vs. USD

EM currencies appreciating

EM currencies depreciating

Average

-1 std. dev.

+1 std. dev.

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

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

60

80

100

120

140

160

180

60

70

80

90

100

110

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

60

70

80

90

100

110

120

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

65

GTM – Australia 65|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*

Three-month equity and bond correlationsTotal return on U.S. equities (S&P 500) and U.S. Treasuries (10-yr)

Hedge fund returns in different market environments%, average total return in up and down months, 2002-2018

Source: J.P. Morgan Asset Management; (Left) MSCI; (Top and bottom right) FactSet, Standard & Poor’s; (Top right) BofA Merrill Lynch; (Bottom right) Barclays, Hedge Fund Research. *The equity index is the MSCI World (EUR hedged) and the bond index is the JP Morgan Global Bond index (EUR hedged). Sharpe ratio is calculated as (Return – Risk-free rate) / Volatility. **HFRI FW is Hedge Fund Research Index Fund Weighted. ***U.S. bonds is the 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 – Australia. Data as of 31 March 2018.

5-year Sharpe ratio

3-year Sharpe ratio

HFRI FW**U.S. Bonds***

HFRI FW**S&P 500

Oth

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1.2%

-1.2%

0.6% 0.2%

2.8%

-3.4%

0.7%

-0.7%

-4%

-2%

0%

2%

4%

S&P 500 up S&P 500 down Barclays Agg up Barclays Aggdown

-1.0

-0.5

0.0

0.5

1.0

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

-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

66


2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q18 Ann. Vol.EM

equity 16.8%

REITS 34.4%

EM equity 43.8%

REITS 33.2%

EM equity 25.5%

Global FI

32.0%

EM equity 38.8%

Aus. FI 6.0%

Aus. FI 11.4%

REITS 32.2%

DM equity 47.8%

REITS 27.3%

REITS 14.0%

REITS 13.9%

EM equity 27.5%

EM equity 3.5%

EM equity 10.2%

REITS 16.3%

Aus. Equity 14.6%

Aus. Equity 28.0%

Aus. Equity 22.8%

Aus. Equity 24.2%

Aus. Equity 16.1%

Aus. FI 14.9%

Aus. Equity 37.0%

Cash 4.7%

Global FI

5.6%

Aus. Equity 20.3%

Aus. Equity 20.2%

DM equity 15.3%

DM equity 12.1%

EM equity 12.1%

DM equity 13.9%

Global FI

3.4%

Aus. Equity 9.5%

EM equity 14.0%

REITS 8.8%

EM equity 21.1%

DM equity 17.6%

EM equity 23.4%

Cash 6.8%

Cash 7.6%

Port. 12.6%

EM equity 4.6%

Cash 5.0%

EM equity 17.1%

Port. 16.2%

Port. 10.8%

Global FI

8.9%

Aus. Equity 11.8%

Aus. Equity 11.8%

Aus. FI 0.9%

Port. 7.7%

Aus. Equity 12.8%

Port. 5.6%

Port. 16.7%

Port. 16.2%

Port. 14.6%

Port. 6.6%

Port. -15.6%

Cash 3.5%

Port. 1.7%

Port. -1.8%

DM equity 15.1%

EM equity 13.4%

Global FI

10.0%

Port. 5.1%

DM equity 8.7%

Port. 9.2%

DM equity 0.8%

DM equity 7.1%

DM equity 11.3%

Cash 4.9%

DM equity 10.8%

REITS 15.5%

DM equity 12.3%

Aus. FI 3.5%

DM equity -24.9%

REITS 3.3%

Aus. Equity 1.6%

REITS -2.0%

Port. 14.7%

Global FI

13.0%

Aus. FI 9.8%

Aus. FI 2.6%

Port. 7.9%

REITS 5.1%

Cash 0.4%

REITS 5.8%

Port. 9.2%

Aus. FI 3.0%

Aus. FI 7.0%

Aus. FI 5.8%

Cash 6.0%

DM equity -1.6%

Aus. Equity -38.4%

Aus. FI 1.7%

REITS 0.4%

DM equity -5.0%

Aus. FI 7.7%

REITS 6.6%

EM equity 7.3%

Aus. Equity 2.6%

Aus. FI 2.9%

Aus. FI 3.7%

Port. -0.5%

Aus. FI 5.6%

Global FI

5.7%

DM equity -0.0%

Cash 5.6%

Cash 5.7%

Aus. FI 3.1%

Global FI

-1.7%

EM equity -41.0%

DM equity 1.4%

DM equity -1.4%

Aus. Equity -10.5%

Cash 4.0%

Cash 2.9%

Aus. Equity 5.6%

Cash 2.3%

Global FI

2.6%

Cash 1.7%

Aus. Equity -3.9%

Cash 4.3%

Aus. FI 2.8%

Global FI

-15.9%

Global FI

5.0%

Global FI

2.1%

Global FI

-0.8%

REITS -7.7%

REITS -55.2%

Global FI

-17.1%

Global FI

-7.4%

EM equity -18.2%

Global FI

3.0%

Aus. FI 2.0%

Cash 2.7%

EM equity -3.9%

Cash 2.1%

Global FI

-0.6%

REITS -6.2%

Global FI

2.0%

Cash 0.5%

15-years '03 - '17

Asset class returns (AUD)

Source: Bloomberg Finance L.P., FactSet, FTSE, J.P. Morgan, MSCI, Standard & Poor's, J.P. Morgan Asset Management. Annualised return (Ann.) and volatility(Vol.) covers the period 2003 to 2017. EME: MSCI Emerging Markets; Australian FI: Bloomberg AusBond Composite (0+Y); Global FI: Barclays Global Aggregate; DMEquities: MSCI World; Australian equities: ASX 200 Index; REITs: FTSE EPRA/NAREIT Australia; Cash: Bloomberg AusBond Bank Bill Index. Port. is hypotheticalportfolio (for illustration purposes only and should not be taken as a recommendation): 15% DM equities; 10% EM equities; 25% Australian equities; 25% Australian FI;10% Global FI; 5% Cash and 10% REITs. Returns are unhedged, total return, in Australian dollars. Past performance is not a reliable indicator of current and futureresults.Guide to the Markets – Australia. Data as of 31 March 2018.

Inve

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ples

67


$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '170%

1%

2%3%

4%

5%6%

7%

8%

Cash accounts

Annual income from one-year term depositTerm deposit and policy rate3-year term deposit*

Term deposit held with banksAUD billions

Source: FactSet, Reserve Bank of Australia, J.P. Morgan Asset Management. *Annual term deposit rate is average rate for a $10,000 term deposit at a retail bank. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Term depositCash rate

2008: $6,442

28 Feb 2018: 2.45%

31 Mar 2018: 1.50%

Inve

stin

g pr

inci

ples

Feb 2018: $2,200

Feb 2018: $620bn

$0

$100

$200

$300

$400

$500

$600

$700

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

A$ 1000,000 deposit

68

GTM – Australia 68|Annual returns and intra-year declines

ASX 200 index intra-year declines vs. calendar year returnsDespite average intra-year drops of 13.9% (median 11.5%), annual returns are positive in 18 out of 24 years*

Source: FactSet, MSCI, J.P. Morgan Asset Management. Returns are based on price only and exclude dividends. Intra-year decline refers to the largest market fall from peak to trough in a short period of time during the calendar year. *Returns are shown for calendar years from 1994 to 2017. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Inve

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inci

ples

Calendar year return

Intra-year decline

-12%

16%

10% 8%6%

15%

3%7%

-12%

10%

23%

18% 19%

12%

-41%

31%

-3%

-15%

15% 15%

1%

-2%

7% 7%

-5%

-21%

-5%

-10%

-17% -16%

-11% -10%

-16% -17%

-12%

-3%-7%

-10%-12%

-47%

-17% -16%

-22%

-10% -11%-9%

-18%

-10%

-5% -6%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

69


9.0%

6.5%

4.6%

2.9%

1.5%0.30%

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Fully invested Missed 10 best days Missed 20 best days Missed 30 best days Missed 40 best days Missed 50 best days

Impact of being out of the market

Returns of the ASX 200 IndexAUD, value of a $10,000 investment between 1996 and 2017, annualised returns

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. For illustrative purposes only. Assumes all income is reinvested; returns calculated daily overthe time period assuming no return on each of the specified number of best days. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Inve

stin

g pr

inci

ples

70


$0

$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 One-off $5,000 investment with/without income reinvestedAUD AUD, MSCI Australia returns


Inve

stin

g pr

inci

ples

'85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

Without dividends reinvested

With dividends reinvested

$31,033

$117,564

Starting at age 35

Starting at age 25

Age

$353,804

$639,199

71


68%

24%

78%

36%

93%

51%

0%

20%

40%

60%

80%

100%

80 years 90 years

Life expectancy and pension shortfall

Probability of reaching ages 80 and 90Persons aged 65, by gender, and combined by couple

Source: ABS Life Tables, J.P. Morgan Asset Management.Guide to the Markets – Australia. Data as of 31 March 2018.

Men

WomenCouple – at least one lives to specified age

Inve

stin

g pr

inci

ples

72


-39%

-8%

-15%

-3% -2%

1%

-1% 1% 2%7%

1%5%

47%43%

33%28%

23% 21% 19%16% 16% 17%

12% 14%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Time, diversification and the volatility of returns

Range of equity, bond and blended total returnsAnnual total returns, 1950-2017

Source: Barclays, FactSet, Robert Shiller, Strategas/Ibbotson, U.S. Federal Reserve, J.P. Morgan Asset Management. Returns shown are based on calendar year returns from 1950 to 2017. Large cap equity represents the S&P 500 Shiller Composite and bonds represents the Strategas/Ibbotson for periods from 1950 to 1980 and the Barclays Aggregate after index inception in 1980. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Australia. Data as of 31 March 2018.

Large cap equityBonds50/50 portfolio

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

Inve

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inci

ples

J.P. Morgan Asset Management – Index DefinitionsThe 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 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 NFI-ODCE, short for NCREIF Fund Index - Open End Diversified Core Equity, is an index of investment returns reporting on both a historical and current basis the results of 33 open-end commingled funds pursuing a core investment strategy, some of which have performance histories dating back to the 1970s. The NFI-ODCE Index is capitalization-weighted and is reported gross of fees. Measurement is time-weighted.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.The Dow Jones Industrial Average measures the stock performance of 30 leading blue-chip U.S. companies.The Bloomberg 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

All 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.

J.P. Morgan Asset Management – Index Definitions All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. 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. Individual components qualify for inclusion in the index on the basis of liquidity and are weighted by their respective world production quantities.The Barclays Capital 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. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis. This U.S. Treasury Index is a component of the U.S. Government index. West Texas Intermediate (WTI) is the underlying commodity for the New York Mercantile Exchange's oil futures contracts. The Barclays Capital 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. Original issue zeroes, step-up coupon structures, and 144-As are also included.The Barclays Capital 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. In addition, the securities must be denominated in U.S. dollars and must be fixed rate andnon convertible.The Barclays Capital General Obligation Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be general obligation bonds rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lowerrating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark.The Barclays Capital Revenue Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be revenue bonds rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark.The Barclays High Yield Municipal Index includes bonds rated Ba1 or lower or non-rated bonds using the middle rating of Moody’s, S&P and Fitch.The Barclays Capital Taxable Municipal Bond Index is a rules-based, market-value weighted index engineered for the long-term taxable bond market. To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies if all three rate the bond: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate and must be at least one year from their maturity date. Remarketed issues (unless converted to fixed rate), bonds with floating rates, and derivatives, are excluded from the benchmark.

Municipal Bond Index: To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lowerrating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives are excluded from the benchmark.The Barclays Capital 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 Barclays Capital 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 Barclays Capital Corporate Bond Index is the Corporate component of the U.S. Credit index.The Barclays Capital TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury.The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities.The 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 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.

J.P. Morgan Asset Management – Definitions, risks & disclosuresBonds are subject to interest rate risks. Bond prices generally fall when interest rates rise.The price of equity securities may rise, or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. Equity securities are subject to “stock market risk” meaning that stock prices in general may decline over short or extended periods of time. Small-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies since smaller companies generally have a higher risk of failure. Historically, smaller companies' stock has experienced a greater degree of market volatility than the average stock.Mid-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies. Historically, mid-cap companies' stock has experienced a greater degree of market volatility than the average stock.Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in thevalue of real estate, risks related to general and economic conditions, changes in the value of the underlying property ownedby the trust and defaults by borrower.International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in emerging markets can be more volatile. As mentioned above, the normal risks of investing in foreign countries are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property.Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments involve greater risks than traditional investments and should not be deemed a complete investment program. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain. The value of the investment may fall as well as rise and investors may get back less than they invested.Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns. Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. Price to book valuecompares a stock's market value to its book value. Price to cash flow is a measure of the market's expectations of a firm's future financial health. Price to dividends is the ratio of the price of a share on a stock exchange to the dividends per share paid in the previous year, used as a measure of a company's potential as an investment.

There is no guarantee that the use of long and short positions will succeed in limiting an investor's exposure to domestic stock market movements, capitalization, sector swings or other risk factors. Using long and short selling strategies may havehigher portfolio turnover rates. Short selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions.The HFRI Monthly Indices (HFRI) are equally weighted performance indexes, utilized by numerous hedge fund managers as a benchmark for their own hedge funds. The HFRI are broken down into 4 main strategies, each with multiple substrategies. All single-manager HFRI Index constituents are included in the HFRI Fund Weighted Composite, which accounts for over 2200 funds listed on the internal HFR Database.Equity Market Neutral Strategies employ sophisticated quantitative techniques of analyzing price data to ascertain information about future price movement and relationships between securities, select securities for purchase and sale. Equity Market Neutral Strategies typically maintain characteristic net equity market exposure no greater than 10% long or short.Distressed Restructuring Strategies employ an investment process focused on corporate fixed income instruments, primarily on corporate credit instruments of companies trading at significant discounts to their value at issuance or obliged(par value) at maturity as a result of either formal bankruptcy proceeding or financial market perception of near term proceedings.Merger Arbitrage Strategies which employ an investment process primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction. Global Macro Strategies trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets.Relative Value Strategies maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. The Cambridge Associates LLC U.S. Private Equity Index® is an end-to-end calculation based on data compiled from 1,052 U.S. private equity funds (buyout, growth equity, private equity energy and mezzanine funds), including fully liquidated partnerships, formed between 1986 and 2013.The Alerian MLP Index is a composite of the 50 most prominent energy Master Limited Partnerships (MLPs) that provides investors with an unbiased, comprehensive benchmark for the asset class.

J.P. Morgan Asset Management – Risks & disclosures

The Market Insights program 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 program explores the implications of current economic data and changing market conditions.

For the purposes of MiFID II, the JPM Market Insights and Portfolio Insights programmes are marketing communications and are not in scope for any MiFID II / MiFIR requirements specifically related to investment research. Furthermore, the J.P. Morgan Asset Management Market Insights and Portfolio Insights programmes, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

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 yields 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 authorized and regulated by the Financial Conduct Authority; in other European jurisdictions by JPMorgan Asset Management (Europe) S.àr.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 2018 JPMorgan Chase & Co. All rights reserved.

Prepared by: Kerry Craig, Tai Hui, Jasslyn Yeo, Marcella Chow, Ian Hui, Chaoping Zhu and Hannah Anderson.

Unless otherwise stated, all data are as of 31 March 2018 or most recently available.

Guide to the Markets – Australia

JP-LITTLEBOOKMaterial ID: 0903c02a820d1639

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