making sense of emerging market debt...international bonds 40.1 pakistan eurobonds 30.4 ecuador...
TRANSCRIPT
Making Sense of Emerging Market Debt
March 2015
FOR PROFESSIONAL CLIENTS ONLY | NOT FOR RETAIL USE OR DISTRIBUTION
Som Bhattacharya
Executive Director, Emerging Market Debt
+44 20 7742 1857
1
Agenda
1. Emerging Market Debt (EMD) Microstructure
– Sectors, Trends and Technicals
2. EMD as a source of Risk and Return
– Perception of Risk
– Defaults and Recovery
– Return Accrual to domestic vs. foreign investors
– Active management
3. Role of EMD in client portfolios
4. Outlook for the asset class
2
Emerging Market Debt Microstructure
Sectors, Trends and Technicals
3 | FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
Emerging market debt – sector compositionSector Strategy Hard Currency Debt Local Currency Debt Corporate Debt
Index
JPMorgan Emerging Markets Bond Index
Global
(JPM EMBI Global)
JPMorgan Government Bond Index–
Emerging Markets Global
(JPM GBI–EM Global)
JPMorgan Corporate Emerging Markets
Bond Index Broad
(JPM CEMBI Broad)
Currency USD Local Currency USD
Credit Quality
(Moody's/S&P/Fitch)Baa3/BBB-/BBB- Baa2/BBB+/BBB+ Baa2/BBB/BBB
Duration 7.17 years 4.74 years 5.24 years
Yield 5.97%1
6.58%2
5.60%1
Number of Issues 467 196 1166
Market Value USD 673 Billion USD 953 Billion USD 802 Billion
Historical Regional
Distribution (%MV)
Current values labeled
Top 5 Countries (%MV)
Mexico 13%
Russia 8%
Indonesia 8%
Turkey 8%
Brazil 7%
Brazil 21%
Mexico 18%
Poland 9%
South Africa 8%
Turkey 8%
China 17%
Brazil 16%
Russia 10%
Hong Kong 8%
Mexico 7%
Source: J.P. Morgan Asset Management. As at 28/02/2015. Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not an indication of future performance. 1Yield to Worst , 2Yield to Maturity.
02 04 06 08 10 12 14 02 04 06 08 10 12 1494 97 00 03 06 09 12
Asia 21%
Europe 29%
LatAm 41%
ME/Africa 9%
Asia 20%
Europe 25%
LatAm 46%
ME/Africa 9%
Asia 42%
ME/Africa 11%
LatAm 34%Europe 13%
4
Source: J.P. Morgan Asset Management, August 2014. *Sovereign Hard Currency: JPM EMBI Global Index, Corporate Hard Currency: JPM CEMBI Broad Index and Government Local Currency:
JPM GBI-EM Global Diversified Index
Benchmark AUM
-
200
400
600
800
1,000
1,200
De
c-1
993
De
c-1
994
De
c-1
995
De
c-1
996
De
c-1
997
De
c-1
998
De
c-1
999
De
c-2
000
De
c-2
001
De
c-2
002
De
c-2
003
De
c-2
004
De
c-2
005
De
c-2
006
De
c-2
007
De
c-2
008
De
c-2
009
De
c-2
010
De
c-2
011
De
c-2
012
De
c-2
013
Jul-2
014
Sovereign Hard Currency
Government Local Currency
Corporate Hard Currency
USD billion
Steady growth of AuM across all EMD asset classes
5
Source: J.P. Morgan Asset Management., as at March 2015, Index: JPMorgan EMBI Global Diversified Index
EM sovereign rating improvement: around 65% rated investment grade
0
10
20
30
40
50
60
70
80
90
100
01
-Mar-
05
01
-Jun
-05
01
-Sep
-05
01
-Dec-0
5
01
-Mar-
06
01
-Jun
-06
01
-Sep
-06
01
-Dec-0
6
01
-Mar-
07
01
-Jun
-07
01
-Sep
-07
01
-Dec-0
7
01
-Mar-
08
01
-Jun
-08
01
-Sep
-08
01
-Dec-0
8
01
-Mar-
09
01
-Jun
-09
01
-Sep
-09
01
-Dec-0
9
01
-Mar-
10
01
-Jun
-10
01
-Sep
-10
01
-Dec-1
0
01
-Mar-
11
01
-Jun
-11
01
-Sep
-11
01
-Dec-1
1
01
-Mar-
12
01
-Jun
-12
01
-Sep
-12
01
-Dec-1
2
01
-Mar-
13
01
-Jun
-13
01
-Sep
-13
01
-Dec-1
3
01
-Mar-
14
01
-Jun
-14
01
-Sep
-14
01
-Dec-1
4
Residual B BB BBB A AA
6
Local markets dominate EM trading activity
Source: J.P. Morgan Asset Management , EMTA, 3Q 2013; CDS Index denotes to the Credit Default Swap Index
Total debt trading activity excluding CDS Index
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Sovereign Bonds
Corporate Bonds
Local markets instruments
Total (right hand side)
% of total trading volumes12-month moving average, $tn
7
AUM benchmarked to J.P. Morgan EM fixed income indicesUSD bn
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2007 2008 2009 2010 2011 2012 2013
% of EM in US HG index
% of EM in Global HY index
Share of EMD in global bond indicesUSD bn
21
220
178
296
64
0
100
200
300
400
500
600
700
2007 2014
Corporate Hard Currency
Sovereign Hard Currency
Government Local Currency
Growing demand for EM debt in global strategies
Source: J.P. Morgan Asset Management, June 2014 Note: In 2Q2011 index inclusion criteria for EM in indices changed to be more inclusive.
8
Foreign participation in EM local markets has increased
Source: J.P. Morgan Asset Management, June 2014, For illustrative purposes only
% of foreign ownership of local government bonds
0%
10%
20%
30%
40%
50%
60%
Bra
zil
Co
lom
bia
Czech
Re
pub
lic
Hu
nga
ry
Indon
esia
Isra
el
Kore
a
Ma
laysia
Me
xic
o
Peru
Pola
nd
Ro
man
ia
Ru
ssia
South
Afr
ica
Tha
iland
Turk
ey
June 2014
January 2010
9
Emerging market debt as a source of risk and return
10
Perception of Risk in Emerging Market Debt
An unmanageable beast A manageable Pet
OR
Source: www.best-wallpaper.net, March 2015 Source: myitchyfingers.wordpress.com, March 2015
11
Sovereign ratings are a reasonably good predictor of future defaults
Source: Moody’s as of December 2014, For illustrative purposes only
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Defa
ult
Rate
Aa A Baa Ba B
Sovereign Cumulative default rates
Rating migration patterns in EM corporate investment grade sector is similar
to US or European investment grade corporate sector
Source: S&P, as of December 2013
12
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
US Europe EmergingMarkets
A to BBB BBB to BB BB to B
2013 – One Year Transition Rates
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
US Europe EmergingMarkets
A to BBB BBB to BB BB to B
(1981 – 2013) – Average Transition Rates
13
An analysis of Sovereign Recovery rates and haircuts
Source: Moody’s as of December 2014, * on an issuer weighted basis
Defaulting/Restructuri
ng CountryYear Of Default Average Trading Price (% Of PAR)
Russia 1998 18
Pakistan 1999 52
Ecuador 1999 44
Ukraine 2000 69
Ivory Coast 2000 18
Argentina 2001 27
Moldova 2002 60
Uruguay 2003 66
Grenada* 2004 65
Dominican Republic 2005 95
Belize 2006 76
Seychelles 2008 30
Ecuador 2008 28
Jamaica 2010 90
Greece 2012 24
Belize 2012 40
Average Recovery rates are around 49%
Country Categories Average haircut in %
(conventional definition)
Russia GKO/OFZ residents 45.7
GKO/OFZ non-residents 61.5
Ukraine OVDP Residents 18.2
OVDP non residents 59.2
International bonds 40.1
Pakistan Eurobonds 30.4
Ecuador International bonds 60.0
Argentina Phase 1 (residents) 58.1
2005 International 67.0
Uruguay Domestic 36.2
External 26.2
Frequently there is difference between haircuts
for domestic and foreign investors
Source: IMF, July 2005, OVDP: Ukrainian local currency debt, OFZ: Russian local currency bonds
14
Source: www.redicecreations.com, March 2013
Do foreign investors benefit from investing in EM economies?
An el-dorado of modern day Nearly Zero
OR
Source: www.theguardian.co.uk, February 2015
15
Comparing local investor and foreign investors’ experience
It is challenging to compare local investors’ experience vs. foreign investors’ experience from similar
investments
Three main factors which impact the difference in performance
Tax
Capital Control
Currency
Comparing local currency Brazilian bonds’ performance to external Brazilian bonds’ performance, after
adjusting for the currency performance
Local investors are often better off in countries with intervention-prone central banks, whereas countries
which are a bit more open, the offshore investors tend to have similar experience compared to local investors
Source: J.P.Morgan Asset Management, March 2015
16
Comparing the experience of domestic and foreign investors (1)
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2009 2010 2011 2012 2013 2014
GBI-EM Global Diversified Brazil (BRL Unhedged)EMBI Global diversified Brazil (USD unhedged)
-30%
-20%
-10%
0%
10%
20%
30%
40%
2009 2010 2011 2012 2013 2014
GBI-EM Global Diversified Turkey (TRY Unhedged)EMBI Global diversified Turkey (USD unhedged)
Investor experience in Brazil Investor experience in Turkey
Source: J.P.Morgan Asset Management, Bloomberg, March 2015
17
Comparing the experience of domestic and foreign investors (2)
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
2009 2010 2011 2012 2013 2014
GBI-EM Global Diversified Mexico (MXN Unhedged)EMBI Global diversified Mexico (USD unhedged)
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2009 2010 2011 2012 2013 2014
GBI-EM Global Diversified South Africa (ZAR Unhedged)EMBI Global diversified South Africa (USD unhedged)
Investor experience in Mexico Investor experience in South Africa
Source: J.P.Morgan Asset Management, Bloomberg, March 2015
18
Active management in Emerging market debt
Source: J.P.Morgan, Bloomberg, March 2015
A relatively inefficient asset class – benchmarks tend to reflect the market information with significant lag
-
100
200
300
400
500
600
700
3.50
3.70
3.90
4.10
4.30
4.50
4.70
4.90
5.10
5.30
Russia Index Weight (%) Russia 5 yr CDS (bps)
Moody’s downgrades to Baa2
Moody’s downgrades to Baa3
Moody’s downgrades to Ba1
S&P downgrades to BBB-
S&P
downgrades
to BB+
Half of the alpha in EM corporate portfolio in 2014 came from being
underweight Russia
19
Source: J.P. Morgan Asset Management. As of 31st December 2014. Total alpha, gross of fees, in 2014 was 85bps.
Top/Bottom
10
Relative Weight
(%MV)
Relative
Contribution (bps)
Carry effect
(bps)
Curve effect
(bps)
Credit effect
(bps)Residual (bps) Currency (bps)
Mexico 3.78 50 27 25 -4 2 0
Russia -1.75 41 -11 7 47 -3 0
Ukraine -0.93 35 -13 -1 49 0 0
India 1.60 25 8 12 11 -2 -4
Indonesia -0.25 25 -8 -1 35 -1 0
Chile 0.38 20 0 12 5 2 0
Brazil 0.67 17 7 8 5 -4 0
Argentina 0.16 11 2 1 9 -1 0
Panama 1.04 11 5 2 3 1 0
Sri Lanka 0.76 10 4 1 5 0 0
Poland -0.26 -11 -1 -2 -1 0 -7
Philippines -1.40 -13 -7 -2 -3 0 0
Hong Kong -1.81 -13 -4 -4 -4 -2 0
Colombia -1.90 -17 -8 -7 0 -1 0
Qatar -2.88 -19 -9 -13 3 0 0
Nigeria 1.09 -20 8 1 -27 -2 0
Israel -2.89 -20 -12 -10 1 1 0
Singapore -1.94 -21 -5 -5 -13 1 0
Turkey -1.46 -22 -8 -5 -8 -1 0
Kazakhstan 0.19 -23 -4 3 -11 0 -10
Top/Bottom 10 attribution by Country (bps) in JPMorgan Funds – Emerging Market Corporate Bond Fund during 2014
Active asset allocation is important, in addition to active country, sector
and security selection
20
Source: J.P. Morgan Asset Management. As of 31st December 2014. Indices used are: JPMorgan GBI-EM Global Diversified Index (unhedged USD), JPMorgan CEMBI Broad Diversified Index, and
JPMorgan EMBI Global Diversified Index, respectively
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2009 2010 2011 2012 2013 2014
EM Local currency sovereign debt EM Corporate Debt EM Hard currency sovereing debt
Historical asset allocation:
JPMorgan Funds - Emerging Markets Strategic Bond Fund
21
Source: J.P. Morgan Asset Management.
The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage as applicable, are subject to change and the Fund is managed to internal guidelines which are not absolute and can change over time.
The targets and aims provided are the Investment Manager’s targets and aims only .
JPMorgan Funds – Emerging Markets Strategic Bond FundSector allocation (% MV)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
7-J
an-1
3
28-J
an-1
3
18-F
eb-1
3
8-M
ar-
13
3-A
pr-
13
23-A
pr-
13
14-M
ay-1
3
31-M
ay-1
3
20-J
un-1
3
9-J
ul-13
26-J
ul-13
14-A
ug-1
3
3-S
ep-1
3
24-S
ep-1
3
15-O
ct-
13
4-N
ov-1
3
25-N
ov-1
3
16-D
ec-1
3
3-J
an-1
4
24-J
an-1
4
14-F
eb-1
4
7-M
ar-
14
31-M
ar-
14
22-A
pr-
14
14-M
ay-1
4
9-J
un-1
4
30-J
un-1
4
0-J
an-0
0
11-A
ug-1
4
1-S
ep-1
4
22-S
ep-1
4
13-O
ct-
14
3-N
ov-1
4
24-N
ov-1
4
15-D
ec-1
4
5-J
an-1
5
26-J
an-1
5
Local Sovereign Cash Hard Currency Sovereign Corporate Net EMFX
As at 2nd February 2015
21
22
Role of Emerging Market Debt in Client Portfolios
23
4.5%
5.5%
6.5%
7.5%
8.5%
9.5%
10.5%
6.3% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3%
Adding EM Sovereign to Global Govt bonds can enhance the yield and
reduces the risk of the portfolio
Source: J.P. Morgan Asset Management, Bloomberg, July 2014, For illustrative purposes only
DM Local Sovereign Debt:
GBI Global (USD)
EMD USD Sovereign
Debt: EMBI Global
Diversified Index
A 25% allocation to Emerging
Markets debt enhances the return
and reduces the risk of a global
government bond portfolio
A 50:50 combination of G7 portfolio
and Emerging Markets debt portfolio
maintains the risk at same level as
GBI Portfolio
Annualized Volatility in %
Annualiz
ed R
etu
rns in %
Efficient frontier for EM Sovereign (USD) and DM Sovereign Debt (Local Currency, unhedged)
EMD Sov DMD Govt50/50 EMD-
DMD
Return 9.67% 5.20% 7.44%
Volatility 8.80% 6.74% 6.68%
Return/Risk 1.10 0.77 1.16
24
Adding EM Local Currency Government to Global Govt bonds portfolio
has diversification benefits
Efficient frontier for EM Sovereign (Local Currency, unhedged) and DM Sovereign Debt (Local Currency, unhedged)
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
6.5% 7.5% 8.5% 9.5% 10.5% 11.5% 12.5%
Adding EMD Local Currency Sovereign
exposure to a developed market
government bond portfolio provides
opportunity for significantly enhanced
return, depending on risk tolerance
DM Local Sovereign Debt:
GBI Global (USD)
EMD Local Sovereign
Debt: GBI-EM Global
Diversified (USD)
Annualiz
ed R
etu
rns in %
50% GBI-EM Global Diversified (USD)
50% DM Local Sovereign Debt: GBI
Global (USD)
EMD Loc DMD Govt50/50 EMD-
DMD
Return 10.00% 5.20% 7.63%
Volatility 11.90% 6.74% 8.19%
Return/Risk 0.85 0.77 0.93
Annualized Volatility in %
Source: J.P. Morgan Asset Management, Bloomberg, July 2014, For illustrative purposes only
25
Outlook
26
The impact of weaker oil is not uniform across EM
Source: J.P. Morgan Asset Management, Bloomberg. December 2014.
-1.2
-0.8
-0.4
0.0
0.4
0.8
Russia
Norw
ay
Ma
laysia
Jap
an
Indo
nesia
Ro
ma
nia
US
Bra
zil
India
Ko
rea
Chin
a
Sin
ga
pore
Czech
Rep
.
Me
xic
o
Slo
va
k R
ep
.
Chile
Hon
g K
on
g
Hun
ga
ry
So
uth
Af.
Tu
rke
y
Th
aila
nd
Ph
ilipp
ines
EM DM
Impact on GDP after one year of $15 decline in the price
of oil
%
0.0
0.2
0.4
0.6
0.8
1.0
Global Developed Emerging
Feedback from external growth
Direct impact
Impact from oil price shock on real GDP growth
%-point on annualised growth over 2-quarters
Current account sensitivity to 10% oil price decline
-3
-2
-1
0
1
2
Venz
Ru
s
Co
lom
Ma
lay
Me
x
Bra
z
Peru
Arg
Indo
Pol
SoA
f
Ch
ile
Hu
ng
Czech
Isra
el
India
Turk
S.K
or
Tha
i
% G
DP
Im
pact
CA sensitivity to 10% oil price decline
Net impact of 3Q cmdty price shock
27
Axes of differentiation: where are the reform stories?
Source: J.P. Morgan Asset Management, December 2014
Country political score
Slovenia
Malaysia
Colombia
Panama
Serbia
Mexico
South Africa
Indonesia
Hungary
Turkey
Philippines
India
China
Brazil
Ecuador
Egypt
Argentina
Russia
UkraineVenezuela
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
-2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00
Fore
caste
d c
hange in s
core
Current Country Political Score (CPI)
Good, but deterioratingNegative, deteriorating
Positive, improvingNegative, but improving
28
Axes of Differentiation: commodities, credit, and capital flows
Source: J.P. Morgan Asset Management. Data Sources: UNCTAD, World Bank and S&P. Commodity vulnerability: normalised score which includes both share of commodity exports and terms of
trade gains. Capital flow vulnerability: normalised score which includes current account position and net external liabilities, expressed in terms of current account revenues. Credit vulnerabilities:
normalised score which includes both total domestic credit (including credit to government) and domestic credit growth.
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
-2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00 2.50
Cap
ital
flo
w v
uln
era
bilit
y
Commodity vulnerability
Brazil
Nigeria
Venezuela
Croatia
South Africa
PeruColombia
AustraliaTurkey
China
UruguayMoroco
Vietnam
Malaysia
MexicoDom
Rep
Korea
India
Argentina
Russia
Note: bigger blue bubble reflectspositive z-score for credit. White bubble
means negative Z-score for credit
Indonesia
Chile
Thailand
Ukraine
Sri Lanka
Costa Rica
Philippines
Hungary
EcuadorRomania
Commodity, capital flow and credit vulnerabilities
As at December 2014
29
Disinflation spreading throughout EM
JPMAM EM inflation pressure gauge regional summary
-8
-6
-4
-2
0
2
4
6
8
2007 2008 2009 2010 2011 2012 2013 2014
LatAm EMEA
Asia Total
-3.00
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
Tre
nd
Infla
tio
n E
xp
Infla
tio
n S
urp
rise
PLI
Re
al R
ate
s
Co
mm
odity
FX
Current
3 month change
JPMAM EM inflation pressure gauge components
Source: J.P. Morgan Asset Management, December 2014. Our proprietary EM inflation pressure gauge systematically tracks inflationary pressures in EM countries.
PLI: proprietary leading indicators.
30
EM Local Currency Debt valuations look attractive
GBI-EM yield versus GBI Global and GBI Global European
Source: J.P. Morgan Asset Management. Data as of February 26, 2015.
%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2010 2011 2012 2014
EM vs. USD EM vs. EUR EM vs. G4
overvalued
undervalued
EM FX valuations%
2.50
3.00
3.50
4.00
4.50
5.00
5.50
Fe
b-1
0
Fe
b-1
1
Fe
b-1
2
Fe
b-1
3
Fe
b-1
4
Fe
b-1
5
GBI EM yield versus GBI global
GBI EM yield versus GBI Global European
31
EM Sovereign: favourable supply pipeline, attractive valuations
Source: J.P.Morgan Asset Management. Barclays. Deutsche Bank. Forecasts, projections and other
forward looking statements are based upon current beliefs and expectations. They are for illustrative
purposes only and serve as an indication of what may occur. Given the inherent uncertainties and
risks associated with forecasts, projections and other forward statements, actual events, results or
performance may differ materially from those reflected or contemplated. December 2014
0
20
40
60
80
100
120
2008 2009 2010 2011 2012 2013 2014YTD
2015Exp
Issuance
Repayments (Pri + Int)USD bn
Negative net sovereign supply expected in 2015, with
heaviest repayments in Q1. Aggregate EM debt profile.
EM (EMBIG) vs DM - yield difference
Source: JPMorgan, Barclays. *EMBIG: JPMorgan EMBI Global Index. Barc Agg: Barclays
Aggregate. January 2015
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14P
erc
enta
ge p
oin
ts
EM - DM (GBI Global)
EM - Barc Agg
EM IG - Barc Agg
32
EM Corporates: fundamentals decline on the margin,
solvency not an issue
Source: J.P.Morgan Asset Management, December 2014. CEMBIBD: JPMorgan Corporate Emerging Market Bond Index Broad Diversified. Indices do not include fees or operating expenses and are
not available for actual investment. Past performance is not an indication of future performance.
250
300
350
400
450
Jan 13 Apr 13 Aug 13 Dec 13 Apr 14 Aug 14 Dec 14
CEMBI Broad
CEMBI Broad - ex Russia
CEMBI Broad Spread at YTD wide, but still lower ex-Russia
-100
-50
0
50
100
150
200
250
300
0
20
40
60
80
100
Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Dec-13 Sep-14
CEMBI IG - US BBB
CEMBI HY - US HY (RHS)
CEMBI Broad Diversified vs DM - Spread Difference
EM Leverage is steady (excluding Petrobras)
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
2008 2009 2010 2011 2012 2013 Dec.2014
Global Gross Leverage
Global Net Leverage
33
Investment Objectives and key risks
A full list of risks disclosures can be obtained from the latest available prospectus or the KIID document
JPMorgan Funds – Emerging Markets Strategic Bond Fund
Investment
Objective
To achieve a return in excess of the benchmark by exploiting investment opportunities in emerging market debt and emerging market currency markets, using financial derivative instruments where
appropriate.
Risks The value of your investment may fall as well as rise and you may get back less than you originally invested.
The value of debt securities may change significantly depending on economic and interest rate conditions as well as the credit worthiness of the issuer. Issuers of debt securities may fail to meet
payment obligations or the credit rating of debt securities may be downgraded. These risks are typically increased for emerging market and below investment grade debt securities.
In addition, emerging markets may be subject to increased political, regulatory and economic instability, less developed custody and settlement practices, poor transparency and greater financial risks.
Emerging market currencies may be subject to volatile price movements. Emerging market and below investment grade debt securities may also be subject to higher volatility and lower liquidity than
non emerging market and investment grade debt securities respectively.
The credit worthiness of unrated debt securities is not measured by reference to an independent credit rating agency.
Asset-backed securities may be highly illiquid, subject to adverse changes to interest rates and to the risk that the payment obligations relating to the underlying asset are not met.
The Sub-Fund may be concentrated in a limited number of countries, sectors or issuers and as a result, may be more volatile than more broadly diversified funds.
The value of financial derivative instruments can be volatile. This is because a small movement in the value of the underlying asset can cause a large movement in the value of the financial derivative
instrument and therefore, investment in such instruments may result in losses in excess of the amount invested by the Sub-Fund.
The possible loss from taking a short position on a security may be unlimited as there is no restriction on the price to which a security may rise. The short selling of investments may be subject to
changes in regulations, which could adversely impact returns to investors.
Movements in currency exchange rates can adversely affect the return of your investment. The currency hedging that may be used to minimise the effect of currency fluctuations may not always be
successful.
JPMorgan Funds – Emerging Markets Corporate Bond Fund
Investment
Objective
To achieve a return in excess of corporate bond markets of emerging market countries by investing primarily in emerging market corporate debt securities, using financial derivative instruments where
appropriate.
Risks The value of your investment may fall as well as rise and you may get back less than you originally invested.
The value of debt securities may change significantly depending on economic and interest rate conditions as well as the credit worthiness of the issuer. Issuers of debt securities may fail to meet
payment obligations or the credit rating of debt securities may be downgraded. These risks are typically increased for emerging market and below investment grade debt securities.
In addition, emerging markets may be subject to increased political, regulatory and economic instability, less developed custody and settlement practices, poor transparency and greater financial risks.
Emerging market currencies may be subject to volatile price movements. Emerging market and below investment grade debt securities may also be subject to higher volatility and lower liquidity than
non emerging market and investment grade debt securities respectively.
The credit worthiness of unrated debt securities is not measured by reference to an independent credit rating agency.
The Sub-Fund may be concentrated in a limited number of emerging market corporate issuers and as a result, may be more volatile than more broadly diversified funds.
The value of financial derivative instruments can be volatile. This is because a small movement in the value of the underlying asset can cause a large movement in the value of the financial derivative
instrument and therefore, investment in such instruments may result in losses in excess of the amount invested by the Sub-Fund.
Movements in currency exchange rates can adversely affect the return of your investment. The currency hedging that may be used to minimise the effect of currency fluctuations may not always be
successful.
34
J.P. Morgan Asset Management
For Professional Clients only – not for Retail use or distribution.
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information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own
purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P.Morgan Asset Management. Any forecasts, figures, opinions,
statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are
considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you.
It should be noted that 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. Changes in exchange rates may have an adverse effect on the value, price or income of the product(s) or underlying overseas investments. Both past performance and yield may
not be a reliable guide to future performance. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the
investment product(s), there can be no assurance that those objectives will be met.
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As the product may not be authorised or its offering may be restricted in your jurisdiction, it is the responsibility of every reader to satisfy himself as to the full observance of the laws and regulations of
the relevant jurisdiction. Prior to any application investors are advised to take all necessary legal, regulatory and tax advice on the consequences of an investment in the product(s). Shares or other
interests may not be offered to or purchased directly or indirectly by US persons. All transactions should be based on the latest available prospectus, the Key Investor Information Document (KIID)
and any applicable local offering document. These documents together with the annual report, semi-annual report and the articles of incorporation for the Luxembourg domiciled product(s) are
available free of charge upon request from JPMorgan Asset Management (Europe) S.à.r.l., European Bank & Business Centre, 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of
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Switzerland, has been authorised by the Swiss Financial Market Supervisory Authority FINMA as Swiss representative and as paying agent of the funds.
Issued in Continental Europe by JPMorgan Asset Management (Europe) Société à responsabilité limitée, European Bank & Business Centre, 6 route de Trèves, L-2633 Senningerberg, Grand Duchy
of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000.
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