2Q | 2013 As of March 31, 2013 Guide to the Markets ASIA Table of Contents REGIONAL AND LOCAL ECONOMY GLOBAL ECONOMY 25 EQUITIES 38 FIXED INCOME 50 OTHER ASSETS AND INVESTOR BEHAVIOUR 59 Global Market Insights Strategy Team Dr David Kelly, CFA Tai Hui tai.c.hui@jpmorgan.com Geoff Lewis geoff.r.lewis@jpmorgan.com Yoshinori Shigemi yoshinori.shigemi@jpmorgan.com Grace Tam, CFA grace.wm.tam@jpmorgan.com Ian Hui ian.w.hui@jpmorgan.com Ben Luk david.p.kelly@jpmorgan.com ben.tw.luk@jpmorgan.com Past performance is no guarantee of comparable future results For China and Australia distribution, please note this communication is for intended recipients only and is for wholesale clients only in Australia For details, please refer to the full disclaimer at the end Page Reference Regional and Local Economy 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Contribution to Global GDP and Asian Middle Class Asia: Inflation ASEAN-5: Returns vs Fundamentals ASEAN-5: Trade and Competitiveness Australia: Economic Snapshot China: Economic Growth and Inflation China: Cyclical Indicators China: Balance of Payments and Trade China: Monetary Policy China: Real Estate Hong Kong: Economic Snapshot India: Economic Growth, Inflation and Monetary Policy India: Trade and Fundamentals India: Profits and Flows Japan: Economic Snapshot Japan: Trade Japan: Monetary Policy and Currency Japan: Federal Finance and Structural Trends Korea: Economic Snapshot Taiwan: Economic Snapshot Korea and Taiwan: Trade Global Economy 25 26 27 28 29 30 31 32 33 34 35 36 37 Global Growth DM vs EM: Rates, Inflation and Growth Global Monetary Policy Sovereign Debt Stresses United States: Inflation and Unemployment United States: Cyclical Indicators United States: Consumer Finances United States: Federal Finances Eurozone: Economic Growth Eurozone: Sovereign Bond Yields Eurozone: Structural Imbalances Emerging Markets: Economic Snapshot Brazil: Economic Snapshot Equities 38 39 40 41 42 43 44 45 46 47 48 49 Global Sectors: Returns Global Earnings Expectations Global Dividend Income DM vs EM: Earnings and Dividends Asian Equity Markets: Returns Asian Equity Markets: Index Composition Asian Equity Markets: Valuations Asian Equity Markets: Valuation Analysis Asian Equity Markets: Relationship with US Interest Rates Asia Dividend Income Emerging Market Equities: Returns Emerging Market Equities: Index Composition Fixed Income 50 51 52 53 54 55 56 57 58 Global Fixed Income: Yields and Returns United States: High Yield Bonds Asia: Fixed Income Market Asia: Sovereign Debt Asia: Credit Markets EM: Fixed Income Market EM and Asia: Sovereign Debt EM and Asia: Currencies EM and Asia: Current Accounts and Real Yields Other Assets and Investor Behaviour 59 60 61 62 63 64 65 66 67 68 69 Asset Class Returns Asset Class Correlations Global Commodities Returns Commodities: Energy Commodities: Oil Demand Commodities: Gold Risk Appetite and Economic Surprise Index Global Investor Asset Allocation by Region Real Return on Cash in Asia Retirement Trends in Asia Dollar Cost Averaging Contribution to Global GDP and Asian Middle Class Regional and Local Economy Contribution to Global GDP 100% 80% US 60% European Union China 40% India Other EM 20% 0% 1980 1990 2000 59% 2009 42% 23% 20% 17% 10% Thailand 3.2% Taiwan 3.9% Malaysia 2.1% Indonesia 5.6% 29% 26% 20% 2030 38% Singapore 0.8% Philippines 2.2% 2020 40% 2017(f) Composition of the Asian Middle Class (2010) Share of Spending by the Global Middle Class 60% 2010 Korea 8.1% China 61.4% 7% 7% 6% India 11.4% 0% North America Europe Central and South America Asia Pacific Hong Kong 1.2% Source: IMF, “The Emerging Middle Class in Developing Countries” by Homi Kharas - OECD paper, CLSA “Mr & Mrs Asia – Spring 2011,” World Bank, Euromonitor, J.P Morgan Asset Management “Guide to the Markets – Asia." (Top) Gross domestic product data are based in national currency converted to US dollars using market exchange rates (yearly average) Forecasts are provided by IMF, based on the October 2012 World Economic Outlook (Bottom Left) Middle class is defined as households with daily expenditures between USD10 and USD100 per person in PPP terms (2005 USD) (Bottom Right) Middle class is defined as households with annual per capita disposable income of USD 3,000 or above Total may not sum to 100% due to rounding Data reflect most recently available as of 31/3/13 Regional and Local Economy Asia: Inflation Monthly Inflation Trend Rising inflation Year-over-year % change Unchanged Falling inflation 2/2013 Central Bank Target/Forecast 2.0 3.2 3.5 3.7 3.0 4.4 4.5 7.2 7.2 6.6 6.8 6.0-7.0 4.6 4.3 4.6 5.3 5.3 3.5-5.5 -0.3 -0.4 -0.2 -0.1 -0.3 -0.7 2.0 1.2 2.0 2.1 1.6 1.4 1.5 1.4 2.5-3.5 1.4 1.4 1.3 1.7 1.3 1.3 1.3 1.5 2.0-3.0 2.8 3.2 3.8 3.6 3.1 2.8 2.9 3.0 3.4 3.0-5.0 5.0 5.3 4.0 3.9 4.7 4.0 3.6 4.3 3.6 4.9 3.5-4.5 Taiwan 1.7 1.8 2.5 3.4 3.0 2.4 1.6 1.6 1.2 3.0 1.4 Thailand 2.5 2.6 2.7 2.7 3.4 3.3 2.7 3.6 3.4 3.2 0.5-3.0* Country 5/2012 6/2012 7/2012 8/2012 9/2012 10/2012 11/2012 12/2012 1/2013 China 3.0 2.2 1.8 2.0 1.9 1.7 2.0 2.5 Hong Kong 4.3 3.7 1.6 3.7 3.8 3.8 3.7 India 7.5 7.3 6.9 7.6 8.1 7.5 Indonesia 4.5 4.5 4.6 4.6 4.3 Japan 0.2 -0.2 -0.4 -0.4 Korea 2.5 2.2 1.5 Malaysia 1.7 1.6 Philippines 2.9 Singapore Source: J.P Morgan Economics, National Bureau of Statistics (China), Hong Kong Monetary Authority, Census and Statistics Department (Hong Kong), Office of Economic Adviser (India), Bank Indonesia, Statistics Bureau and the Director-General for Policy Planning of Japan, Statistics Korea, Department of Statistics Malaysia, Bangko Sentral ng Pilipinas (BSP), National Statistical Coordination Board (Philippines), Department of Statistics Singapore, Directorate-General of Budget, Accounting and Statistics (Taiwan), Bank of Thailand, J.P Morgan Asset Management “Guide to the Markets – Asia." All data for Headline CPI unless otherwise stated India: Data is for WPI * Thailand’s central bank targets core CPI, which excludes raw food and energy Data reflect most recently available as of 31/3/13 ASEAN-5: Returns vs Fundamentals Regional and Local Economy Index Performance Returns since 2000 (Left) Total return in USD* 700% 2013 returns YTD (Right) 70% 623% 500% 50% 428% 272% 300% 13% 249% 207% 19% 10% 100% 30% 152% 11% 121% 37% 3% -1% -100% Indonesia Thailand -3% Malaysia India Real GDP Growth Comparison Year-over-year % change -10% -5% Philippines 7-yr range 10% China Singapore S&P 500 Contribution to ASEAN GDP Growth 7-yr average Domestic Demand External Demand 8% Latest 15% 6% 10% 9.7 7.9 8.0 5% 4.5 4% 8.2 5.1 3.7 3.8 2.5 1.5 0% 3.9 3.7 2% 0% -5% -2% -4% -10% China India ASEAN Korea Hong Kong Taiwan '06 '07 '08 '09 Source: IMF, FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia." *Total Returns include dividends reinvested up to latest period (Bottom Right) Domestic Demand defined as private consumption, government consumption and fixed asset investment External Demand defined as net trade, change in stocks and residuals Data reflect most recently available as of 31/3/13 '10 '11 '12 ASEAN-5: Trade and Competitiveness Regional and Local Economy Real Average Monthly Wages Major Trading Partners Index, rebased 2002 = 100 % of GDP 2001* 250 ASEAN Latest** 200 150 12.4% China 6.9% 100 Japan 50 6.1% USA Imports 4.5% Exports EU Thailand: Export Value Performance to ASEAN ASEAN Index, rebased 2000 = 100 800 1.2% Total Exports 13.1% China 7.7% ASEAN 600 ASEAN ex-Singapore Japan 5.7% LVMC group 400 USA 4.6% 200 EU '00 '02 '04 '06 '08 '10 '12 0.8% 0% 2% 4% 6% 8% 10% 12% 14% Source: International Labour Organisation (ILO), IMF, World Trade Organization, FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia." * Except for Vietnam, which is 2002 ** Data from ILO - Key indicators of the labour market, latest data from 2009, or 2008 in the case of India, Indonesia and Vietnam LVMC stands for Laos, Vietnam, Myanmar and Cambodia Data reflect most recently available as of 31/3/13 Australia: Economic Snapshot Major Export Partners Regional and Local Economy Real GDP Year-over-year % change 20-yr Avg 4Q12 8% Real GDP: 3.5% % of GDP China 3.1% 6% E.U EU 4% 18.5% United States 17.8% 11.4% Japan 2% 7.9% Singapore 6.2% 0% '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 0% 5% 10% 15% Exports and AUD/USD Exchange Rate CPI Inflation and Monetary Policy Rate Year-over-year % change 8% 20% Target Cash Rate Spot rate 1.2 80% Exports AUD/USD 60% 6% 3/2013: 3.0% 4% 1.0 40% 20% 0.8 0% 2% 0.6 -20% Inflation 12/2012: 2.2% -40% 0% '00 '02 '04 '06 '08 '10 '12 0.4 '96 '98 Source: FactSet, World Trade Organization, J.P Morgan Asset Management “Guide to the Markets – Asia." (Bottom Left) Consumer Price Index (CPI) value shown is year-over-year % change Data reflect most recently available as of 31/3/13 '00 '02 '04 '06 '08 '10 '12 China: Economic Growth and Inflation Regional and Local Economy Real GDP 10-yr Avg 4Q12 Year-over-year % change Real GDP: 15% 10.0% 7.9% CPI Year-over-year % change, seasonally adjusted 10-yr Avg 30% 2/2013 Headline CPI: 9% 7.0% 6.0% Non-Food CPI: 25% 3.2% Food CPI: 12% 3.0% 1.1% 1.9% '06 '10 '12 6% 20% 3% 0% '02 '04 '06 '08 '10 '12 Private Consumption and Investment as % of GDP 15% 10% 50% 45% 2011: 48.3% Investment 5% 40% 0% 35% Consumption 2011: 35.4% -5% 30% '99 '01 '03 '05 '07 '09 '11 '02 '04 '08 Source: National Bureau of Statistics of China, FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia." Data reflect most recently available as of 31/3/13 China: Cyclical Indicators Regional and Local Economy Manufacturing PMIs Fixed Asset Investment Index level Year-over-year % change, 3-month moving average 70% 60 Infrastructure 60% 55 NBS Mfg PMI 3/2013: 51.6 50% 50 Real Estate Markit Mfg PMI 3/2013: 50.9 45 '10 '11 '12 40% '13 30% Auto and Retail Sales Year-over-year % change Retail Sales 25% 2/2013: 12.3% 80% 20% 20% FAI 60% 10% 40% 15% 20% 0% 10% 0% Auto Sales 2/2013: -13.6% -20% 5% '10 '11 '12 '13 -10% '06 '07 '08 '09 '10 Source: National Bureau of Statistics of China, China Association of Automobile Manufacturers, Markit, FactSet, J.P Morgan Asset Management "Guide to the Markets - Asia." Data reflect most recently available as of 31/3/13 10 '11 '12 '13 EM and Asia: Current Accounts and Real Yields EM and Asian Real Yields Asia 3% Non - Asia 2% 1% 4.4% 0.8% 0.3% 1.1% 0.8% 0.7% 0.1% 0.0% 0% -1% -0.1% -2% -0.2% -0.3% -1.0% -1.7% -1.8% -3.9% Fixed Income -3% EM and Asian Current Accounts % of GDP 20% Asia Non - Asia 10% 0% -10% 58 Source: IMF, Bloomberg, J.P Morgan Asset Management “Guide to the Markets – Asia." (Top) Real Yield is calculated as the respective country’s 5-year bond yield minus the IMF’s 2013 forecast inflation rate Y-Axis has been cut off to maintain a more reasonable scale Data reflect most recently available as of 31/3/13 2000 - 2007 2008 - 2012 2013F - 2017F Asset Class Returns 2003 2004 2005 2006 2007 Asia e x Ja pa n 47.0% Asia e x Ja pa n 17 % Asia e x Ja pa n 23.2% Asia e x Ja pa n 33.7% Asia e x Ja pa n 40.5% Asse t Alloc 32.7% Asse t Alloc 12 % High Y ie ld Cmdty 17 % Asse t Alloc 19 % EMD Asse t Alloc US 29.0% 11 % 13 % 15 % US High Y ie ld EMD 28.7% 11 1% 10 % High Y ie ld 11 % 2008 US Agg 5.2% Cmdty EMD 11 1% - 10 % Asse t Alloc 10 % High Y ie ld - 26.2% US Agg Asse t Alloc 7.0% - 27.3% 2009 2010 Asia e x Ja pa n 72.5% G loba l REITs 3 % High Y ie ld 58.2% 2011 2012 1Q '13 EMD Asia e x Ja pa n US Asia e x Ja pa n Asia e x Ja pa n 302.9% 15 % 1% 22.7% 10 % Asia e x Ja pa n US Agg G loba l REITs G loba l REITs EMD EMD G loba l REITs 19 % 7.8% % 10 1% 19 % 11 % % EMD High Y ie ld Asse t Alloc Asse t Alloc Cmdty 18 % 2.9% 19 % 11 % 18 % US Asse t Alloc High Y ie ld High Y ie ld US 16 % % 17 % 10 % 14 % US Agg US US Asse t Alloc Asse t Alloc Cmdty 1% 16 % G loba l REITs 6.0% G loba l REITs 28.4% Asse t Alloc 15 % High Y ie ld 5.0% US High Y ie ld 1% 15 % - 1% 95.3% 6.9% 12 % Asse t Alloc Asia e x Ja pa n US Agg US Agg High Y ie ld 14 % - 0.4% 65.8% 5.2% 11 % Cmdty Cmdty EMD 1% 2.3% 8.9% G loba l REITs - 0.5% G loba l REITs 0.0% US US EMD EMD Cmdty EMD 25.7% 10 % 4.9% 9.9% 6.3% - 36.6% 28.2% 15 1% Cmdty Cmdty High Y ie ld US Agg US US US US 22.7% Other Assets and Investor Behaviour EMD 7.6% 2.7% 4.3% 5.5% - 37.0% 26.5% 15 1% Asse t Alloc - 0.3% High Y ie ld % G loba l REITs - % Cmdty EMD Cmdty US Agg Cmdty 18 % 12 % - 13 % 4.2% - 1% G loba l REITs - % Asia e x Ja pa n - 52.2% US Agg US Agg Cmdty 1% 4.3% 2.4% - 2.7% Note: FTSE EPRA/NAREIT Global REITs data unavailable prior to 2007 US Agg US Agg 5.9% 6.5% Asia e x Ja pa n - 17 % Cmdty EMD - 1% - 2.3% US Agg 3.6% Source: MSCI, Dow Jones, Standard and Poor’s, Barclays Capital, FactSet, J.P Morgan Asset Management “Guide to the Markets – Asia." The “Asset Allocation” portfolio from 2002 – 2006 assumes the following weights: 20% in the S&P 500 (US), 40% in the MSCI Asia ex Japan (Asia ex Japan), 10% in the J.P Morgan EMBIG Index (EMD), 10% in the Barclays Capital Aggregate (US Agg), 10% in the Barclays Corporate High Yield Index (High Yield) and 10% in the DJ UBS Commodity Index (Cmdty) However, in 2007, weights were changed to: 10% in S&P 500, 20% in MSCI Asia ex Japan, 20% in J.P Morgan EMBIG, 15% in Barclays Capital Aggregate, 15% in Barclays Corporate High Yield Index, 10% in DJ UBS Commodity Index, 10% in FTSE EPRA/NAREIT Developed REITs Index (Global REITs) Balanced portfolio assumes annual rebalancing All data except commodities represent total return for stated period 10-yr data are used to calculate cumulative total return (Cum Ret.), annualized returns (Ann Ret.), and annualized volatility (Ann Vol.) These returns and volatility reflect the period from 1/1/03 – 31/12/12, except for Global REITs where returns and volatility reflect the period from 1/1/07 – 31/12/12 due to data availability Please see disclosure page at end for index definitions Data reflect most recently available as of 31/3/13 59 Asia e x Ja pa n 8.5% High Y ie ld US Agg 10 years ('03 - '12) Cum Ret Ann Ret Ann Vol Asset Class Correlations 10-year Correlations US 1.00 0.97 0.76 0.55 0.58 EME 0.97 1.00 0.78 0.53 US 0.76 0.82 1.00 Local CCY Asian Bond 0.78 0.76 USD Asian Bond 0.70 Local CCY EMD USD EMD EM Corp High Yield US IG Corp US Agg Cmdty Global REITs 0.33 0.60 0.59 0.68 0.40 0.08 0.56 0.66 0.58 0.33 0.63 0.60 0.68 0.38 0.08 0.62 0.69 0.52 0.52 0.33 0.58 0.55 0.73 0.33 0.03 0.51 0.87 0.58 1.00 0.59 0.68 0.64 0.55 0.53 0.54 0.42 0.40 0.64 0.66 0.49 0.80 1.00 0.63 0.92 0.97 0.70 0.81 0.64 0.42 0.64 0.40 0.41 0.22 0.71 0.68 1.00 0.67 0.59 0.36 0.55 0.56 0.09 0.47 USD EMD 0.65 0.66 0.47 0.80 0.90 0.74 1.00 0.92 0.75 0.79 0.63 0.42 0.70 EM Corp 0.82 0.79 0.62 0.83 0.95 0.61 0.88 1.00 0.73 0.83 0.61 0.44 0.62 High Yield 60 EME Asia ex-Japan Other Assets and Investor Behaviour Asia exJapan Local CCY USD Local CCY Asian Bond Asian Bond EMD 0.86 0.85 0.82 0.71 0.73 0.34 0.68 0.85 1.00 0.60 0.22 0.43 0.81 US IG Corp 0.34 0.24 0.02 0.53 0.61 0.44 0.55 0.57 0.47 1.00 0.83 0.27 0.48 US Agg -0.19 -0.28 -0.47 0.16 0.24 0.34 0.25 0.10 -0.10 0.76 1.00 0.06 0.21 Cmdty 0.68 0.70 0.72 0.74 0.60 0.47 0.61 0.67 0.66 0.19 -0.15 1.00 0.50 Global REITs 0.75 0.81 0.89 0.74 0.70 0.50 0.67 0.79 0.89 0.31 -0.17 0.74 1.00 3-year Correlations Source: FactSet, Bloomberg, MSCI, Standard & Poor’s, Barclays Capital, DJ UBS, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia." Correlations based on MSCI AC Asia ex-Japan (Asia ex-Japan), MSCI Emerging Markets (EME), S&P500 (US), HSBC Asian Local Bond Index (Local CCY Asian Bond), J.P Morgan Asia Credit Index (JACI) (USD Asian Bond), J.P Morgan Government Bond Index – EM Global (GBI-EM) (Local CCY EMD), J.P Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P Morgan Corporate Emerging Market Bond Index (CEMBI) (EM Corp), Barclays Corporate High Yield Index (High Yield), Barclays US Corporate Investment Grade (US IG Corp), Barclays US Capital Aggregate (US Agg), Dow Jones UBS Commodity Index (Cmdty) and FTSE EPRA/NAREIT Developed REITs Index (Global REITs) 10-year correlations are based on monthly returns from 31/3/03 – 31/3/13 and 3-year correlations from 31/3/10 – 31/3/13, except for REITs as data were unavailable prior to April 2006 Data reflect most recently available as of 31/3/13 Global Commodities Returns 2004 2003 Me ta ls & Mining (E) 67.8% 2005 2006 2007 2008 2009 2010 2011 2012 1Q '13 10-yrs ('03 - '12) Ann Coppe r Crude O il Me ta ls Crude O il G old Coppe r Iron O re G old G old Crude O il Iron O re 36.9% 40.5% 53.9% 57.2% 5.8% 14 % 42.8% 10 1% 1% 5.9% 19 % G old (E) - 24.6% 33.6% 39.5% 44.0% Ene rgy (E) 25.0% Coppe r Me ta ls & Mining (E) 50.5% Me ta ls & Mining (E) 36.8% Me ta ls & Mining (E) % Ene rgy (E) % Crude O il 47.5% Me ta ls 44.0% G old (E) 43.3% Coppe r G old G old 23.7% G old (E) 29.3% 23.2% 30.9% Me ta ls & Mining (E) 16 % Ene rgy (E) 28.6% Ene rgy (E) 18 % G old (E) 19 % Me ta ls Ene rgy (E) 25.6% Cmdty Cmdty Me ta ls 22.7% Other Asset and ts Investor Beh haviour Coppe r 7.6% 24.0% G old (E) 16 % Cmdty - 36.6% Ene rgy (E) - 43.4% G old G old Crude O il Coppe r Coppe r 17 % 0.0% 5.5% - 54.0% Cmdty Cmdty Me ta ls 17 % - 2.7% - 8.3% 4.2% Note: Iron Ore data unavailable prior to 2009 Me ta ls & Mining (E) - 1% Cmdty G old 4.5% - 1% 17 % Coppe r G old - 4.6% Me ta ls & Mining (E) 15 % Coppe r Me ta ls - 4.9% 12 % Iron O re Crude O il 77.9% 29.6% - 13 % 4.4% G old (E) - 17 % Me ta ls & Mining (E) 2.3% 23.8% 5.5% Me ta ls Cmdty Me ta ls & Mining (E) 22.4% - 53.5% 4.6% G old G old (E) 32.5% 11 1% 8.2% Crude O il 65.9% Crude O il Iron O re 30.2% Coppe r - 49.2% Cmdty Crude O il Ene rgy (E) 1% Ene rgy (E) - 5.0% Iron O re G old G old (E) - 9.5% 97.5% Me ta ls & Mining (E) 90.2% Me ta ls 19 % Crude O il Me ta ls G old (E) 32.7% Ene rgy (E) 29.9% G old 24.4% Cmdty 18 % Me ta ls Iron O re - 18 % Ene rgy (E) - 1% - 5.2% Coppe r 17 % 11 % Cmdty Coppe r Cmdty Me ta ls 16 % - 20.8% - 1% - 5.6% Ene rgy (E) 1% Crude O il Me ta ls Crude O il 15 1% - % - 1% Me ta ls & Mining (E) - 12 % G old (E) 8.3% Ene rgy (E) 1% Me ta ls & Mining (E) - 28.3% G old (E) - 13 % G old (E) - 15 % Cmdty 2.3% Source: Bloomberg, MSCI, Dow Jones, Standard and Poor’s, J.P Morgan Asset Management “Guide to the Markets – Asia." (E) represents equity indices, while the rest represent spot price indices Based on Crude Spot (WTI Cushing) (Crude Oil), LME Copper Month Futures (Copper), Iron Ore Spot (Iron Ore), Philadelphia Gold and Silver Index (XAU Index) (Gold), London Metal Exchange (LME) LMEX Metals Index (Metals), MSCI AC Metals and Mining Index (Metals & Mining (E)), MSCI AC Energy (Energy (E)), HSBC Global Mines Gold Mines Index (Gold (E)), and DJ UBS Commodity Index (Cmdty.) 10-yr data are used to calculate annualized returns (Ann.) These returns reflect the period from 1/1/03 – 31/12/12, except for Iron Ore where returns reflect the period from 1/1/09 – 31/12/12 due to data availability 61 Data reflect most recently available as of 31/3/13 Commodities: Energy US Energy Consumption by Source Net Imports as % of Total US Energy Consumption % of Total % of total energy consumption EIA Forecast 50% EIA Forecast 30% Oil 40% 35% 25% 30% Natural Gas 20% Coal 10% Nuclear Energy 20% 15% 10% 5% Renewable Energy 0% 1970 1976 1982 1988 1994 2000 2006 2012 2018 2024 2030 2036 Shale Gas as % of Total US Natural Gas Production 0% 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Major Shale Gas Basins by Country 100% Other Assets and Investor Behaviour EIA Forecast 75% Other 50% 25% Shale Gas 0% 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Source: EIA, FactSet, J.P Morgan Asset Management “Guide to the Markets – Asia." Data reflect most recently available as of 31/3/13 62 Countries outside EIA scope Countries within EIA scope Assessed basins with resource estimate Assessed basins without resource estimate Commodities: Oil Demand Share of Total Petroleum Consumption Oil Imports % of global consumption in 1991 and 2011 Net imports (imports minus exports) as % of GDP, 2011 Thailand Korea Turkey Philippines India Singapore South Africa Japan China Indonesia Brazil Argentina Australia 1991 Africa 3% Asia Pacific 21% Middle East 5% North America 30% Eurasia 12% Europe 22% Central & South America 6% -1.2% -1.6% -2.5% -14.9% Other Assets and Investor Behaviour -15% Asia Pacific 32% Africa 4% 2011 Malaysia Russia 0% 5% 10% 15% Annual change in Oil Consumption EM ex China China G3 North America 26% Others Europe 17% Central & South America 7% -1 EIA Forecast -2 2010 63 -5% 6.4% 5.4% 4.9% 4.0% 3.4% 3.2% 2.9% 1.9% 1.3% 0.7% 0.6% Mexico Vietnam Million barrels per day Middle East 9% Eurasia 5% -10% 12.5% 9.0% 2011 2012 Source: EIA, IMF, J.P Morgan Asset Management “Guide to the Markets – Asia." (Left) Eurasia includes Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan Figures may not sum due to rounding Data reflect most recently available as of 31/3/13 2013 2014 Commodities: Gold Valuation: Gold & Silver Equity Index (XAU) vs Spot Gold Gold Demand by Country Standard deviation (Away from historical mean) % distribution India 27% Rest of the World 51% -1 China 22% -2 -3 '85 '90 '95 '00 '05 '10 Gold Prices Gold Demand ex-Central Banks $ / oz % distribution Technology 12% Other Assets and Investor Behaviour $2,500 3/2013: $1,598.2 $2,000 $1,500 Gold Jewelry 48% $1,000 Investment 40% $500 Gold, Inflation adjusted $0 '80 '85 '90 '95 '00 '05 '10 Source: EcoWin, BLS, US Department of Energy, US Geological Survey, World Gold Council, FactSet, J.P Morgan Asset Management “Guide to the Markets – Asia." (Top Left) Gold price is USD per oz and gold and silver equities are based on Philadelphia Gold and Silver Index (XAU Index) Data reflect most recently available as of 31/3/13 64 Risk Appetite and Economic Surprise Index Credit Suisse Global Risk Appetite Indicator Number of Standard Deviations A measure of the risk-adjusted returns across 64 markets (including both equity and fixed income) 3/2013: 1.47 Euphoria -3 Distress -6 '96 '98 '00 '02 '04 '06 '08 '10 '12 Citigroup Economic Surprise Index Index Eurozone 150 Other Assets and Investor Behaviour 75 Asia Pacific -75 US -150 '10 '12 '13 Source: Credit Suisse, Citi, FactSet, J.P Morgan Asset Management “Guide to the Markets – Asia." (Top) The Credit Suisse Global Risk Appetite Indicator compares aggregated risk-adjusted returns across 64 markets (both equity and fixed income) It compares six-month excess returns over cash with 12-month volatility for each asset (Bottom) The Citigroup Economic Surprise Indices (CESI) are objective and quantitative measures of economic news They are defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median) A positive reading of the CESI suggests that economic releases have on balance beaten the consensus The indices are calculated daily for a rolling three-month window The weights of economic indicators are derived from relative high-frequency spot FX impacts of standard deviation data surprises The indices also employ a time decay function to replicate the limited memory of markets Data reflect most recently available as of 31/3/13 65 '11 Global Investor Asset Allocation by Region Surveyed Retail Investor’s Portfolio Fixed Income 14% Equities 42% Fixed Income 25% Cash and Deposits 27% Other 6% US Households Fixed Income 13% Equities 29% Cash and Deposits 53% Equities 32% Cash and Deposits 55% Other 4% European Households Developed Asia Households Fixed Income 13% Cash and Deposits 77% Equities 10% Emerging Asia Households Other Assets and Investor Behaviour Institutional Investor’s Asset Allocation by Geography North America 75% Other 4% Asia 8% Europe 5% North America 20% Europe 61% Other 6% Europe 13% North America Asia 13% Asia 84% North America 6% Other 4% Europe Asia Source: Ipreo, BNY Mellon, McKinsey Global Institute, J.P Morgan Asset Management “Guide to the Markets – Asia." 66 (Top) Surveyed retail investor’s portfolio is based on McKinsey Global Institute’s “The emerging equity gap: Growth and stability in the new investor landscape” survey Developed Asia includes Singapore, Hong Kong, Korea, and Taiwan Emerging Asia includes India, Indonesia, Malaysia, Philippines, Thailand, and Vietnam (Bottom) Investor’s Asset Allocation by Geography is based on BNY Mellon’s “Asia’s Evolving Investment Landscape – Considering Hong Kong, Mainland China and Singapore as Investment Sources” survey, which depicts the asset allocation pattern of institutional clients around the world Asian investor portfolio covers only Hong Kong, Singapore, and Mainland China institutional investors Data reflect most recently available as of 31/3/13 Real Return on Cash in Asia Annual Real Deposit Rate 2000 – 2007 Based on respective country’s deposit rate less year-on-year inflation 4% 2008 – 2013 YTD 3.3% 2.6% 2.6% 1.6% 2% 0.6% 0.6% 0.3% 0% -0.1% 0.0% Thailand Malaysia -2% Korea Japan Taiwan China -0.1% India Hong Kong Singapore -0.4% -3.2% -3.5% Hong Kong Singapore 4% Other Assets and Investor Behaviour 2% 1.9% 0.7% 0% -1.1% -2% -1.9% -4% -6% Korea Japan Taiwan China Source: IMF, FactSet, J.P Morgan Asset Management “Guide to the Markets – Asia." Data reflect most recently available as of 31/3/13 67 -1.5% Thailand Malaysia India Retirement Trends in Asia Ageing Population 2000 % of population over 65 2010 2020 40% 2030 30% 20% 10% 0% Japan Hong Kong Taiwan Korea Singapore China India % of respondents Monthly Payments 24 68 Preference on Benefit Allotment Number of years Other Assets and Investor Behaviour Average Length of Retired Life 80% Lump Sum Payment 18 60% 12 40% 20% Hong Kong Singapore Japan Korea Taiwan China India 0% Singapore Hong Kong Korea Source: UN, CSIS – “The Future of Retirement in East Asia,” J.P Morgan Asset Management “Guide to the Markets – Asia." (Bottom Left) Average length of retired life is calculated using average life expectancy minus retirement age (Bottom Right) Response to the CSIS survey of non-retired respondents on their preference of how the benefit should be paid when they retire Data reflect most recently available as of 31/3/13 Taiwan China Dollar Cost Averaging Hypothetical Price of Fund “A” over years Price per unit Quarterly Investment $10,000 x 20 Summary Table 18 Total Investment Lump Sum Investment $200,000 12 $10 200,000.0 23,151.6 20,000.0 9.8 10.0 Latest Market Price $12 200,000.0 Average Unit Cost 15 12.0 12.0 277,819.5 240,000.0 77,819.5 40,000.0 38.9% 20.0% Total # of Units Purchased Market Value of Total Investment Gain in $ Gain in % '08 '09 '10 '11 '12 Annualized Volatility Dollar Cost Averaging Effect # of units purchased Other Assets and Investor Behaviour 3,000 69 1980s Monthly data from different time periods 2,500 25% 2,000 20% 1,500 15% 1,000 10% 500 1990s 30% 5% 2000+ 0% '08 '09 '10 '11 '12 S&P 500 Europe Asia ex-Japan* Source: FactSet, MSCI, J.P Morgan Asset Management “Guide to the Markets – Asia." Quarterly contribution of $10,000 for years, totaled $200,000 vs one lump sum payment of $200,000 in first quarter The above example and figures are for illustrative purposes only and not represent the performance of any J.P Morgan funds Different investments have a different volatility pattern and the above example should not be regarded as an indicator of actual fund returns * Data unavailable prior to January 1988 Data reflect most recently available as of 31/3/13 Japan J.P Morgan Asset Management – Index Definitions All indexes are unmanaged and an individual cannot invest directly in an index Index returns not include fees or expenses The S&P 500 Index is widely regarded as the best single gauge of the US equities market This world-renowned index includes a representative sample of 500 leading companies in leading industries of the US economy Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of US equities, it is also an ideal proxy for the total market An investor cannot invest directly in an index The Tokyo Stock Price Index ('TOPIX') is a composite index of all common stocks listed on the First Section of Tokyo Stock Exchange (TSE).The index is basically a measure of the changes in aggregate market value of TSE common stocks The base for the index is the aggregate market value of its component stocks as of the close on January 4, 1968 The aggregate market value is calculated by multiplying the number of listed shares of each component stock by its price and totaling the products derived there from The Bombay Exchange Sensitive Index (‘SENSEX), first compiled in 1986, was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing large, well-established and financially sound companies across key sectors The base year of SENSEX was taken as 1978-79 SENSEX today is widely reported in both domestic and international markets through print as well as electronic media It is scientifically designed and is based on globally accepted construction and review methodology Since September 1, 2003, SENSEX is being calculated on a free-float market capitalization methodology The Korea Composite Stock Price Index (‘KOSPI) is market capitalization based index on all common stocks listed on the Stock Market Division of the Korea Exchange (KRX) and excludes preferred stocks The stock price index is calculated using the actual price traded on the market and not the “base price” used for market management such as establishment of price change limits When no market price is available for issues that are not being traded or have halted trading, the latest closing price is used KOSPI was a assigned a base index of 100 set to January 4, 1980 The China Shenzhen Composite Index is an actual market-cap weighted index that tracks the stock performance of all the A-share and B-share lists on Shenzhen Stock Exchange The index was developed on April 3, 1991 with a base price of 100 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 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 Markets IndexSM 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 ACWI consisted of 45 country indices comprising 23 developed and 22 emerging market country indices 70 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 Europe ex UK IndexSM is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe, excluding the United Kingdom The MSCI Europe ex UK Index consists of the following 15 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland 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 Developed Market countries: Australia, Hong Kong, Japan, New Zealand, and Singapore The MSCI Pacific ex Japan IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region, excluding Japan As of June 2007, the MSCI Pacific Index consisted of the following Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore The MSCI USA IndexSM is designed to measure the performance of the large and mid cap segments of the US market With 586 constituents, the index covers approximately 84% of the free float-adjusted market capitalization in the US The MSCI USA Index was launched on Dec ember 31, 1969 The MSCI China IndexSM captures large and mid cap representation across China H shares, B shares, Red chips and P chips With 148 constituents, the index covers about 84% of this China equity universe The MSCI China Index was launched on December 31, 1992 The MSCI Indonesia IndexSM is designed to measure the performance of the large and mid cap segments of the Indonesian market With 25 constituents, the index covers about 84% of the Indonesian equity universe The MSCI Indonesia Index was launched on December 31, 1990 The MSCI Korea IndexSM is designed to measure the performance of the large and mid cap segments of the South Korean market With 105 constituents, the index covers about 84% of the Korean equity universe The MSCI Korea Index was launched on December 31, 1989 The MSCI India IndexSM is designed to measure the performance of the large and mid cap segments of the Indian market With 71 constituents, the index covers about 84% of the Indian equity universe The MSCI India Index was launched on December 31, 1993 J.P Morgan Asset Management – Index Definitions, Risks and Disclosures All indexes are unmanaged and an individual cannot invest directly in an index Index returns not include fees or expenses The MSCI Japan IndexSM is designed to measure the performance of the large and mid cap segments of the Japan market With 315 constituents, the index covers approximately 84% of the free float-adjusted market capitalization in Japan The MSCI Japan Index was launched on December 31, 1969 The MSCI Hong Kong IndexSM is designed to measure the performance of the large and mid cap segments of the Hong Kong market With 42 constituents, the index covers approximately 84% of the free float-adjusted market capitalization of the Hong Kong equity universe The MSCI Hong Kong Index was launched on December 31, 1972 The MSCI Taiwan IndexSM is designed to measure the performance of the large and mid cap segments of the Taiwan market With 113 constituents, the index covers approximately 84% of the free float-adjusted market capitalization in Taiwan The MSCI Taiwan Index was launched on December 31, 1989 West Texas Intermediate (WTI) is the underlying commodity for the New York Mercantile Exchange's oil futures contracts The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents nineteen separate commodities traded on US exchanges, with the exception of aluminum, nickel, and zinc The Dow Jones-UBS Commodity Subindexes represent commodity groups and sectors, as well as single commodities, that make up the Dow Jones-UBS Commodity Index The subindexes track exchange-traded futures of physical commodities, and the commodity groups and sectors, like in the case of the broad index, are weighted to account for economic significance and market liquidity The different subindexes are Energy, Livestock, Grains, Industrial Metals, and Precious Metals Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings Price to book value compares 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 Bonds 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 the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by 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 can raise or lower returns Also, some markets may not be as politically and economically stable as other nations Investments in emerging markets can be more volatile The normal risks of international investing 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 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 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 Investing using long and short selling strategies may have higher 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 71 J.P Morgan Asset Management – Risks & Disclosures Past performance is not a guarantee of future results Any forecast contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without further notice The information provided herein should not be assumed to be accurate or complete This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument The views and strategies described may not be suitable for all investors References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not interpreted as recommendations or investment, product, accounting, legal or tax advice J.P Morgan Chase & Co group assumes no responsibility or liability whatsoever to any person in respect of such matters The views expressed are those of J.P Morgan Asset Management These views not necessarily reflect the opinions of any other firm or other division of the JPMorgan Chase & Co group 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 Hong Kong by JF Asset Management Limited, JPMorgan Funds (Asia) Limited or JPMorgan Asset Management Real Assets (Asia) Limited, all of which are regulated by the Securities and Futures Commission; in India by JPMorgan Asset Management India Private Limited which is regulated by the Securities & Exchange Board of India; in Singapore by JPMorgan Asset Management (Singapore) Limited or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd., both are regulated by the Monetary Authority of Singapore; in Taiwan by JPMorgan Asset Management (Taiwan) Limited or JPMorgan Funds (Taiwan) Limited, both are regulated by the Financial Supervisory Commission; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers 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 which is regulated by the Financial Services Commission (without insurance by Korea Deposit Insurance Corporation) and 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) which is regulated by the Australian Securities and Investments Commission This communication is for intended recipients only and may only be forwarded or presented to other persons in compliance with local law and regulations which shall be the intended recipients’ sole responsibility Investment involves risks The value of investments and the income from them may fall as well as rise and investors may not get back the full or any of the amount invested Recipient of this communication should make their own investigation or evaluation or seek independent advice prior to making any investment It shall be the recipient’s sole responsibility to verify his / her eligibility and to comply with all requirements under applicable legal and regulatory regimes in receiving this communication and in making any investment © 2013 JPMorgan Chase & Co Unless otherwise stated, all data are as of March 31, 2013 Prepared by: David Kelly, Tai Hui, Geoff Lewis, Yoshinori Shigemi, Grace Tam, Ian Hui and Ben Luk MI-GTMASIA-E April 2013 72 ... ? ?Guide to the Markets – Asia. " 23 (Top Right) Inflation shown is year-over-year % change (Bottom Left) SEMI stands for North American Semiconductor Equipment Industry Book -to- bill ratio is the. .. FactSet, IMF, J.P Morgan Asset Management ? ?Guide to the Markets – Asia. " *Age Dependency Ratio is the ratio between old aged dependents (aged 65+) to the total working population (aged 15-64) Data... 9% 6% 3% Developed Markets Emerging Markets Source: J.P Morgan Economics, J.P Morgan Asset Management ? ?Guide to the Markets – Asia. " (Bottom) Central bank policy rates are the short-term target