Global Equity Research 8 September 2014
Global Developed Markets Strategy Dashboards +J.P. Morgan Equity Strategy Adrian MowatAC Mislav Matejka
Global Emerging Markets and Asian Strategy Global and European Equity Strategy
Key Calls (see page 3 for details)
[email protected]
(852) 2800-8599
[email protected]
(44-20) 7325-5242
J.P. Morgan Securities (Asia Pacific) Limited
Regional Calls US OW, Japan OW, Europe UW EMU OW, UK UW, Others UW
J.P. Morgan Securities plc
Paul Brunker
Australia Equity Strategy
[email protected]
(61-2) 9003-8641
J.P. Morgan Securities Australia Limited
Jesper J Koll
Japan Equity Strategy
[email protected]
(81-3) 6736-8600
JPMorgan Securities Japan Co., Ltd.
Rajiv Batra
Asia and Emerging Markets Equity Strategy
[email protected]
(91-22) 6157-3568
J.P. Morgan India Private Limited
EM OW
Key Changes Table of Contents Market performance to 5 September, 2014 •YTD Performance: Developed World is up 5.4%, underperforming EM by 4.0%. •Regional Performance: Denmark is the best performing region (up 13.3% YTD). Austria is the worst performing region (down 12.9% YTD). •Sector Performance: Healthcare (up 12.9%) and Utilities (up 11.6%) are the best performing sectors YTD, while Telecom (down 0.8%) and Consumer Discretionary (up 0.4%) are the worst. •Style Performance: Developed World Growth up 5.5%, Value up 5.3%. •Developed World Mid Caps outperformed Small Cap and Large Cap Index YTD.
J.P. Morgan's revisions to 2014 growth forecasts •Positive: Australia 3.1% [3.0%]
Page #
Market Drivers
2
Key Calls
3
Earnings Revisions
4,5
J.P. Morgan's revisions to 2015 growth forecasts
Sector Revisions
6,7
• Positive: Australia 3.3% [3.2%]
Macro Earnings Growth Driver
8
Cross-sector Earnings Growth
9
J.P. Morgan's revisions to central bank policy rate forecasts •Euro Area: Current 0.05% [0.15%], Last change 4 Sep 14 -10bp [5 Jun 14 -10bp], Forecast Next change 3Q18 +20bp [4 Sep 14 -10bp]. Dec 14 0.05%, Mar 15 0.05%, Jun 15 0.05%
Regional Valuation
10,11
Sector-Country Valuation Matrix
12
Policy Rates Forecast
13
Yield Curve & Liquidity
14
Regional Monetary Condition Index
15
Economic Momentum
16
Currency Forecasts
17
Performance: Equities relative to Bonds
18
Performance: Sector & Industry
19,20
Balance Sheets
21
Index Weightings
22
See page 23 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
www.jpmorganmarkets.com
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Outlook: Market Drivers Global and developed market drivers
Country Global US
Positive Acceleration in DM growth Recovering housing market, fiscal drag easing
Negative Bond yields grinding higher Higher bond yields. higher mortgage rates, declining NIMs
Europe
Improving financing conditions, , Lower fiscal drag, falling EUR/USD, potentially more aggressive ECB
Weak economy, deflation risk, weak credit backdrop
UK
Strong domestic recovery, unemployment rate going down
Political headwinds, potential earlier than expected start of monetary tightening cycle
Japan
New PM's pro-growth policy of fiscal boost and inflation targeting, more competitive Yen, QQE
Rising energy costs and fiscal sustainability worries
Australia
Low sovereign debt, monetary policy flexibility, high dividend yield market attracting local and global flows.
Risk to growth from capex/terms of trade downturn, potential currency fragility, high household debt levels, and exposure to growth risks in China.
Hong Kong
Stabilizing property price, slower land sales. DM economic recovery drives HK exports. Closer integration to Pearl River Delta is positive in the long run.
Singapore
We expect a modest rebound in 2014 GDP growth expectations with general economic conditions starting to rebound against 2Q13 lows. General economic growth for 2014 is expected to benefit from low-base effects in 2013 (note that street has lowered GDP forecasts seven times since January 2013).
Vulnerable to the Fed’s policy normalization. Economic fundamentals remain weak with slowly recovering GDP. Credit risk from trade financing for banks. Ongoing foreign labor tightening is expected to structurally impact corporate earnings and GDP growth, with long-term GDP growth to moderate from a 10-year historical CAGR of 6.2% to 4.1% on our estimates. We also estimate Singapore to transition up to 172,000 jobs away from Manufacturing into Services while progressing into a productivity-led growth model, which would create long-term structural drag.
Source: J.P. Morgan.
Emerging Market Drivers
Country China
Positive Stabilizing growth prospects; valuations partly discounting fundamental weakness
Negative Less policy flexibility, growth sectors expensive, excessive leverage
India
Improved corporate and consumer confidence, Expectations on growth revival, Easy global liquidity helping lower cost of capital
Sticky core CPI inflation, slower-than-expected progress on key policy reforms, Weak investment cycle
Indonesia
Healthy transmission of nominal GDP growth to EPS growth, Policy credibility improved with fuel price increases and recent BI actions, underweight investor positioning. Recovery in domestic demand, benefitting from DM economic growth Government fiscal consolidation gaining traction with subsidy cuts and GST implementation next year. Oil and gas/railway-related capex fueling domestic growth, CPO price rise on supply tightness/bio fuel blending requirements; recovering exports.
Financing persistent CA deficit, decelerating economic growth, Infrastructure bottlenecks, transmission of weaker Rupiah impact through the economy. Weakening of the JPY Diminishing current account surplus on imported capital equipment, property demand slowdown on cooling measures, moderating consumption growth on the back of subsidy cuts, 3-year peak in foreign ownership. Sharp increase in interest rates, upward inflation pressures, disruption to government infrastructure spending momentum, sharp currency weakness Taiwan is vulnerable to the external environment. A series of civil disobedience started from end-March and the upcoming election at year end add up political risks. Cross-strait development is now delayed due to people's opposition to the content and legislative procedure of the Trade in Service Agreement.
Thailand
Rising investment spending, improving consumption driven by steady remittances flow, fast-growing non-electronics exports, positive CA position, ample domestic liquidity Global economy is expected to see solid upturn in 2H14. Taiwan's export and industrial sectors should benefit from the solid demand in DM and China. China-related sectors, Cement, Automation and Industrials, benefits from the improving macro. Easing concerns over China's asset quality also imposes less downside risks on Taiwan financial sector. Mayoral elections in year-end are likely to stimulate potential election rally in 2H14. Among technology sector, we forecast stronger growth profile for LED/Foundry/Display but muted for OSAT/mobile/PC. Flexible monetary condition, healthy corporate balance sheet, strong FDI, better exports
Brazil
Large and liquid market offering many bottom up options, large infrastructure investment program, labor market still sturdy
Czech Republic
Eurozone recovery. High payout ratios.
Large share of commodity stocks in the index, government interventionism, high inflation/domestic monetary tightening, consensus earnings are too high, risk of sovereign debt downgrade, local currency weakness. Small not very liquid stock market with limited choices
Hungary
Eurozone recovery. Current account now in surplus.
PM Orban’s long and consistent track record of high effective taxation. Low growth hurts.
Greece
Growth returning. Banks still look cheap v peers and 2Q earnings indicate no new capital needed.
High volatility from bond market and hedge fund-heavy investor base.
Mexico
High valuations, earnings disappointment, no room for disappointment on economic growth, market depth.
Poland Russia
High correlation to US manufacturing recovery, undervalued FX, underpenetrated credit sector, internal economy picking up from government spending, reform agenda to boost growth, no inflation concerns. Strong pension fund uptake. Bond yields at new lows while 2014-5 GDP still likely to avg 3% Rebound from trough valuations as macro stabilizes and risk premium eases on receding geopolitical risk. Exporters should benefit from the weak ruble
More rate cuts will hurt bank NIMs. Tusk move to EU presidency introduces political risks Tougher sanctions are still a threat. Slow growth, high inflation and hawkish CBR may weigh on the stock market
South Africa
SA Equities as consensus UW in local and offshore portfolios, commodity and currency support.
Policy paralysis, sluggish growth, weak consumer, rand wildcard.
Korea Malaysia
Philippines Taiwan
Turkey Keeps pace with firm EM rally. Next government likely to include old friends,Babacan & Simsek. Valuations near historical avg Source: J.P. Morgan.
Political uncertainties, low public spending, high household debt, negative EPS revision
Bond yields up nearly 100 bps in 6 weeks. Export markets at risk in MENA (ISIS) and Europe (slower growth) Updated as of 5 September 2014 2
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
8 September 2014
Outlook: Key Calls Equities
Reasons
Equities were flat this week, with the Euro area and Japan performing best, followed by EM. European equities were buoyed by President Draghi’s announcements on additional stimulus measures. We are unwilling to chase the recent European equity rally , given weak earnings and disappointing economic growth, expensive valuations as well as downside risks from Europe’s proximity to the crisis in Russia/Ukraine. We stay UW Europe. Regionally, we continue to prefer EM and Japanese equities . In Japan, the potential for GPIF reform, a corporate tax rate cut, a decision on the 2nd consumption tax hike and additional BoJ easing underlie our constructive view. EM equities outperformance against DM equities stalled over the past month, but has fared better this week. We hold our OW in EM for now but only vs. Europe awaiting more clarity on underlying fundamentals. For more, please see The J.P. Morgan View by Jan Loeys
Economics
Until recently, we believed ECB policymakers were failing to fully appreciate the deflationary forces facing the region. The central bank has been far too hesitant in the face of elevated unemployment and depressed levels of inflation, in our view: our estimates place the appropriate Euro area policy rate roughly 500bp below current levels. Recent ECB news—including the June TLTRO announcement and President Draghi’s second “whatever it takes” pronouncement at Jackson Hole—has prompted us to reassess our thinking as a significant shift in the central bank’s reaction function appears to be taking place. At Jackson Hole, Draghi highlighted the huge costs of high unemployment in the Euro area and the importance of monetary policy in promoting demand growth—not only to reduce the cyclical component of unemployment but also to insure against the threat of hysteresis.His statement that “The risks of doing too little—i.e. that cyclical unemployment becomes structural—outweigh those of doing too much—that is, excessive upward wage and price pressure” sounds far more like a Fed than ECB official and suggested that more easing would be forthcoming.For more, please see Global Data Watch by Bruce Kasman
Liquidity
The ECB President stated in this week’s press conference that the ECB’s forthcoming programs, i.e. TLTROs coupled with ABS and covered bond purchases, could take the ECB’s balance sheet back to early 2012 levels, i.e. to €3tr from €2tr currently. These remarks, not only suggest that the ECB might have a target in mind regarding the size of its balance sheet, but raise questions about the boost to global liquidity from prospective ECB actions. In aggregate, G4 central balance sheets started rising rapidly from the end of 2010 driven by the Fed’s QE2 followed by the BoE’s QE, ECB’s LTROs, Fed’s QE3 and BoJ’s QE. As a result of these central bank actions, G4 central bank balance sheets expanded by almost $4tr over 4 years i.e. by $1tr per year since the end of 2010. With the ECB aiming at a €1tr expansion of its balance sheet, this $1tr per year pace in G4 central bank balance sheet expansion is likely to increase rather than decrease from here, despite the Fed’s tapering. For more, please see Flows & Liquidity by Nikolaos Panigirtzoglou
Regional Calls Japan Overweight Europe Underweight EMU Overweight UK Underweight Others Underweight US Overweight EM Overweight Emerging Markets
Reasons Japanese growth recovery and reflation theme remains on track. BoJ to add further stimulus European growth momentum has disappointed and the region is still not attractively priced vs global, despite recent underperformance Periphery recovery tracking, highly geared to global activity momentum Heavy weighted in defensives and commodities, at risk of further underperformance as value style is back in favour At risk of further underperformance as value style is back in favour Consensus long, narrowing relative growth momentum with Europe Structural risks remain, but EM has underperformed and is cheap. Risk reward improving LatAm is back. We upgrade Brazil to OW as hope of policy change rises and relative momentum is strong. Mexico is upgraded to OW as economic growth finally accelerates. Won strength may be good for domestic demand but is bad for the benchmark – we downgrade Korea to UW. The other changes are upgrading UAE and Qatar from UW to OW, Colombia from UW to neutral, downgrading Turkey from OW to neutral and downgrading Peru from neutral to UW. Chinese market and economic momentum is fading. Our focus is brokers, energy and telecom sectors as reform beneficiaries, plus IT for growth. We are UW other sectors in China, refer to Key Trades and Risks: Emerging Markets Equity Strategy, Mowat et al, 26 August, 2014.
Source: J.P. Morgan estimates
Updated as of 5 September 2014
4
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
8 September 2014
Profit Outlook: Changes in 2014 and 2015 EPS Forecasts by Country / Region USA
World 115
110
2015
EMU
Europe
115
115
110
115
110
2015
2015
105
105
2014
100
105
100
2014
100
100
95
2014
95
90 95
95
90
90
Feb-13
Jul-13
Nov-13
Apr-14
Aug-14
Feb-13
Jul-13
United Kingdom
Nov-13
2015
105
2015
95
95
2014
Apr-14
Aug-14
85
Feb-13
Jul-13
Nov-13
80
Aug-14 20042
2005
110
100
Feb-13
Jul-13
Nov-13
Feb-13
65
Jul-13
2
Nov-13
Apr-14
Aug-14
90
Feb-13
22
2005
Apr-14
Feb-13
Aug-14
Jul-13
Nov-13
Apr-14
Aug-14 200
2 C
C
Singapore 115
2015
110
2015 105
105
2014
2014 2014
100
100
95
100
2014
85
110
2015
105
95
2014
Hong Kong
105
2014
2015
115
115
115
Italy
95
Australia
120
110
Apr-14 2005
2015
Aug-14
75
Japan
125
Apr-14
85
2
130
Nov-13
90
90
Nov-13
Jul-13
105
100
85
Jul-13
Feb-13
2015
95
80
80
Aug-14
115
105
100
2014
Apr-14
110
110
90
Nov-13
115
105 100
Jul-13
France
115
110
Feb-13
Feb-13
Aug-14
85
Germany
115
75
Apr-14
2014
90
85 80
2015
110
105
95
Jul-13
Nov-13
Apr-14
95
Aug-14
Feb-13
Jul-13
Nov-13
Apr-14
Aug-14
Source: I/B/E/S Notes: The dashboard aims to show changes in earnings expectations. Except Australia which is for June and Japan which is for March, all year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison.
5
90
Feb-13
Jul-13
Nov-13
Apr-14
Aug-14
Updated as of 29 August
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
8 September 2014
Profit Outlook: Changes in 2014 and 2015 EPS Forecasts by Sector World Energy (EN)
World Materials (MA)
110
110 105
105
2015
100
100
2014
85 80
2014
Feb-13
70
Jul-13
Nov-13
Apr-14
Aug-14
Feb-13
World Consumer Staples (CS)
115
2015
Jul-13
Nov-13
Apr-14
105
100
100
2014
Feb-13
Jul-13
Nov-13
Apr-14
Feb-13
Aug-14
2015 105
105
105 100
95
90
Feb-13
Nov-13 2005
200
Apr-14
Aug-14
95
Feb-13
Apr-14
Feb-13
Aug-14
2015
Jul-13
Nov-13
Apr-14
Aug-14
95
Feb-13
2%
4%
0%
2%
-2%
Apr-14
Nov-13
Apr-14
Aug-14
2004
2005
Momentum in Revision Ratio
-6% -8% -10% HC
IT
UT
FN
TE MKT CD
Net revision ratio (4wk ave)
Aug-14
Source: I/B/E/S Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison
6
Jul-13
2004 2005
-4%
-6%
Nov-13
Feb-13
6%
-8% Jul-13
2
4%
-4%
2014
2014
90
2004
-2%
101
98
Aug-14
0%
2014
95
2004 2004
Apr-14
8%
104
105
Nov-13
Revision Ratio
107
2015
110
Jul-13 2005 2005
110
115
Feb-13
Nov-13
World Utilities (UT)
World Telecoms (TE)
90
100
95
90
Jul-13
2005 2004
100
2014
100
2014
95
Jul-13
Aug-14
110
105
100
Apr-14
World Information Technology (IT)
2015
110
2014
Nov-13
115
115
2015
110
Jul-13
World Financials (FN) 120
115
2015
2014
95 90
90
Aug-14
2015
110
105
World Healthcare (HC)
115
110
115
95
75 85
120
110
90
90
120
2015
95
95
World Consumer Discretionary (CD)
World Industrials (ID)
115
ID
MA
EN
CT
HC
IT
UT
FN
TE MKT CD
ID
MA
EN
CT
Change in Net revision ratio (mom)
Updated as of 29 August
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
8 September 2014
Sector Revisions: Changes in 2014 by sector for US, UK, Japan, Eurozone Consumer Staples
Consumer Discretionary 125
111
120
108
Japan
115
100
UK
EMU
90
95
87
EMU
90
81
85
Feb-13
Jul-13
Nov-13
Apr-14
Aug-14
Feb-13
Jul-13
Healthcare
Nov-13
Apr-14
70
Aug-14
Feb-13
Industrials
Japan
105
Japan EMU
85
UK
Nov-1320200 2020200 20 Apr-14
Aug-14
Feb-13
Jul-13
Nov-13
Apr-14
Aug-14
Materials 120
UK
110 100
95
95
85
Jul-13
UK
EMU
90
Nov-13
EMU
80
Japan
Apr-14
Aug-14
Apr-14
Aug-14
80
Feb-13
UK
70
85
Jul-13
US
90
EMU
60
Jul-13
Nov-13
Apr-14
Aug-14
C
Feb-13
Jul-13
Nov-13
Apr-14 C
Aug-14
Utilities 110
US
Japan
US
105
100
100
UK
90 80
UK
95
EMU 90
70
EMU
85
60
Feb-13
Feb-13
Aug-14
US
US
Telecoms
50
Apr-14
UK
EMU
Japan
90
120 110
Nov-13
105
80
Feb-13
75
Jul-13
100 100
90
75
85
Information Technology
100 95
95
110
US
105
EMU
75
110
110
UK
80
UK
84
US
105
85
93
115
US
90
96
Japan
125
95
US
99
US
135
Japan
100
102
105
145
105
Japan
105
110
Financials
Energy 110
114
Jul-13
Nov-13
Apr-14
Aug-14
80
Feb-13
Jul-13
Nov-13
Source: I/B/E/S Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December except for Japan which is March. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison
7
Updated as of 29 August
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
8 September 2014
Sector Revisions: Changes in 2015 by sector for US, UK, Japan, Eurozone Consumer Staples
Consumer Discretionary
Japan
US
115
105
Feb-13
105
US
UK Jul-13
Nov-13
Apr-14
Aug-14
80
85
75
Healthcare
Nov-13
Apr-14
US
EMU
Japan
115
Japan
100
UK
Nov-13
Apr-14
Aug-14
UK
90
Feb-13
Jul-13
Telecoms
Nov-13
Feb-13
Jul-13
EMU
105
Apr-14
Aug-14 2004
Apr-14
Aug-14
2005
100
Feb-13
Nov-13
Apr-14
Aug-14
Materials 135 125
EMU
Japan
Japan
115
UK
US
105 95 85
US
EMU UK
75 65
Jul-13
2005
Nov-13
2
Apr-14
Aug-14 C
Feb-13
Jul-13
Nov-13
Apr-14 C
Aug-14
EMU
110
Japan
US 105
UK
EMU
100
90
UK
95
80
90
70
Feb-13
Aug-14
Utilities
US
110
60
Apr-14
85
115
130
100
Nov-13
110
95
120
115
US
105
85
Jul-13
Jul-13
120
110
Feb-13
UK
125
105
EMU
95
125
120
95
EMU
Information Technology
130
115
75
Feb-13
Aug-14
Industrials
125
US 105
85
90
Jul-13
115
UK
90
UK
Feb-13
Japan
95
EMU
95
Japan
125
US
100
100
EMU
110
135
110
105
120
100
Japan
110
125
Financials
115
115
135 130
Energy
120
140
85
Jul-13
Nov-13
Apr-14
Aug-14
Feb-13
Jul-13
Nov-13
Source: I/B/E/S Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December except for Japan which is March. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison
8
Updated as of 29 August
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
8 September 2014
Profit Outlook: Volume & Margin Proxy US earnings growth vs margin change
US earnings growth vs GDP growth 40% 30% 20% 10% 0% -10% -20%
81
86
90
95
99
NIPA profit growth (lh)
04
08
13
40%
10% 8% 6% 4% 2% 0% -2% -4%
30% 20% 10% 0% -10% -20%
81
86
Real GDP growth
6%
60%
40%
4%
40%
20%
2%
20%
0%
0%
0%
-20%
-2%
-20%
-40%
-4%
-40%
-6%
-60%
95
97
99
01
04
06
MSCI EMU earnings growth
08
10
13
92
95
97
40% 20% 0% -20% 86
90
95
99
MSCI UK earnings growth (lh)
04
81
86
90
95
99
JP operating profit growth (CAO) ??
S ((
))
99
01
04
06
08
10
13
08
13
0% -20% 81
86
90
95
99
MSCI UK earnings growth (lh)
04
08
13
4% 3% 2% 1% 0% -1% -2% -3% -4% -5%
08
13
100% 80% 60% 40% 20% 0% -20% -40% -60%
12%
C
??
(C(
) )
MSCI EMU EPS Real GDP growth (%) Margin proxy change -
0% -4% -8% 86
90
95
99
C
((CO G ))
04
08 Margin Proxy change
Source: Bloomberg, J.P. Morgan estimates. Note: Forecasts for real GDP growth, pricing proxy change and unit labor cost change are from J.P. Morgan economics research. The analysis is a sensitivity analysis run on the two indicators (real GDP growth and profit margin proxy). The estimates do NOT represent the JPM official forecasts for earnings growth of the respective regions.
9
Deflator change ULC change
Profit growth (%) - Average Based on real GDP growth Based on margin change
MSCI UK EPS Real GDP growth (%) Margin proxy change -
13
Deflator change ULC change
Profit growth (%) Based on real GDP growth Based on margin change
JP CAO operating profit Real GDP growth (%) Margin proxy change -
4%
JP operating profit growth (CAO)
Real GDP growth
Profit growth (%) - Average Based on real GDP growth Based on margin change
8%
81
Deflator change ULC change
Regression profit growth on real GDP growth profit growth on margin change
Margin Proxy change
Japan earnings growth vs margin change 10% 8% 6% 4% 2% 0% -2% -4% -6% -8%
-
Regression profit growth on real GDP growth profit growth on margin change
Margin Proxy change
20%
-40%
US NIPA profit Real GDP growth (%) Margin proxy change
Regression profit growth on real GDP growth profit growth on margin change
3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0%
40%
Real GDP growth
04
13
60%
8% 6% 4% 2% 0% -2% -4% -6% -8%
Japan earnings growth vs GDP growth 100% 80% 60% 40% 20% 0% -20% -40% -60% -80%
08
UK earnings growth vs margin change
60%
81
04
Margin Proxy change
MSCI EMU earnings growth
Real GDP growth
UK earnings growth vs GDP growth
-40%
99
Eurozone earnings growth vs margin change
60%
92
95 NIPA profit growth (lh)
Eurozone earnings growth vs GDP growth
-60%
90
4% 3% 2% 1% 0% -1% -2% -3%
-12%
Profit growth (%) Based on real GDP growth Based on margin change Regression profit growth on real GDP growth profit growth on margin change
Deflator change ULC change
2012 2.8 0.6 1.8 1.2
2013 1.9 0.2 1.3 1.1
2014E 1.4 0.3 1.4 1.1
7.2 7.6 6.8
5.3 5.9 4.6
5.1 4.9 5.2
Intercept 2.3 3.5
Beta 1.9 5.5
R2 0.1 0.4
2012 -0.6 0.3 1.6 1.3
2013 -0.4 0.1 1.8 1.7
2014E 1.1 0.2 0.8 0.6
-8.2 -8.2 8.8
-6.7 -6.7 6.3
4.6 4.6 7.6
Intercept -3.7 5.0
Beta 7.5 12.7
R2 0.6 0.7
2012 1.0 1.1 2.8 1.7
2013 1.7 2.2 2.6 0.4
2014E 3.0 1.4 2.5 1.1
0.3 0.3 11.9
3.2 3.2 18.1
8.6 8.6 13.6
Intercept -3.9 5.6
Beta 4.2 5.7
R2 0.3 0.3
2012 1.4 0.2 -0.9 -1.1
2013 1.5 0.1 -0.5 -0.6
2014E 1.3 1.1 1.5 0.4
2.8 0.4 5.1
2.9 0.9 4.8
3.8 -0.1 7.6
Intercept -6.3 4.5
Beta 4.8 2.8
R2 0.4 0.4
Updated as of 5 September 2014
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Profit Outlook: Earnings Forecasts Matrix for Countries and Sectors Developed World Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
Eurozone Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
Germany Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
Australia Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
2013 6% -11% -5% 10% 25% 4% 0% 13% 6% -9% 22%
EPS Growth Consensus 2014E 7% 11% 6% 10% 0% 4% 10% na 14% -2% 2%
2015E 11% 8% 16% 12% 16% 9% 11% 12% 11% 8% 1%
2013 -6% -22% -13% 4% -22% 0% -6% 20% 29% -31% -7%
EPS Growth Consensus 2014E 9% 0% 19% 13% 10% 6% 5% na 44% -14% -18%
2015E 17% 13% 20% 15% 15% 11% 12% 26% 23% 8% 6%
Market Composition Market Cap Earnings 100% 100% n/a n/a 14% 12% 14% 12% 21% 27% 4% 3% 14% 11% 17% 22% 8% 6% 4% 3% 5% 4%
2013 -15% n/a -12% -8% -29% 10% 6% -5% 7% -9% -34%
EPS Growth Consensus 2014E 4% n/a 12% 29% 7% 25% 6% -7% 8% -4% -30%
2015E 12% n/a 15% 15% 10% 11% 14% 14% 11% 8% 4%
Market Composition Market Cap Earnings 100% 100% 6% 5% 17% 19% 6% 4% 2% 1% 9% 7% 4% 3% 52% 56% 0% 0% 2% 2% 2% 1%
2013 8% -15% 13% 6% 10% 1% 11% 9% 9% 18% -4%
EPS Growth Consensus 2014E 4% 29% -1% 2% 10% 3% 14% 5% 6% -6% -1%
2015E 7% 18% 6% 17% 11% 9% 12% 5% 10% 8% 14%
Market Composition Market Cap Earnings 100% 100% 10% 11% 6% 6% 11% 11% 12% 11% 10% 8% 12% 11% 21% 24% 13% 12% 3% 3% 3% 3%
Market Composition Market Cap Earnings 100% 100% 7% 8% 8% 7% 13% 13% 13% 15% 10% 8% 8% 7% 24% 27% 5% 4% 5% 5% 6% 7%
USA Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
UK Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
France Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
Singapore Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
2013 8% -6% 8% 8% 26% 6% 2% 22% 3% 10% -1%
EPS Growth Consensus 2014E 7% 8% 8% 10% -9% 5% 15% 2% 12% 17% 7%
2015E 12% 9% 18% 12% 18% 9% 11% 13% 10% 8% 4%
2013 -10% -20% -14% 4% 9% 2% -7% -10% 23% -29% 0%
EPS Growth Consensus 2014E 3% 13% 2% -1% 4% -7% -10% 18% 8% -40% -4%
2015E 8% 5% 13% 10% 11% 6% 3% 11% 17% 7% 4%
Market Composition Market Cap Earnings 100% 100% 11% 15% 6% 4% 17% 16% 13% 13% 10% 8% 11% 10% 18% 24% 3% 2% 5% 4% 4% 4%
2013 -4% -10% -24% 2% -3% -1% -17% 7% NM -29% 29%
EPS Growth Consensus 2014E 2% -5% 45% 5% 16% 3% 3% 0% NM -25% -32%
2015E 15% 9% 33% 14% 22% 11% 11% 12% 47% 10% 11%
Market Composition Market Cap Earnings 100% 100% n/a n/a n/a n/a 21% 21% 8% 6% 4% 5% n/a n/a 53% 57% n/a n/a 13% 12% n/a n/a
2013 -4% n/a n/a -15% -3% -10% n/a 0% n/a 0% n/a
EPS Growth Consensus 2014E 6% n/a n/a 9% -6% 5% n/a 6% n/a 5% n/a
2015E 9% n/a n/a 10% 10% 19% n/a 7% n/a 7% n/a
Market Composition Market Cap Earnings 100% 100% 10% 12% 4% 3% 10% 10% 13% 10% 9% 8% 14% 13% 18% 16% 19% 20% 2% 3% 3% 3%
Market Composition Market Cap Earnings 100% 100% 17% 22% 9% 10% 7% 6% 8% 7% 16% 14% 10% 8% 23% 26% 1% 0% 5% 3% 4% 4%
Developed Europe Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
Japan Total Market * Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
Italy Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
Hong Kong Total Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
Source: I/B/E/S, MSCI, J.P. Morgan estimates Note: Aggregate numbers are based on MSCI constituents from I/B/E/S. Fiscal years is used for each respective country (not calendarized) i.e. Except Australia which is for June and Japan which is for March, all year ends are for December. All earnings are on post-goodwill basis.
10
2013 -6% -20% -13% 1% -13% 0% -3% 8% 27% -28% -5%
EPS Growth Consensus 2014E 6% 9% 10% 10% 8% 1% 1% 15% 33% -23% -14%
2015E 13% 7% 16% 15% 14% 8% 9% 18% 22% 7% 5%
2013 75% -13% 239% 34% NM 22% -6% 20% 56% 31% n/a
EPS Growth Consensus 2014E 7% 9% NM 7% NM 6% 10% -3% 27% 7% n/a
2015E 11% 5% 16% 8% 14% 18% 11% 2% 11% 15% n/a
Market Composition Market Cap Earnings 100% 100% 24% 24% n/a n/a 8% 10% 6% 5% n/a n/a n/a n/a 39% 34% n/a n/a 5% 7% 18% 20%
2013 -48% -45% n/a NM -45% n/a n/a NM n/a -33% -3%
EPS Growth Consensus 2014E 131% 18% n/a NM 63% n/a n/a n/a n/a -7% -3%
2015E 31% 21% n/a 17% 80% n/a n/a 57% n/a 4% 5%
Market Composition Market Cap Earnings 100% 100% n/a n/a n/a n/a 10% 10% 15% 12% n/a n/a n/a n/a 62% 53% 1% 0% 1% 1% 12% 24%
2013 11% n/a n/a 16% 24% n/a n/a 8% -8% 30% 7%
EPS Growth Consensus 2014E 26% n/a n/a 9% 13% n/a n/a 7% NM 17% 157%
2015E -8% n/a n/a 11% 17% n/a n/a 6% 18% 16% -61%
Market Composition Market Cap Earnings 100% 100% 9% 12% 8% 8% 11% 10% 10% 10% 13% 11% 13% 11% 23% 26% 3% 2% 5% 4% 4% 4%
Market Composition Market Cap Earnings 100% 100% 1% 2% 6% 6% 20% 21% 21% 24% 7% 4% 6% 4% 19% 23% 11% 9% 6% 5% 2% 1%
Updated as of 5 September 2014
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Value: Regional and Countries Valuations P/E (x)
MSCI World USA Europe EMU United Kingdom Japan Australia Singapore Hong Kong MSCI Emerging Markets
5-Sep-14 MSCI Index 1,751 1,921 1,752 195 1,376 2,720 958 4,308 10,424 1,097
Historical 2013 Current 17.9 16.7 18.6 17.7 17.0 15.4 18.8 16.0 14.5 14.4 17.6 14.5 17.6 16.4 14.0 15.0 15.3 15.1 12.1 12.5
2012 14.8 14.6 13.3 13.5 11.7 24.6 15.3 12.6 16.3 12.7
Div. Yield (%)
Prospective 12 M Fwd 2014E 15.1 16.3 16.1 17.4 14.0 15.3 14.0 15.6 13.6 14.3 13.8 14.5 15.4 16.1 13.8 14.6 14.9 14.2 11.4 12.2
2015E 14.6 15.5 13.5 13.3 13.3 13.1 15.0 13.4 15.3 11.0
2012 2.8 2.3 3.7 3.9 3.8 2.2 4.6 3.2 2.5 2.7
2013 2.4 1.9 3.2 3.2 3.5 1.7 4.2 3.2 2.5 2.6
P/BV (x)
Current 2.4 1.9 3.2 3.2 3.5 1.9 4.4 3.3 2.6 2.7
2012 1.8 2.2 1.5 1.3 1.7 1.1 1.9 1.5 1.4 1.6
2013 2.2 2.7 1.8 1.6 2.0 1.4 2.1 1.5 1.4 1.5
ROE (%) Current 2.2 2.8 1.8 1.6 2.0 1.3 2.1 1.4 1.5 1.6
2012 12.0 14.9 11.6 9.2 14.8 4.4 12.3 12.1 8.4 13.0
2013 12.0 14.6 10.8 8.3 13.7 8.0 11.7 10.5 8.9 12.7
Current 12.0 14.4 10.6 8.0 13.1 8.6 12.3 10.2 8.6 11.9
Source: I/B/E/S, MSCI, J.P. Morgan estimates
P/E versus Earnings Growth
P/B versus ROE
20
US
2.8 18
2.4
US World
AU
P/E
EMU
HK
Europe 14
12
Price to Book
16
JP
UK
SG
2
.
4
6
8
2.0
0.8 10
12
JP
5
AU
Europe
EMU
1.6 1.2
EM 0
World
8
HK
UK EM SG
11
14
17
ROE
forward earnings growth
Updated as of 5 September 2014
Source: I/B/E/S, MSCI, J.P. Morgan estimates Note: Market forecast numbers are derived from IBES on fiscal year estimates. All Year ends are for December, except Australia which is for June and Japan which is for March.
11
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Value: Regional Earnings Yield Gap & Sector-Neutral P/E
Re-Rating
0 Equities Expensive 96
98
00
03
US Yield Gap
05
07
09
12
14
-5
91
94
Re-Rating Equities Expensive
1 88
90
92
94
96
98
00
02
04
TREND in YG (pre goodwill)
06
08
10
12
14
40 30 20 10 0 -10 -20 -30 -40
EMU Yield GAP
Re-Rating Equities Expensive
1 88
90
92
94
96
98
00
02
04
TREND in YG (pre goodwill)
07
06
08
10
12
14
-1 0 1
89
91
93
95
97
99
01
03
06
08
96
98
Japanese Yield GAP
00
02
04
TREND in YG
10
12
20
50%
10
0%
Cheap
3
14
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Premium/Discount
Eurozone Detrended Yield Gap Yield GAP-1s.d.
MSCI US P/E based on EMU sector composition
UK Sector Neutral P/E (relative to US)
-2
10
-1
0
0
-10
1
-20
2
-30
3
90
92
94
96
98
00
02
04
06
6mth frwd equity return Yield GAP+1s.d.
Equities Expensive
06
08
10
12
14
40 30 20 10 0 -10 -20 -30 -40
08
10
12
14
30
100%
20
50%
10
0%
-
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Premium/Discount
UK Detrended Yield Gap Yield GAP-1s.d.
-3 -1 0 1 2
92
94
96
98
00
02
04
6mth frwd JPY equity return Yield GAP+1s.d.
06
08
MSCI US P/E based on UK sector composition
Japan Sector Neutral P/E (relative to US)
-2
90
-50%
MSCI UK - 12MTH FWD P/E RTIO
Yield Gap (Inverse Scale)
88
-50%
MSCI EMU - 12MTH FWD P/E RTIO
Yield Gap (Inverse Scale) -3
88
-14% -15% -20%
-14% -15% -19%
100%
-
2 87
premium (+) / discount (-) to the US simple sector neutral
30
Japan BY/EY (detrended)
Re-Rating
94
US Eurozone UK Japan
# S.D. from Fair Level* -0.06 -0.92 -0.25 -1.41
Eurozone Sector Neutral P/E (relative to US)
20
UK Yield GAP
De-Rating
92
3
14
US Detrended Yield Gap Yield Gap-1s.d.
Equities Cheap
90
12
-2
Japan BY/EY and trend
88
09
30
Equities Cheap
-1
05
Estimated Fair Level -3.57 -5.44 -4.44 -5.56
12mth forward P/E 16.1 14.0 13.6 13.8
UK BY/EY (detrended)
De-Rating
-3
03
6mth frwd equity return Yield GAP+1s.d.
-7 -5
00
Yield Gap (Inverse Scale) -3
UK BY/EY and trend
-9
98
Sector Neutral P/E
Eurozone BY/EY (detrended)
De-Rating
-1
96
6mth frwd USD equity return Yield Gap+1s.d.
Equities Cheap
-3
-10 -8 -6 -4 -2 0 2 4 6
89
Trend Yield Gap
-7
3
87
Eurozone BY/EY and trend
-9
3
85
Cheap
94
Fair Value
91
Current Mkt Level -3.61 -6.16 -4.64 -6.61
Cheap
89
2
Earnings Yield Gap US Eurozone UK Japan
Fair Value
87
1
10
12
Japanese Detrended Yield Gap Yield GAP-1s.d.
14
3
Cheap
85
-1 0
Fair Value
2
-2
Fair Value
De-Rating Equities Cheap
-2
4
40 30 20 10 0 -10 -20 -30 -40
Yield Gap (Inverse Scale) -3
Expensive
-6 -4
Summary Table
US BY/EY (detrended)
US BY/EY and trend
-8
35
150%
25
100%
15
50%
5 -5 01
0% 02
03
04
05
06
Premium/Discount
07
08
09
10
11
12
13
14
-50%
MSCI US P/E based on JP sector composition
MSCI JAPAN - 12MTH FWD P/E RTIO
Source: Datastream, J.P. Morgan estimates. Updated as of September 2014 Note: HP filter is used to extrapolate the trend in the earnings yield gap. The Hodrick-Prescott (HP) filter acts to establish a trend for the underlying data and isCwidely used for determining trend unemployment rates as well as output gaps. The resulting trend is the product of a minimization process. The sum of two terms is being minimized. The C C first term is the sum of squared cyclical variations of the underlying series around the implied trend. The second is the sum of squared implied growth differentials in that trend. The latter accounts for the desired smoothness of the resulting trend. The trend that minimizes the sum of those two terms (which are pulling in opposite directions) is chosen as the optimal trend. Note: 12mth forward P/E for UK as of 15 May 2013 * Negative figures represent cheap compared to estimated fair values.
12
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Value: Sector Valuations (MSCI) World and Regional Sector 12 Month Forward PE
World Absolute
Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
World and Regional Sector trailing Dividend Yield Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
World and Regional Sector Price to Book Valuations Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
World and Regional Sector ROE Market Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities
15.1 13.8 15.2 15.8 16.9 17.7 16.9 13.0 16.1 15.5 15.5
Current 2.4 2.8 2.5 2.3 1.8 2.8 1.9 2.8 1.5 4.2 3.8
Current 2.2 1.9 2.0 2.5 2.9 3.7 3.9 1.3 3.6 2.3 1.6
Current 12.0 11.5 11.0 13.9 15.4 19.1 16.4 8.0 17.1 16.3 8.8
USA
Rel to Market
Avg Rel to Market
Absolute
0.90 0.90 1.04 1.13 1.09 1.13 0.83 1.34 1.03 0.90
16.1 14.7 16.4 15.9 18.8 17.6 16.8 14.1 15.9 14.3 16.0
0.91 1.00 1.03 1.11 1.16 1.10 0.85 1.05 1.01 1.01
World
World
World
Average 2.2 2.7 2.3 2.0 1.6 2.4 1.9 2.8 0.8 3.5 3.9
Current 1.9 2.1 2.0 2.1 1.4 2.7 1.5 1.9 1.5 4.5 3.5
Average 2.5 2.5 2.1 2.5 2.3 3.9 4.6 1.8 4.1 2.4 1.8
Current 2.8 2.2 3.2 3.2 4.4 4.5 4.0 1.4 4.1 3.3 1.7
Average 12.1
Current 14.4
16.2 11.1 12.2 10.2 19.3 19.6 9.9 13.5 11.5 11.0
12.6 17.2 17.2 19.5 23.2 16.8 8.2 20.4 27.6 9.6
Eurozone
Rel to Market
Avg Rel to Market
Absolute
0.87 1.02 1.03 1.20 1.09 1.04 0.83 1.22 1.11 0.93
14.0 11.6 15.0 14.5 12.0 18.2 16.2 11.3 18.6 16.0 14.4
0.92 1.02 1.00 1.18 1.10 1.05 0.88 0.99 0.90 1.00
USA
USA
USA
Average 1.9 2.2 2.2 1.9 1.2 2.4 1.7 2.3 0.7 3.5 4.1
Current 3.2 4.6 2.7 2.8 2.7 2.4 2.3 3.5 1.5 4.8 4.6
Average 3.1 2.8 2.7 3.4 3.0 5.6 5.1 2.0 5.1 2.7 1.7
Current 1.6 1.4 1.7 2.4 1.9 3.1 2.7 0.9 3.6 1.8 1.2
Average 15.1
Current 8.0
17.5 14.4 17.3 13.3 26.8 21.1 11.8 18.0 11.7 11.2
9.2 7.4 12.3 12.9 15.2 10.2 4.4 10.7 11.0 7.1
Source: I/B/E/S, MSCI, J.P. Morgan Note: Average since 1995 Figures highlighted in red/blue represent sector relative P/E trading above/below historical average by more than 10% in the 12-month forward P/E table. Forward PE numbers are pre-goodwill numbers and may not be comparable with the ratios in page 8. Note: 12mth Forward P/E of MSCI World and UK as of 31 July 2013
UK
Rel to Market
Avg Rel to Market
Absolute
0.86 0.98 1.06 1.02 1.28 1.23 0.82 1.58 1.18 1.00
13.6 11.0 12.4 15.1 15.3 16.2 17.1 11.5 27.6 20.8 15.2
0.85 1.10 1.06 0.88 1.33 1.18 0.83 1.36 1.17 1.05
Eurozone
Eurozone
Eurozone
Average 3.1 4.0 3.2 2.7 2.6 2.1 2.3 3.4 1.6 4.2 4.3
Current 3.5 4.1 3.4 2.6 2.7 3.5 3.7 3.3 1.2 4.5 5.0
Average 2.1 2.3 1.7 2.1 2.0 3.6 2.9 1.6 4.8 2.7 1.9
Current 2.0 1.4 1.9 3.6 3.4 4.3 6.7 1.2 8.1 1.4 3.0
Average 11.7
Current 13.1
16.7 11.0 10.8 10.8 16.7 12.0 9.9 9.7 11.8 12.2
12.4 14.6 23.1 20.1 27.5 34.5 6.3 16.7 10.8 21.1
Japan
Rel to Market
Avg Rel to Market
Absolute
Rel to Market
Avg Rel to Market
0.97 0.88 1.01 1.14 1.10 1.23 0.89 1.64 1.22 0.96
13.8 10.7 13.2 13.1 11.7 20.1 24.7 12.2 16.5 13.7 18.4
0.78 0.96 0.96 0.85 1.46 1.80 0.89 1.20 1.00 NA
0.92 1.06 0.97 1.28 1.13 1.01 1.06 1.27 0.00 1.13
0.81 0.91 1.11 1.13 1.19 1.26 0.85 2.04 1.53 1.12
UK
UK
UK
Average 3.4 3.3 3.1 3.1 2.9 3.3 3.2 3.9 2.2 3.6 4.7
Current 1.9 2.3 1.8 1.8 2.0 1.8 2.2 2.2 1.6 1.8 1.2
Average 2.4 2.5 2.3 2.9 3.1 3.4 10.0 1.8 4.5 1.9 2.4
Current 1.3 0.7 1.1 1.3 1.4 2.0 1.9 1.0 1.5 1.9 1.0
Average 15.8
Current 8.6
16.6 17.0 19.4 18.2 21.1 49.9 13.3 16.7 11.0 19.2
6.4 7.3 9.4 10.3 8.9 7.1 8.4 7.4 10.8 3.2
Japan
Japan
Japan
Average 1.3 1.9 1.3 1.3 1.2 1.4 1.7 1.3 1.1 1.4 2.2
Average 1.6 1.1 1.5 1.6 1.6 1.8 2.2 1.5 2.0 2.0 1.5
Average 4.4 4.9 4.5 5.5 5.1 5.5 8.6 0.8 4.3 7.8 3.0
Updated as of 5 September 2014
13
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Economic Forecasts: Policy Rate Trend and Forecasts Sep-13
Dec-13
Mar-14
Jun-14
Current
Sep-14
Dec-14
Mar-15
Jun-15
Global
Country
GDP-weighted average
Official Interest Rate
2.20
2.20
2.34
2.32
2.31
2.30
2.30
2.31
2.32
excluding US
GDP-weighted average
2.88
2.88
3.12
3.08
3.08
3.05
3.05
3.06
3.08
Developed
GDP-weighted average
0.40
0.32
0.32
0.31
0.26
0.27
0.28
0.29
0.32
Emerging
GDP-weighted average
5.58
5.73
6.01
6.12
6.03
6.13
6.14
6.13
6.11
The Americas
GDP-weighted average
1.57
1.66
1.58
1.52
1.59
1.52
1.52
1.52
1.54
United States
Fed funds
0.13
0.13
0.13
0.13
0.125
0.13
0.13
0.13
0.13
16 Dec 08 (-87.5bp)
3Q 15 (+25bp)
Canada
O/N rate
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.25
8 Sep 10 (+25bp)
2Q 15 (+25bp)
Europe/Africa
Last Change
Forecast Next Change
1.40
1.26
1.61
1.54
1.51
1.47
1.46
1.47
1.48
Euro Area
Refi rate
0.50
0.25
0.25
0.15
0.05
0.05
0.05
0.05
0.05
4 Sep 14 (-10bp)
3Q 18 (+20bp)
United Kingdom
Bank rate
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.75
1.00
5 Mar 09 (-50bp)
1Q 15 (+25bp)
3.66
3.69
3.80
3.80
3.80
3.81
3.83
3.84
3.84
Asia/Pacific Japan
O/N call rate
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
5 Oct 10 (-5bp)
On hold
Australia
Cash rate
2.50
2.50
2.50
2.50
2.50
2.50
2.50
2.50
2.50
6 Aug 13 (-25bp)
3Q 15 (+25bp)
New Zealand
Cash rate
2.50
2.50
2.75
3.25
3.50
3.50
3.75
4.00
4.25
24 Jul 14 (+25bp)
11 Dec 14 (+25bp)
Hong Kong
Disc. wndw
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
17 Dec 08 (-100bp)
3Q 15 (+25bp)
Average Global Developed Markets policy rate
Key Developed Markets real policy rate 9
10 8
6
6 4
3
2 0
0 -2
96
97
98
99
00
01
02
03
04
Global policy rate
05
06
07
08
09
10
Global real policy rate
11
12
13
14
-3
85
86
87
88
89
90
91
US real rates
Source: J.P. Morgan Economics.
92
93
94
95
96
97
UK real rates
98
99
00
01
02
03
04
Eurozone real rates
05
06
07
08
09
10
11
12
13
14
Japan real rates Updated as of 5 September 2014
14
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
Economic Forecasts: Yield Curve
8 September 2014
Actual (as of September 5)
Sep-14
Dec-14
Mar-15
Jun-15
0.250 0.23 0.51 1.65 2.41
0.250 0.25 0.55 1.70 2.45
0.250 0.25 0.70 2.00 2.70
0.250 0.25 0.95 2.20 2.85
0.250 0.35 1.10 2.35 3.00
0.15 0.10 0.08 0.19 0.94
0.15 0.05 -0.10 0.20 0.95
0.15 0.05 -0.10 0.25 1.20
0.15 0.05 0.05 0.25 1.25
0.15 0.05 -0.10 0.30 1.35
0.50 0.56 0.65 1.75 2.33
0.50 0.55 0.80 1.80 2.45
0.50 0.60 1.25 2.20 2.75
0.75 0.75 1.60 2.50 3.00
1.00 1.00 1.85 2.80 3.20
0.07 0.08 0.16 0.53 1.66
0.07 0.08 0.17 0.55 1.75
0.07 0.08 0.17 0.55 1.80
0.07 0.08 0.19 0.65 1.90
0.07 0.08 0.20 0.70 1.95
United States Fed funds 3-mo Libor 2-year govt 5-year govt 10-year govt Euro area Refi rate 3-mo Libor 2-year govt 5-year govt 10-year govt United Kingdom Base rate 3-mo Libor 2-year govt 5-year govt 10-year govt Japan O/N call rate 2-year govt 5-year govt 10-year govt 30-year govt
Actual (as of September 5)
Sep-14
Dec-14
Mar-15
Jun-15
Historical Average *
Spreads (bp) Fed10s 2s10s 5s10s
233 190 76
237 190 75
262 200 70
277 190 65
292 190 65
151 108 49
Spreads (bp) Refi10s 2s10s 5s10s
79 86 75
80 105 75
105 130 95
110 120 100
120 145 105
131
Spreads (bp) Basei10s 2s10s 5s10s
183 168 58
195 165 65
225 150 55
225 140 50
220 135 40
20 38 18
Spreads (bp) O/N10s 2s10s 5s10s
46 45 37
48 47 38
48 47 38
58 57 46
63 62 50
114 106 59
Key Developed Markets Yield Curve (10Y minus Policy rate)
Global Yield Curve
4
5 4 3 2 1 0 -1 -2 -3 -4
3 2 1 0 -1
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
91
92
93
94
95
96
97
98
99 US
Yield Curve: Developed country 10-year government bond yield minus policy rate
01
02
03
04
Eurozone
05
UK
06
07
08
09
10
11
12
Japan
US Equity Buying Activity
Regional Money Supply Growth
0.2 0.2 0.1 0.1 0.0 -0.1 -0.1
00
120
M&A ex LBO
100 80 60
share buybacks
40
92
93
94
95
US MZM (yoy%)
96
98
99
00
01
JP Broad Liquidity (yoy%)
02
03
05
06
Eurozone M3 (yoy%)
07
08
09
10
LBO
20
12
0 Jan-06
UK M4 (yoy%)
Source: Bloomberg, J.P. Morgan estimates Note:* Average since 1986
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Updated as of 5 September 2014
15
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Regional Monetary Condition Index US Monetary Condition Index
10
Monetary conditions tight
5
0%
-5
-50% Monetary conditions easy 73
75
78
80
83
85
88
90
93
95
98
00
03
05
08
-100% 10
13
5
Monetary conditions tighter 74
77
79
85
Monetary conditions tight
90
92
95
98
00
03
06
08
11
14
15
US Monetary conditions index ( % oya, advanced 10m)
Monetary conditions easier
40% 0% Monetary conditions easy
-40%
Monetary conditions tighter
-80% -120% 73
75
78
81
83
86
88
91
93
96
98
01
03
06
08
11
74
14
77
79
82
0 -5 Monetary conditions easy 76
78
81
83
86
88
91
93
96
98
01
03
06
08
11
14
70% 50% 30% 10% -10% -30% -50%
0 -5
Monetary conditions easy 78
81
83
86
88
91
93
96
98
01
S ((
))
79
82
84
87
00
03
06
08
11
14
90
92
03
06
08
11
14
??
(C (
))
98
00
03
06
08
11
14
EMU Monetary conditions index (% oya, advanced 8m)
-8 -3 2
Monetary conditions tighter 77 C
Source: Bloomberg, J.P. Morgan estimates. Note:Monetary conditions index is a simple composite of real short rates and real trade-weighted dollar. *The data is updated as of August 2013 or as of the latest data available
16
95
-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0
Monetary conditions easier
78
80
81
83
85
86
JP PMI mfg (%yoy) C
98
Japan PMI vs Japan Monetary Condition Index
Japan Monetary conditions Index ??
95
UK Monetary conditions index (% oya,advanced 10m)
EMU PMI mfg (%yoy)
Monetary conditions tight
76
92
Monetary conditions tighter
77
Japan Monetary Condition Index 5
90
Monetary conditions easier
Eurozone Monetary conditions Index
10
87
-12 -8 -4 0 4 8 12 16
EMU PMI vs EMU Monetary Condition Index 80% 60% 40% 20% 0% -20% -40% -60%
Monetary conditions tight
5
85
UK PMI mfg (%yoy)
Eurozone Montary Condition Index
10
-10
87
10
UK PMI vs UK Monetary Condition Index
80%
UK Monetary Conditions Index
-10
82
US ISM mfg (%yoy)
UK Monetary Condition Index
-5 0
US Monetary conditions Index
10 5 0 -5 -10 -15 -20 -25
-10
Monetary conditions easier
50%
0
-10
US ISM vs US Monetary Condition Index
100%
((CO G ))
88
89
91
93
7 94
96
97
99
01
02
04
05
07
09
10
12
14
JP Monetary conditions index (% oya,advanced 12m) (
)
Updated as of February 2014*
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Economic Forecasts Economic Momentum GDP SAAR (JPM) 4Q 14E 1Q 15E 3.0 3.0 2.7 2.8 2.5 2.0 1.5 2.0 2.0 2.5 1.0 2.0 1.5 1.5 2.1 2.3 2.5 2.5 2.8 2.8 3.0 3.0 2.9 3.0 3.0 2.0 6.1 4.9
3Q 14E 3.0 2.5 2.0 1.0 1.5 0.5 0.5 1.9 2.0 2.3 3.0 2.3 3.0 4.1
Inflation (%Y/Y) (% Y/Y) (JPM) 2014E 2015E 1.9 1.9 1.9 2.0 2.9 2.0 0.6 0.9 0.9 1.5 0.7 1.0 0.2 0.6 2.1 2.4 0.0 1.3 0.8 1.3 1.6 1.9 2.6 2.4 4.0 4.1 1.5 2.0
2Q 15E 3.0 2.6 2.2 2.3 2.5 2.0 1.5 2.5 2.5 3.0 3.0 3.7 2.0 5.7
Change in real GDP growth forecasts over past 3 months for 2014E 1.0 0.5 0.0 -0.5
Source: Bloomberg, J.P. Morgan estimates
Singapore
Hong Kong
Australia
Switzerland
Sweden
Norway Consensus
United Kingdom
JPM
Italy
France
Germany
-1.5
Euro area (12)
-1.0 Japan
4Q14E 104.0 112.0 4.75 1300 21.75 7050 2050 2075 18900 4.40 6.10 10.0
Canada
WTI oil $/bbl Brent oil $/bbl Natural gas $/mmbtu Gold ($/oz) Silver ($/oz) Copper ($/metric ton) Aluminium ($/metric ton) Zinc ($/metric ton) Nickel ($/metric ton) Corn ($/bushel) Wheat ($/bushel) Soybeans ($/bushel)
Commodity Price Forecasts (JPM) 1Q14 2Q14 3Q14E 98.6 103.0 107.0 107.9 109.8 115.0 4.63 4.54 4.55 1294 1289 1300 20.45 21.25 21.50 7033 6796 7100 1710 1801 1990 2050 2026 2025 14659 18470 18800 4.52 4.40 4.40 6.17 6.30 6.20 13.6 11.0 10.5
Change in Forecasts Past three months (%) JPM Consensus 2014E 2015E 2014E 2015E 0.1 0.1 -0.5 -0.1 0.0 0.0 -0.1 0.0 -0.4 0.0 0.0 -0.1 -0.4 -0.2 -0.1 0.0 0.1 0.1 -0.2 0.0 -0.8 -0.2 -0.3 0.0 -0.4 -0.3 -0.4 0.0 na na 0.0 0.0 0.6 0.2 -0.3 0.0 -0.4 -0.1 0.0 -0.1 0.0 0.0 0.2 0.1 0.3 0.3 0.3 0.1 -0.7 -0.4 -0.5 -0.3 -1.2 -0.9 -0.3 -0.3
United States
United States Canada Japan Euro area (12) Germany France Italy Norway Sweden Switzerland United Kingdom Australia Hong Kong Singapore
Real GDP Growth (%Y/Y) JPM Consensus 2014E 2015E 2014E 2015E 2.1 3.0 2.1 3.0 2.3 2.7 2.2 2.5 1.5 1.4 1.4 1.2 0.8 1.8 1.0 1.5 1.5 2.1 1.8 1.6 0.4 1.5 0.6 1.3 -0.1 1.2 0.1 -0.3 2.5 2.4 2.0 2.3 1.8 2.4 2.3 2.7 2.0 2.7 2.0 2.1 3.1 3.0 3.1 2.6 3.1 3.3 3.1 3.0 2.0 2.1 3.0 3.5 3.3 4.1 3.5 3.7
Updated as of 5 September 2014
17
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Economic Forecasts: Currency Movements and Forecasts Euro (EUR) 1.70 1.60 1.50
Canadian Dollar (CAD) 1.35
J.P. Morgan forecast: end Sep 14:1.34 end Dec 14: 1.30 end Mar 15: 1.28
1.25
1.40
Consensus
1.20 Dec 06
Aug 08
May 10
Jan 12
Oct 13
Sterling (GBP)
1.9
1.5
7.66
Consensus May 10
Jan 12
Oct 13
Dec 06
9.5 J.P. Morgan
9.0 8.5
Jan 12
Oct 13
Jan 12
Oct 13
5.5 Mar 05
Jun 15
J.P. Morgan forecast: end Sep 14:102 end Dec 14: 106 end Mar 15: 107
Dec 06
J.P. Morgan
Aug 08
May 10
Jan 12
Oct 13
May 10
Jan 12
Oct 13
Jun 15
4.7 Mar 05
J.P. Morgan forecast: end Sep 14:6.34 end Dec 14: 6.46 end Mar 15: 6.52 Consensus
J.P. Morgan
Dec 06
Aug 08
May 10
Jan 12
Oct 13
Jun 15
J.P. Morgan forecast: end Sep 14: 85.1 end Dec 14: 86.4 end Mar 15: 87.2
97 92
J.P. Morgan
1.30
82
Dec 06
Aug 08
May 10
Jan 12
Oct 13
J.P. Morgan
77
Consensus
1.10 1.00 Mar 05
Jun 15
87
1.40
Jun 15
Oct 13
JPMorgan Trade Weighted Index Nominal Narrow
1.20
Aug 08
Jan 12
5.7
J.P. Morgan forecast: end Sep 14:1.25 end Dec 14: 1.27 end Mar 15: 1.27
1.60
J.P. Morgan
May 10
5.2
1.70
Consensus
Aug 08
6.7
1.50
Dec 06
Dec 06
Norwegian Krone (NOK)
Singapore Dollar (SGD)
6.0 May 10
0.50 Mar 05
6.2
1.80
6.5
Aug 08
Jun 15
Consensus
70 Mar 05
Jun 15
7.0
0.50
Oct 13
7.2
90
J.P. Morgan forecast: end Sep 14:6.98 end Dec 14: 7.15 end Mar 15: 7.19
7.5
0.60
Jan 12
120
80 May 10
May 10
7.7
100
8.0
Consensus
0.70
Dec 06
Aug 08
0.60
130
Swedish Krone (SEK)
0.80
0.40 Mar 05
Dec 06
110
J.P. Morgan
Aug 08
Consensus
Japanese Yen (JPY)
J.P. Morgan forecast: end Sep 14: 7.75 end Dec 14: 7.75 end Mar 15: 7.75
7.60 Mar 05
Jun 15
10.0
J.P. Morgan forecast: end Sep 14:0.84 end Dec 14: 0.84 end Mar 15: 0.82
0.90
Jun 15
Consensus
New Zealand Dollar (NZD) 1.00
Oct 13
7.78 7.72
Aug 08
Jan 12
7.84
J.P. Morgan
Dec 06
May 10
Hong Kong Dollar (HKD)
1.7
1.3 Mar 05
J.P. Morgan
0.65 Mar 05
7.90
J.P. Morgan forecast: end Sep 14:1.71 end Dec 14: 1.67 end Mar 15: 1.65
2.1
Aug 08
J.P. Morgan
0.90
0.70
0.75 Dec 06
J.P. Morgan forecast: end Sep 14:0.92 end Dec 14: 0.91 end Mar 15: 0.90
0.80
0.85
0.95
Jun 15
1.00 Consensus
0.95
Consensus
0.85 Mar 05
1.10
1.15 1.05
1.05
1.30
1.10 Mar 05
1.25 J.P. Morgan
1.20
J.P. Morgan forecast: end Sep 14: 0.91 end Dec 14: 0.93 end Mar 15: 0.95
1.35
1.15
J.P. Morgan
Australian Dollar (AUD)
Swiss Franc (CHF)
J.P. Morgan forecast: end Sep 14:1.11 end Dec 14: 1.12 end Mar 15: 1.13
72 Mar 05
Jun 15
Dec 06
Aug 08
May 10
Jan 12
Oct 13
Jun 15
Forecasted Return for Currencies till December 2014 JPM)
5% 3% 1% -1% -3% -5%
AUD
CHF
HKD
EUR
SEK
NZD
YEN
SGD
C
Source: Bloomberg, J.P. Morgan estimates. C
C
18
GBP
NOK
CAD
Updated as of 5 September 2014
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Market Performance: Equities relative to Bonds (%) Country Global Australia Belgium Canada Denmark France Germany Italy Japan Netherlands Spain Sweden UK USA
1-month 3.4 3.5 3.1 5.1 0.1 5.7 4.9 5.5 0.4 8.3 6.4 1.6 (1.0) 4.4
Relative outperformance of equities versus bonds by country (%) 3-month 6-month 12-month 1.2 4.2 14.5 5.0 0.6 7.4 0.8 4.3 8.9 6.1 5.4 16.4 1.6 4.6 28.6 (4.3) (0.4) 8.5 (2.7) (1.0) 11.9 (5.1) 2.0 24.0 2.7 4.8 7.9 (3.2) (1.5) 4.3 0.1 8.0 24.1 (11.3) (4.7) 8.0 (3.5) 0.1 2.7 2.6 4.9 18.1
36-month 71.3 51.0 101.3 33.9 115.1 65.7 85.4 60.3 77.4 77.6 62.8 68.5 48.8 81.4
J.P. Morgan's GBI - Global bond indices track local currency government bonds issued by developed economies. The indices are easily replicable and represent the local bond portfolio that can be accessed by an international investor. For more information on these indices please visit www.morganmarkets.com or contact Gloria Kim at
[email protected] The table shows the difference between the MSCI equity benchmark returns in local currency and the GBI - Global benchmark returns for each country. Positive numbers indicate outperformance by equities.
Market Performance: Key Global Markets Performance (%) Local Currency
Country Australia Austria Belgium Canada Denmark Finland France Germany Hong Kong Ireland Italy Japan Netherlands New Zealand Norway Portugal Singapore Spain Sweden Switzerland United States United States United States United Kingdom EMU Europe Developed Emerging Markets Global
Index ASX200 ATX BEL 20 TSE 300 KFX HEX 20 CAC 40 DAX Hang Seng ISEQ MIB 30 Topix AEX NZSE 40 OBX BVL GEN STI IBEX 35 OMX SMI S&P 500 NASDAQ DOW JONES FTSE 100 MSCI EMU FTSE Euro 300 MSCI World MSCI EM Free MSCI AC World
4week 3.0 5.7 6.1 2.5 5.0 6.8 8.2 8.2 3.7 9.3 11.5 5.3 7.9 3.5 4.3 14.0 1.6 10.3 4.3 6.2 3.9 4.9 3.5 4.4 8.6 6.9 4.6 4.4 4.6
Source: Bloomberg, MSCI, J.P. Morgan, Note: Values highlighted in yellow shows negative returns
12m 8.8 (5.6) 17.9 21.4 33.8 16.4 10.8 17.8 11.6 17.2 25.5 12.7 13.5 9.6 16.6 2.5 9.6 28.8 11.2 10.5 21.3 25.2 14.8 4.7 15.8 13.5 17.1 14.0 16.7
YTD 5.2 (7.5) 10.2 14.6 20.7 5.4 4.9 1.6 8.6 8.9 12.9 0.2 5.0 7.7 7.0 (3.0) 6.1 12.6 4.0 6.9 9.0 10.3 4.0 1.5 4.8 6.2 6.9 9.5 7.2
19
2013 15.1 6.1 18.1 9.6 24.1 26.5 18.0 25.5 2.9 33.6 16.6 51.5 17.2 11.5 17.9 11.8 0.0 21.4 20.7 20.2 29.6 38.3 26.5 14.4 20.3 16.1 26.3 0.9 22.9
US$ 4week 4.1 2.1 2.5 3.3 1.5 3.2 4.5 4.5 3.7 5.6 7.7 2.2 4.2 1.7 3.4 10.1 1.4 6.6 1.3 3.3 3.9 4.9 3.5 1.4 4.9 3.3 3.6 4.9 3.7
12m 11.0 (7.0) 16.1 15.9 32.0 14.6 9.1 16.0 11.7 15.5 23.6 6.3 11.8 14.3 13.0 0.9 11.4 26.9 4.1 11.5 21.3 25.2 14.8 9.3 14.1 11.8 16.5 14.8 16.3
YTD 9.6 (12.9) 3.6 11.6 13.3 (0.5) (1.8) (4.0) 8.3 2.6 6.1 (0.5) (1.4) 9.7 3.6 (8.3) 6.3 5.7 (5.7) 2.4 8.6 9.7 3.4 0.1 (1.5) (0.3) 5.4 9.4 5.8
2013 (0.8) 10.8 23.4 2.7 29.7 32.2 23.3 31.2 2.8 39.7 21.8 24.6 22.5 11.3 8.2 16.9 (3.2) 26.9 22.2 23.7 29.6 38.3 26.5 16.6 25.8 21.3 24.1 (5.0) 20.3
Updated as of 5 September 2014
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Market Performance: Key Global Sectors Performance (%)
Local currency
Global Developed Market Sector
US$
4week
12m
YTD
2013
4week
12m
YTD
2013
MSCI World Energy
1.7
15.7
9.1
16.3
1.1
15.7
8.1
15.3
MSCI World Materials
1.7
11.1
4.7
4.2
0.4
10.7
3.4
1.2
4.0
16.5
6.1
17.2
2.6
15.3
4.1
15.5
MSCI World Construction Materials
6.7
16.4
7.9
15.0
4.3
15.9
4.5
15.6
MSCI World Metals & Mining
(2.6)
3.3
2.7
(12.6)
(3.7)
3.8
2.5
(17.0)
MSCI World Chemicals
MSCI World Paper & Forest Products
5.9
8.5
(2.6)
33.7
4.3
7.2
(4.7)
33.0
4.8
15.5
2.1
33.0
3.5
14.2
0.7
29.7
MSCI World Capital Goods
4.5
13.4
(0.0)
32.7
3.0
12.1
(1.7)
30.0
MSCI World Commercial Services
3.6
10.0
1.1
25.7
2.3
10.6
0.3
23.5
MSCI World Industrials
MSCI World Transport MSCI World Consumer Discretionary
6.6
25.7
10.6
37.5
5.6
23.6
9.6
31.1
4.6
14.1
1.4
40.7
3.5
13.0
0.4
37.3
MSCI World Automobile
4.9
10.4
1.2
46.7
2.6
7.0
(0.5)
35.2
MSCI World Consumer Durables
4.8
6.8
(1.8)
30.4
3.0
5.6
(3.7)
27.9
MSCI World Media
4.2
22.5
6.1
44.7
3.5
22.6
5.3
44.8
MSCI World Retailing
6.4
15.1
0.6
42.2
5.8
14.4
(0.1)
40.7 18.6
MSCI World Consumer Staples
4.3
12.1
5.5
19.3
3.0
12.3
4.1
MSCI World Healthcare
6.5
25.1
14.4
34.3
5.4
25.0
12.9
33.9
MSCI World Financials
5.5
14.6
4.7
27.8
4.4
13.9
3.5
24.3
MSCI World Banks
5.7
13.1
4.3
26.4
4.6
12.4
3.1
20.9
MSCI World Diversified Financials
5.6
15.0
3.0
39.0
4.7
14.2
1.7
38.2 34.5
MSCI World Insurance
5.5
16.0
2.7
35.7
4.2
15.6
1.1
MSCI World Real Estate
4.5
16.3
12.5
4.4
3.8
15.3
12.5
0.0
4.7
27.9
11.9
28.8
4.3
27.2
11.5
27.2
MSCI World Information Technology MSCI World Software and Services
4.2
25.5
7.6
32.9
4.0
25.2
7.2
32.5
MSCI World Technology Hardware
4.3
28.6
15.4
22.5
3.7
27.3
14.9
18.8
MSCI World Semicon & Semicon Equip
8.0
37.1
21.3
34.2
7.4
37.1
20.5
34.1
4.2
13.2
0.9
28.4
2.6
12.7
(0.8)
26.6
MSCI World Diversified Telecoms
3.4
14.1
5.2
15.0
2.1
13.7
3.1
15.3
MSCI World Wireless Telecoms
6.9
7.7
(10.1)
63.8
4.4
7.1
(11.2)
55.7
MSCI World Utilities
6.0
17.3
13.4
9.4
4.6
16.8
11.6
8.9
MSCI World
4.6
17.1
6.6
26.3
3.6
16.5
5.4
24.1
MSCI World Telecommunications Services
Source: MSCI, Bloomberg, Note: Values highlighted in yellow shows negative returns
Updated as of 5 September 2014
20
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Japan*
Australia
Singapore
Hong Kong
NA NA 1.4 (3.5) 4.1 NA 4.7 NA 6.0 NA 3.5 5.2 1.8 1.9 9.6 5.7
NA NA 5.5 (17.7) NA NA 16.8 24.8 33.2 12.7 8.8 16.1 1.7 8.6 9.5 (5.2)
8.1 3.4 0.7 0.4 4.1 12.9 3.5 11.5
9.4 9.9 2.0 3.6 5.7 15.6 6.6 13.5
14.4 7.5 25.0 17.6 21.7 2.0 9.3 20.8
2.1 (1.3) (6.3) (5.1) 0.4 8.0 (1.3) (4.1)
4.1 (5.4) (7.0) (6.1) (0.8) 1.2 (0.2) (4.2)
(0.8) 11.6 5.4 5.3 5.5 5.2 6.1 3.6
3.4 14.1 8.6 8.2 9.0 8.5 9.3 4.9
(0.7) 2.5 11.9 8.7 15.1 11.6 12.9 12.3
(5.7) 11.7 (0.4) 0.2 (1.0) (0.2) (1.1) (2.0)
(0.2) 13.3 (1.5) (0.0) (3.1) (1.2) (3.1) (1.5)
2.0 1.6 (7.2) (1.8) 0.1 11.1 (1.8) (12.1) (12.7) 8.5 0.0 (0.1) 0.1 (0.0) 0.3 (4.3)
NA (3.3) (8.4) (9.9) (11.6) (2.4) (9.3) (6.6)
6.9 (7.0) (6.5) (0.9) (4.1) 3.7 (5.0) (5.9)
4.6 NA (6.5) 5.2 NA NA 7.8 NA
3.9 0.5 3.4 (3.3) 7.8 7.8 (11.5) 5.0
(11.2) 4.5 (6.9) (6.3) (7.8) (7.0) (6.2) (4.0)
5.5 6.0 (1.7) 0.2 (3.9) (1.4) (2.7) 2.4
14.4 16.8 7.1 8.8 5.0 8.9 1.3 (2.3)
(7.0) (5.5) (1.6) (1.9) (1.2) (2.6) 2.1 4.1
Hong Kong
Italy
9.9 (4.7) 10.1 3.7 1.3 8.7 6.8 7.6 7.2 9.0 4.6 5.8 3.4 3.3 10.9 3.5
Singapore
France
3.6 0.3 3.1 (3.5) 7.6 7.5 (11.7) 4.8 (7.2) (5.7) (1.8) (2.1) (1.5) (2.8) 1.9 3.9
Australia
Germany
11.2 NA (0.5) 11.8 NA NA 14.6 NA 21.6 24.2 13.9 15.7 11.7 15.8 7.7 3.9
Japan
UK
13.7 (1.1) (0.6) 5.4 2.0 10.3 1.1 0.1 12.2 12.7 4.5 6.6 2.2 4.8 3.4 8.9
Italy
Eurozone
NA 2.9 (2.6) (4.2) (6.0) 3.8 (3.6) (0.7) (5.5) 11.1 (1.0) (0.3) (1.9) (1.1) (0.2) 2.1
France
Developed Europe
3.5 3.1 (5.8) (0.3) 1.5 12.7 (0.3) (10.8) (11.5) 10.1 1.5 1.4 1.6 1.5 1.8 (2.8)
Germany
Canada
10.7 0.6 (1.1) (0.1) 5.4 7.6 6.1 1.9 6.1 20.4 4.7 6.3 3.0 5.1 3.0 4.8
UK
USA
5.5 2.9 (1.0) (0.2) 4.5 13.0 3.5 2.1 (1.2) 17.0 4.3 4.7 3.8 4.4 3.7 2.4
Eurozone
Utilities Market Value Growth Large Cap Index Midcap Index Small Cap Index
17.2 10.1 28.1 20.5 24.7 4.5 12.0 23.8 1.7 5.0 14.6 11.4 17.9 14.4 15.7 15.0
Developed Europe
Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services
9.4 9.9 2.0 3.6 5.7 15.6 6.6 13.5 3.4 14.1 8.6 8.2 9.0 8.5 9.3 4.9
Canada
YTD Performance (US$)
9.1 4.7 2.1 1.4 5.5 14.4 4.7 11.9 0.9 13.4 6.6 6.5 6.7 6.4 7.3 4.5
USA
Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities Market Value Growth Large Cap Index Midcap Index Small Cap Index
Developed World
YTD Performance (Local Currency)
Developed World
Market Performance: Markets Performance Matrix for Countries and Sectors (%)
15.1 (0.1) 15.4 8.7 6.2 13.9 12.0 12.8 12.4
NA NA 2.1 (2.8) 4.9 NA 5.5 NA 6.8
NA NA 5.6 (17.7) NA NA 16.8 24.9 33.3
14.2 9.6 10.9 8.3 8.3 16.2 8.4
NA 4.2 6.0 2.5 2.7 10.4 6.4
12.8 8.8 16.1 1.8 8.7 9.6 (5.1)
Updated as of 5 September 2014
Source: MSCI, Bloomberg, Note: Values highlighted in yellow shows negative returns.
21
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Perspective: Developed Markets Balance Sheets MSCI World US Europe Eurozone Germany France Italy Pacific Japan Pacific ex Japan Australia Hong Kong Singapore
No. of Companies 1264 500 383 302 48 58 16 354 265 89 47 20 17
Debt/Equity 0.79 0.76 0.82 0.91 1.14 0.73 1.43 0.79 0.85 0.63 0.62 0.58 0.75
Debt/Assets 0.29 0.25 0.40 0.40 0.52 0.52 0.67 0.26 0.29 0.18 0.16 0.30 0.15
Debt/Mkt. Cap 0.33 0.24 0.41 0.45 0.72 0.39 1.08 0.48 0.55 0.32 0.32 0.26 0.43
Asset Turnover 0.75 0.76 0.76 0.70 0.75 0.65 0.60 0.74 0.76 0.69 0.68 0.47 0.99
Current Ratio 1.31 1.52 1.15 1.17 1.13 1.12 1.19 1.35 1.37 1.24 1.13 1.34 1.35
Interest Coverage 7.88 9.11 6.47 5.43 4.81 5.55 3.80 9.43 10.95 7.39 8.61 5.96 5.46
Debt to Equity Ratios for selected Developed Markets (x) 1.50 1.25 1.00 0.75 0.50 0.25
Source: Bloomberg., J.P. Morgan. Note: All ratios are calculated from latest financial reports available and calculations are based on weighted average of companies in the MSCI World universe. Ratios are calculated ex Banks, Diversified Financials and Insurance. Interest Coverage ratio is calculated as the ratio of Operating Income and Interest expense
22
Singapore
Hong Kong
Australia
Pacific ex Japan
Japan
Pacific
Italy
France
Germany
Eurozone
Europe
US
MSCI World
0.00
Updated as of 23 May 2014
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected] 8 September 2014
Perspective: MSCI Developed Market Index Composition by Countries and Sectors
MSCI World Index
Financials
Health care
Industrials
Information Technology
Materials
Telecom Services
Utilities
Total
28051
Energy
Total Market Capitalization (in billion US$):
Consumer Staples
1608
Consumer Discretionary
Number of Companies:
NORTH AMERICA USA CANADA EUROPE ISRAEL UNITED KINGDOM EUROZONE GERMANY FRANCE SPAIN ITALY NETHERLANDS FINLAND IRELAND BELGIUM AUSTRIA PORTUGAL SWITZERLAND SWEDEN NORWAY DENMARK ASIA PACIFIC JAPAN AUSTRALIA NEW ZEALAND HONG KONG SINGAPORE MSCI WORLD
7.1 6.9 0.2 2.7 0.0 0.7 1.6 0.8 0.6 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.2 0.1 0.0 0.0 2.0 1.7 0.1 0.0 0.2 0.0 11.9
5.3 5.2 0.1 3.6 0.0 1.4 1.3 0.1 0.4 0.0 0.0 0.3 0.0 0.0 0.3 0.0 0.0 0.8 0.1 0.0 0.0 0.9 0.6 0.3 0.0 0.0 0.0 9.8
7.0 5.9 1.2 2.6 0.0 1.5 0.9 0.0 0.5 0.1 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.3 0.1 0.2 0.0 0.0 0.0 9.9
10.3 8.7 1.6 6.0 0.0 1.9 2.8 0.6 0.7 0.7 0.4 0.2 0.1 0.0 0.1 0.0 0.0 0.7 0.4 0.1 0.1 4.3 1.6 1.6 0.0 0.7 0.3 20.6
7.5 7.4 0.1 3.6 0.1 0.9 1.0 0.5 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.3 0.0 0.0 0.3 0.7 0.5 0.1 0.0 0.0 0.0 11.8
6.0 5.7 0.3 3.0 0.0 0.6 1.6 0.5 0.7 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.3 0.3 0.0 0.1 2.1 1.7 0.2 0.0 0.1 0.1 11.1
10.6 10.6 0.1 0.9 0.0 0.1 0.6 0.3 0.1 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.9 0.9 0.0 0.0 0.0 0.0 12.4
2.5 1.9 0.5 2.2 0.0 0.8 1.0 0.5 0.3 0.0 0.0 0.1 0.0 0.1 0.0 0.0 0.0 0.2 0.0 0.0 0.0 1.1 0.5 0.6 0.0 0.0 0.0 5.8
1.5 1.4 0.1 1.3 0.0 0.4 0.7 0.2 0.2 0.2 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.6 0.5 0.1 0.0 0.0 0.1 3.5
1.7 1.7 0.1 1.2 0.0 0.4 0.8 0.2 0.2 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 0.2 0.0 0.0 0.1 0.0 3.3
59.6 55.3 4.3 27.1 0.2 8.7 12.4 3.7 4.0 1.4 1.0 1.1 0.3 0.1 0.5 0.1 0.1 3.6 1.2 0.3 0.6 13.3 8.2 3.2 0.1 1.2 0.6 100.0
Source: MSCI, Bloomberg.
05 Sep 2014
23
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
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24
J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
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J.P. Morgan Equity Strategy Adrian Mowat (852) 2800-8599 ,
[email protected] Mislav Matejka (44-20) 7325-5242,
[email protected] Jesper J Koll (81-3) 6736-8600,
[email protected]
J.P. Morgan Developed Markets Strategy Team Chief Equity Strategists
Adrian Mowat Mislav Matejka Dubravko Lakos-Bujas Paul Brunker Jesper J Koll
Global Emerging Markets and Asian Strategy Global and European Equity Strategy U.S. Equity and Quantitative Strategy Australia Equity Strategy Japan Equity Strategy
(852) 2800 8599 (44-20) 7134 9741 (1-212) 622-3601 (61-2) 9003 8641 (81-3) 6736-8600
[email protected] [email protected] [email protected] [email protected] [email protected]
Jan Loeys
Global Asset Allocation and Trading Strategy
(44 20) 7325 5473
[email protected]
Bruce Kasman David Hensley Michael Feroli David Mackie Malcolm Barr Masamichi Adachi Jahangir Aziz Stephen Walters Other Strategists Colin P. Fenton John Normand
Global Economics Global Economics United States Europe United Kingdom, Switzerland Japan Emerging Asia Australia, New Zealand
(1-212) 834 5515 (1-212) 834 5516 (1-212) 834-5523 (44-20) 7325 5040 (44-20) 7777 1080 (81-3) 6736 1172 (1-202) 585-1254 (61-2) 9220 1599
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Global Commodities Research Global Currency Strategy
(1-212) 834-5648 (44-20) 7325 5222
[email protected] [email protected]
Asset Allocation and Alternative Investments Economic & Policy Research
