Global Equity Research 12 May 2014
Global Developed Markets Strategy Dashboards J.P. Morgan Equity Strategy Adrian MowatAC Mislav Matejka
Global Emerging Markets and Asian Strategy 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 N 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 UW
Key Changes Table of Contents
Page #
Market performance to 9 May, 2014
J.P. Morgan's revisions to 2014 growth forecasts
Market Drivers
2
•YTD Performance: Developed World is up 1.3%, outperforming EM by 0.9%.
•Negative: France 0.8%[0.9%], Italy 0.6%[0.7%], Sweden 2.7%[2.9%]
Key Calls
3
•Regional Performance: Denmark is the best performing region (up 13.9% YTD). Japan is the worst performing region (down 7.5%YTD). •Sector Performance: Utilities (up 9.1%) and Energy (up 7.0%) are the best performing sectors YTD, while Consumer discretionary (down 4.1%) and Industrials (down 0.4%) are the worst. •Style Performance: Developed World Growth up 0.1%, Value up 2.6%. •Developed World Mid Caps outperformed Small Cap and Large Cap Index YTD.
Earnings Revisions
4,5
Sector Revisions
6,7
Macro Earnings Growth Driver
8
Cross-sector Earnings Growth
9
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] 12 May 2014
Outlook: Market Drivers Global and developed market drivers
Country Global
Positive Acceleration in DM growth
Negative Bond yields grinding higher
US
Recovering housing market, fiscal drag easing
Higher bond yields. higher mortgage rates, declining NIMs
Europe
Strong growth delta vs 2013, peripheral spreads compressing, Lower fiscal drag, Improving financing conditions
Asset Quality review and EBA stress tests, Deflation risk - ECB not aggressive enough, Weak credit backdrop
UK
Strong domestic recovery, unemployment rate going down
High commodity exposure of the equity markets, 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, currency fragility, high household debt levels, 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.
Vulnerable to the Fed’s policy normalization. Economic fundamentals remain weak with slowly recovering GDP. Credit risk from trade financing for banks.
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).
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
Reduced near-term concerns on CAD and stable outlook on INR, Expectations on growth revival post the national election
Sticky core inflation, Recent surge in vegetable prices, Continued moderation in Investment and Consumption cycle, Lack of domestic investor interest in financial savings
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.
Philippines
Rising investment spending, improving consumption driven by steady remittances flow, greatly improved fiscal position, positive CA position, ample domestic liquidity
Sharp increase in interest rates, upward inflation pressures, disruption to government infrastructure spending momentum, sharp currency weakness
Taiwan
Global economy is expected to improve steadily in the coming quarters. Taiwan’s export and industrial sectors should benefit from the solid demand in DM. Financial sector takes the advantage of the still tight liquidity in greater China area. Among technology sector, we see stronger growth profile for LED/semi/PC. Better-than-expected imports data suggests the improving domestic demand in the coming quarters.
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
Flexible monetary condition, healthy corporate balance sheet, strong FDI, better exports
Political uncertainties, low public spending, high household debt, negative EPS revision
Brazil
Large and liquid market offering many bottom up options, large infrastructure investment program, labor market still sturdy
Czech Republic
Weaker CZK should revive growth. Faster €-zone growth should mean faster 2H & 2014 growth.
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. Low-beta market in an EM rally. Weak CZK does little but erode returns for USD-based GEM investors
Hungary
Eurozone recovery. Current account now in surplus.
PM Orban’s long and consistent track record of high effective taxation. Low growth hurts.
Greece
Low valuations. Growth turning positive in 2014 – great way to play €-zone recovery. Biggest UW among EM investors.
Debt/GDP still high. Medium-term growth a challenge. Risk of early (2014) elections
Mexico
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.
High valuations, earnings disappointment, no room for disappointment on economic growth, market depth.
Poland Russia
Further upside from European recovery. ECB easing. Valuations the key support with best yield of any major EM. Any upside surprise to dividends in state companies. Cheaper RUB helps exporters
Pension fund reform cut inflows and mid-cap valuations. Expensive stocks come back to earth. Ratings vulnerability from lacklustre growth, a sizable current account deficit, and the pressure on public sector debt metrics . Rand wildcard.
South Africa
Commodity and currency support. Labour relations could beat rock-bottom expectations.
Policy paralysis. Growth remains sluggish. Consumer credit growth remains weak. Weak and volatile ZAR
Korea Malaysia
Turkey Rebound from oversold technical level on FX might help Source: J.P. Morgan.
Deteriorating growth outlook plus rate hikes. Stocks not very cheap despite market declines 2
Updated as of 9 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] 12 May 2014
Outlook: Key Calls Equities
Reasons
A more activist ECB in an environment of improving economic growth, as suggested by recent PMI data, is supportive for Euro area growth and thus equities. Although, for investors who wish to put on a long in Euro area equities we recommend hedging the currency risk to protect against a decline in the euro. In GMOS on Wednesday, we closed OW in Small vs. Large Caps in Europe. Although our strategists maintain a positive view on SMid caps over the long term, i.e. over the next 12 years, they have less conviction for this year.For more, please see The J.P. Morgan View by Jan Loeys
Economics
A positive tone from April economic releases—the global PMI, US employment, and EM Asian trade—bolsters confidence that growth is lifting. Realizing our forecast that global growth returns to an above-trend pace once the Japanese VAT hike is absorbed will not, however, offset a 1Q growth dip that is likely to get deeper. This week’s releases suggest that the US contracted at about a 0.5% pace last quarter. If this revision is realized, 1Q14 will have delivered one of the weakest global GDP gains of this expansion. As currently stated, our forecast looks similar to 2013, when global growth rebounded from a weak start, leaving annual growth close to trend. For more, please see Global Data Watch by Bruce Kasman
Liquidity
The sharp flattening of the 10s30s curve is raising questions once again about pension fund buying. This is also because, in contrast to the second half of last year, spec position indicators do not point to hedge funds having increased their flattening exposure cumulatively YTD. By looking at weekly CFTC data and the difference between spec positions in T-bond futures minus 10y bond futures in 10y duration equivalents, there has been little change YTD and if anything a slight decline YTD. For more, please see Flows & Liquidity by Nikolaos Panigirtzoglou
Regional Calls Japan Overweight Europe Neutral EMU Overweight UK Underweight Others Underweight US Overweight EM Underweight Emerging Markets
Reasons Japanese growth recovery and reflation theme remains on track. BoJ to add further stimulus Improving activity momentum, but no further ECB action, P/E relative to US not cheap OW periphery vs core, key beneficiary of the rotation into value 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 Strong equity and housing market performance creating upside bias to our GDP Growth forecast for next year Do not underestimate the underdog. EM is now outperforming DM YTD. Our thesis is that there will be two stages to the EM rally. The current stage is a reduction in risk premiums as fears on funding current account deficits recede. Stage two is margin improvement and top line surprise. We are adding a long Mexican cyclical key trade. The factors driving our downgrade in January have reversed. Our conviction on GDP growth is higher while the market forecast on EPS growth is more realistic. The weight of cyclicals in the market is low. Rather than moving OW Mexico we have a cyclically skewed portfolio. We are adding a long Mexican cyclical key trade. The factors driving our downgrade in January have reversed. Our conviction on GDP growth is higher while the market forecast on EPS growth is more realistic. The weight of cyclicals in the market is low. Rather than moving OW Mexico we have a cyclically skewed portfolio.For country and sector calls on EM, refer to Key Trades and Risks: Emerging Markets Equity Strategy, Mowat et al, 15 April, 2014.
Source: J.P. Morgan estimates
Updated as of 9 May 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]
12 May 2014
Profit Outlook: Changes in 2014 and 2015 EPS Forecasts by Country / Region USA
World 115
110
2015
115
2015
110
105
2014
95
90
Feb-13
Jun-13
Oct-13
Feb-14
May-14
90
Feb-13
United Kingdom
Oct-13
115
90
Jun-13
95
Oct-13
Feb-14
May-14
100
95
95
2014
90
85
85
Jun-13
Oct-13
Feb-14 2005
110
May-14
Feb-13
20042
85
2005
75 70
Jun-13 2
Oct-13
Feb-14
May-14
2005
2015
May-14 200
110
2015 105
2014
2014 2014
100
100 95
100
Feb-13
Feb-14
Singapore
105 100
Oct-13
2
105
2014
Jun-13
115
110
105
95
Feb-13
22
Hong Kong
2015
120
110
2014
90
115
115
May-14
95
115
2015
Feb-14
2015
100
2014
Australia
Japan
125
Oct-13
80
90
2
130
Jun-13
105
2015
105
100
Feb-13
Feb-13
Italy
110
2015
85
Jun-13
85
115
2014
80
May-14
110
105
2015
Feb-14
2014
France
110
90
Oct-13
115
105
Feb-13
90
Feb-13
May-14
115
100
95
Germany
110
75
Feb-14
100
2014
95
85
Jun-13
105
100
2014
2015
110
105
100
95
115
2015
110
105
100
EMU
Europe
115
Jun-13
Oct-13
Feb-14
May-14
90
Feb-13
95
95
Jun-13
Oct-13
Feb-14
Feb-13
May-14
Jun-13
Oct-13
Feb-14
May-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
Jun-13
Oct-13
Feb-14
May-14
Updated as of 2 May
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]
12 May 2014
Profit Outlook: Changes in 2014 and 2015 EPS Forecasts by Sector World Energy (EN)
World Materials (MA)
110
110 105
120
120
115
115
2015
105
2015
100
95 90
2014
95
85
110
105
2014
105
100
80
90
2015
110
2015
100
World Consumer Discretionary (CD)
World Industrials (ID)
115
100
2014
2014
95
95
75 85
Feb-13
70
Jun-13
Oct-13
Feb-14
May-14
Feb-13
World Consumer Staples (CS)
90
Jun-13
Oct-13
Feb-14
Feb-13
May-14
World Healthcare (HC)
115
2015
Oct-13
Feb-14
90
May-14
Feb-13
110
2015 105
105
105 100
95
90
Feb-13
100
2014
100
2014
100
Oct-13 2005
200
Feb-14
May-14
95
Feb-13
90
Jun-13
Oct-13
Feb-14
Feb-13
May-14
Jun-13
2005 2004
2004 2004
Feb-14
May-14
100
98
95
90
Feb-13
-2%
2014
Jun-13
Oct-13
Feb-14
May-14
95
Feb-13
Jun-13
Oct-13
Feb-14
2%
-6%
1% 0% IT
UT
EN
HC
ID
FN MKT CD
Net revision ratio (4wk ave)
May-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
May-14
2004
2005
Momentum in Revision Ratio
3%
-4%
-8%
Feb-14
4%
2015
101
Oct-13
5%
0%
2014
Jun-13
6%
107
2015 104
2004 2005
7%
2%
105
Feb-13
2004
4%
110
110
90 2
Revision Ratio
World Utilities (UT)
115
Oct-13
2005 2005
World Telecoms (TE)
2014
95
95
Jun-13
May-14
110
2015
105
2014
Feb-14
115
115
2015
Oct-13
World Information Technology (IT)
120
110
Jun-13
World Financials (FN)
115
110
Jun-13
TE
MA
CT
IT
UT
EN
HC
ID
FN MKT CD
TE
MA
CT
Change in Net revision ratio (mom)
Updated as of 2 May
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]
12 May 2014
Sector Revisions: Changes in 2014 by sector for US, UK, Japan, Eurozone Consumer Staples
Consumer Discretionary 125
111
120
108
Japan
115
105 100
90
Feb-13
US
93
UK
84 81
Jun-13
Oct-13
Feb-14
May-14
Feb-13
Jun-13
Healthcare
Oct-13
Feb-14
70
May-14
Feb-13
Industrials
US
100
UK
90 80
Jun-13
Oct-13
Feb-14
Feb-13
May-14
100
Japan
UK
UK
110
85
80
Feb-13
Oct-1320200 2020200 20 Feb-14
May-14
Feb-13
Jun-13
80
Japan
Feb-14
May-14
Feb-14
May-14
80
Feb-13
UK
70
60
Jun-13
Oct-13
Feb-14
May-14
C
Feb-13
Jun-13
Oct-13
Feb-14 C
May-14
Utilities US
US
Japan
100
UK
95
UK
90
EMU
90
80
EMU
85
70
Feb-13
90
US EMU
105
100
60
Oct-13
Japan
90
EMU
85
Telecoms 120
110
UK
90
85
Jun-13
May-14
100
95
EMU
EMU
Feb-14
US
US
95
90
Oct-13
Materials
100 95
Jun-13
120
105
Japan
UK
EMU
Information Technology 110
105
US
100
75
110
105
EMU
80
87
EMU
110
85
EMU
90
Japan
US
90
96
95
130 120
95
99
UK
Japan
100
102
US
140
105
Japan
105
110
Financials
Energy 110
114
Jun-13
Oct-13
Feb-14
May-14
80
Feb-13
Jun-13
Oct-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 2 May
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]
12 May 2014
Sector Revisions: Changes in 2015 by sector for US, UK, Japan, Eurozone Consumer Staples
Consumer Discretionary
Japan
130
110
125
US
115
EMU UK Jun-13
Oct-13
Feb-14
May-14
105
EMU
95
75
90
Oct-13
Feb-14
Feb-13
May-14
Jun-13
Oct-13
Feb-14
EMU
100
80
Jun-13
US
110
UK
May-14
Feb-13
UK Jun-13
Information Technology
Oct-13
Feb-14
May-14
Materials
125 130
125
US
120
EMU
Japan
115
100
115
Japan
90
Jun-13
Oct-13
Feb-14
UK
90
EMU 105
100
May-14
US 100
EMU
110
105
UK
Japan
110
Japan
EMU
US
110
95
120
UK
120
105
95
Feb-13
Jun-13
Oct-13
Feb-14 2005
Telecoms
100
May-14 2004
Feb-13
US
UK
80 70
Jun-13
2005
Oct-13
2
Feb-14
May-14
Feb-13
Jun-13
Oct-13
Feb-14
May-14
Utilities
130
114
US
111
Japan
110 100
115
85
Industrials
110
120
Japan
90
Feb-13
Japan
120
US
85
130
115
Feb-13
125
95
UK
Healthcare 120
85
110
90
95
105
130
100
EMU
100
110
Financials
115
105
US
105
120
Feb-13
Japan
115
135
100
Energy
120
140
108 105
UK
EMU
EMU US
102
90
UK
99 80
96
70 60
Feb-13
93 90
Jun-13
Oct-13
Feb-14
May-14
Feb-13
Jun-13
Oct-13
Feb-14
May-14
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 2 May
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]
12 May 2014
Profit Outlook: Volume & Margin Proxy US earnings growth vs margin change
US earnings growth vs GDP growth 40%
10%
40%
4%
30%
8%
30%
3%
6%
20%
20%
4%
10%
2%
0%
0%
-10% -20%
-2% 81
86
90
95
99
NIPA profit growth (lh)
04
08
13
-4%
2% 0%
0%
-1%
-10%
-2% 81
86
92
95
97
99
01
90
04
06
MSCI EMU earnings growth
81
86
90
95
08
MSCI UK earnings growth (lh)
04
10
13
5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5%
60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50%
81
86
90
95
99
JP operating profit growth (CAO)
13
-3%
Regression profit growth on real GDP growth profit growth on margin change
Margin Proxy change
08
13
-1.0% -2.0% -3.0% 92
95
97
99
01
04
06
08
10
-4.0%
13
81
86
90
95
99
04
08
13
4% 3% 2% 1% 0% -1% -2% -3% -4% -5%
Real GDP growth
13
100% 80% 60% 40% 20% 0% -20% -40% -60%
Profit growth (%) - Average Based on real GDP growth Based on margin change
MSCI UK EPS Real GDP growth (%) Margin proxy change Profit growth (%) Based on real GDP growth Based on margin change
12%
JP CAO operating profit Real GDP growth (%) Margin proxy change
8%
-
4% 0% -4% -8% 81
86
90
95
99
JP operating profit growth (CAO)
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
13
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
08
Deflator change ULC change
Regression profit growth on real GDP growth profit growth on margin change
Margin Proxy change
MSCI UK earnings growth (lh)
10% 8% 6% 4% 2% 0% -2% -4% -6% -8%
-
2012 2.8 0.6 1.8 1.2
2013 1.9 0.2 1.3 1.1
2014E 2.5 0.3 1.4 1.1
7.2 7.6 6.9
5.3 5.9 4.7
6.1 7.0 5.2
Intercept 2.3 3.6
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 1.4 0.2 0.8 0.6
-8.2 -8.2 8.8
-6.7 -6.7 6.3
6.9 6.9 7.5
Intercept -3.7 5.0
Beta 7.5 12.7
R2 0.6 0.7
2011 1.0 1.1 2.8 1.7
2012 0.1 2.2 2.6 0.4
2013E 1.7 1.4 2.5 1.1
0.3 0.3 11.6
-3.4 -3.4 17.8
3.2 3.2 13.3
Intercept -3.8 5.5
Beta 4.2 5.6
R2 0.3 0.3
2012 1.4 0.2 -0.9 -1.1
2013 1.5 0.1 -0.5 -0.6
2014E 0.9 1.1 1.5 0.4
2.7 0.4 5.1
2.8 0.8 4.8
2.8 -2.1 7.6
Intercept -6.4 4.5
Beta 4.9 2.8
R2 0.4 0.4
0.0%
UK earnings growth vs margin change 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40%
MSCI EMU EPS Real GDP growth (%) Margin proxy change
1.0%
MSCI EMU earnings growth
8% 6% 4% 2% 0% -2% -4% -6% -8%
Deflator change ULC change
Profit growth (%) - Average Based on real GDP growth Based on margin change
2.0%
Real GDP growth
04
08
3.0%
Japan earnings growth vs GDP growth 100% 80% 60% 40% 20% 0% -20% -40% -60% -80%
04
Eurozone earnings growth vs margin change
Real GDP growth
99
99
NIPA profit growth (lh)
UK earnings growth vs GDP growth 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40%
95
Real GDP growth
Eurozone earnings growth vs GDP growth 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50%
-
1%
10%
-20%
US NIPA profit Real GDP growth (%) Margin proxy change
-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
Updated as of 9 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] 12 May 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
Market Composition Market Cap Earnings 100% 100% 10% 11% 6% 6% 11% 11% 12% 11% 10% 9% 12% 10% 21% 24% 12% 12% 4% 4% 3% 3%
2013E 6% -11% -5% 9% 20% 4% 1% 14% 6% -11% 24%
EPS Growth Consensus 2014E 8% 11% 10% 10% 8% 5% 9% na 13% 3% -1%
2015E 12% 8% 16% 12% 16% 9% 11% 12% 11% 8% 8%
Market Composition Market Cap Earnings 100% 100% 7% 8% 8% 7% 14% 13% 13% 14% 10% 8% 8% 7% 23% 27% 5% 4% 6% 5% 6% 6%
2013E -5% -24% -13% 4% -21% -1% -6% 26% 29% -29% -7%
EPS Growth Consensus 2014E 11% 7% 25% 18% 10% 6% 5% na 47% -10% -18%
2015E 15% 11% 18% 16% 15% 11% 11% 22% 22% 7% 6%
Market Composition Market Cap Earnings 100% 100% n/a n/a 15% 12% 14% 13% 22% 26% 4% 3% 13% 11% 16% 22% 7% 6% 4% 3% 4% 4%
2013E -14% n/a -11% -8% -28% 2% 6% -4% 7% -10% -33%
EPS Growth Consensus 2014E 7% n/a 15% 36% 6% 14% 7% 1% 7% -2% -28%
2015E 13% n/a 16% 15% 13% 13% 12% 15% 12% 12% 1%
2013E -3% 7% -31% 36% -19% 6% 18% 6% 12% 12% 6%
EPS Growth Consensus 2014E 8% -14% 21% -12% 13% 3% 11% 7% 9% 6% -4%
Market Composition Market Cap Earnings 100% 100% 6% 4% 18% 22% 6% 3% 2% 2% 9% 8% 4% 3% 51% 55% 1% 0% 2% 2% 1% 1%
2015E 6% 27% 0% 22% 12% 6% 13% 6% 11% 3% 14%
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
Market Composition Market Cap Earnings 100% 100% 11% 12% 4% 3% 11% 10% 12% 10% 10% 9% 13% 12% 16% 18% 19% 20% 3% 3% 3% 3%
2013E 7% -6% 8% 7% 15% 7% 2% 22% 3% 10% -1%
EPS Growth Consensus 2014E 8% 9% 9% 9% 4% 6% 11% 4% 11% 22% 6%
2015E 12% 8% 17% 12% 19% 9% 12% 13% 11% 8% 4%
Market Composition Market Cap Earnings 100% 100% 18% 21% 9% 10% 7% 6% 8% 7% 16% 14% 9% 8% 22% 26% 1% 0% 5% 4% 4% 4%
2013E -11% -20% -14% 3% 9% 2% -7% -9% 22% -40% -3%
EPS Growth Consensus 2014E 6% 9% 7% 2% 5% -4% -4% 21% 10% -19% 2%
2015E 9% 5% 13% 10% 11% 7% 6% 12% 16% 5% 2%
Market Composition Market Cap Earnings 100% 100% 12% 16% 6% 5% 18% 16% 13% 13% 10% 7% 11% 10% 17% 23% 3% 2% 5% 4% 4% 4%
2013E -4% -13% -23% 3% -5% -1% -17% 7% 0% -29% 28%
EPS Growth Consensus 2014E 7% 3% 66% 9% 12% 4% 3% 3% NM -9% -30%
2015E 13% 7% 22% 16% 15% 11% 10% 15% 46% 6% 10%
2013E -4% n/a n/a -14% -3% -9% n/a 0% n/a 1% n/a
EPS Growth Consensus 2014E 7% n/a n/a 12% -2% 21% n/a 5% n/a 8% n/a
Market Composition Market Cap Earnings 100% 100% n/a n/a n/a n/a 21% 21% 8% 6% 5% 6% n/a n/a 53% 55% n/a n/a 13% 12% n/a n/a
2015E 10% n/a n/a 11% 13% 12% n/a 9% n/a 7% n/a
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
Market Composition Market Cap Earnings 100% 100% 10% 12% 8% 8% 12% 10% 10% 10% 13% 11% 13% 11% 22% 27% 3% 2% 5% 4% 4% 4%
2013E -5% -21% -13% 0% -12% 0% -3% 11% 27% -31% -6%
EPS Growth Consensus 2014E 8% 9% 15% 14% 8% 3% 3% 15% 36% -12% -12%
2015E 12% 7% 16% 15% 14% 8% 8% 17% 21% 6% 4%
Market Composition Market Cap Earnings 100% 100% 1% 2% 6% 6% 20% 21% 21% 25% 7% 5% 6% 4% 20% 22% 11% 9% 6% 5% 2% 2%
2013E 74% -7% 212% 33% NM 23% 3% 16% 53% 30% n/a
EPS Growth Consensus 2014E 9% 3% NM 7% NM 5% 3% -4% 31% 3% n/a
2015E 11% 9% 16% 8% 11% 16% 11% 5% 9% 14% n/a
Market Composition Market Cap Earnings 100% 100% 24% 24% n/a n/a 8% 10% 6% 6% n/a n/a n/a n/a 38% 34% n/a n/a 5% 7% 18% 19%
2013E -21% -45% n/a NM -45% n/a n/a NM n/a -19% -3%
EPS Growth Consensus 2014E 58% 22% n/a NM 127% n/a n/a 739% n/a -22% -4%
2015E 24% 21% n/a 16% 45% n/a n/a 40% n/a 2% 7%
2013E 11% n/a n/a 14% 23% n/a n/a 9% -8% 28% 7%
EPS Growth Consensus 2014E 9% n/a n/a 15% 23% n/a n/a 6% NM -4% -1%
2015E 10% n/a n/a 12% 19% n/a n/a 8% 20% 14% 4%
Market Composition Market Cap Earnings 100% 100% n/a n/a n/a n/a 11% 12% 17% 14% n/a n/a n/a n/a 59% 62% 1% 0% 1% 1% 12% 11%
Updated as of 9 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] 12 May 2014
Value: Regional and Countries Valuations P/E (x) 9-May-14 MSCI World
Div. Yield (%)
Historical
P/BV (x)
ROE (%)
Prospective
MSCI Index
2012
2013
Current
12 M Fwd
2014E
2015E
2012
2013
Current
2012
2013
Current
2012
2013
Current
1,683
14.8
17.9
16.2
14.7
15.4
13.8
2.8
2.4
2.5
1.8
2.2
2.1
12.0
12.0
12.0
USA
1,796
14.6
18.6
17.0
15.6
16.3
14.6
2.3
1.9
2.0
2.2
2.7
2.7
14.9
14.6
14.6
Europe
1,811
13.3
17.0
15.4
14.2
14.8
13.2
3.7
3.2
3.2
1.5
1.8
1.8
11.6
10.8
10.6
EMU
203
13.5
18.8
15.5
13.7
14.6
12.7
3.9
3.2
3.1
1.3
1.6
1.6
9.2
8.3
8.4
United Kingdom
1,410
11.7
14.5
14.5
13.6
14.1
12.9
3.8
3.5
3.5
1.7
2.0
2.0
14.8
13.7
13.1
Japan
2,540
24.6
17.6
14.0
12.9
13.0
11.8
2.2
1.7
2.0
1.1
1.4
1.2
4.4
8.0
8.3
Australia
935
15.3
17.6
16.3
15.0
15.3
14.5
4.6
4.2
4.3
1.9
2.1
2.1
12.3
11.7
12.3
Singapore
4,230
12.6
14.0
15.4
14.0
14.6
13.0
3.2
3.2
3.4
1.5
1.5
1.4
12.1
10.5
10.3
Hong Kong
9,325
16.3
15.3
14.8
13.8
14.3
13.1
2.5
2.5
2.7
1.4
1.4
1.3
8.4
8.9
8.6
MSCI Emerging Markets
1,007
12.7
12.1
11.5
10.4
10.8
9.8
2.7
2.6
2.7
1.6
1.5
1.5
13.0
12.7
12.2
Source: I/B/E/S, MSCI, J.P. Morgan estimates
P/E versus Earnings Growth
P/B versus ROE
US
AU
SG 15
HK
UK P/E
12
2.8
World Europe JP
EM
9
6
US
2.4 Price to Book
18
2.0 EMU
1.6 1.2 0.8
0
2
.
4
6
8
10
12
JP 3
AU
Europe
UK SG
HK
7
World
11
EM
15
ROE
forward earnings growth
Updated as of 9 May 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]
12 May 2014
Value: Regional Earnings Yield Gap & Sector-Neutral P/E Summary Table
US BY/EY (detrended)
US BY/EY and trend -8
Yield Gap (Inverse Scale)
Re-Rating
0 Equities Expensive 93
96
98
00
02
US Yield Gap
07
09
11
14
85
87
89
91
Trend Yield Gap
93
-7 De-Rating
-3
Re-Rating
-1
Equities Expensive
1 88
90
92
94
96
98
00
02
04
TREND in YG (pre goodwill)
98
00
02
05
07
09
06
08
10
12
14
40 30 20 10 0 -10 -20 -30 -40
EMU Yield GAP
-1 0 1
91
93
95
97
99
01
03
6mth frwd equity return Yield GAP+1s.d.
05
07
09
Re-Rating
-1
Equities Expensive
1 3
88
90
92
94
96
98
00
02
04
TREND in YG (pre goodwill)
-10 -8 -6 -4 -2 0 2 4 6
06
08
10
12
14
96
98
Japanese Yield GAP
00
02
04
TREND in YG
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-2
10
-1
0
0
-10
1
-20
2
-30
3
88
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
MSCI US P/E based on EMU sector composition
08
10
12
14
100%
25 20
50%
15 10
0%
5 -
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
Japan BY/EY (detrended)
Re-Rating
94
0%
5
Premium/Discount
20
UK Yield GAP
De-Rating
92
10
UK Sector Neutral P/E (relative to US)
Equities Cheap
90
14
50%
15
3
Yield Gap (Inverse Scale) -3
Japan BY/EY and trend
88
20
Eurozone Detrended Yield Gap Yield GAP-1s.d.
30
De-Rating
-3
11
100%
UK BY/EY (detrended)
Equities Cheap
-14% -15% -20%
-14% -15% -19%
25
-
2 89
premium (+) / discount (-) to the US simple sector neutral
12mth forward P/E 15.6 13.7 13.6 12.9
US Eurozone UK Japan
# S.D. from Fair Level* 0.73 0.27 0.45 -0.47
30
-2
87
Estimated Fair Level -3.97 -5.69 -4.96 -6.10
Eurozone Sector Neutral P/E (relative to US) Yield Gap (Inverse Scale) -3
UK BY/EY and trend
-5
3
14
US Detrended Yield Gap Yield Gap-1s.d.
-9 -7
11
Current Mkt Level -3.48 -5.48 -4.59 -6.45
Sector Neutral P/E
Eurozone BY/EY (detrended)
Equities Cheap
-5
96
6mth frwd USD equity return Yield Gap+1s.d.
Eurozone BY/EY and trend
-9
3
05
Cheap
91
Fair Value
89
2
Cheap
87
1
Fair Value
85
-1 0
10
12
Japanese Detrended Yield Gap Yield GAP-1s.d.
14
3
Cheap
2
-2
Fair Value
-2
Cheap
Equities Cheap
-3
Fair Value
De-Rating
-4
4
40 30 20 10 0 -10 -20 -30 -40
Expensive
-6
Earnings Yield Gap US Eurozone UK Japan
35
150%
25
100%
15
50%
5
0%
-5 01
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 April 2014 C 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 is widely 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] 12 May 2014
Value: Sector Valuations (MSCI) World and Regional Sector 12 Month Forward PE
World Absolute
USA
Rel to Market
Avg Rel to Market
Absolute
Eurozone
Rel to Market
Avg Rel to Market
Absolute
UK
Rel to Market
Avg Rel to Market
Absolute
Japan
Rel to Market
Avg Rel to Market
Rel to Market
Avg Rel to Market
10.6
0.83
0.92
12.0
0.94
1.06
1.01
12.0
0.94
0.97
1.15
1.14
10.8
0.85
1.28
16.0
1.19
1.10
18.6
1.46
1.12
1.23
16.1
1.20
1.23
21.2
1.67
1.00
0.84
0.82
11.2
0.83
0.89
11.7
0.92
1.06
18.1
1.31
1.59
27.4
2.03
1.63
15.5
1.22
1.27
1.11
15.2
1.10
1.18
19.4
1.44
1.21
14.1
1.11
0.00
0.93
14.0
1.01
1.00
14.5
1.07
0.96
13.3
NA
1.00
Market
14.7
Energy
13.8
0.93
0.90
14.5
0.94
0.87
11.8
0.86
0.86
11.7
0.87
0.97
Materials
15.0
1.00
0.89
16.0
1.04
1.02
15.5
1.12
0.97
11.9
0.88
0.88
Industrials
15.9
1.07
1.04
16.2
1.05
1.03
14.9
1.08
1.06
14.8
1.09
Consumer Discretionary
16.3
1.09
1.13
17.8
1.15
1.20
12.4
0.90
1.03
15.5
Consumer Staples
17.5
1.17
1.09
17.4
1.13
1.09
18.3
1.32
1.28
Health Care
16.4
1.10
1.13
16.2
1.05
1.03
15.9
1.15
Financials
12.7
0.85
0.83
13.5
0.87
0.83
11.6
Information Technology
15.0
1.01
1.34
14.8
0.95
1.23
Telecommunication Services
15.0
1.00
1.03
14.0
0.91
Utilities
15.6
1.04
0.90
16.5
1.07
World and Regional Sector trailing Dividend Yield
Current
15.6
World
Average
Current
13.7
USA
Average
Current
13.6
Eurozone
Average
Current
Absolute 12.9
UK
Average
Current
Japan
Average
Market
2.5
2.2
2.0
1.9
3.1
3.1
3.5
3.4
2.0
1.3
Energy
2.8
2.7
2.0
2.2
4.5
4.0
3.9
3.3
2.3
1.9
Materials
2.5
2.3
2.1
2.2
2.6
3.2
3.3
3.1
2.0
1.3
Industrials
2.2
2.0
2.0
1.9
2.7
2.7
2.5
3.1
1.9
1.3
Consumer Discretionary
1.8
1.6
1.5
1.2
2.7
2.6
2.7
2.9
1.9
1.1
Consumer Staples
2.8
2.4
2.7
2.4
2.4
2.1
3.5
3.3
2.0
1.3
Health Care
2.1
1.9
1.7
1.7
2.5
2.3
3.7
3.2
2.6
1.7
Financials
2.8
2.8
2.0
2.3
3.5
3.4
3.4
4.0
2.2
1.3
Information Technology
1.6
0.8
1.6
0.7
1.3
1.6
1.2
2.2
1.8
1.1
Telecommunication Services
4.4
3.5
4.6
3.5
5.2
4.2
4.2
3.6
1.9
1.4
Utilities
4.0
3.9
3.5
4.1
5.6
4.3
5.0
4.7
1.3
2.3
Average
Current
Average
Current
Average
Current
Average
Current
World and Regional Sector Price to Book Valuations
Current
World
USA
Eurozone
UK
Japan
Average
Market
2.1
2.5
2.7
3.1
1.6
2.1
2.0
2.4
1.2
1.7
Energy
1.9
2.5
2.2
2.8
1.4
2.3
1.5
2.5
0.7
1.1
Materials
2.0
2.1
3.1
2.7
1.8
1.7
1.9
2.3
1.0
1.5
Industrials
2.5
2.5
3.3
3.4
2.5
2.1
3.6
2.9
1.2
1.6
Consumer Discretionary
2.7
2.3
4.1
3.0
2.0
2.0
3.5
3.1
1.3
1.6
Consumer Staples
3.6
3.9
4.4
5.6
3.1
3.6
4.2
3.4
1.8
1.8
Health Care
3.7
4.6
3.8
5.1
2.5
3.0
6.3
10.1
1.6
2.2
Financials
1.2
1.8
1.4
2.0
0.9
1.6
1.2
1.8
0.9
1.5
Information Technology
3.3
4.2
3.8
5.1
3.4
4.8
7.9
4.4
1.4
2.0
Telecommunication Services
2.0
2.4
2.5
2.7
1.8
2.7
1.1
1.9
1.8
2.0
Utilities
1.6
1.8
1.7
1.7
1.1
1.9
2.9
2.4
0.9
1.5
Average
Current
Average
Current
Average
Current
Average
Current
World and Regional Sector ROE
Current
World
USA
Eurozone
UK
Japan
Average
Market
12.0
12.1
14.6
15.1
8.4
11.8
13.1
15.9
8.3
4.3
Energy
11.7
16.3
13.1
17.6
9.5
16.8
13.0
16.6
8.5
4.8
Materials
10.7
11.1
16.9
14.3
6.9
11.0
14.7
17.1
6.8
4.4
Industrials
13.5
12.2
17.1
17.3
11.9
10.8
22.3
19.3
8.7
5.4
Consumer Discretionary
15.3
10.1
20.1
13.2
13.1
10.8
20.2
18.1
9.7
5.0
Consumer Staples
18.9
19.3
22.6
26.9
15.7
16.7
26.9
21.0
9.2
5.5
Health Care
16.0
19.7
16.5
21.2
9.7
12.0
33.2
50.2
7.8
8.6
Financials
8.3
10.0
8.8
11.9
4.8
10.0
6.7
13.5
8.9
0.6
Information Technology
16.6
13.4
20.2
18.0
9.5
9.7
16.1
16.7
6.5
4.3
Telecommunication Services
13.7
11.5
19.4
11.5
11.7
11.8
8.0
11.0
11.0
7.8
Utilities
8.2
11.0
8.9
11.2
8.1
12.3
21.0
19.2
-2.9
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
3.0 Updated as of 9 May 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] 12 May 2014
Economic Forecasts: Policy Rate Trend and Forecasts Country
Official Interest Rate
Global
Jun-13
Sep-13
Dec-13
Mar-14
Current
Jun-14
Sep-14
Dec-14
Mar-15
2.20
2.20
2.20
2.34
2.37
2.36
2.36
2.35
2.38
GDP-weighted average
excluding US
GDP-weighted average
2.87
2.88
2.88
3.12
3.15
3.14
3.13
3.12
3.15
Developed
GDP-weighted average
0.50
0.40
0.32
0.32
0.32
0.34
0.33
0.33
0.35
Emerging
GDP-weighted average
5.39
5.58
5.73
6.01
6.08
6.20
6.21
6.19
6.21
Last Change
Forecast Next Change
The Americas
GDP-weighted average
1.40
1.57
1.66
1.58
1.61
1.57
1.58
1.57
1.62
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)
4Q 15 (+25bp)
Canada
O/N rate
8 Sep 10 (+25bp)
2Q 15 (+25bp)
Europe/Africa
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.57
1.40
1.26
1.61
1.66
1.63
1.61
1.56
1.53
Euro Area
Refi rate
0.75
0.50
0.25
0.25
0.25
0.25
0.25
0.25
0.25
7 Nov 13 (-25bp)
3Q 18 (+25bp)
United Kingdom
Bank rate
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.75
5 Mar 09 (-50bp)
1Q 15 (+25bp)
3.88
Asia/Pacific
3.66
3.66
3.69
3.80
3.80
3.80
3.81
3.84
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
2.75
2.50
2.50
2.50
2.50
2.50
2.25
2.25
2.50
6 Aug 13 (-25bp)
Aug 14 (-25bp)
New Zealand
Cash rate
2.50
2.50
2.50
2.75
3.00
3.00
3.25
3.50
3.75
24 Apr 14 (+25bp)
24 Jul 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)
4Q 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 9 May 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
12 May 2014
Actual (as of May 9)
Jun-14
Sep-14
Dec-14
Mar-15
0.250 0.22 0.38 1.62 2.59
0.250 0.21 0.50 1.90 2.75
0.250 0.20 0.70 2.25 3.00
0.250 0.25 0.90 2.45 3.20
0.250 0.30 1.00 2.55 3.30
0.25 0.34 0.12 0.55 1.45
0.15 0.25 0.08 0.55 1.55
0.15 0.25 0.08 0.65 1.65
0.15 0.29 0.08 0.75 1.80
0.15 0.30 0.10 0.80 1.85
0.50 0.53 0.74 1.98 2.66
0.50 0.60 0.80 2.15 2.85
0.50 0.60 1.05 2.35 3.10
0.50 0.60 1.35 2.50 3.30
0.50 0.75 1.70 2.70 3.45
0.07 0.09 0.19 0.60 1.46
0.07 0.10 0.20 0.60 1.40
0.07 0.10 0.22 0.70 1.55
0.07 0.10 0.23 0.80 1.65
0.07 0.10 0.25 0.85 1.65
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 May 9)
Jun-14
Sep-14
Dec-14
Mar-15
Historical Average *
Spreads (bp) Fed10s 2s10s 5s10s
251 221 97
267 225 85
292 230 75
312 230 75
322 230 75
151 108 49
Spreads (bp) Refi10s 2s10s 5s10s
120 133 90
140 147 100
150 157 100
165 172 105
170 175 105
131
Spreads (bp) Basei10s 2s10s 5s10s
216 192 68
235 205 70
260 205 75
280 195 80
295 175 75
20 38 18
Spreads (bp) O/N10s 2s10s 5s10s
53 51 41
53 50 40
63 60 48
73 70 57
78 75 60
114 106 59
Key Developed Markets Yield Curve (10Y minus Policy rate)
Global Yield Curve
3.5 3 2.5 2 1.5 1 0.5 0 -0.5
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
5 4 3 2 1 0 -1 -2 -3 -4
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
120
0.2
100
0.1
M&A ex LBO
80
0.1 0.0
60
-0.1
40
-0.1
00
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
share buybacks
k 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 9 May 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]
12 May 2014
Regional Monetary Condition Index US ISM vs US Monetary Condition Index
US Monetary Condition Index
100%
10 Monetary conditions tight
5
50%
0
0%
-5
-50%
-10
Monetary conditions easy 73
75
78
80
83
85
88
90
-10
Monetary conditions easier
93
95
98
00
03
05
08
-100% 10
13
0 5
Monetary conditions tighter 74
77
79
85
90
92
95
98
00
03
06
08
11
14
15
US Monetary conditions index ( % oya, advanced 10m)
80%
Monetary conditions tight
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
UK Monetary Conditions Index
82
0 -5 Monetary conditions easy 76
78
81
83
86
88
91
93
96
98
01
03
06
08
11
14
86
88
91
93
96
98
01
S ((
))
79
82
84
87
03
06
08
11
14
90
92
95
98
00
03
06
08
11
14
-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0
EMU Monetary conditions index (% oya, advanced 8m)
03
06
08
11
14
??
(C (
))
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
-8 -3
78
80
81
83
85
86
JP PMI mfg (%yoy) C
00
Monetary conditions easier
Japan Monetary conditions Index ??
98
Japan PMI vs Japan Monetary Condition Index 70% 50% 30% 10% -10% -30% -50%
Monetary conditions easy 83
95
UK Monetary conditions index (% oya,advanced 10m)
EMU PMI mfg (%yoy)
Monetary conditions tight
81
92
Monetary conditions tighter
77
Japan Monetary Condition Index
78
90
Monetary conditions easier
Eurozone Monetary conditions Index
76
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
6 4 2 0 -2 -4 -6 -8
87
10
UK PMI vs UK Monetary Condition Index
UK Monetary Condition Index
-10
82
US ISM mfg (%yoy)
US Monetary conditions Index
10 5 0 -5 -10 -15 -20 -25
-5
((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]
12 May 2014
Economic Forecasts Economic Momentum GDP SAAR (JPM) 3Q 14E 4Q 14E 3.0 3.0 2.5 2.7 2.0 2.0 2.0 2.0 2.5 2.5 1.5 1.5 1.5 1.5 1.9 2.1 2.5 2.5 2.3 2.8 2.5 3.0 2.8 3.7 4.0 4.0 4.9 6.6
2Q 14E 3.0 2.2 -4.5 1.8 2.0 1.0 1.5 1.6 2.3 1.5 3.0 3.5 2.0 3.2
Inflation (%Y/Y) (% Y/Y) (JPM) 2014E 2015E 1.8 1.9 1.6 2.0 2.8 2.0 0.7 1.1 1.0 1.6 0.9 1.1 0.6 1.0 2.0 2.1 -0.1 1.2 0.8 1.3 1.8 2.0 2.5 2.4 3.6 3.7 2.3 2.4
1Q 15E 3.0 2.8 1.8 2.0 2.3 2.0 1.5 2.3 2.5 2.8 3.3 2.3 2.0 4.9
Change in real GDP growth forecasts over past 3 months for 2014E 1.0
Source: Bloomberg, J.P. Morgan estimates
Singapore
Hong Kong
Australia
Switzerland
Sweden JPM 2014E
United Kingdom
Consensus 2014E
Norway
Italy
France
Germany
-1.0
Euro area (12)
0.0
Japan
4Q14E 91.0 105.0 4.05 1285 21.75 6950 1850 2075 16000 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 2Q14E 3Q14E 98.6 88.0 93.0 107.9 102.0 105.0 4.72 3.75 3.80 1294 1250 1260 20.45 21.25 21.50 7032 7100 6750 1710 1825 1860 2026 2025 2050 14659 15250 15100 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 -0.6 0.0 -0.3 0.1 0.1 0.1 0.0 0.0 -0.4 0.2 -0.3 0.1 0.4 0.3 0.1 0.1 0.5 0.5 0.2 0.1 0.2 0.2 0.2 0.1 -0.3 -0.3 0.1 0.1 -0.2 -0.2 -0.1 0.1 0.9 0.9 0.1 0.1 0.0 0.0 0.0 -0.1 0.1 0.1 0.2 0.0 0.1 0.0 0.0 0.0 -0.4 -0.1 -0.1 0.0 0.0 0.1 0.3 0.1
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 2.3 2.9 2.5 3.1 2.4 2.6 2.3 2.5 1.5 1.4 1.3 1.3 1.4 2.0 1.1 1.5 2.2 2.3 1.9 1.6 0.8 1.8 1.0 1.3 0.6 1.5 0.5 -0.3 1.9 2.2 2.2 2.5 2.7 2.5 2.5 2.6 2.0 2.7 2.1 2.2 3.0 3.0 2.8 2.4 2.8 3.0 2.8 2.9 2.8 2.5 3.5 3.8 4.5 5.0 3.9 4.0
Updated as of 9 May 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]
12 May 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 Jun 14: 1.36 end Sep 14:1.34 end Dec 14: 1.30
1.25
Consensus
1.20 Nov 06
Jul 08
Mar 10
Nov 11
Jul 13
Nov 06
J.P. Morgan forecast: end Jun 14: 1.69 end Sep 14:1.69 end Dec 14: 1.66
Nov 11
Jul 13
7.84
J.P. Morgan
7.72
1.5
7.66
Consensus Jul 08
Mar 10
Nov 11
Jul 13
J.P. Morgan forecast: end Jun 14: 7.75 end Sep 14: 7.75 end Dec 14: 7.75
7.60 Mar 05
Mar 15
9.5
J.P. Morgan
9.0
Nov 06
J.P. Morgan
Nov 11
Jul 13
J.P. Morgan forecast: end Jun 14: 6.69 end Sep 14:6.72 end Dec 14: 6.81
Nov 11
Jul 13
5.5 Mar 05
Mar 15
J.P. Morgan
Jul 08
Mar 10
Nov 11
Jul 13
Mar 15
4.7 Mar 05
Jul 08
Mar 10
Nov 11
Jul 13
J.P. Morgan
Nov 06
Jul 08
Mar 10
Nov 11
Jul 13
Mar 15
J.P. Morgan forecast: end Jun 14: 84.8 end Sep 14:85.8 end Dec 14: 86.7
87 82
Consensus
Nov 06
Jul 08
Mar 10
Nov 11
Jul 13
J.P. Morgan
77
1.10 1.00 Mar 05
Consensus
92
J.P. Morgan
1.30
Mar 15
Mar 15
J.P. Morgan forecast: end Jun 14: 5.92 end Sep 14:5.93 end Dec 14: 6.04
97
1.20
Nov 06
Jul 13
JPMorgan Trade Weighted Index Nominal Narrow
J.P. Morgan forecast: end Jun 14: 1.26 end Sep 14:1.26 end Dec 14: 1.27
1.40
J.P. Morgan
Nov 11
5.7
1.50
Consensus
Mar 10
5.2
1.60
6.0 Mar 10
Nov 06
Jul 08
6.2
1.70
6.5
Jul 08
Nov 06
6.7
Singapore Dollar (SGD)
7.0
0.50
0.50 Mar 05
Norwegian Krone (NOK)
J.P. Morgan forecast: end Jun 14: 100 end Sep 14:102 end Dec 14: 106
1.80
7.5
0.60
Mar 15
Consensus
70 Mar 05
Mar 15
8.0
Consensus
0.70
Jul 13
7.2
80 Mar 10
Nov 11
120
90
Jul 08
Mar 10
7.7
100
8.5
0.80
Nov 06
Jul 08
0.60
130
Swedish Krone (SEK) 10.0
J.P. Morgan forecast: end Jun 14: 0.85 end Sep 14:0.84 end Dec 14: 0.83
0.90
Nov 06
110
Consensus
New Zealand Dollar (NZD) 1.00
Mar 15
Consensus
Japanese Yen (JPY)
7.78
Nov 06
J.P. Morgan
Hong Kong Dollar (HKD)
1.7
0.40 Mar 05
Mar 10
J.P. Morgan
0.90
0.70
0.65 Mar 05
7.90
1.9
1.3 Mar 05
Jul 08
J.P. Morgan forecast: end Jun 14: 0.92 end Sep 14:0.90 end Dec 14: 0.89
0.80
0.75
Sterling (GBP)
2.1
Consensus
0.85
0.95
Mar 15
1.00
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 Jun 14: 0.90 end Sep 14: 0.91 end Dec 14: 0.93
1.35
1.15
J.P. Morgan
1.40
Australian Dollar (AUD)
Swiss Franc (CHF)
J.P. Morgan forecast: end Jun 14: 1.10 end Sep 14:1.13 end Dec 14: 1.15
72 Mar 05
Mar 15
Nov 06
Jul 08
Mar 10
Nov 11
Jul 13
Mar 15
Forecasted Return for Currencies till December 2014 JPM)
6% 4% 2% 0% -2% -4% -6%
EUR
AUD
NZD
GBP
HKD
SGD
NOK
SEK
C
Source: Bloomberg, J.P. Morgan estimates. C
C
18
YEN
CHF
CAD
Updated as of 9 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] 12 May 2014
Market Performance: Equities relative to Bonds (%) Relative outperformance of equities versus bonds by country (%) 3-month 6-month 12-month 3.5 4.0 14.5
Country Global
1-month 0.5
36-month 37.0
Australia
(0.3)
2.4
(2.7)
Belgium
3.3
2.3
Canada
(3.2)
1.7
Denmark
1.1
France Germany Italy
(1.1)
7.8
10.3
27.0
11.0
Japan
1.5
(1.7)
(1.2)
(2.1)
39.5
Netherlands
(0.2)
(2.0)
(4.6)
13.1
29.1
(0.2)
26.4
2.6
8.7
53.0
4.7
22.5
13.0
8.7
24.3
31.1
51.9
(0.3)
4.7
4.8
17.9
26.2
1.6
2.2
2.3
17.0
28.3
Spain
0.6
2.6
2.6
20.7
20.1
Sweden
0.3
7.0
13.0
24.4
27.2
UK
3.5
6.1
2.3
8.0
26.4
USA
(0.4)
3.1
3.7
19.8
46.1
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 0.6 (0.6) 2.8 1.9 3.5 2.2 2.6 2.9 (5.0) (1.3) 0.9 2.8 1.6 1.2 8.1 0.7 1.7 2.8 0.8 2.5 3.5 1.8 3.5 3.9 1.9 3.2 2.9 (1.0) 2.4
Source: Bloomberg, MSCI, J.P. Morgan, Note: Values highlighted in yellow shows negative returns
12m 4.9 1.5 15.2 15.4 28.7 15.8 13.2 15.7 (6.3) 23.0 23.8 (3.7) 11.3 6.3 14.5 11.9 (5.6) 22.7 10.4 4.1 15.0 18.5 9.7 2.9 15.4 9.9 11.1 (0.2) 9.7
YTD 2.0 (2.5) 7.5 6.7 14.2 1.1 4.2 0.3 (6.2) 7.4 12.8 (10.5) 0.0 7.3 5.6 12.2 2.7 5.8 1.6 3.7 1.6 (2.5) 0.0 1.0 2.9 3.0 (28.1) (0.7) 0.7
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 0.0 (1.6) 1.8 2.4 2.5 1.3 1.6 1.9 (4.9) (2.2) (0.0) 2.7 0.6 0.2 8.3 (0.3) 1.6 1.8 0.2 1.4 3.5 1.8 3.5 4.6 0.9 2.3 2.7 (0.8) 2.4
12m (1.9) 7.7 22.1 7.1 36.3 22.8 20.1 22.7 (6.1) 30.5 31.2 (3.6) 18.0 10.5 12.3 18.6 (6.3) 30.2 10.9 12.4 15.0 18.5 9.7 12.8 22.4 16.5 12.5 (4.2) 10.5
YTD 6.6 (2.7) 7.3 4.0 13.9 0.9 4.0 0.1 (6.2) 7.3 12.6 (7.5) (0.1) 12.2 8.2 12.0 3.8 5.6 (0.6) 4.1 1.6 (2.5) 0.0 2.7 2.7 2.8 1.3 0.4 1.2
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 9 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]
12 May 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
5.6
14.7
6.8
16.3
5.6
15.8
7.0
15.3
MSCI World Materials
1.9
5.8
1.4
4.2
1.7
7.2
2.3
1.2 15.5
MSCI World Chemicals
3.8
8.9
2.7
17.2
3.4
10.8
3.0
MSCI World Construction Materials
(3.3)
13.9
10.2
15.0
(4.0)
18.5
11.1
15.6
MSCI World Metals & Mining
(0.1)
(0.4)
(1.0)
(12.6)
(0.0)
0.1
0.5
(17.0)
MSCI World Paper & Forest Products
4.0
14.3
(3.4)
33.7
3.6
16.6
(3.1)
33.0
2.6
14.6
(0.9)
33.0
2.4
16.2
(0.4)
29.7
MSCI World Capital Goods
2.1
15.8
(1.3)
32.7
1.9
17.8
(0.9)
30.0
MSCI World Commercial Services
3.5
5.7
(2.4)
25.7
3.4
8.5
(1.5)
23.5
MSCI World Transport
3.9
14.0
1.4
37.5
3.8
13.8
2.0
31.1
1.5
11.2
(4.6)
40.7
1.4
12.7
(4.1)
37.3
MSCI World Automobile
(0.1)
11.1
(5.1)
46.7
(0.5)
13.0
(3.7)
35.2
MSCI World Consumer Durables
1.2
4.2
(4.3)
30.4
0.9
6.9
(3.7)
27.9
MSCI World Media
5.2
17.7
(1.0)
44.7
5.2
19.2
(0.9)
44.8
MSCI World Retailing
0.2
8.6
(9.0)
42.2
0.2
9.2
(8.8)
40.7
MSCI World Consumer Staples
3.4
3.8
2.5
19.3
3.2
6.3
3.1
18.6
MSCI World Healthcare
4.5
15.8
4.6
34.3
4.3
18.2
4.9
33.9
MSCI World Financials
1.8
8.4
(0.8)
27.8
1.7
9.2
(0.2)
24.3
MSCI World Banks
0.3
9.3
(0.9)
26.4
0.2
9.6
(0.2)
20.9
MSCI World Diversified Financials
3.3
12.9
(2.6)
39.0
3.0
14.1
(2.4)
38.2
MSCI World Insurance
2.8
11.9
(2.2)
35.7
2.6
14.0
(1.8)
34.5
MSCI World Real Estate
4.0
(5.1)
5.2
4.4
3.9
(5.5)
6.1
0.0
2.2
16.4
(0.4)
28.8
2.1
16.9
(0.2)
27.2
MSCI World Software and Services
0.8
13.6
(2.7)
32.9
0.7
13.9
(2.6)
32.5
MSCI World Technology Hardware
4.6
21.7
2.3
22.5
4.5
22.0
2.7
18.8
MSCI World Semicon & Semicon Equip
1.3
14.1
2.1
34.2
1.2
15.4
2.3
34.1
5.2
9.5
0.2
28.4
5.0
12.2
0.9
26.6
MSCI World Diversified Telecoms
4.8
6.2
4.0
15.0
4.6
8.2
4.3
15.3
MSCI World Wireless Telecoms
6.2
14.3
(9.2)
63.8
6.5
18.7
(7.8)
55.7
MSCI World Industrials
MSCI World Consumer Discretionary
MSCI World Information Technology
MSCI World Telecommunications Services
MSCI World Utilities
1.9
5.6
8.7
9.4
1.7
7.8
9.1
8.9
MSCI World
2.9
11.1
0.9
26.3
2.7
12.5
1.3
24.1
Source: MSCI, Bloomberg, Note: Values highlighted in yellow shows negative returns
Updated as of 9 May 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]
12 May 2014
Japan*
Australia
Singapore
Hong Kong
NA NA (1.6) (0.4) 7.4 NA 1.4 NA 4.0 NA 1.3 2.6 (0.1) (0.2) 6.7 2.4
NA NA (0.8) (12.5) NA NA (1.6) 37.1 14.6 2.6 (2.7) 0.8 (6.0) (2.6) (3.0) (9.8)
7.0 2.3 (0.4) (4.1) 3.1 4.9 (0.2) (0.2)
5.8 3.6 0.2 (4.2) 3.3 4.1 (0.1) 0.8
8.0 3.6 2.7 4.5 6.0 6.6 0.2 1.5
8.9 3.5 0.2 (0.0) 2.7 6.7 1.4 (7.2)
11.6 3.1 0.8 0.5 1.6 (0.0) 2.8 (7.5)
0.9 9.1 1.3 2.6 0.1 1.2 2.0 (0.1)
2.6 11.0 1.6 2.9 0.2 1.5 1.7 (1.8)
(2.1) 4.9 3.5 1.6 5.4 3.0 5.5 7.0
1.9 10.9 2.9 4.1 1.8 2.7 4.3 4.7
7.2 12.9 2.7 4.6 0.7 2.3 4.5 7.5
7.8 2.2 (4.2) 1.2 2.1 12.7 (1.2) (14.0) (4.8) 7.2 2.5 3.6 0.9 2.3 4.1 0.4
NA 5.3 (1.2) (2.1) (3.2) (2.3) (6.2) (8.8)
16.2 0.1 3.5 7.0 (0.7) 1.4 (0.9) (2.0)
8.5 NA 0.6 9.9 0.0 NA 15.0 NA
3.4 (9.9) (4.9) (10.1) 1.7 (2.0) (14.2) (4.4)
1.8 1.3 (1.9) (0.6) (3.5) (2.2) 0.7 4.7
15.6 11.5 4.3 5.6 2.8 4.1 5.4 12.3
29.2 22.4 13.5 14.3 11.8 14.1 12.0 10.6
(10.9) (9.3) (8.1) (6.8) (9.3) (8.5) (6.6) (4.7)
Hong Kong
Italy
4.3 (1.9) 5.2 2.2 0.1 2.0 3.8 9.5 (0.6) 9.4 2.4 3.3 1.5 1.8 5.5 (0.5)
Singapore
France
0.1 (12.9) (8.0) (13.0) (1.6) (5.1) (17.0) (7.5) (13.7) (12.3) (11.0) (9.8) (12.2) (11.4) (9.6) (7.8)
Australia
Germany
8.6 NA 0.8 10.1 0.0 NA 15.2 NA 29.4 22.6 13.7 14.5 12.0 14.3 12.1 10.8
Japan
UK
16.4 0.2 3.7 7.2 (0.6) 1.6 (0.8) (1.8) 15.7 11.7 4.5 5.8 2.9 4.2 5.6 12.5
Italy
Eurozone
NA 5.5 (1.1) (1.9) (3.0) (2.2) (6.0) (8.6) 2.0 1.5 (1.8) (0.5) (3.4) (2.0) 0.9 4.9
France
Developed Europe
6.0 0.5 (5.7) (0.5) 0.4 10.8 (2.8) (15.4) (6.4) 5.5 0.8 1.9 (0.8) 0.6 2.3 (1.2)
Germany
Canada
11.8 3.2 1.0 0.7 1.8 0.1 3.0 (7.3) 7.4 13.1 2.9 4.8 0.8 2.5 4.7 7.7
UK
USA
7.7 2.9 0.2 (0.3) 2.1 6.3 1.1 (6.9) 1.4 10.5 2.5 3.6 1.4 2.2 4.0 4.1
Eurozone
Utilities Market Value Growth Large Cap Index Midcap Index Small Cap Index
10.9 6.3 5.4 7.3 8.8 9.4 2.9 4.1 0.5 7.7 6.2 4.2 8.2 5.7 8.3 9.9
Developed Europe
Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services
5.8 3.6 0.2 (4.2) 3.3 4.1 (0.1) 0.8 2.6 11.0 1.6 2.9 0.2 1.5 1.7 (1.8)
Canada
YTD Performance (US$)
6.8 1.4 (0.9) (4.6) 2.5 4.6 (0.8) (0.4) 0.2 8.7 0.9 2.1 (0.3) 0.7 1.5 (0.6)
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 (%)
9.0 2.5 10.0 6.8 4.5 6.6 8.4 14.4 3.9
NA NA (0.6) 0.7 8.5 NA 2.5 NA 5.2
NA NA (0.8) (12.5) NA NA (1.5) 37.2 14.7
14.4 7.0 7.9 6.1 6.3 10.3 4.0
NA 2.3 3.6 1.0 0.9 7.9 3.5
2.6 (2.6) 0.8 (6.0) (2.6) (2.9) (9.8)
Updated as of 9 May 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] 12 May 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 9 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] 12 May 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
7.0 6.7 0.2 2.8 0.0 0.7 1.7 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 1.9 1.6 0.1 0.0 0.2 0.0 11.7
5.4 5.3 0.1 3.7 0.0 1.5 1.3 0.2 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 0.5 0.3 0.0 0.0 0.0 10.0
7.0 5.8 1.1 2.8 0.0 1.6 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 10.0
10.2 8.7 1.6 6.2 0.0 1.9 3.0 0.6 0.7 0.7 0.4 0.2 0.1 0.0 0.1 0.1 0.0 0.7 0.4 0.1 0.1 4.3 1.6 1.7 0.0 0.7 0.3 20.7
7.3 7.1 0.2 3.7 0.1 0.9 1.0 0.5 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.3 0.0 0.0 0.3 0.6 0.5 0.1 0.0 0.0 0.0 11.6
6.1 5.7 0.3 3.2 0.0 0.6 1.8 0.5 0.8 0.1 0.1 0.2 0.1 0.0 0.0 0.0 0.0 0.3 0.4 0.0 0.1 2.0 1.6 0.2 0.0 0.1 0.1 11.3
10.2 10.2 0.0 0.9 0.0 0.1 0.6 0.3 0.1 0.1 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 12.0
2.4 1.9 0.5 2.3 0.0 0.8 1.1 0.6 0.3 0.0 0.0 0.1 0.0 0.1 0.0 0.0 0.0 0.3 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 1.4 0.0 0.5 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 0.4 0.1 0.0 0.0 0.1 3.6
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
58.8 54.6 4.2 28.2 0.2 9.0 13.0 3.8 4.3 1.5 1.1 1.1 0.4 0.1 0.5 0.1 0.1 3.8 1.3 0.4 0.5 13.0 7.9 3.3 0.1 1.1 0.6 100.0
Source: MSCI, Bloomberg.
Updated as of 9 May 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] Nicholas Rosato Jr. (1-212) 622-2302,
[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 Paul Brunker Jesper J Koll
Global Emerging Markets and Asian Strategy European Equity Strategy Australia Equity Strategy Japan Equity Strategy
(852) 2800 8599 (44-20) 7325 5242 (61-2) 9003 8641 (81-3) 6736-8600
[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
