Guide to the Markets ASIA 2013 docx

Morgan Asset Management "Guide to the Markets - Asia." Data reflect most recently available as of 31/3/13... Morgan Asset Management “Guide to the Markets – Asia." Data reflect most rece

REGIONAL AND LOCAL ECONOMY GLOBAL ECONOMY

EQUITIES

25

59

4 Table of Contents

FIXED INCOME OTHER ASSETS AND INVESTOR BEHAVIOUR

50 38

2

59

Global Market Insights Strategy Team

Past performance is no guarantee of comparable future results For China and Australia distribution, please note this communication is for intended recipients only and is for wholesale clients only in Australia For details, please refer to the full disclaimer at the end.

OTHER ASSETS AND INVESTOR BEHAVIOUR

38 Global Sectors: Returns

39 Global Earnings Expectations

40 Global Dividend Income

41 DM vs EM: Earnings and Dividends

42 Asian Equity Markets: Returns

43 Asian Equity Markets: Index Composition

44 Asian Equity Markets: Valuations

45 Asian Equity Markets: Valuation Analysis

46 Asian Equity Markets: Relationship with US Interest Rates

47 Asia Dividend Income

48 Emerging Market Equities: Returns

49 Emerging Market Equities: Index Composition

4 Contribution to Global GDP and Asian Middle Class

5 Asia: Inflation

6 ASEAN-5: Returns vs Fundamentals

7 ASEAN-5: Trade and Competitiveness

8 Australia: Economic Snapshot

9 China: Economic Growth and Inflation

10 China: Cyclical Indicators

11 China: Balance of Payments and Trade

12 China: Monetary Policy

13 China: Real Estate

14 Hong Kong: Economic Snapshot

15 India: Economic Growth, Inflation and Monetary Policy

16 India: Trade and Fundamentals

17 India: Profits and Flows

18 Japan: Economic Snapshot

Page Reference

Fixed Income

3

50 Global Fixed Income: Yields and Returns

51 United States: High Yield Bonds

52 Asia: Fixed Income Market

53 Asia: Sovereign Debt

54 Asia: Credit Markets

55 EM: Fixed Income Market

56 EM and Asia: Sovereign Debt

57 EM and Asia: Currencies

58 EM and Asia: Current Accounts and Real Yields

59 Asset Class Returns

60 Asset Class Correlations

61 Global Commodities Returns

62 Commodities: Energy

63 Commodities: Oil Demand

64 Commodities: Gold

65 Risk Appetite and Economic Surprise Index

66 Global Investor Asset Allocation by Region

67 Real Return on Cash in Asia

68 Retirement Trends in Asia

69 Dollar Cost Averaging

18 Japan: Economic Snapshot

19 Japan: Trade

20 Japan: Monetary Policy and Currency

21 Japan: Federal Finance and Structural Trends

22 Korea: Economic Snapshot

23 Taiwan: Economic Snapshot

24 Korea and Taiwan: Trade

25 Global Growth

26 DM vs EM: Rates, Inflation and Growth

27 Global Monetary Policy

28 Sovereign Debt Stresses

29 United States: Inflation and Unemployment

30 United States: Cyclical Indicators

31 United States: Consumer Finances

32 United States: Federal Finances

33 Eurozone: Economic Growth

34 Eurozone: Sovereign Bond Yields

35 Eurozone: Structural Imbalances

36 Emerging Markets: Economic Snapshot

37 Brazil: Economic Snapshot

Global Economy

Other Assets and Investor Behaviour

IndiaOther EM

Source: IMF, “The Emerging Middle Class in Developing Countries” by Homi Kharas - OECD paper, CLSA “Mr & Mrs Asia – Spring 2011,” World

Bank, Euromonitor, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Top) Gross domestic product data are based in national currency converted to US dollars using market exchange rates (yearly average) Forecasts

are provided by IMF, based on the October 2012 World Economic Outlook

(Bottom Left) Middle class is defined as households with daily expenditures between USD10 and USD100 per person in PPP terms (2005 USD)

(Bottom Right) Middle class is defined as households with annual per capita disposable income of USD 3,000 or above

Total may not sum to 100% due to rounding Data reflect most recently available as of 31/3/13

Composition of the Asian Middle Class (2010) Share of Spending by the Global Middle Class

200920202030

China61.4%

Asia: Inflation

Monthly Inflation Trend

Rising inflation Unchanged Falling inflation

All data for Headline CPI unless otherwise stated India: Data is for WPI

* Thailand’s central bank targets core CPI, which excludes raw food and energy

Data reflect most recently available as of 31/3/13

ASEAN-5: Returns vs Fundamentals

Index Performance

Total return in USD*

Real GDP Growth Comparison

2013 returns YTD (Right)

Returns since 2000 (Left)

Source: IMF, FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

*Total Returns include dividends reinvested up to latest period

(Bottom Right) Domestic Demand defined as private consumption, government consumption and fixed asset investment External Demand

defined as net trade, change in stocks and residuals

Data reflect most recently available as of 31/3/13

Real GDP Growth Comparison

ASEAN-5: Trade and Competitiveness

Real Average Monthly Wages

EUUSAJapanChinaASEANEU

Source: International Labour Organisation (ILO), IMF, World Trade Organization, FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

* Except for Vietnam, which is 2002

** Data from ILO - Key indicators of the labour market, latest data from 2009, or 2008 in the case of India, Indonesia and Vietnam

LVMC stands for Laos, Vietnam, Myanmar and Cambodia

Data reflect most recently available as of 31/3/13

Thailand: Export Value Performance to ASEAN

Index, rebased 2000 = 100

Total Exports ASEAN ASEAN ex-Singapore

LVMC group

7.9%

11.4%

17.8% 18.5%

SingaporeJapanUnited States

E.U

China

Australia: Economic Snapshot

Major Export Partners

Source: FactSet, World Trade Organization, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Bottom Left) Consumer Price Index (CPI) value shown is year-over-year % change

Data reflect most recently available as of 31/3/13

Exports and AUD/USD Exchange Rate

CPI Inflation and Monetary Policy Rate

Source: National Bureau of Statistics of China, FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

Private Consumption and Investment as % of GDP

Investment

Consumption

2011: 48.3%

2011: 35.4%

Fixed Asset Investment

Year-over-year % change, 3-month moving average

China: Cyclical Indicators

Source: National Bureau of Statistics of China, China Association of Automobile Manufacturers, Markit, FactSet, J.P Morgan Asset Management

"Guide to the Markets - Asia."

Data reflect most recently available as of 31/3/13

Korea Japan Hong Kong United States Europe

United States

Merchandise Trade Growth

Year-over-year % change, 3-month moving average

Source: World Trade Organization, China State Administration of Foreign Exchange, Markit, Thomson Reuters DataStream, J.P Morgan Economics,

J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

Imports

Exports

3,000 4,000

5,000

Total Social Financing and Money Supply

M2 (Right) Others (Left)

China: Monetary Policy

3/2013: 6%

RRR

Working Capital Rate

3/2013: 20%

1-year Working Capital Rate and Reserve Requirement Ratio

New RMB Bank Loans (Left)

0 1,000 2,000 3,000

Source: The People’s Bank of China, FactSet, CEIC, Bloomberg, J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

Open Market Operations

Funds injected / withdrawn on a monthly basis (RMB billions)

Housing Mortgage

'07 '08 '09 '10 '11 '12 '13

Home Prices Residential Floor Space Started and Sold

Index, rebased 2007 = 100 Year-over-year % change, seasonally adjusted

Source: National Bureau of Statistics of China, China Association of Automobile Manufacturers, Markit, FactSet, J.P Morgan Asset Management

"Guide to the Markets - Asia."

Data reflect most recently available as of 31/3/13

Beijing / Shanghai Average

National Average

Residential Floor Space Started

Residential Floor Space Sold

Year-over-year % change, 3-month moving avg.

Bank Loans Loan-to-Deposit Ratio

'96 '98 '00 '02 '04 '06 '08 '10 '12-10%

-30%

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

015304560

Source: Hong Kong Census & Statistics Department, Hong Kong Tourist Association, FactSet, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Bottom Right) Affordability index is calculated by dividing the private property price by the median household income

Data reflect most recently available as of 31/3/13

Retail Sales and Visitors

HKD billions, 3-month moving avg.

Indices, rebased 1994 = 100

Visitors

Retail Sales

Property Price

Affordability Index

Less Affordable

More Affordable

Wholesale Price Index

UAE E.U.

India: Trade and Fundamentals

Source: IMF, J.P Morgan Economics, Ministry of Statistics and Programme Implementation, World Trade Organization, FactSet,

J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

Private Consumption Growth

20 25 30 35

50

60

700

900

India: Profits and Flows

Earnings and Market Performance

Forward earnings per share and the MSCI India (Local currency)

Investment Fund Flows YTD

USD billions

MSCI India Index

Foreign Institutional Investments (Debt)

Domestic Institutional Investments (Equity)

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 30

Non-manufacturing Index

-5255585115

'02 '04 '06 '08 '10 '12

Earnings and TOPIX

Source: Japanese Cabinet Office, Japanese Statistics Bureau & Statistics Centre, Japan Real Estate Institute, FactSet, I/B/E/S, Thomson Reuters Datastream,

J.P Morgan Asset Management “Guide to the Markets – Asia."

(Top Right) Forecast for June 2013 from Bank of Japan Tankan Short-Term Economic Survey of Enterprises in Japan

(Top Left) Japan’s 1Q 2009 GDP growth reached a trough of -9.4% and is cut off to maintain a more reasonable scale

(Bottom Left) Large cities (ku-area) refers to Tokyo, Yokohama, Nagaya, Kyoto, Osaka, and Kobe

Data reflect most recently available as of 31/3/13

Urban Land Price Index

010,000

Major Trading Partners

Exports

Source: FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

Japan: Monetary Policy and Currency

Source: Bloomberg, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Right) Currencies are denominated as Japanese yen per foreign currency

Data reflect most recently available as of 31/3/13

AUD/JPY

EUR/JPY

Appreciating Japanese Yen Depreciating Japanese Yen

US Dollar and Japanese Yen

bps

USD/JPY 2-year gov’t bond

yield differential

Age Dependency Ratio*

Source: National Institute of Population and Social Security Research Japan, KPMG, FactSet, IMF, J.P Morgan Asset Management “Guide to the Markets – Asia."

*Age Dependency Ratio is the ratio between old aged dependents (aged 65+) to the total working population (aged 15-64)

Data reflect most recently available as of 31/3/13

Government Gross and Net Debt

2009

IMF Forecast

Source: FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Top Right) Consumer Price Index (CPI) value shown is year-over-year % change

Data reflect most recently available as of 31/3/13

Real Industrial Output Growth

Korean Won Depreciation

Taiwan: Economic Snapshot

Real GDP and Exports

Source: FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Top Right) Inflation shown is year-over-year % change

(Bottom Left) SEMI stands for North American Semiconductor Equipment Industry Book-to-bill ratio is the ratio of orders taken in a period to the

amount invoiced over the same period Invoicing is usually done shortly after shipping Therefore, the difference between the amount ordered and the

amount invoiced is usually viewed as an leading indicator of whether output will rise or fall A book-to-bill ratio of 1 shows stability, above 1 indicates

near term output expansion and vice versa Data reflect most recently available as of 31/3/13

Real Industrial Output Growth

Year-over-year % change

2/2013: -11.5%

SEMI Book-to-bill Ratio and TAIEX

Korea and Taiwan: Trade

Korea: Major Export Partners

% of GDP

Korea: Export Growth

Year-over-year % change, seasonally adjusted

Source: FactSet, World Trade Organization, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Right) Export growth to China reached a peak of 98.0% and 187.8% yoy in January 2010 for Korea and Taiwan respectively, and are cut off to

maintain a more reasonable scale

Data reflect most recently available as of 31/3/13

Taiwan: Export Growth

Year-over-year % change, seasonally adjusted

Taiwan: Major Export Partners

% of GDP

G3

Asia ex-China

China

Source: J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

Source: J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

Emerging Markets and Developed Markets data are GDP weighted aggregates estimated by J.P Morgan Economics

Data reflect most recently available as of 31/3/13

Global Monetary Policy

Central Bank Assets – Percent of Nominal GDP

Euro Area Japan

US

Money Multiplier – M2/Base Money

European Central Bank Bank of Japan

Source: J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Bottom) Central bank policy rates are the short-term target interest rates set by central banks Inflation rates shown represent year-over-year average

quarterly headline CPI rates for 4Q12 Real policy rates are latest central bank policy rates minus year-over-year inflation

Data reflect most recently available as of 31/3/13

Developed Markets Emerging Markets

Brazil South Africa

Mexico

US

Turkey

Korea China

Germany

India Indonesia

Source: IMF, FactSet, Bloomberg, J.P Morgan Economics, Barclays, J.P Morgan Asset Management

Growth and debt data are based on the IMF World Economic Outlook, October 2012

Borrowing costs based on local currency debt EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury South Africa’s

borrowing cost is based on 7-year government bond yield due to data availability Data reflect most recently available as of 31/3/13

240%

United States: Inflation and Unemployment

Avg

since 1999

Avg

since 1999 2/2013

Source: US Bureau of Economic Analysis, Census Bureau, FactSet, J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

4%

5%

6%

7%

United States: Cyclical Indicators

4822

Millions, seasonally adjusted

Days of sales, seasonally adjusted

40424446

'93 '95 '97 '99 '01 '03 '05 '07 '09 '1136

38

'93 '95 '97 '99 '01 '03 '05 '07 '09 '118

10

12

Real Capital Goods Orders

Non defense capital goods orders ex aircraft USD bn seasonally adjusted

Housing Starts

60657075

Source: US Bureau of Economic Analysis, Census Bureau, FactSet, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Bottom Right) Capital goods orders deflated by producer price index for capital goods

Data reflect most recently available as of 31/3/13

United States: Consumer Finances

125 150

Source: Bureau of Economic analysis, US Federal Reserve, FactSet, National Association of Realtors, US Census Bureau, J.P Morgan Asset

Management “Guide to the Markets – Asia."

* 1Q13 Household Net Worth is a J.P Morgan Asset Management estimate

(Bottom Left) Latest DSR data is for December 2012

(Right) Price index is the median home sale price

Data reflect most recently available as of 31/3/13

US Household Debt Service Ratio

United States: Federal Finances

Forecast

32

Source: US Treasury, US Bureau of Economic Analysis, Congressional Budget Office, J.P Morgan Asset Management “Guide to the Markets – Asia."

2012 numbers are actuals Years shown are fiscal years (1 October through 30 September) Chart on the left displays federal surplus/deficit (revenues minus outlays) Federal net debt comprises all financial liabilities of the Federal government (gross debt) minus all intra-government holdings as assets Deficit and debt scenarios are based on CBO budget forecasts from August 2012 and February 2013, which include the American Taxpayer Relief Act’s cost estimates

Data reflect most recently available as of 31/3/13

1990 1994 1998 2002 2006 2010 2014 2018 2022

2022: 58.3%

Eurozone: Economic Growth

France Ireland UK Germany Austria Switzerland Sweden Norway

2

4

6

33

Source: Eurostat, Office for National Statistics, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

Eurozone: Sovereign Bond Yields

European Sovereign Funding Costs

10-year benchmark bond yield

Source: FactSet, BIS, ECB, Thomson Reuters DataStream, J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

120 130 140

3.0

4.5

6.0

7.5

Eurozone: Structural Imbalances

Trade Balances with the Eurozone

6-month moving average, USD billions

Unit Labour Costs

Relative to Germany

Germany

Greece Spain

Italy

Ireland

Greece Spain

Italy

Euro launch

Source: IMF, ECB, J.P Morgan Asset Management “Guide to the Markets – Asia."

(Left) Latest data August 2012

(Right) Latest data 3Q 2012 Data rebased to 100 at 4Q 1998 Unit labour cost measures the average cost of labour per unit of output and is calculated

as the ratio of total labour cost to real output

Data reflect most recently available as of 31/3/13

Emerging Markets: Economic Snapshot

Global PMI and EM GDP

Source: FactSet, J.P Morgan Economics, J.P Morgan Asset Management “Guide to the Markets – Asia."

Data reflect most recently available as of 31/3/13

Real and Nominal Effective Exchange Rates

Latin America