Guide to the Markets - Latin America - J.P. Morgan€¦ · Latin America aggregate GDP growth...

Guide to the Markets®

Latin America | |

MARKET INSIGHTS

2Q 2020 As of March 31, 2020

|GTM – Latin AmericaGlobal Market Insights Strategy Team 2

*Responsible for Latin America

Vincent JuvynsLuxembourg

Tilmann Galler, CFAFrankfurt

Maria Paola ToschiMilan

Shogo MaekawaTokyo

Lucia Gutierrez MelladoMadrid

Tai HuiHong Kong

Marcella ChowHong Kong

Yoshinori ShigemiTokyo

Kerry Craig, CFAMelbourne

Dr. Jasslyn Yeo, CFASingapore

Karen WardLondon

Ambrose Crofton, CFALondon

Chaoping Zhu, CFAShanghai

Jai Malhi, CFALondon

Manuel Arroyo Ozores, CFAMadrid

Agnes LinTaipei

Michael Bell, CFALondon

Alex Dryden, CFANew York

Samantha AzzarelloNew York

Dr. David Kelly, CFANew York

Dr. Cecelia MundtNew York

Meera Pandit, CFANew York

John ManleyNew York

Tyler Voigt, CFANew York

Gabriela Santos*New York

David LebovitzNew York

Jordan JacksonNew York

Jennie Li*New York

Hugh Gimber, CFALondon Ian Hui

Hong Kong

Max McKechnieLondon

|GTM – Latin America

3

|Page reference 3

Latin America economy4. Latin America: Economic growth and inflation5. Latin America: Composition of economic growth6. Latin America: Inequality and fiscal balance7. Latin America structural drags8. Brazil: Economic snapshot9. Brazil: Inflation and monetary policy10. Brazil: Consumer and business dynamics11. Brazil: Fiscal policy12. Mexico: Economic snapshot13. Mexico: Inflation and monetary policy14. Mexico: Consumer and business dynamics15. Mexico: Fiscal dynamics16. Argentina: Economic snapshot17. Argentina: Inflation, monetary and fiscal policy18. Colombia: Economic snapshot19. Colombia: Inflation and monetary policy20. Chile: Economic snapshot21. Chile: Inflation and monetary policy22. Peru: Economic snapshot23. Peru: Inflation and monetary policy

Global economy24. Global economic growth25. Services momentum26. Global inflation 27. Global monetary policy28. U.S.: Economic growth and the composition of GDP29. U.S.: Social distancing vulnerability30. U.S.: Long-term drivers of economic growth31. U.S.: Inflation and unemployment32. U.S.: The Fed and interest rates33. Europe: Economic growth34. UK: Economic indicators35. Japan: Abenomics and markets36. China: Economic and policy snapshot37. Emerging economies

Fixed income38. Latin America fixed income: Returns39. Latin America fixed income: Valuations40. Emerging market debt41. Default protection prices42. Attractiveness of Latin American local rates43. Global fixed income: Interest rate risk44. Global fixed income: Yields and correlation to equities45. Global fixed income: Return composition46. Global negative-yielding debt47. U.S. corporate debt48. U.S. high yield bonds

Equities49. Latin America equity returns50. Latin America valuation measures51. Latin America corporate profits 52. Latin America valuations and earnings53. Emerging market equity indices54. Emerging market equities55. Global equity markets56. International equity earnings and valuations57. U.S. and international equities at inflection points58. U.S.: Corporate profits and valuations59. Annual returns and intra-year declines

Other asset classes 60. Commodities61. Oil markets62. Global currencies 63. Global alternatives64. Alternatives and manager selection

Investing principles65. Asset class returns66. Life expectancy and pension shortfall67. Local investing and global opportunities68. Correlations and beta69. Time, diversification and the volatility of returns70. Market timing, diversification and the average investor71. Asset class performance around bear markets72. Diversification benefits and forced rebalancing


4

|

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.Latin America aggregate GDP growth includes Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay. Inflation does not include Argentina or Venezuela.

Guide to the Markets – Latin America. Data are as of March 31, 2020.

Latin America: Economic growth and inflation

InflationYear-over-year % change

Latin

Am

eric

aec

onom

y

4

Real GDPYear-over-year % change

Average: 2.5%

Feb. 2020: 3.4%

Real GDP 3Q19

YoY % chg: 0.8%QoQ % chg: 1.9%


5

|

36%

25%

24%

20%

14%

12%

11%

0% 10% 20% 30% 40%

Mexico

Venezuela

Chile

Peru

Argentina

Brazil

Colombia

Latin America: Composition of economic growth

Latin

Am

eric

aec

onom

y

Exports% of nominal GDP, USD terms, goods, 2019

Source: IMF World Economic Outlook, J.P. Morgan Asset Management; (Left) Argentina Economy Ministry, BCE, BCRP, BCU, CBC, DANE, IBGE, INEGI; (Right) IMF Direction of Trade Statistics.Latin America aggregate GDP growth includes Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay. Uruguay is excluded from 2000 – 2005 due to data availability.


5

China

EM ex-China

U.S.

Eurozone

Other

Real GDP growthContribution to growth, year-over-year % change

Private consumption

Investment

Net exports

Government spending

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18


6

|

-5.9%

-3.8%

-2.8%-2.5%

-1.6% -1.6%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Brazil Argentina Chile Colombia Mexico Peru

Latin America: Inequality and fiscal balance

Gini index and GDP per capitaGini index: 0 = perfect equality and 100 = perfect inequality

Fiscal deficitNominal deficit, % of GDP, 2019

Latin

Am

eric

aec

onom

y

Source: J.P. Morgan Asset Management; (Left) World Bank; (Right) Central Bank of Brazil, Central Bank of Chile, Central Bank of Colombia, Central Bank of Mexico, Central Reserve Bank of Peru, DANE (National Administration of Statistics), FactSet, INDEC (National Institute of Statistics and Census of Argentina), INEGI (National Institute of Statistics and Geography of Mexico), Ministry of Economy of Argentina.GDP per capita measured in constant 2010 U.S. dollars. *Data are from 2007 or the closest year available. **Latest Gini coefficients are from 2018 or latest available. GDP per capita is from 2018.


6

Latest**2007*

Argentina

Brazil

Chile

China

Colombia

India

Mexico

Peru

30

35

40

45

50

55

60

65

$0 $3,000 $6,000 $9,000 $12,000 $15,000 $18,000

Gin

i ind

ex

GDP per capita, U.S. dollars


7

|

Source: J.P. Morgan Asset Management; (Top left and right) World Bank “Doing Business in 2020” survey; (Bottom left) World Trade Alert.*Measures that may involve or almost certainly do involve discrimination against foreign commercial interests.


Latin America structural drags

Protectionist trade measures*

Ease of doing business rankingOverall ranking, 1 = most ease of doing business, 2019

Number of measures implemented from 2009 - 2020

Selected competitiveness indicators: 2019

Cost to export goodsUSD per container, 2019

7

Latin

Am

eric

aec

onom

y

59 60 67 76

124 126

188

020406080

100120140160180200

Chile Mexico Colombia Peru Brazil Argentina Venezuela

Indicator LATAM OECD High Income

Ease of doing business (rank, 1-189) 116 30

Days to register a new business 29 9

Days to deal w ith construction permits 191 152

Days to resolve a dispute 774 590

Recovery rate from insolvent f irm (cents) 31 70

Number of hours spent preparing taxes 317 159

Total tax rate (% profit) 47 40

$2,359 $2,245$1,910

$1,360$980

$685 $610 $602 $599 $487

$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$2,8002,878

1,001 860 799 777 404 209 102 96 78 35

0

500

1,000

1,500

2,000

2,500

3,000

3,500


8

|

40

50

60

70

80

90

100

110

120

-$20

$10

$40

$70

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

-20%

-10%

0%

10%

20%

30%

40%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

9%

11%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Real consumption and investmentYear-over-year % change

4Q19: -0.4%

4Q19: 2.1%

InvestmentConsumption

Source: IBGE (Brazilian Statistics and Geography Institute), J.P. Morgan Asset Management; (Bottom right) Central Bank of Brazil, MDIC (Ministry of Development, Industry and External Commerce), J.P. Morgan Global Economic Research.*Real effective exchange rates (REERs) compare the value of a currency to a weighted basket of several foreign currencies. They are deflated using a producer price index.


Brazil: Economic snapshot


8

Latin

Am

eric

aec

onom

y

Trade balance and exchange rateUSD billions, accumulated past 12 months, real effective FX*

Feb. 2020:87.5

Feb. 2020: $44.7bn

Average: 2.4%

REER

Trade balance

Real GDP 4Q19



9

|

0%

2%

4%

6%

8%

10%

12%

14%

16%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '212%

5%

8%

11%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

Source: Central Bank of Brazil, IBGE (Brazilian Statistics and Geography Institute), J.P. Morgan Asset Management.Target inflation bands set by Central Bank of Brazil. *Focus survey conducted by Central Bank of Brazil. **Includes prices set at federal level (telephone services, petroleum derivatives, electricity, health plans) and state/municipal level (water and sewage taxes, value-added and real estate taxes, public transport costs).


Brazil: Inflation and monetary policy

Inflation targeting and inflationIPCA, 12-month accumulated % change

Inflation breakdownIPCA, year-over-year % change

Consensus*

2020 target: 4.0%

Lower limit: 2.5%

Upper limit: 5.5%

ServicesGoods

Supervised**

9

Latin

Am

eric

aec

onom

y

BCB Selic target rate and consensus expectations, end of periodTarget policy rate and expectations

Consensus*Feb. 2020: 4.0%

-2%0%2%4%6%8%

10%12%14%16%18%20%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20


10

|

6%

7%

8%

9%

10%

11%

12%

13%

14%

'12 '13 '14 '15 '16 '17 '18 '19 '2060

70

80

90

100

110

120

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

-12%

3%

18%

33%

48%

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Source: J.P. Morgan Asset Management; (Left) FGV/IBRE (Brazilian Institute of Economics of the Getulio Vargas Foundation); (Top right) Central Bank of Brazil; (Bottom right) IBGE (Brazilian Statistics and Geography Institute).*Non-earmarked funds are those where interest rates are determined by market conditions.


Brazil: Consumer and business dynamics

Consumer and industrial confidenceSeasonally adjusted

Credit growthYear-over-year % change, non-earmarked credit*

Feb. 2020: 16.7%Feb. 2020: 13.1%

HouseholdsCorporates

Latin

Am

eric

aec

onom

y

ConsumerIndustrial

Unemployment rateNon-seasonally adjusted, 3-month average

Feb. 2020: 11.6%

10


11

|

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

15%

20%

25%

30%

35%

40%

45%

50%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

45%

50%

55%

60%

65%

70%

75%

80%

85%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management; (Left and bottom right) Central Bank of Brazil; (Top right) National Treasury of Brazil.Public sector includes central government, local governments and selected state-owned companies.


Brazil: Fiscal policy

Social security and payroll expenditures% of total expenses, 12-month moving average

Public sector primary balance% of GDP, 12-month sum

% of GDPGross debt

11

Latin

Am

eric

aec

onom

y

Feb. 2020: 76.5%Feb. 2020:

-0.8%

Average: 63.6%

Feb. 2020: 22.1%

Feb. 2020: 44.5%

Social securityPayroll


12

|

70

80

90

100

110

120

130

140

-$20

-$15

-$10

-$5

$0

$5

$10

$15

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

-20%

-15%

-10%

-5%

0%

5%

10%

15%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Source: INEGI (National Institute of Statistics and Geography of Mexico), J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.*Real effective exchange rates (REERs) compare the value of a currency to a weighted basket of several foreign currencies. They are deflated using a producer price index.


Mexico: Economic snapshot

Latin

Am

eric

aec

onom

y

12


Average: 2.1%

USD billions, accumulated past 12 months, real effective FX*Trade balance and exchange rate


4Q19: -5.2%

4Q19: 0.9%

ConsumptionInvestment

Mar. 2020: 82.2

Feb. 2020: $9.6bn

REER

Trade balance

Real GDP 4Q19

YoY % chg: -0.4%QoQ % chg: -0.5%


13

|

1%

2%

3%

4%

5%

6%

7%

8%

8

10

12

14

16

18

20

22

24

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

2%

3%

4%

5%

6%

7%

8%

9%

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '201%

2%

3%

4%

5%

6%

7%

8%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

Source: Central Bank of Mexico, J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.*Survey conducted by the Central Bank of Mexico.


Mexico: Inflation and monetary policy

Latin

Am

eric

aec

onom

y

Inflation targeting and inflationHeadline inflation, 12-month accumulated % change

Target: 3.0%

FX and core goods inflationPeso per USD spot rate, monthly average, year-over-year % chg.

Feb. 2020: 3.8%

Banxico target rateTarget policy rate and expectations

13

Feb. 2020: 3.7%

Lower limit: 2.0%

Upper limit: 4.0%

Mar. 2020: 23.5

FX

Core goods inflation

Consensus*

Mar. 2020: 6.5%


14

|

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Source: J.P. Morgan Asset Management; (Left) INEGI-Central Bank of Mexico; (Top right) Central Bank of Mexico; (Bottom right) INEGI (National Institute of Statistics and Geography of Mexico).


Mexico: Consumer and business dynamics

Consumer and industrial confidenceComposite consumer index, mfg. producer confidence, sa Households, year-over-year % change, net of bad debts

Private sector credit growth

Latin

Am

eric

aec

onom

y

14

Jan. 2020:4.9%

Consumer confidenceIndustrial confidence

Feb. 2020: 3.7%

Unemployment rateSeasonally adjusted

30

35

40

45

50

55

60

65

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2025

30

35

40

45

50


15

|

15%

17%

19%

21%

23%

25%

27%

29%

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '1935%

40%

45%

50%

55%

60%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

2019: 22.2%

Source: J.P. Morgan Asset Management; (Left) IMF; (Top right) Ministry of Finance and Public Credit; (Bottom right) Central Bank of Mexico, INEGI.*2019 is an IMF estimate.


Mexico: Fiscal dynamics

Latin

Am

eric

aec

onom

y

Government oil revenues% of total government revenues

Gross debt% of GDP

2019: 53.8%*

% of GDP, annualPublic sector revenues and expenditures

2019: 23.9%

15

RevenuesExpenditures

0%

10%

20%

30%

40%

50%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18


16

|

-60%

-40%

-20%

0%

20%

40%

60%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

-60%

-40%

-20%

0%

20%

40%

60%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

-20%

-15%

-10%

-5%

0%

5%

10%

15%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

4Q19:-1.9%

Source: Economic Ministry, J.P. Morgan Asset Management.


Argentina: Economic snapshot

Latin

Am

eric

aec

onom

y


Average: 1.4%

4Q19: -9.0%

International tradeYear-over-year % change, 4-quarter moving average

ExportsImports

4Q19: -18.2%



16

4Q19: 9.5%

Real GDP 4Q19

YoY % chg: -0.5%QoQ % chg: -3.9%


17

|

2.0%2.4%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20

$40

$45

$50

$55

$60

$65

$70

$75

$80


20%

30%

40%

50%

60%

70%

80%

90%

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20

Argentina: Inflation, monetary and fiscal policy

Latin

Am

eric

aec

onom

y

17

Source: Central Bank of Argentina, INDEC (National Institute of Statistics and Census of Argentina), J.P. Morgan Asset Management.


Inflation% change month-over-month, national IPC

Mar. 2020:38.0%

Headline

Core

Feb. 20 (y/y change): 50%

Expectations next 12m: 40%

Monetary base% change month-over-month

International reservesBillions, U.S. dollars

Monetary policy rate% per annum

Capital controls

9.9%

-10%

-5%

0%

5%

10%

15%



18

|

-20%

-5%

10%

25%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

-10%-5%0%5%10%15%20%25%30%35%

-1%

1%

3%

5%

7%

9%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Source: DANE (National Administration of Statistics), J.P. Morgan Asset Management.


Colombia: Economic snapshot


Latin

Am

eric

aec

onom

y

Average: 3.9%

4Q19: 1.3%

4Q19: 4.7%


4Q19: 3.2%

4Q19: 9.2%

ExportsImports



18

Real GDP 4Q19



19

|

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500$0

$20

$40

$60

$80

$100

$120

$140

$160

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

2%3%4%5%6%7%8%9%

10%11%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '200%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

Consensus*

Source: J.P. Morgan Asset Management; (Left and bottom right) Central Bank of Colombia, DANE (National Administration of Statistics); (Top right) Commodity Research Bureau, FactSet, Reuters.*Survey conducted by the Central Bank of Colombia.


Colombia: Inflation and monetary policy

Oil prices and the Colombian pesoCOP per USD (inverted); Brent US$ per barrel

Colombian peso

Oil ($/bbl)

Latin

Am

eric

aec

onom

y

Inflation targeting and inflationHeadline inflation, 12-month accumulated % change

Feb. 2020: 3.7%

Target: 3.0%

Lower limit: 2.0%

Upper limit: 4.0%Target policy rate and expectationsBanRep repo rate, end of period, percent per annum

19

Mar. 2020: 3.75%


20

|

-20%

-10%

0%

10%

20%

30%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

-20%

-10%

0%

10%

20%

30%

-10%

-5%

0%

5%

10%

15%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

-4%

-2%

0%

2%

4%

6%

8%

10%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Source: Central Bank of Chile, J.P. Morgan Asset Management.


Chile: Economic snapshot

Latin

Am

eric

aec

onom

y

Real GDP

Average: 3.8%


Consumption Investment


4Q19: -2.3%

4Q19: -2.2%

ExportsImports

4Q19: -3.8%

4Q19: 2.7%

20

Real GDP 4Q19

YoY % chg: -2.4%QoQ % chg: -15.5%

Year-over-year % change


21

|

400450500550600650700750800850900$2,500

$4,000

$5,500

$7,000

$8,500

$10,000

'11 '12 '13 '14 '15 '16 '17 '18 '19 '20

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20-4%

-2%

0%

2%

4%

6%

8%

10%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22

Consensus*

Source: J.P. Morgan Asset Management; (Left) INE (National Statistics Institute of Chile); (Top right) INE, Reuters; (Bottom right) Central Bank of Chile.*Survey conducted by the Central Bank of Chile.


Chile: Inflation and monetary policy

Latin

Am

eric

aec

onom

y

Target:3.0%

Lower limit: 2.0%

Feb. 2020: 3.9%

Upper limit: 4.0%

Inflation targeting and inflationHeadline inflation, year-over-year % change

Copper prices and the Chilean pesoCLP per USD (inverted), $/mt

Target policy rate and expectationsCentral Bank of Chile rate, end of period, percent per annum

Chilean peso

Copper prices

21

Mar. 2020: 0.5%


22

|

-20%

-10%

0%

10%

20%

30%

40%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

-20%

-10%

0%

10%

20%

30%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18-4%

-2%

0%

2%

4%

6%

8%

10%

12%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Source: Central Reserve Bank of Peru, INEI (National Statistics Institute of Peru), J.P. Morgan Asset Management.


Peru: Economic snapshot

Real GDPAvg. of 3 months, year-over-year % change

Latin

Am

eric

aec

onom

y

Average: 4.8%

4Q19: -1.5%

4Q19: 3.0%


ExportsImports

Real consumption and investment

4Q19:0.8%

Year-over-year % change


22

4Q19:1.2%

Real GDP 4Q19



23

|

0%

5%

10%

15%

20%

25%

30%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

0%

1%

2%

3%

4%

5%

6%

7%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

Source: J.P. Morgan Asset Management; (Left) INEI; (Top and bottom right) Central Reserve Bank of Peru.*Survey conducted by the Central Bank of Peru.


Peru: Inflation and monetary policy

Latin

Am

eric

aec

onom

y

Inflation targeting and inflationHeadline inflation, Lima, year-over-year % change

Target: 2.0%

Lower limit: 1.0%

Upper limit: 3.0%

Target policy rateBCRP official reference rate, end of period, percent per annum

Feb. 2020: 1.9%

Mar. 2020: 1.3%

Reserve requirementsReserve requirements as a % of total deposits

23

Consensus*

Feb. 2020: 5.6%


24

|

3.8%3.6%

4.1%4.0%

1.6%

-1.9%

4.4%

3.2%

2.6% 2.7%

3.0%3.2%

2.8%

3.5%3.3%

2.5%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19*

Source: J.P. Morgan Asset Management; (Left) Markit; (Right) J.P. Morgan Global Economic Research.PMI is the Purchasing Managers’ Index. Global GDP growth is a GDP-weighted measure of real GDP at U.S. dollar market exchange rates. *2019 is an average of the four quarters and 4Q is a forecast. Guide to the Markets – Latin America. Data are as of March 31, 2020.

Global economic growth 24

Glob

al e

cono

my

Global PMI for manufacturing and servicesMonthly

Global real GDP growth% change, year-over-year

Services

Manufacturing

Average:2.9%

Feb. 2020: 47.1

Mar. 2020: 47.6

30

35

40

45

50

55

60

65

'04 '06 '08 '10 '12 '14 '16 '18 '20

|GTM – Latin America |

25

Services momentum

Source: Markit, J.P. Morgan Asset Management.Heatmap colors are based on PMI relative to the 50 level, which indicates acceleration or deceleration of the sector, for the time period shown. Heatmap is based on quarterly averages, with the exception of the two most recent figures, which are single month readings. Data for the U.S. are back-tested and filled in from December 2007 to September 2008 due to lack of existing PMI figures. DM and EM represent developed markets and emerging markets, respectively. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Latin America. Data are as of March 31, 2020.

Global Purchasing Managers’ Index for services, quarterly

25

Glob

al e

cono

my

Feb Mar

Global 47.1 37.0

DM 49.7 34.8

EM 39.7 42.1

U.S. 49.4 39.8

Japan 46.8 33.8

UK 53.2 34.5

Euro Area 52.6 26.4

Germany 52.5 31.7

France 52.5 27.4

Italy 52.1 17.4

Spain 52.1 23.0

China 26.5 43.0

India 57.5 49.3

Brazil 50.4 34.5

Mexico 48.6 39.4

Russia 52.0 37.1

2019

Emer

ging

Dev

elop

ed

20202008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


26

Global inflation

Source: Bank of Mexico, DGBAS, Eurostat, FactSet, Federal Reserve, Goskomstat of Russia, IBGE, India Ministry of Statistics & ProgrammeImplementation, Japan Ministry of Internal Affairs & Communications, Korean National Statistical Office, Melbourne Institute, National Bureau of Statistics China, Statistics Canada, Statistics Indonesia, UK Office for National Statistics (ONS), J.P. Morgan Asset Management.Heatmap is based on quarterly averages, with the exception of the two most recent figures, which are single month readings. Colors determined by percentiles of inflation values over the last 10 years. Deep blue = lowest value, light blue = median, deep red = highest value. DM and EM represent developed markets and emerging markets, respectively.Guide to the Markets – Latin America. Data are as of March 31, 2020.

Year-over-year headline inflation by country and region, quarterly

26

Glob

al e

cono

my

Jan Feb

Global 2.9% 2.5%

DM 1.8% 1.5%

EM 4.7% 4.0%

U.S. 2.5% 2.3%

Canada 2.4% 2.2%

Japan 0.7% 0.5%

UK 1.8% 1.7%

Euro Area 1.4% 1.2%

Germany 1.6% 1.7%

France 1.7% 1.6%

Italy 0.4% 0.2%

Spain 1.1% 0.9%

Greece 1.1% 0.4%

China 5.4% 5.2%

Indonesia 2.7% 3.0%

Korea 1.5% 1.1%

Taiwan 1.1% 0.4%

India 7.6% 6.6%

Brazil 4.2% 4.0%

Mexico 3.2% 3.7%

Russia 2.4% 2.3%

20192020

Dev

elop

edEm

ergi

ng

2008 2009 2010 2011 2012 2013 2014 2015 20172016 2018


27

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

'16 '17 '18 '19 '20

Source: J.P. Morgan Asset Management; (Left) Bank of England, Bank of Japan, European Central Bank, FactSet, Federal Reserve System, J.P. Morgan Global Economic Research; (Right) Bloomberg. *Includes the Bank of Japan (BoJ), Bank of England (BoE), European Central Bank (ECB) and Federal Reserve. **Bond purchase forecast assumes $200bn GBP in net purchases from BoE through August 2021; continued BoJQE of $50trn JPY ann. for 2020; $1.11trn EUR in net purchases from the ECB through 2020; and the Federal Reserve to purchase $2.5trn of Treasuries, $1.2trn of agency MBS and $50bn of agency CMBS through 2020. Fed assumptions are based on purchase activity in March 2020 and previous QE announcements. ***Central banks include: Australia, Brazil, Canada, Chile, China, Colombia, Denmark, euro area, Hong Kong SAR, Indonesia, India, Japan, Korea, Malaysia, Mexico, Norway, Peru, Philippines, Poland, Russia, Saudi Arabia, South Africa, Sweden, Switzerland, Thailand, Turkey, United Kingdom and the United States. Guide to the Markets – Latin America. Data are as of March 31, 2020.

Global monetary policy

Developed market central bank bond purchases* USD billions, 12-month rolling flow

Number of rate changes by EM and DM central banks***

27

Forecast**Fed

BoJ

ECB

BoE

Total Cuts

Hikes

0

20

40

60

80

100

120

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Glob

al e

cono

my


28

|

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Source: BEA, FactSet, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. Quarter-over-quarter percent changes are at an annualized rate. Average represents the annualized growth rate for the full period. Expansion average refers to the period starting in the third quarter of 2009.


U.S.: Economic growth and the composition of GDP

Glob

al e

cono

my


Components of GDP4Q19 nominal GDP, USD trillions

28

Average: 2.8%

Expansion average:

2.3%

Real GDP 4Q19


68.1% Consumption

17.6% Gov't spending

13.3% Investment ex-housing

3.8% Housing

-2.7% Net exports-$1

$1

$3

$5

$7

$9

$11

$13

$15

$17

$19

$21

$23


29

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, FactSet, S&P 500, J.P. Morgan Asset Management. Consumer spending (2019 annual): membership clubs, sports, amusement parks, campgrounds, movies, theaters, museums, libraries, casino gambling, purchased meals and beverages, packaged tours, air and water transportation, hotels and motels and select retail goods and services. Employment (January 2020): air and water transportation, transit and ground passenger transportation, support activities for air and water transportation, arts, entertainment, recreation, accommodation, food services and drinking places and retail ex-food and beverage stores. Earnings (2019 LTM): hotels, restaurants and leisure; airlines; select entertainment and travel booking companies; multiline and specialty retail; and textiles apparel and luxury goods.Guide to the Markets – Latin America. Data are as of March 31, 2020.

U.S.: Social distancing vulnerability 29

Glob

al e

cono

my

Earnings contribution by industryContribution to 2019 S&P 500 LTM earnings

Employment by industryJan. 2020, thousands

Consumer spending by industry2019, billions

Retail ex-food & beverage

12,575

Restaurants & bars12,235

Entertainment 2,493 Transportation1,420

Hotels & tourism 2,095 Total: 30,817 (20% of payroll jobs)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Employment


$2,711

Restaurants & bars $840

Entertainment $336 Transportation

$166

Hotels & tourism

$118

Total: $4,171 (19% of GDP)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

Consumer spending


$5.36

Restaurants & bars$1.38

Entertainment$1.05

Airlines & cruises$1.83

Hotels & tourism$1.08

Total: $10.71 (7% of operating earnings)

$0

$2

$4

$6

$8

$10

$12

2019 Earnings contribution


30

0%

1%

2%

3%

4%

5%

6%

'55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Source: J.P. Morgan Asset Management; (Top left) Census Bureau, DOD, DOJ; (Top left and right) BLS; (Right and bottom left) BEA.GDP drivers are calculated as the average annualized growth in the 10 years ending in 4Q18. Future working-age population is calculated as the total estimated number of Americans from the Census Bureau, per the September 2018 report, controlled for military enrollment, growth in institutionalized population and demographic trends. Growth in working-age population does not include illegal immigration; DOD Troop Readiness reports used to estimate percent of population enlisted. Numbers may not sum due to rounding. Guide to the Markets – Latin America. Data are as of March 31, 2020.

U.S.: Long-term drivers of economic growth

Drivers of GDP growthAverage year-over-year percent change

Growth in private non-residential capital stockNon-residential fixed assets, year-over-year % change

Growth in working-age populationPercent increase in civilian non-institutional population ages 16-64

Growth in workers + Growth in real output per worker

Growth in real GDP

Census forecastImmigrant Native born

Glob

al e

cono

my

30

2018: 2.2%

0.8% 0.6% 0.7%

0.2%0.05%

0.3% 0.5%0.6%

0.2%0.14%

1.1% 1.1%1.2%

0.4%

0.2%

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

1.8%

'80-'89 '90-'99 '00-'09 '10-'19 '20-'29

3.1% 2.5% 0.9% 1.4% 2.0% 1.5% 0.9%

1.2%

1.9%

2.4%

1.7%

1.3%

0.3%

1.4%

4.3%4.4%

3.3%3.1%

3.4%

1.8%

2.3%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

'50-'59 '60-'69 '70-'79 '80-'89 '90-'99 '00-'09 '10-'19


31

|

-3%

0%

3%

6%

9%

12%

15%

'70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12 '15 '180%

2%

4%

6%

8%

10%

12%

'70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12 '15 '18

Civilian unemployment rate and growth in wages Seasonally adjusted, year-over-year growth in wages and salaries

Source: BEA, BLS, J.P. Morgan Asset Management.CPI used is CPI-U and values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations.


U.S.: Inflation and unemployment

Glob

al e

cono

my

31

CPI and core CPI % change vs. prior year, seasonally adjusted

50-yr. avg. Jan. 2020 Feb. 2020Headline CPI 3.9% 2.5% 2.3%Core CPI 3.9% 2.3% 2.4%Headline PCE 3.4% 1.8% 1.8%Core PCE 3.3% 1.7% 1.8%

Wage growth

UnemploymentOct. 2009:

10.0%

Feb: 20203.3%

Average: 4.0%

Average: 6.2%

Feb: 20203.5%


32

0.08% 0.13% 0.13%0.13%

0%

1%

2%

3%

4%

5%

6%

7%

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21

U.S.: The Fed and interest rates

Source: Bloomberg, FactSet, Federal Reserve, J.P. Morgan Asset Management. Market expectations are the federal funds rates priced into the fed futures market as of the following date of the March 15, 2020 emergency cut and are through December 2022. Guide to the Markets – Latin America. Data are as of March 31, 2020.

Federal funds rate expectationsFOMC and market expectations for the fed funds rate

Glob

al e

cono

my

32

Federal funds rateMarket expectations on 3/16/20

Fed policy actions Restarted unlimited asset purchase programs

Reduced reserve requirements for the banking sector

Expanded the asset purchase program to include CMBS

Restarted term asset-backed securities loan facility (TALF)

Launched a Primary (PMCCF) and Secondary Corporate Credit Facility (SMCCF)

Allowed municipal debt to be eligible as collateral in Money Market Fund Liquidity Facility (MMLF) and Commercial Paper Funding Facility (CPFF)


33

|

Source: ECB, FactSet, J.P. Morgan Asset Management; (Left and top right) Eurostat.Eurozone shown is the aggregate of the 19 countries that currently use the euro.


Europe: Economic growth

Eurozone GDP growthContribution to eurozone real GDP growth, % change year-over-year

Glob

al e

cono

my

33

Domestic demandReal GDP

Net exports

Eurozone unemployment and wage growthSeasonally adjusted, year-over-year compensation growth

Stronger loan demand

Weaker loan demand

Eurozone credit demandNet % of banks reporting positive loan demand

Wage growthUnemployment

-8%

-6%

-4%

-2%

0%

2%

4%

'07 '09 '11 '13 '15 '17 '19

Feb. 2020: 7.3%

4Q19: 1.7%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

-200%

-150%

-100%

-50%

0%

50%

100%

150%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20


34

|

-4%

-2%

0%

2%

4%

6%

8%

'02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Source: FactSet, ONS, J.P. Morgan Asset Management; (Top left) GFK; (Bottom left) Bloomberg Finance L.P.; (Right) BEA, CSO (Central Statistics Office of Ireland), IMF, INE (National Statistical Institute of Portugal), INE (National Statistical Institute of Spain), INSEE (Statistics Bureau of France), ISTAT (Italian National Institute of Statistics), National Bank of Belgium, Statistics Austria, Statistics Finland, Statistics Germany, Statistics Netherlands. *Nominal wages include bonuses.


UK: Economic indicators

Unemployment rate and consumer confidenceOverall index level

Trade with the UK% of GDP, 2018

Glob

al e

cono

my

34

Consumer confidence

Unemployment rate

Inflation and wage growth% change year-over-year

EU countries’ exports to the UK

Regions’ exports to the UK

UK exports to the EU

Headline CPI

Nominal wage growth*

0%

2%

4%

6%

8%

10%

12%

14%

16%


35

|

¥3.5

¥5.0

¥6.5

¥8.0

-¥400

¥0

¥400

¥800

¥1,200

¥1,600

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Source: J.P. Morgan Asset Management; (Top left) FactSet, Japan Ministry of Health, Labor and Welfare, Japan Ministry of Internal Affairs & Communications; (Bottom left and right) Nikkei; (Bottom left) Customs Japan.*Core CPI is defined as CPI excluding food and energy.


Japan: Abenomics and markets

Japanese yen and the stock market

Japanese ¥ per U.S. $ Nikkei 225 Index

Nominal wage growthCore CPI*

Inflation and wage growth% change year-over-year, 6-month moving average

Earnings and exportsNikkei 225 trailing EPS, nominal exports, trillion yen

Glob

al e

cono

my

35

Earnings

Exports


36

|

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

0.3%

-4.0% -1.3% -0.8%

0.2%

-0.1%

0.3%

-0.1% -0.8%0.3%

-0.5%

0.7%

4.3% 5.3% 4.8%5.9%

4.3%3.6% 3.6% 4.1% 4.5% 4.0% 4.4% 3.5%

5.1%

8.1%

7.1% 4.4%

3.4%4.3% 3.4% 2.9%

3.1%2.6% 2.8%

1.9%

9.7%

9.4%

10.6%

9.6%

7.9% 7.8%7.3% 6.9%

6.8%6.9% 6.7%

6.1%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Source: FactSet, J.P. Morgan Asset Management; (Left) CEIC; (Top right) People’s Bank of China; (Bottom right) China Agriculture Development Bank, China Development Bank, Ministry of Finance, People’s Bank of China, Wind. *The fiscal deficit is a J.P. Morgan Asset Management estimate of the augmented fiscal deficit. It measures the aggregate resources controlled by the government and used to support economic growth. It consists of the official budgetary deficit of the central and local governments, and additional funding raised and spent by local governments through Local Government Financing Vehicles (LGFVs) and various government-guided funds, whose activities are considered quasi-fiscal.Guide to the Markets – Latin America. Data are as of March 31, 2020.

China: Economic and policy snapshot

China real GDP contributionYear-over-year % change

InvestmentConsumptionNet exports

Monetary stimulus: Reserve requirement ratio

36

Glob

al e

cono

my

Small and medium banksLarge banks

Fiscal stimulus: Fiscal deficit*% GDP

F

-14%

10%

13%

16%

19%

22%

25%

'09 '11 '13 '15 '17 '19


37

|

Source: J.P. Morgan Asset Management; (Left) Consensus Economics; (Right) Bank of Korea Economic Statistics System, Central Statistical Office of Poland, DANE, Federal States Statistics Office of Russia, IBGE, Institute of International Finance (IIF), INDEC, INEGI, MOSPI, National Economic and Social Development Board of Thailand, South Africa Reserve Bank, Statistics Indonesia, TurkStat, J.P. Morgan Global Economic Research. “Growth differential” is consensus estimates for EM growth in the next 12 months minus consensus estimates for DM growth in the next 12 months, provided by Consensus Economics.EM growth and portfolio flows aggregates exclude China. Portfolio flows include non-resident flows into equities and fixed income. Flows based on IIF October 2019 quarterly flows report. 2019 flow data are IIF estimates.Guide to the Markets – Latin America. Data are as of March 31, 2020.

Emerging economies

EM-DM growth differential and capital flowsYear-over-year GDP growth, four-quarter moving average for flows

EM vs. DM growthMonthly, consensus expectations for GDP growth in 12 months

Glob

al e

cono

my

37

DM growthEM growthGrowth differential

EM-DM growth

EM portfolio flows % GDP-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19-1%

0%

1%

2%

3%

4%

5%

6%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19


38

Latin America fixed income: Returns

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.

All returns represent EMBI Global Diversified regional and country subindices, which are USD-denominated sovereign bond indices.All returns are unhedged and shown in USD. Past performance is not indicative of future returns.


Fixe

d in

com

e

38

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Acum. Cum. Ann.

Arge ntina Ve ne zue la Ve ne zue la Arge ntina Arge ntina Arge ntina Ve ne zue la Arge ntina Bra zil Me xic o Pe ru Pe ru Pe ru

3 5 .4 % 18 .0 % 4 7 .0 % 19 .0 % 19 .1% 2 6 .6 % 5 3 .2 % 15 .7 % 0 .8 % 2 0 .8 % - 3 .4 % 113 .6 % 7 .9 %

V e ne zue la Pe ru USD EMD

US D EMD

Pe ru Ve ne zue la Bra zil Bra zil Pe ru Colombia Bra zil La tin Ame ric a

La tin Ame ric a

16 .1% 17 .1% 17 .4 % - 5 .3 % 13 .3 % 16 .9 % 2 0 .6 % 13 .2 % - 1.6 % 19 .4 % - 4 .1% 9 6 .3 % 7 .0 %

La tin Ame ric a

Colombia Pe ru Chile Me xic o USD EMD

Arge ntina Me xic o Chile Pe ru Chile Colombia Colombia

13 .3 % 14 .6 % 17 .0 % - 6 .6 % 10 .9 % 1.2 % 15 .4 % 11.9 % - 2 .7 % 18 .7 % - 5 .8 % 9 6 .2 % 7 .0 %

USD EMD

Me xic o La tin Ame ric a

Me xic o Colombia La tin Ame ric a

La tin Ame ric a

P e ru Colombia Bra zil Colombia USD EMD

US D EMD

12 .2 % 14 .3 % 16 .0 % - 7 .1% 10 .5 % - 2 .0 % 13 .5 % 11.5 % - 2 .8 % 16 .4 % - 8 .3 % 9 4 .9 % 6 .9 %

Pe ru Bra zil Bra zil La tin Ame ric a

Chile Chile Colombia La tin Ame ric a

USD EMD

USD EMD

USD EMD

Bra zil Bra zil

11.6 % 13 .8 % 12 .5 % - 7 .7 % 10 .5 % - 2 .8 % 13 .1% 11.4 % - 4 .3 % 15 .0 % - 13 .4 % 8 7 .7 % 6 .5 %

Colombia La tin Ame ric a

Colombia Colombia Bra zil Pe ru Chile Colombia La tin Ame ric a

Chile La tin Ame ric a

Me xic o Me xic o

11.4 % 12 .3 % 12 .3 % - 8 .8 % 8 .5 % - 3 .5 % 10 .5 % 11.1% - 5 .8 % 14 .7 % - 15 .3 % 8 6 .0 % 6 .4 %

Me xic o Chile Me xic o Pe ru La tin Ame ric a

Me xic o P e ru USD EMD


Me xic o Arge ntina Arge ntina

10 .5 % 10 .7 % 11.7 % - 11.1% 8 .1% - 5 .5 % 10 .4 % 10 .3 % - 6 .3 % 14 .1% - 18 .3 % 8 2 .7 % 6 .2 %

Bra zil USD EMD

Chile Bra zil USD EMD

Colombia USD EMD

Chile Ve ne zue la Arge ntina V e ne zue la Chile Chile

9 .7 % 7 .3 % 8 .7 % - 11.2 % 7 .4 % - 7 .0 % 10 .2 % 9 .6 % - 2 0 .3 % - 2 3 .6 % - 2 1.3 % 7 2 .8 % 5 .6 %

Chile Arge ntina Arge ntina Ve ne zue la Ve ne zue la Bra zil Me xic o Ve ne zue la Arge ntina Ve ne zue la Arge ntina Ve ne zue la Ve ne zue la

5 .9 % - 12 .4 % 8 .2 % - 12 .3 % - 2 8 .7 % - 13 .4 % 6 .9 % - 3 4 .4 % - 2 2 .2 % - 5 5 .1% - 3 9 .4 % - 4 7 .1% - 6 .2 %

2010-2019


39

820

240 241195

153 169

653

389 377

302265

0

100

200

300

400

500

600

700

800

900

1,000

Argentina Mexico Brazil Colombia Chile Peru

Latin America fixed income: Valuations

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.

All spreads represent EMBI Global Diversified country subindices, which are USD-denominated sovereign bond indices.


EMD spreads by countryUSD-denominated sovereign debt, spread to worst

Fixe

d in

com

e

10-yr. averageLatest

10-yr. range

39

4,000 3,803


40

|

100

200

300

400

500

600

700

800

900

'13 '14 '15 '16 '17 '18 '19100

200

300

400

500

600

700

'13 '14 '15 '16 '17 '18 '19

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. EM sovereigns represent the Emerging Market Bond Index Global Diversified (EMBI Global Diversified) Index and subindices and EM corporates represent the Corporate Emerging Market Bond (CEMBI Broad Diversified) Index and subindices.


Emerging market debt

Regional EMD spreads: SovereignsUSD-denominated sovereign debt, basis points over Treasuries

Regional EMD spreads: CorporatesUSD-denominated corporate debt, basis points over Treasuries

Average LatestEM 341 627EM Asia 205 420EM Europe 287 481EM LATAM 389 641

40

Fixe

d in

com

e

Average LatestEM 316 599EM Asia 236 433EM Europe 444 825EM LATAM 381 779


41

0

100

200

300

400

500

600

700

800

900

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Default protection prices

Source: Bloomberg Finance L.P., J.P. Morgan Asset Management.

*Argentina is only shown from May 2016 onward due to its default in 2014.


Credit default swap spreads Yield, basis points, 5-yr. senior corporate credit, USD

41

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LatestArgentina* 28,930Brazil 275Mexico 240Colombia 230Russia 197Chile 130Peru 120

30,000


42

|

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Source: J.P. Morgan Asset Management; (Left) J.P. Morgan Global Economic Research; (Right) Bloomberg Finance L.P.EM local currency debt is represented by GBI-EM index and regional subindices. Global spreads are calculated from the mid-yield to maturity for the generic 5-year government bond, as provided by Bloomberg, except for Brazil and South Africa, which are the spot yield-to-maturity provided by FactSet.


Attractiveness of Latin American local rates

Global – U.S. Treasuries 5-year spreadBasis points, local currency debt, as of Mar. 2020

Regional EMD yieldsLocal currency sovereign debt

Average LatestEM 6.7% 5.8%EM Asia 3.8% 3.1%EM Europe 5.5% 3.9%EM LATAM 7.5% 6.5%

42

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Current10-year average (LATAM)

10-year average (Other EM)

815

670

635

629

627

590

521

260

248

178

178

75

0 100 200 300 400 500 600 700 800 900 1,000

South Africa

Indonesia

Brazil

Mexico

Russia

India

Colombia

Malaysia

Chile

Peru

China

Korea


43

-1.7%-4.4%

-8.1%

-19.1%

6.6%4.4%

1.7%

6.4%3.3%

-3.9%

5.3%

2.2%5.5%

10.5%

28.5%

24.0%

19.5%16.8%

14.8%12.1%

7.5%5.3%

-30%

-20%

-10%

0%

10%

20%

30%

2-yearTreasury

5-yearTreasury

10-yearTreasury

30-yearTreasury

USD LatinAmerica

sovereigns

USD LatinAmerica

aggregate

USD EMDsovereigns

Global highyield

USD EMDcorporates

U.S.aggregate

Floating rate

Source: Barclays, Bloomberg Finance L.P., FactSet, J.P. Morgan Asset Management.Returns shown are total returns. 2-30 year Treasury, Global high yield, Floating rate (BBB), USD EMD corporates, USD Latin America aggregate, USD Latin America sovereigns, USD EMD sovereigns and U.S. aggregate are based on Bloomberg Barclays US Treasury indices, Bloomberg Barclays Global High Yield, Bloomberg Barclays U.S. Floating Rate Notes (BBB), Bloomberg Barclays Emerging Markets USD Aggregate –Corporate, Bloomberg Barclays Emerging Markets USD Aggregate – Latin America, Bloomberg Barclays Emerging Markets USD Sovereigns – Latin America, Bloomberg Barclays Emerging Markets USD Aggregate – Sovereign and Bloomberg Barclays U.S. Aggregate, respectively. For illustrative purposes only. Change in bond price is calculated using both duration and convexity.Guide to the Markets – Latin America. Data are as of March 31, 2020.

Global fixed income: Interest rate risk

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Impact of a 1% rise or fall in interest ratesTotal return, assumes a parallel shift in the yield curve and spreads are maintained

1% fall in interest rates1% rise in interest rates

43


44

2y UST

5y UST

10y UST

30y UST

TIPS

Cash

Floating rate

U.S. HY

MBS

ABS

U.S. Aggregate

Munis

U.S. corps

Convertibles

Japan

Germany UK Euro Corp.

Euro HY

EMD (LCL)

EMD ($)

EM Corp.

1%

2%

3%

4%

5%

6%

7%

8%

-0.5 -0.3 0.0 0.3 0.5 0.8 1.0

Global fixed income: Yields and correlation to equities

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Source: Bloomberg, FactSet, ICE, J.P. Morgan Asset Management. Sectors are Bloomberg indices except for EMD and ABS - U.S. Aggregate; MBS: U.S. Aggregate Securitized - MBS; U.S. corps: U.S. Corporates; Munis: Muni Bond; Cash: 1-3m Treasury; U.S. HY: Corporate High Yield; TIPS: Treasury Inflation-Protected Securities (TIPS); Floating Rate: U.S. Floating Rate; Convertibles: U.S. Convertibles Composite; ABS: J.P. Morgan ABS; EMD ($): J.P. Morgan EMBIG Diversified; EMD (LCL): J.P. Morgan GBI EM Global Diversified; EM Corp: J.P. Morgan CEMBI Broad Diversified; Euro Corp.: Euro Aggregate Corporate; Euro HY: Pan-European High Yield. Convertibles yield is based on the U.S. portion of the Bloomberg Barclays Global Convertibles. Country yields are represented by the global aggregate for each country. Yield and return information based on bellwethers for Treasury securities. Correlations are based on 15-years of monthly returns for all sectors. International fixed income sector correlations are in hedged U.S. dollar returns except EMD local index. Yields for all indices are hedged using three-month LIBOR rates between the U.S. and international LIBOR and are a 12-month average. Guide to the Markets – Latin America. Data are as of March 31, 2020.

Correlation of fixed income sectors vs. S&P 500 and yields

Correlation to S&P 500

Hed

ge A

djus

ted

Yiel

d

U.S. government

U.S. non-government

International

Stronger correlation to equities

Higher yieldingsectors

44


45

Global fixed income: Return composition

Source: J.P. Morgan Economic Research, J.P. Morgan Asset Management.Based on J.P. Morgan CEMBI Broad Index (USD EMD corporates), J.P. Morgan EMBIG Broad Diversified Index (USD EMD), J.P. Morgan Domestic High Yield Index (U.S. high yield), J.P. Morgan GBI-EM Global Diversified Index (Local EMD), J.P. Morgan GBI-DM Diversified Index (Local DM sovereigns), J.P. Morgan CEMBI Broad Diversified Latin America Index (Latin America corporates), J.P. Morgan EMBIG Diversified Latin America Index (USD Latin America sovereigns), J.P. Morgan GBI-EM Global Diversified Latin Region Index (Local Latin America sovereigns), Bloomberg Barclays Global High Yield (Global high yield) and Bloomberg Barclays Global Credit – Corporate – Investment Grade (Global IG). Past performance is not indicative of future returns. Guide to the Markets – Latin America. Data are as of March 31, 2020.

Debt return compositionYear-to-date, total return, USD

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45

Income returnPrice returnCurrency return

Total return

1.6%

-6.7%

-8.0%

-13.4%

-15.0% -15.2% -15.3% -15.5%

-18.5%

-20%

-15%

-10%

-5%

0%

5%

Local DMsovereigns

Global IG USD EMDcorporates

USD EMDsovereigns

Global highyield

Local EMDsovereigns

USD LATAMsovereigns

USD LATAMcorporates

Local LATAMsovereigns


46

Breakdown of global government bonds by yield

0%

20%

40%

60%

80%

100%

-0.72 -0.34 -0.13 -0.01 0.17 0.26 0.35 0.49 0.74 1.300%

5%

10%

15%

20%

25%

30%

35%

'14 '15 '16 '17 '18 '19 '20

Source: J.P. Morgan Asset Management; (Left) Bloomberg, BofA/Merrill Lynch; (Top right) Bank for International Settlements International Banking Statistics, ECB, Eurostat, IMF Coordinated Portfolio Investment Survey (CPIS), IMF Currency Composition of Official Foreign Exchange Reserves (COFER), IMF International Financial Statistics (IFS), IMF-World Bank Quarterly External Debt Statistics; (Bottom right) Bloomberg, BofA/Merrill Lynch. Countries included in Europe are: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Slovenia, Spain, Sweden and Switzerland.Guide to the Markets – Latin America. Data are as of March 31, 2020.

Global negative-yielding debt

Negative-yielding debtShare of ICE BofAML Global Broad Market Index

Central and domestic bank ownership by region % of total government debt outstanding, 2Q19

46

Yield (%)

U.S. 10-year:0.70%

Below 0%

Below 1%

Above 1%

22.1% 19.5%10.5%

39.0%

17.3%

10.4%

0%

10%

20%

30%

40%

50%

60%

70%

Japan Eurozone United States

Domestic central bank

Domestic bank

Market value of negative-yielding debt (USD trillions)3/31/2020

Government Debt – Japan 4.92Government Debt – Europe 4.42Corporate Debt – Total 1.01

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47

|

4.04.55.05.56.06.57.07.58.08.5

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Duration of investment-grade corporate credit universeYears

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

'75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15 '19

Baa corporate debt*Percentage of Baa-rated investment-grade corporate debt outstanding

Source: FactSet, J.P. Morgan Asset Management; (Left) Bank for International Settlements (BIS); (Top and bottom right) Barclays, Bloomberg. Government, household and non-financial corporate debt refers to gross debt. General government debt is comprised of core debt instruments that include currency and deposits, loans and debt securities. All debt values are shown at market value. *Baa debt outstanding and duration of investment grade is based on the Bloomberg Barclays U.S. Aggregate Investment Grade Corporate Credit Index. Baa debt is the lowest credit rating issued by Moody’s for investment-grade debt. Guide to the Markets – Latin America. Data are as of March 31, 2020.

U.S. corporate debt

U.S. debt to GDP ratiosPercentage of nominal GDP

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Recession

% of 3Q19 GDPGovernment 103.5%Household 75.2%Non-financial corporate 75.3%

Recession

Average: 6.2 years

Recession

Greater sensitivityto interest rate

movements

Mar. 2020:8.0 years

Mar. 2020:46.7%


48

0%

4%

8%

12%

16%

20%

'90 '94 '98 '02 '06 '10 '14 '18

U.S. high yield bonds

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. Spread to worst indicated are the difference between the yield-to-worst of a bond and yield-to-worst of a U.S. Treasury security with a similar duration. High yield is represented by the J.P. Morgan Domestic High Yield Index.


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Default rate and spread to worstPercent

48

30-yr. avg. Mar. 31, 2020Default rate 3.60% 2.30%Spread to worst 5.74% 9.49%

Recession


49

Latin America equity returns

Source: FactSet, MSCI, J.P. Morgan Asset Management.

All returns are total return, unhedged and shown in USD. Past performance is not indicative of future returns.


49

Equi

ties

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Acum. Ann. Vol.

Arge ntina Colombia Colombia Arge ntina Arge ntina Arge ntina Bra zil Arge ntina Pe ru Colombia EM Asia EM Asia Arge ntina

7 7 .4 % - 5 .0 % 3 5 .9 % 6 6 .2 % 19 .2 % - 0 .4 % 6 6 .7 % 7 3 .6 % 1.6 % 3 1.2 % - 18 .1% 6 .1% 4 1.9 %

Pe ru Me xic o Me xic o EM Asia Pe ru EM Asia Pe ru Chile Bra zil Bra zil EM Equity Pe ru Pe ru

5 3 .3 % - 12 .1% 2 9 .1% 2 .3 % 10 .5 % - 9 .5 % 5 5 .6 % 4 3 .6 % - 0 .1% 2 6 .7 % - 2 3 .6 % 5 .8 % 2 2 .2 %

Chile EM Asia EM Asia Me xic o EM Asia Me xic o La tin Ame ric a

EM Asia La tin Ame ric a

EM Asia Chile EM Equity Chile

4 4 .8 % - 17 .2 % 2 1.2 % 0 .2 % 5 .3 % - 14 .2 % 3 1.5 % 4 3 .3 % - 6 .2 % 19 .7 % - 3 3 .4 % 4 .0 % 2 0 .7 %

Colombia EM Equity Pe ru EM Equity EM Equity EM Equity Colombia Pe ru Colombia EM Equity Me xic o Colombia Bra zil

4 3 .4 % - 18 .2 % 2 0 .2 % - 2 .3 % - 1.8 % - 14 .6 % 2 6 .5 % 3 8 .4 % - 11.4 % 18 .9 % - 3 5 .4 % 1.5 % 17 .4 %


EM Equity La tin Ame ric a

Me xic o Chile Chile EM Equity EM Equity La tin Ame ric a

Pe ru Me xic o EM Equity

2 7 .6 % - 19 .1% 18 .6 % - 13 .2 % - 9 .2 % - 16 .8 % 16 .8 % 3 7 .8 % - 14 .2 % 17 .9 % - 3 5 .8 % 1.2 % 16 .3 %

EM Asia Chile La tin Ame ric a

Bra zil La tin Ame ric a

La tin Ame ric a

EM Equity Bra zil EM Asia Me xic o Arge ntina La tin Ame ric a

Colombia

19 .4 % - 2 0 .0 % 8 .9 % - 15 .8 % - 12 .0 % - 3 0 .8 % 11.6 % 2 4 .5 % - 15 .2 % 11.8 % - 3 9 .3 % - 0 .4 % 16 .3 %

EM Equity Pe ru Chile Colombia Chile Pe ru EM Asia La tin Ame ric a

Me xic o Pe ru La tin Ame ric a

Arge ntina La tin Ame ric a

19 .2 % - 2 1.4 % 8 .3 % - 2 1.1% - 12 .2 % - 3 1.7 % 6 .5 % 2 4 .2 % - 15 .3 % 4 .8 % - 4 5 .6 % - 0 .4 % 12 .9 %

La tin Ame ric a

Bra zil Bra zil Chile Bra zil Bra zil Arge ntina Colombia Chile Chile Colombia Bra zil EM Asia

14 .9 % - 2 1.6 % 0 .3 % - 2 1.4 % - 13 .7 % - 4 1.2 % 5 .1% 16 .3 % - 18 .9 % - 16 .0 % - 4 9 .7 % - 0 .6 % 12 .8 %

Bra zil Arge ntina Arge ntina Pe ru Colombia Colombia Me xic o Me xic o Arge ntina Arge ntina Bra zil Chile Me xic o

6 .8 % - 3 8 .9 % - 3 7 .1% - 2 9 .8 % - 19 .8 % - 4 1.8 % - 9 .0 % 16 .3 % - 5 0 .7 % - 2 0 .7 % - 5 0 .2 % - 1.9 % 10 .8 %

2010 - 2019


50

|

7.0x

9.0x

11.0x

13.0x

15.0x

17.0x

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '191.0x

1.5x

2.0x

2.5x

3.0x

3.5x

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Source: FactSet, MSCI, J.P. Morgan Asset Management.Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to book is price divided by book value per share. Price to cash flow is price divided by consensus analyst estimates of cash flow per share for the next 12 months. Price to sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. Dividend yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. Consensus analyst estimates are provided by FactSet.


Latin America valuation measures

Equi

ties

MSCI Latin America price-to-book ratio MSCI Latin America price-to-earnings ratio

Average: 2.0x

Mar. 2020: 1.7x

Mar. 202010.5x

Average: 12.1x

+1 std. dev.: 13.8x

-1 std. dev.: 10.4x

50

MSCI Latin America: Valuation measures Historical averages

Valuation measure DescriptionLatest 1 year

ago3-year avg.

5-year avg.

10-year avg.

15-year avg.

P/E Price-to-earnings 10.5 12.3 13.1 13.5 12.7 12.1

P/B Price-to-book 1.7 2.0 1.9 1.8 1.8 2.0

P/CF Price-to-cash flow 5.4 7.2 7.2 7.3 7.3 7.2

P/S Price-to-sales 1.0 1.4 1.3 1.3 1.4 1.4

Div. yield Dividend yield 4.6% 3.3% 3.4% 3.2% 3.2% 3.2%


51

|

-60%

-40%

-20%

0%

20%

40%

60%

80%

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

-14%

3%

-4% -5%

-14%

-18%-20%

-15%

-10%

-5%

0%

5%

MSCI LatinAmerica

Colombia Mexico Peru Chile Brazil

Local forward

Source: MSCI, J.P. Morgan Asset Management; (Left and bottom right) FactSet; (Top right) Bloomberg Finance L.P.*Earnings are implied earnings derived from dividing the index levels by forward P/Es.


Latin America corporate profits

MSCI Latin America forward earnings* growthNext 12 months, year-over-year growth, 3-month moving avg.

51

Equi

ties

MSCI Latin America profit margin and return on equityTrailing 12 months’ profit margin, blended 12-month forward ROE

Mar. 2020: -5.7%

Mar. 2020: -20.0%

USD forward ROEProfit margin

MSCI Latin America earnings* growth by countryNext 12 months, year-over-year growth, local currency

0%

5%

10%

15%

20%

25%

30%

35%

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20


52

|

10.5x

11.8x

11.2x 11.1x10.6x

9.3x

7.1x

5x

7x

9x

11x

13x

15x

17x

19x

21x

23x

LatinAmerica

EM Asia Mexico Chile Brazil Peru Colombia50

75

100

125

150

175

200

225

250

275

300

325

350

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Source: FactSet, MSCI, J.P. Morgan Asset Management.


Latin America valuations and earnings

Equi

ties

Latin America valuationsPrice to earnings ratio, NTMA

15-yr. averageLatest

15-yr. range Colombia

Peru

Mexico

Chile

Brazil

EPS, local currency, NTMA, Dec. 2008 = 100

52

Latin America earnings

EM Asia


53

|

Consumer22%

Technology30%

Financials22%

Commodities13%

Other14%

Latin America ex-Brazil3%

Brazil5% Asia ex-China,

Korea & Taiwan14%

China41%

Korea12%

Taiwan12%

Europe, Middle East & Africa

13%

Turkey0.5%

20%4%

20%31% 39%

14% 6%

22%

26%26%

57%64%34%

18%

25%

19% 10%9% 17%

26%73%

22% 5% 13% 7%11%17% 11% 18% 12% 13%

0%

20%

40%

60%

80%

100%

Brazil Russia India China Mexico* Korea Taiwan

MSCI EM country index by sector

Source: FactSet, MSCI, J.P. Morgan Asset Management.MSCI EM index region and sector components are market value percentages.*Mexico Communication Services sector accounts for 26% of the country’s market capitalization. **“Other” is comprised of Health Care, Industrials, Real Estate and Utilities sectors. Values may not sum to 100% due to rounding.


Emerging market equity indices

MSCI EM index by sectorMSCI EM index by region

53

Equi

ties

Other**

Commodities

FinancialsTechnologyConsumer

3%

1% 3%

2%


54

|

1.0x

1.5x

2.0x

2.5x

3.0x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

60

80

100

120

140

160

180

200

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Source: J.P. Morgan Asset Management; (Top and bottom left) FactSet, MSCI; (Right) Brookings Institute.Middle class is defined as $3,600-$36,000 annual per capita income in purchasing power parity terms. Historical and forecast figures come from the Brookings Development, Aid and Governance Indicators.


Emerging market equities

Growth of the middle classPercent of total population

EM price to book ratioLast 12 months actual

EM earnings by regionEPS for next 12-month consensus, local currency, Jan. 2007 = 100

54

1995 2018F 2030F

Latin America

EM Asia

EMEA

Average: 1.7x

Mar. 2020: 1.5x1%

4%0%

30%

40%

14%

27%

34%

53%

71%

79%

41%

72%

61%

79%

0%

20%

40%

60%

80%

100%

India Indonesia China Brazil Mexico

Equi

ties


55

9.0% 8.9%7.9% 7.8% 5.9%

4.3%

31.5%

25.9%

20.1% 19.7% 18.9% 17.9%

-16.6% -18.1%-19.6%

-22.6% -23.6%

-45.6%-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

U.S. EM Asia LatinAmerica

EM Europeex-UK

Japan U.S. Europeex-UK

Japan EM Asia EM LatinAmerica

Japan EM Asia U.S. Europeex-UK

EM LatinAmerica

Global equity markets

Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management.All return values are MSCI Gross Index (official) data, except the U.S., which is the S&P 500. *Multiple expansion is based on the forward P/E ratio and EPS growth outlook is based on NTMA earnings estimates. Chart is for illustrative purposes only. Past performance is not indicative of future results.


55

Sources of global equity returns*Total return, USD

2020 YTD2005-2019 annualized 2019

Currency

Multiples

Dividends

Earnings

Total return

Equi

ties


56

|

16.33x 16.07x

14.57x

21.37x

15.04x

13.46x

12.08x

11.86x

1.78x

1.39x

0.0x

0.4x

0.8x

1.2x

1.6x

2.0x

2.4x

2.8x

3.2x

3.6x

4.0x

4.4x

4.8x

5.2x

5x

9x

13x

17x

21x

25x

29x

33x

U.S. DM Europe Japan EM20

40

60

80

100

120

140

160

180

200

220

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Source: FactSet, MSCI, Standard & Poor’s, Thomson Reuters, J.P. Morgan Asset Management. *Valuations refer to NTMA P/E for Europe, U.S., Japan and developed markets and P/B for emerging markets. Valuation and earnings charts use MSCI indices for all regions/countries, except for the U.S., which is the S&P 500. All indices use IBES aggregate earnings estimates, which may differ from earnings estimates used elsewhere in the book. MSCI Europe includes the eurozone as well as countries not in the currency bloc, such as Norway, Sweden, Switzerland and the UK (which collectively make up 46% of the overall index). Past performance is not a reliable indicator of current and future results.Guide to the Markets – Latin America. Data are as of March 31, 2020.

International equity earnings and valuations 56

Global earningsEPS, local currency, NTMA, Jan. 2006 = 100

49x

25-year range25-year average

Current

Japan

Europe

U.S.

EM

Pric

e-to

-ear

ning

s Price-to-book

Axis

Equi

ties

Global valuations Current and 25-year historical valuations*


57

50

100

150

200

250

300

350

400

450

500

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

U.S. and international equities at inflection points

Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management.Forward price to earnings ratio is a bottom-up calculation based on the most recent index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns. Dividend yield is calculated as consensus estimates of dividends for the next 12 months, divided by most recent price, as provided by FactSet Market Aggregates.


MSCI All Country World ex-U.S. and S&P 500 IndexDec. 1996 = 100, U.S. dollar, price return

57

+106% -49% +101% -57%

+401%

+143%-62%

+216%-52%+48%

Mar. 31, 2020P/E (fwd.) = 15.4x

Mar. 31, 2020P/E (fwd.) = 12.3x

P/E 20-yr. avg. Div. Yield 20-yr. avg.

S&P 500 15.4x 15.5x 2.4% 2.1%

ACWI ex-U.S. 12.3x 13.6x 4.0% 3.1%

As % of U.S. 80% 88% 164% 151%

Equi

ties

-24%

-30%


58

|

4Q19*: $39.17

-$1

$2

$5

$8

$11

$14

$17

$20

$23

$26

$29

$32

$35

$38

$41

$44

$47

'99 '02 '05 '08 '11 '14 '17 '20

8x

10x

12x

14x

16x

18x

20x

22x

24x

26x

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management; (Left) Compustat; (Right) FRB, Robert Shiller, Thomson Reuters. EPS levels are based on operating earnings per share. Earnings estimates are Standard & Poor’s consensus analyst expectations. *4Q19 earnings are calculated using actual earnings for 97.8% of S&P 500 market cap and earnings estimates for the remaining companies. Past performance is not indicative of future returns. Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES since December 1994, and FactSet for March 31, 2020. Average P/E and standard deviations are calculated using 25 years of IBES history.


U.S.: Corporate profits and valuations

S&P 500 operating earnings per shareIndex quarterly operating earnings

S&P 500 Index: Forward P/E ratio

58

25-year average: 16.33x

Mar. 2020: 15.43x

+1 std. dev.: 19.48x

-1 std. dev.: 13.19x

S&P consensus analyst estimates

Recession

Equi

ties


59

26

-10

15 17

1

2615

212

27

-7

26

4 7

-2

34

2031 27

20

-10

-13-23

26

93

144

-38

2313

0

13

30

11

-1

1019

-6

29

-20-17 -18 -17-7

-13 -8 -9

-34

-8 -8-20

-6 -6 -5 -9-3 -8 -11

-19-12 -17

-30 -34

-14-8 -7 -8 -10

-49

-28-16 -19

-10 -6 -7 -12 -11-3

-20-7

-34

-60%

-40%

-20%

0%

20%

40%

'80 '85 '90 '95 '00 '05 '10 '15 '20

Annual returns and intra-year declines

Source: FactSet, MSCI, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns are calendar year returns from 1980 to 2019 for the S&P 500 and 2000 to 2019 for the MSCI Latin America.


MSCI Latin America intra-year declines vs. calendar year returnsLocal currency, average intra-year drops of 18.9% (median -16.6%) and annual returns positive in 13 of 20 years

S&P 500 intra-year declines vs. calendar year returnsLocal currency, average intra-year drops of 13.8% (median -10.3%) and annual returns positive in 30 of 40 years

59

Equi

ties

-151

-1

5528 33 34 32

-40

58

7

-13

9-7 -4 -11

21 191

16-32

-24 -23 -25-9

-17 -16 -23 -16

-57

-15 -15-27

-13 -18 -20 -19 -10 -7 -15 -10

-42

-100%

-60%

-20%

20%

60%

100%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

YTD

YTD


60

|

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-6%

-4%

-2%

0%

2%

4%

6%

8%

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

Source: Bloomberg Finance L.P., FactSet, J.P. Morgan Asset Management; (Left) J.P. Morgan Global Economic Research; (Right) CME.Commodity prices are represented by the appropriate Bloomberg Commodity subindex. Other commodity prices are represented by futures contracts. Z-scores are calculated using daily prices over the past 10 years. *Latin America and developed market (DM) aggregates are produced by J.P. Morgan Global Economic Research.


Commodities

Commodity prices Commodity price z-scores

Oth

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60

Commodity prices and Latin America economic growthLatin America – DM GDP growth*, quarterly, % year-over-year change

Low levelCurrent

High level

Commodity pricesLatin America – DM GDP

Example

$175.42

$41.63

$113.93

$6.15

$97.67

$211.51

$48.60

$1,892

$59.48

$18.92

$20.09

$1.60

$35.23

$84.23

$11.77

$1,050

$61.86

$19.40

$20.48

$1.60

$37.19

$93.10

$14.16

$1,597

-4 -3 -2 -1 0 1 2 3 4 5

BloombergCommodity Index

Livestock

Crude oil

Natural gas

Agriculture

Industrial metals

Silver

Gold


61

|

Source: J.P. Morgan Asset Management; (Top and bottom left) EIA; (Bottom left) Baker Hughes; (Right) Commodity Research Bureau, FactSet.*Forecasts are from the March 2020 EIA Short-Term Energy Outlook and start in 2020. **U.S. crude oil inventories include the Strategic Petroleum Reserve (SPR). Active rig count includes both natural gas and oil rigs. Brent crude prices are monthly averages in USD using global spot ICE prices.


Oil markets

U.S. crude oil inventories and rig count**Million barrels, number of active rigs

Change in production and consumption of liquid fuelsProduction, consumption and inventories, millions of barrels per day

Price of oilBrent crude, nominal prices, USD/barrel, monthly average

Inventories (incl. SPR) Active rigs

61

Oth

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Mar. 2020: $33.49

Jul. 2008: $135.73

Dec. 2008: $43.09

Jun. 2014: $111.93

Jan. 2016: $30.98

Production 2017 2018 2019 2020* 2021* Growth since '17U.S. 15.7 17.9 19.5 20.9 20.8 32.8%OPEC 37.4 37.3 35.2 34.2 34.5 -7.8%Russia 11.2 11.4 11.5 11.6 11.5 2.8%

Global 98.1 100.8 100.6 102.1 102.4 4.4%Consumption

U.S. 20.0 20.5 20.5 20.5 20.7 3.8%China 13.6 14.0 14.5 14.6 15.4 13.4%

Global 98.7 100.0 100.8 101.1 102.9 4.2%Inventory Change -0.6 0.8 -0.2 1.0 -0.4


62

|

60

70

80

90

100

110

120

130

140

'73 '78 '83 '88 '93 '98 '03 '08 '13 '18

Source: J.P. Morgan Asset Management; (Left) Federal Reserve; (Right) J.P. Morgan Global Economic Research.Currencies in the real broad dollar index are: Australian dollar, Argentine peso, Brazilian real, British pound, Canadian dollar, Chinese renminbi, Chilean peso, Colombian peso, euro, Hong Kong dollar, Indonesian rupiah, Indian rupee, Israeli shekel, Japanese yen, Korean won, Malaysian ringgit, Mexican peso, Philippine peso, Russian ruble, Saudi Arabian riyal, Swedish krona, Swiss franc, Singaporean dollar, Taiwanese dollar, Thai baht and Vietnamese dong. *Currencies are the real effective exchange rates (REERs), which compare the value of a currency to a weighted basket of several foreign currencies. They are deflated using a producer price index. Guide to the Markets – Latin America. Data are as of March 31, 2020.

Global currencies

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U.S. dollar in historical perspectiveIndex level, real broad dollar index, Jan. 2006 = 100

6.5 years: +52%

7 years: +32%

5.5 years: +31%

6 years: -22%

10 years: -34%

9.5 years: -25%

Currency valuationsCurrencies* adjusted for relative inflation changes vs. 10-year average

Graph Key

Current10-year range

Dollar strengthening

Dollar weakening

0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60

Argentina

Colombia

Turkey

Brazil

Russia

Mexico

Chile

India

UK

Korea

China

Japan

Euro Area

Peru

U.S.


63

2009 - 2019 Global Bonds

Global Equities

U.S. Core RE

Europe Core RE

APAC Core RE

Global Core Infra

Direct Lending

Venture Capital

Private Equity

Equity Long/Short

Relative Value Macro

Global Bonds 1.0Global Equities 0.3 1.0U.S. Core RE -0.3 -0.5 1.0Europe Core RE (Continental Europe) -0.4 -0.3 0.6 1.0

APAC Core RE -0.3 -0.4 0.8 0.7 1.0Global Core Infra -0.2 -0.4 0.4 0.1 0.2 1.0Direct Lending 0.1 0.5 -0.1 -0.3 -0.3 0.1 1.0Venture Capital -0.2 0.2 0.2 0.4 0.1 0.1 0.2 1.0Private Equity 0.2 0.8 -0.3 -0.1 -0.2 -0.1 0.6 0.5 1.0Equity Long/Short 0.2 1.0 -0.4 -0.3 -0.4 -0.3 0.6 0.3 0.9 1.0Relative Value 0.3 0.9 -0.6 -0.5 -0.6 -0.3 0.7 0.1 0.7 0.9 1.0Macro 0.3 0.5 -0.2 0.0 -0.2 -0.3 0.2 0.1 0.3 0.5 0.4 1.0

Asset class yields

Alternatives correlations

Global alternatives

Source: Bloomberg Barclays, MSCI, NCREIF, J.P. Morgan Asset Management; (Top) Alerian, BAML, Clarkson, Drewry Maritime Consultants, FactSet, Federal Reserve, FTSE, Standard & Poor’s; (Bottom) Burgiss, Cliffwater, HFRI. Yields are as of 3/31/20, except direct lending, global infrastructure, APAC, U.S., Europe real estate (9/30/19), and global transport (12/31/19). All correlation coefficients are calculated based on quarterly total return data for the period 06/30/09 – 09/30/19. Returns are denominated in USD. Global transport: Levered yields for transport assets; Preferreds: BAML Hybrid Preferred Securities; Global infrastructure: MSCI Global Infrastructure Asset Index-Low risk; Global REITs: FTSE NAREIT Global; U.S. real estate: NCREIF-ODCE Index; Latin America equity: MSCI EM Latin America; DM equity: MSCI World Index; USD Latin America sovereigns: J.P. Morgan EMBIG Diversified Latin America; U.S. high yield: Bloomberg U.S. Aggregate Corporate High Yield; Global equities: MSCI AC World Index; Global bonds: Bloomberg Barclays Global Aggregate Index; Europe core real estate: IPD Global Property Fund Index-Continental Europe; U.S. core real estate: NCREIF Property Index - Open End Diversified Core Equity component; APAC core real estate: IPD Global Property Fund Index-Asia-Pacific; Global core infrastructure: MSCI Global Quarterly Infrastructure Asset Index (equal-weighted blend); Direct lending: Cliffwater Direct Lending Index; Private equity: Cambridge Associates Global Private Equity Index; Venture capital: Cambridge Associates U.S. Venture Capital Index; Hedge fund indices include equity long/short, relative value and global macro and are all from HFRI. Guide to the Markets – Latin America. Data are as of March 31, 2020.

63

Oth

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Fixed incomeEquities Alternatives

Glob

alre

al

esta

te

Priv

ate

mar

kets

Oth

er

real

asse

ts

Fina

ncia

l as

sets

Hed

ge

fund

s

9.9% 9.9% 9.4%7.2% 6.3% 5.7% 5.1% 4.6% 4.5% 4.4% 4.2%

3.0%0.7%

0%

4%

8%

12%

Globaltransport

DirectLending

U.S.high yield

USD LATAMsovereigns

Preferreds GlobalREITs

Globalinfrastructure

APAC realestate

LATAMequity

Europe realestate

U.S. realestate

DMequity

U.S.10-year


64

Alternatives and manager selection

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Sources: Cambridge Associates, HFRI, Lipper, NCREIF, J.P. Morgan Asset Management. Global equities (large cap) and global bonds dispersion are based on the world large stock and world bond categories, respectively. *Manager dispersion is based on: 2Q 2009 – 2Q 2019 annual returns for global equities, global bonds and U.S. core real estate. Hedge funds are based on 4Q 2009 to 4Q 2019 annual returns. U.S. non-core real estate, U.S. private equity and U.S. venture capital are represented by the 10-year horizon internal rate of return (IRR) ending 2Q 2019.


Private and public manager dispersionBased on returns over a 10-year window*

64

-5%

0%

5%

10%

15%

20%

25%

Globalequities

Globalbonds

U.S. corereal estate

U.S. non-corereal estate

Globalprivate equity

U.S. venturecapital

Hedgefunds

11.8%

8.9%

4.1%

2.5%

8.9%

10.6%

2.5%

15.4%

3.3%

21.2%

-2.2%

20.0%

-0.8%

13.2%

Median

Top quartile

Bottom quartile


65

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Acum. Cum. Ann.LATAM equity

LATAM equity

LATAM equity Cash

LATAM equity

EM Asia equity

USD LATAM

sov.

EM Asia equity DM equity

USD LATAM

sov.

USD EMD sov.

LATAM equity

EM Asia equity Cash DM equity Cash

EM Asia equity

EM Asia equity

50.4% 43.5% 50.7% 1.8% 104.2% 19.4% 12.3% 21.2% 27.4% 8.1% 1.2% 31.5% 43.3% 1.8% 28.4% 0.5% 258.3% 8.9%

EM Asia equity

EM Asia equity

EM Asia equity

LCL LATAM

sov.

EM Asia equity

LCL LATAM

sov.

USD EMD sov.

Global high yield

Global high yield

USD EMD sov. Cash

LCL LATAM

sov.

LATAM equity

LCL LATAM

sov.

EM Asia equity Global IG

LATAM equity

LATAM equity

27.5% 33.2% 41.6% -10.6% 74.2% 18.7% 7.3% 19.6% 7.3% 7.4% 0.0% 17.1% 24.2% -2.9% 19.7% -6.7% 212.1% 7.9%

LCL LATAM

sov.DM equity

LCL LATAM

sov.Global IG

Global high yield

Asset alloc. Global IG

USD EMD sov.

EM Asia equity DM equity DM equity

Asset alloc. DM equity Global IG

LATAM equity

USD EMD sov. DM equity DM equity

23.9% 20.7% 17.4% -11.2% 59.4% 15.0% 4.0% 17.4% 2.3% 5.5% -0.3% 15.0% 23.1% -3.5% 17.9% -13.4% 196.6% 7.5%

Asset alloc.

Asset alloc.

Asset alloc.

USD EMD sov.

Asset alloc.

LATAM equity

Global high yield

LCL LATAM

sov.Global IG

EM Asia equity

USD LATAM

sov.

Global high yield

Asset alloc.

Global high yield

USD EMD sov.

Global high yield

LCL LATAM

sov.

LCL LATAM

sov.19.0% 18.4% 16.5% -12.0% 41.9% 14.9% 3.1% 17.3% 1.8% 5.3% -2.0% 14.3% 14.8% -4.1% 15.0% -15.0% 190.2% 7.4%

USD LATAM

sov.

LCL LATAM

sov.DM equity

USD LATAM

sov.

LCL LATAM

sov.

Global high yield

LCL LATAM

sov.DM equity Cash Global IG

Global high yield

USD LATAM

sov.

LCL LATAM

sov.

USD EMD sov.

USD LATAM

sov.

USD LATAM

sov.

USD EMD sov.

USD EMD sov.

10.8% 17.4% 9.6% -13.5% 34.3% 14.8% 1.6% 16.5% 0.0% 2.5% -2.7% 13.5% 13.2% -4.3% 14.1% -15.3% 186.2% 7.3%

USD EMD sov.

Global high yield

USD EMD sov.

Asset alloc. DM equity

USD LATAM

sov.

Asset alloc.

USD LATAM

sov.

Asset alloc. Cash Global IG

USD EMD sov.

USD LATAM

sov.

Asset alloc.

Asset alloc.

EM Asia equity

Global high yield

Global high yield

10.2% 13.7% 6.2% -19.8% 30.8% 13.3% 0.4% 16.0% -3.7% 0.0% -3.8% 10.2% 11.4% -4.5% 14.1% -18.1% 185.4% 7.2%

DM equityUSD

LATAM sov.

Global IGGlobal

high yieldUSD EMD

sov. DM equity CashAsset alloc.

USD EMD sov.

Global high yield

EM Asia equity DM equity

Global high yield

USD LATAM

sov.

LCL LATAM

sov.

LCL LATAM

sov.

Asset alloc.

Asset alloc.

10.0% 12.7% 6.1% -26.9% 29.8% 12.3% 0.1% 15.6% -5.3% 0.0% -9.5% 8.2% 10.4% -5.8% 12.7% -18.5% 180.6% 7.1%

Global high yield

USD EMD sov.

USD LATAM

sov.DM equity

USD LATAM

sov.

USD EMD sov. DM equity Global IG

USD LATAM

sov.

Asset alloc.

Asset alloc.

EM Asia equity

USD EMD sov.

LATAM equity

Global high yield

Asset alloc.

USD LATAM

sov.

USD LATAM

sov.3.6% 9.9% 4.9% -40.3% 25.8% 12.2% -5.0% 12.5% -7.7% -0.6% -12.9% 6.5% 10.3% -6.2% 12.6% -18.7% 179.9% 7.1%

Cash Global IG CashLATAM equity Global IG Global IG

EM Asia equity

LATAM equity

LCL LATAM

sov.

LCL LATAM

sov.

LCL LATAM

sov.Global IG Global IG DM equity Global IG DM equity Global IG Global IG

3.0% 8.3% 4.8% -51.3% 23.7% 7.0% -17.2% 8.9% -8.2% -4.2% -21.7% 6.0% 9.3% -8.2% 11.8% -20.9% 93.0% 4.5%

Global IG CashGlobal

high yieldEM Asia equity Cash Cash

LATAM equity Cash

LATAM equity

LATAM equity

LATAM e quity Cash Cash

EM Asia equity Cash

LATAM equity Cash Cash

-2.7% 4.8% 3.2% -52.8% 0.1% 0.1% -19.1% 0.1% -13.2% -12.0% -30.8% 0.3% 0.8% -15.2% 2.2% -45.6% 21.7% 1.3%

2005-2019

Source: Bloomberg/Barclays, FactSet, J.P. Morgan Global Economic Research, MSCI, J.P. Morgan Asset Management.LATAM equity, EM Asia equity, DM equity, Global high yield, Global IG (investment grade), LCL LATAM sov. (sovereigns), USD LATAM sov., USD EMD sov. and cash are MSCI Latin America, MSCI EM Asia, MSCI The World, Bloomberg Barclays Global High Yield, Bloomberg Barclays GlobalCredit – Corporate – Investment Grade, GBI-EM Global Diversified Latin Region subindex (US$), EMBIG Diversified Latin Region subindex, EMBIG Diversified index and Bloomberg Barclays 1-3m Treasury, respectively. The “Asset Allocation” portfolio assumes the following weights: 10% in LATAM equity, 5% in EM Asia equity, 5% in DM equity, 10% in global high yield, 5% in global investment grade, 40% in LCL LATAM sovereigns, 15% in USD LATAM sovereigns, 5% in USD EMD sovereigns and 5% cash. All asset class returns are unhedged and shown in USD. Past performance is not indicative of future returns. Guide to the Markets – Latin America. Data are as of March 31, 2020.

Asset class returns

Inve

stin

gpr

inci

ples

65


66

|

Source: J.P. Morgan Asset Management; (Left) WHO Global Health Observatory data, life expectancy tables (2016); (Right) OECD Pensions at a Glance 2019.Life expectancy rates are based on Brazilian life expectancy tables. Mandatory and government pension replacement rate is the total public pension or forced savings in defined contribution plans; Voluntary savings is defined contribution savings by employers and employees; Gap is the savings shortfall assuming a desired pre-retirement income replacement rate of 80%. Pre-retirement income is calculated for the average earning worker who is assumed to have worked a full career, defined as entering the labor market at age 20 and working until the normal pension age within each country.Guide to the Markets – Latin America. Data are as of March 31, 2020.

Life expectancy and pension shortfall

Men

Women

Couple – at least onelives to specified age

Probability of reaching certain ages Persons aged 65-69, by gender, and combined couple

Mandatory and voluntary savings by country

Gap

Voluntary savings

Inve

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gpr

inci

ples

66

Mandatory & government pension replacement rate

Contribution to pre-retirement income replacement goal of 80%

90%

79%

58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

75-79 80-84 85+

59%

26%31%

71%

39%

22%

39%

80%

60%

32%

17%

31%

29%

14% 24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


67

|

30%

17%15%

8% 8%6% 6% 5%

2%1% 1%

13%

9%

4%

9%

3%

10%

4%

10%

15%

3%

19%

0%

5%

10%

15%

20%

25%

30%

35%

Source: MSCI, J.P. Morgan Asset Management; (Left) BIS, Cerulli Associates, IMF. Latin American figures include Brazil, Chile, Colombia, Mexico and Peru. Share of global GDP is based on purchasing power parity (PPP) as calculated by the IMF for 2019 and is an estimate. Share of global market capitalization is based on float-adjusted MSCI data in U.S. dollar terms. Share of global bond market is based on BIS individual country total debt outstanding in U.S. dollar terms and is as of 3Q19. *Average investor allocation is an AUM weighted average of mutual fund international exposure in each country found in Cerulli Associate’s 2014 report “Latin American Distribution Dynamics 2014: Entry Points to Emergent Economies.” Percentages may not sum to 100% due to rounding.


Local investing and global opportunities

Inve

stin

gpr

inci

ples

Sector exposure% of MSCI The World Index and MSCI Latin America

Latin America Developed markets

Investment universe & Latin American investorsPercentage of total net assets

Latin America Global

67

5.5% 3.0% 1.0%

97.5%94.5% 97.0% 99.0%

2.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

GDP Bond market Equity market Average LatinAmerican investor

allocation*


68

0.730.91

1.11 1.17

1.41

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Japan equity U.S. equity Europe equity EM Asia equity LATAM equity

Correlations and beta

Source: Bloomberg/Barclays, FactSet, MSCI, Standard & Poor’s, J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.LCL LATAM sov. (sovereigns), USD LATAM sov., USD EMD sov., LATAM equity, EM Asia equity, U.S. equity, Europe equity, Japan equity, Global high yield, Global IG (investment grade) and U.S. dollar are: GBI-EM Global Diversified Latin Region subindex, EMBIG Diversified Latin Region subindex, EMBIG Diversified index, MSCI Latin America, MSCI EM Asia, S&P 500, MSCI Europe, MSCI Japan, Bloomberg Barclays Global High Yield, Bloomberg Barclays Global Credit – Corporate – Investment Grade and J.P. Morgan Emerging Market Currency index, respectively. Correlations are based on monthly total return data in local currency terms for the period between 12/31/04 – 12/31/19. Beta calculations are based on monthly price returns in U.S. dollars for the period between 12/31/1999 – 12/31/2019.Guide to the Markets – Latin America. Data are as of March 31, 2020.

Beta of regional equities to global equities (MSCI ACWI)U.S. dollars, monthly price returns

Correlation between Latin America local sovereign bonds vs. other asset classesLocal currency, monthly total returns

Inve

stin

gpr

inci

ples

>1.00 = Swings more than MSCI ACWI

68

0.69 0.68

0.50 0.46 0.450.36 0.31 0.26

0.15

-0.49-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

USD EMD sov. USD LATAMsov.

Global IG Global high yield LATAM equity EM Asia equity Europe equity U.S. equity Japan equity U.S. dollar


69

-39%

-8%

-15%-3% -2%

1%

-1% 1% 2%6%

1%5%

47%43%

33%28%

23% 21% 19%16% 16% 17%

12% 14%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1-yr. 5-yr.rolling

10-yr.rolling

20-yr.rolling

Time, diversification and the volatility of returns

Source: Barclays, Bloomberg, FactSet, Federal Reserve, Robert Shiller, Strategas/Ibbotson, J.P. Morgan Asset Management.Returns shown are based on calendar year returns from 1950 to 2019. Stocks represent the S&P 500 Shiller Composite and Bonds represent Strategas/Ibbotson for periods from 1950 to 2010 and Bloomberg Barclays Aggregate thereafter. Growth of $100,000 is based on annual average total returns from 1950 to 2019.


69

Inve

stin

gpr

inci

ples

Range of U.S. stock, bond and blended total returnsAnnual total returns, 1950 - 2019

50/50 portfolio 8.9% $555,161Bonds 5.9% $313,758Stocks 11.3% $844,684

Annual avg. total return

Growth of $100,000 over 20 years


70

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Fully invested Missed 10 best days Missed 20 best days Missed 30 best days Missed 40 best days Missed 50 best days Missed 60 best days

Market timing, diversification and the average investor

Source: J.P. Morgan Asset Management; (Top) Barclays, Bloomberg, FactSet, Standard & Poor’s; (Bottom) Dalbar Inc.Indices used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Bloomberg Barclays U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz., Inflation: CPI. 60/40: A balanced portfolio with 60% invested in S&P 500 Index and 40% invested in high-quality U.S. fixed income, represented by the Bloomberg Barclays U.S. Aggregate Index. The portfolio is rebalanced annually. Average asset allocation investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/19, except the average investor which is through 12/31/2018 and is based on Dalbar’s most recent analysis. Guide to the Markets – Latin America. Data are as of March 31, 2020.

20-year annualized returns by U.S. asset class (1999-2019)

Inve

stin

gpr

inci

ples

70

Returns of S&P 500Performance of $10,000 between January 1, 2000 and December 31, 2019, annualized total returns

$32,421(6.06% return)

$16,180(2.44% return)

$10,167(0.08% return) $6,749

(-1.95% return) $4,607(-3.80% return) $3,246

(-5.47% return)$2,331

(-7.02% return)

Six of the 10 best days occurred within two weeks of the 10 worst days

11.6%

8.6%

6.1% 5.6% 5.4% 5.0%4.2% 3.8% 3.4%

2.2% 1.9%

0%

2%

4%

6%

8%

10%

12%

14%

REITs Gold S&P 500 60/40 40/60 Bonds Oil EAFE Homes Inflation AverageInvestor


71

Source: Barclays, Bloomberg, CME, FactSet, J.P. Morgan Global Index Research, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. Indices: S&P 500: S&P 500 Index; DM Equity: MSCI EAFE; EM Equity: MSCI EM; U.S. HY: Bloomberg US High Yield; U.S. IG: Bloomberg US Corporate Investment Grade Index; U.S. Treasuries: Bloomberg US Treasury Index; U.S. Dollar: US Dollar Index (DXY); Gold: Gold (NYM $/oz) continuous contract; Cash: US Treasury 3M Bellwether. All data are total returns and are in USD. *Assumes 2% dividend yield throughout. **Previous four bear markets are the GFC (’08-’09), tech-bubble (’00-’01), 1990 and the flash crash (’87). Drawdowns are measured from market peak to market trough. EM equity returns do not include the 1987 bear market due to data availability. Past performance is not indicative of future returns. Guide to the Markets – Latin America. Data are as of March 31, 2020.

Asset class performance around bear markets

Average returns needed to recover to market peak*S&P 500

Average returns around bear marketsPrevious four bear markets**

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Inve

stin

gpr

inci

ples

Average annual total return required to recover to peak

Cumulative total return required to recover to peak

5%

5%

5%

6%

7%

8%

9%

11%

16%

33%

59%

56%

53%

50%

47%

44%

41%

38%

36%

33%

0% 5% 10% 15% 20% 25% 30% 35% 40%

10 years

9 years

8 years

7 years

6 years

5 years

4 years

3 years

2 years

1 year

Peak level (2/19/2020) 3,386Current level (3/31/2020) 2,585Decline from peak -24%

-60%

-40%

-20%

0%

20%

40%

60%

80%

12-mo. prior Drawdown 12-mo. recovery

S&P 500 DM EquityEM Equity U.S. TSYsU.S. IG corps U.S. HYU.S. Dollar GoldCash


72

30%

35%

40%

45%

50%

55%

60%

65%

70%

Source: Barclay’s, Bloomberg, FactSet, MSCI, Standard & Poor’s, J. P. Morgan Asset Management. Guide to the Markets – Latin America. Data are as of March 31, 2020.

Diversification benefits and forced rebalancing

Stock, bond and 40/60 portfolio returns since 12/31/19S&P 500 and Barclays US Aggregate total return indices

40/60 portfolio without rebalancing since 12/31/19S&P 500 and Barclays US Aggregate total return indices

72

Inve

stin

gpr

inci

ples

Mar. 31, 2020: 34.2%

Mar. 31, 2020: 65.8%

Equities

Fixed Income

-19.6%

3.1%

-6.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

Equity only Bond only U.S. 40 stocks/60 bonds


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J.P. Morgan Asset Management – Index definitions

All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses.Equities:The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip U.S. stocks.The MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI EAFE Index(Europe, Australasia, Far East)is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.The MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe.The MSCI Pacific Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region.The Russell 1000 Index® measures the performance of the 1,000 largest companies in the Russell 3000. The Russell 1000 Growth Index® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index® measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.The Russell 2000 Index® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.The Russell 2000 Growth Index® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Value Index® measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000 Index® measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell Midcap Index® measures the performance of the 800 smallest companies in the Russell 1000 Index.The Russell Midcap Growth Index ® measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The Russell Midcap Value Index ® measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index.The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The S&P 500 Index focuses on the large-cap segment of the market; however, since it includes a significant portion of the total value of the market, it also represents the market.

Fixed income:The Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon US Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible.The Bloomberg Barclays Global High Yield Index is a multi-currency flagship measure of the global high yield debt market. The index represents the union of the US High Yield, the Pan-European High Yield, and Emerging Markets (EM) Hard Currency High Yield Indices. The high yield and emerging markets sub-components are mutually exclusive. Until January 1, 2011, the index also included CMBS high yield securities. The Bloomberg Barclays Municipal Index: consists of a broad selection of investment-grade general obligation and revenue bonds of maturities ranging from one year to 30 years. It is an unmanaged index representative of the tax-exempt bond market.The Bloomberg Barclays US Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate note market.The Bloomberg Barclays US Corporate Investment Grade Index is an unmanaged index consisting of publicly issued US Corporate and specified foreign debentures and secured notes that are rated investment grade (Baa3/BBB or higher) by at least two ratings agencies, have at least one year to final maturity and have at least $250 million par amount outstanding. To qualify, bonds must be SEC-registered.The Bloomberg Barclays US High Yield Index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included.The Bloomberg Barclays US Mortgage Backed Securities Indexis an unmanaged index that measures the performance of investment grade fixed-rate mortgage backed pass-through securities of GNMA, FNMA and FHLMC.The Bloomberg Barclays US TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury.The J.P. Morgan Emerging Market Bond Global Index(EMBI)includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities.The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market. The J.P. Morgan Corporate Emerging Markets Bond Index Broad Diversified (CEMBI Broad Diversified)is an expansion of the J.P. Morgan Corporate Emerging Markets Bond Index (CEMBI). The CEMBI is a market capitalization weighted index consisting of U.S. dollar denominated emerging market corporate bonds. The J.P. Morgan Emerging Markets Bond Index Global Diversified (EMBI Global Diversified) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds. The index limits the exposure of some of the larger countries.The J.P. Morgan GBI EM Global Diversified tracks the performance of local currency debt issued by emerging market governments, whose debt is accessible by most of the international investor base.The U.S. Treasury Index is a component of the U.S. Government index.

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74

J.P. Morgan Asset Management – DefinitionsOther asset classes:The Alerian MLP Index is a composite of the 50 most prominent energy Master Limited Partnerships (MLPs) that provides investors with an unbiased, comprehensive benchmark for the asset class.The Bloomberg Commodity Index and related sub-indices are composed of futures contracts on physical commodities and represents twenty two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zincThe Cambridge Associates U.S. Global Buyout and Growth Index® is based on data compiled from 1,768 global (U.S. & ex –U.S.) buyout and growth equity funds, including fully liquidated partnerships, formed between 1986 and 2013.The CS/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index, LLC. It is an asset-weighted hedge fund index and includes only funds, as opposed to separate accounts. The Index uses the Credit Suisse/Tremont database, which tracks over 4500 funds, and consists only of funds with a minimum of US$50 million under management, a 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC.The HFRI Monthly Indices (HFRI) are equally weighted performance indexes, utilized by numerous hedge fund managers as a benchmark for their own hedge funds. The HFRI are broken down into 4 main strategies, each with multiple sub strategies. All single-manager HFRI Index constituents are included in the HFRI Fund Weighted Composite, which accounts for over 2200 funds listed on the internal HFR Database.The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance, and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.The NFI-ODCE, short for NCREIF Fund Index -Open End Diversified Core Equity, is an index of investment returns reporting on both a historical and current basis the results of 33 open-end commingled funds pursuing a core investment strategy, some of which have performance histories dating back to the 1970s. The NFI-ODCE Index is capitalization-weighted and is reported gross of fees. Measurement is time-weighted.Definitions:Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments involve greater risks than traditional investments and should not be deemed a complete investment program. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain. The value of the investment may fall as well as rise and investors may get back less than they invested.Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise.Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns. Distressed Restructuring Strategies employ an investment process focused on corporate fixed income instruments, primarily on corporate credit instruments of companies trading at significant discounts to their value at issuance or obliged (par value) at maturity as a result of either formal bankruptcy proceeding or financial market perception of near term proceedings.

Investments in emerging markets can be more volatile. The normal risks of investing in foreign countries are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property.The price of equity securities may rise, or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. Equity securities are subject to “stock market risk” meaning that stock prices in general may decline over short or extended periods of time.Equity market neutral strategies employ sophisticated quantitative techniques of analyzing price data to ascertain information about future price movement and relationships between securities, select securities for purchase and sale. Equity Market Neutral Strategies typically maintain characteristic net equity market exposure no greater than 10% long or short.Global macro strategies trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets.International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the United States and other nations.There is no guarantee that the use of long and short positions will succeed in limiting an investor's exposure to domestic stock market movements, capitalization, sector swings or other risk factors. Using long and short selling strategies may have higher portfolio turnover rates. Short selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions.Merger arbitrage strategies which employ an investment process primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction.Mid-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies. Historically, mid-cap companies' stock has experienced a greater degree of market volatility than the average stock.Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. Price to book value compares a stock's market value to its book value. Price to cash flow is a measure of the market's expectations of a firm's future financial health. Price to dividends is the ratio of the price of a share on a stock exchange to the dividends per share paid in the previous year, used as a measure of a company's potential as an investment.Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.Relative Value Strategies maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. Small-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies since smaller companies generally have a higher risk of failure. Historically, smaller companies' stock has experienced a greater degree of market volatility than the average stock.

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75

J.P. Morgan Asset Management – Risks & disclosures 75

The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions.For the purposes of MiFID II, the JPM Market Insights and Portfolio Insights programs are marketing communications and are not in scope for any MiFID II / MiFIR requirements specifically related to investment research. Furthermore, the J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy.This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in LatAm countries, by local J.P. Morgan entities, as the case may be; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in the United States by J.P. Morgan Institutional Investments, Inc. or JPMorgan Distribution Services, Inc., both are members of FINRA; J.P. Morgan Investment Management, Inc. or J.P. Morgan Alternative Asset Management, Inc. In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other markets in APAC, to intended recipients only. In Latin America, distribution intended to recipients only.

Copyright 2020 JPMorgan Chase & Co. All rights reserved.

Prepared by: Gabriela D. Santos and Jennie Li.

Unless otherwise stated, all data are as of March 31, 2020 or most recently available.

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