monthly market review - february 2021monthly market review market insights february 2021 need to...
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Monthly Market Review
MARKET INSIGHTS
February 2021
Need to digest all the good news
After the holiday season, many of my friends decided to go on a diet in January, or at least live a healthier lifestyle to compensate for the indulgences during all the celebrations. We could say the same for the markets in the weeks ahead. Having feasted on the good news since November, including vaccination research breakthroughs, reduced policy tail risks from the new Biden administration and the ongoing commitment by central banks and governments to support the economy, equities and risk assets went into consolidation in January. We are still constructive on these risk assets in 2021, but the near-term volatility will require Asian investors to be disciplined when it comes to rebalancing their portfolios to fit in with investment objectives and stay diversified when it comes to asset allocation.
Vaccine rollout and Biden’s policy priorities
The overall tone of economic recovery is encouraging, but this does not mean there will not be bumps on the road. In terms of vaccine rollout, the pace varies from country to country. Relative to the size of the population, Israel is leading the way with over 30% of its population receiving at least one dose of the vaccine. Early data suggests that the vaccine has helped to reduce infection risk compared to those who have not been inoculated. Meanwhile, the U.S. and the UK are also making steady progress on vaccinating their populations. The U.S. has already vaccinated (with at least one dose) over 25 million people and is operating at a daily run rate of 1.5 million doses. This implies everyone who wants to be vaccinated should be covered by the summer. In contrast, the European Union has been falling behind on vaccination. There are also concerns that lower-income countries may not have access to enough vaccines to protect at least their health care workers and vulnerable populations. Uneven distribution of vaccines means the pace of global economic recovery could vary.
In the U.S., the new year also brought a new government. U.S. President Joe Biden’s priorities have been domestic, issuing executive orders to tackle the pandemic. He is also proposing a USD 1.9trillion fiscal package to support the economy. This is unsurprisingly facing resistance from the Republicans. Many of the measures in the package could pass through the Senate with a simple majority (50 Democrat Senators plus the Vice President’s tie-breaker vote). Yet, this could be an early test for President Biden of whether he can truly reunite across the aisle and gain support from Republicans. Not much has been said on the new administration’s policy on China, but we think the risk of surprises on tariffs and restrictions markets experienced in the past four years could be reduced.
Tai HuiChief Market Strategist, Asia Pacific
2
Central banks still in fire fighting mode
When firefighters are fighting a fire, their priority is to put out the fire first, rather than to worry about the water damage to furniture or the building’s structure. Global central banks are arguably still in firefighting mode and have yet to focus on the long-term impact from their ultra-loose monetary policies. The Federal Reserve (Fed) remained committed to its current monetary policy in its Federal Open Market Committee meeting in January. It also pledged to communicate clearly to the market on its plan to adjust asset purchases, when the time comes. It also downplayed the near-term inflation risk. We think the Fed could maintainthis holding pattern for much of 2021. After a slow start to 2021, the job market and services sector recovery will determine when the Fed should gradually exit its current policy stance. A similar sentiment is echoed by the European Central Bank and the Bankof Japan.
That said, some Asian central banks have voiced concerns about the risk of asset inflation in their domestic markets. Notably, an advisor to the People’s Bank of China, Ma Jun, has flagged his worries over the risk of overheating in real estate and the equity market. The challenge for these monetary authorities is that excess liquidity is a global phenomenon, and they may not want to raise interest rates or tighten domestic liquidity when their economies are still in recovery mode. Borrowing a page from thepost-global financial crisis experience, some of these Asian central banks, or governments, could introduce macro-prudential measures to tame asset inflation, especially in addressing affordability in the property market.
Many investors share this concern that risk assets are expensive. A lot of positive news has been factored in. Both the price-to-earnings and price-to-book ratios of the S&P 500 are at the top end of their 15-year range. Corporate credit spreads, both for investment grade and high yield, have narrowed to the pre-pandemic level. Some wild swings in selected stocks by retail investors have also raised concerns that the market is getting euphoric. While positioning and leverage do not necessarily indicate we are in an asset bubble, a period of consolidation could be in the cards in the near term, until the current wave of COVID-19 outbreaks in the U.S., Europe and Asia subsides and vaccination continues to make progress in these regions.
Look further into the horizon, stick to your plan and diversify to get protected
The potential market volatilities can be unsettling to Asian investors, and this is where several investment principles are worth remembering.
Looking further into the investment horizon helps investors to avoid getting seasick in a choppy market. We still expect the global economy to recover in the next 12-18 months as the pandemic comes under control, taking into account the bumpy and uneven ride in vaccine distribution. China has already made a strong recovery, as reflected by its 6.5% GDP growth in 4Q 2020. The U.S.should also be in better shape in 2H 2021. We also expect the services sector, such as tourism, to gradually improve in both northeast Asia and ASEAN in the next 18-24 months. This constructive growth outlook should be positive for earnings and continue to support equities and corporate credits.
Second, investors need to review and rebalance their portfolios to align with their investment objectives. The strong equity market performance in the past 9 months would have raised the share of equity relative to bonds in most portfolios. This would mean shifting some allocation back to bonds. However, the investment case for developed market government bonds, such as U.S. Treasuries, is weak at this stage. Not only do they not provide income, but also their negative relationship with equities has weakened. This reduces the ability of these bonds to hedge against market volatility. Although corporate credits and emerging market debt have a positive correlation with equities, their relatively higher income provides a more consistent cash flow toinvestors at times of volatility.
Finally, diversification is still critical. A diversified portfolio of equities, corporate and emerging market fixed income can provide the benefit of generating income while managing volatility. Geographical and sectoral diversification is important as well. Eventhough some markets, such as the U.S., are expensive, there are other regions with less demanding valuations, including ASEAN, Europe and Japan. These regions are also likely to benefit from a global recovery and a weaker U.S. dollar.
MONTHLY MARKET REVIEW
MONTHLY MARKET REVIEW | FEBRUARY 2021
3J.P. MORGAN ASSET MANAGEMENT
MONTHLY MARKET REVIEW | FEBRUARY 2021
Global economy:
• COVID-19 vaccinations are well underway for many countries, although at varying paces. The U.S. and the UK are making steady progress in inoculations, with President Biden setting a target to inoculate 100 million people in 100 days. On the other hand, Europe has stumbled into a roadblock, as its vaccine rollout has been hit by supply and distribution delays. This has raised investors’ concerns about the prospects of economic recovery for the region. (GTMA P. 12, 13)
• In China, economic growth accelerated in 4Q 2020, rising 6.5% year-over-year and putting it back on its trend growth rate. Whereas state-led infrastructure investment led growth previously, this has shifted to consumer and private enterprise-led demand. Rising COVID-19 cases in several locations has resulted in governments offering incentives to keep migrant workers in factories during the approaching Lunar New Year holidays to minimize traveling. This could break the usual seasonality dip in production seen in previous holiday seasons. In a sign that it is carefully monitoring the risk of asset bubbles, the People’s Bank of China also acted to drain liquidity from the banking system via open-market operations. (GTMA P. 7, 8, 10)
Equities:
• After a strong start to the year, equity markets pared off some of their gains toward the end of January. The S&P 500 was down 1% in the month, while the Stoxx 50 index declined 1.8%. Concerns of an overheated stock market and the European Union’s mishandling of the vaccine rollout, as well as a retail trading frenzy in the U.S. that sparked a short squeeze in some hedge fund positions, contributed to the market volatility and sell-off. (GTMA P. 29)
• North Asian markets delivered strong performances in January. Record southbound flows from mainland investors into Hong Kong-listed H-shares of mainland companies also drove the Hang Seng index up 3.8% for the month. Emerging markets equities performed strongly after initial optimism over economic recovery. However, rising COVID-19 cases, concerns over vaccine rollouts and market volatility that led to increased demand for the U.S. dollar erased some of these gains. (GTMA P. 29, 32, 35)
Fixed income:
• 10-year U.S. Treasury (UST) yields breached 1% for the first time since March last year, driven by the Democratic win in Georgia that raised expectations of more fiscal spending. This rise has been capped by Republicans’ opposition to the stimulus, but this has settled around 1.1%. European government bond yields also rose slightly as expectations of a rate cut became less likely. (GTMA P. 46, 47)
• Credit spreads traded in a relatively narrow range, ending January at a similar level as the previous month. Back at their pre-pandemic levels, returns for corporate credit are increasingly being driven by their interest rate component. (GTMA P. 45, 52)
Other assets:
• Prospects of economic recovery and demand growth continued to drive the crude oil market, as Brent crude gained 6% in January to USD 55 / barrel. Gold prices fell 2.4% as a rise in bond yields reduced the appeal of gold. (GTMA P. 63-65)
• The USD index rose 0.9% as investors looked toward the U.S. for a stronger recovery from the pandemic relative to other countries. In a similar trend, the British pound also rose relative to the euro over optimism in the UK’s vaccination plan and reduced uncertainties from Brexit. Emerging market currencies fell against the U.S. dollar after increased worries over vaccine rollouts and increased demand for the safe-haven currency. (GTMA P. 60, 61)
|GTM – Asia
Regi
onal
and
loca
l eco
nom
y
-30%
-20%
-10%
0%
10%
20%
30%
40%
'11 '12 '13 '14 '15 '16 '17 '18 '19 '20
ConsumptionYear-over-year change, 3-month moving average
Source: CEIC, National Bureau of Statistics of China, J.P. Morgan Asset Management. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
China: Cyclical indicators
Online sales
Fixed asset investmentYear-to-date, year-over-year change
Private
Aggregate
State-owned enterprises
Retail sales
8
4
-5%
5%
15%
25%
35%
45%
55%
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
'16 '17 '18 '19 '20
|GTM – Asia
Glob
al e
cono
my
40
100
160
220
280
340
400
90
100
110
120
130
140
150
'06 '08 '10 '12 '14 '16 '18 '20 '22
Real GDP growthQuarter-over-quarter change
Global growth
Source: J.P. Morgan Economic Research, J.P. Morgan Asset Management. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
China EurozoneU.S.
Forecast
ForecastReal GDP levelsIndexed to 1Q 2006 = 100
Japan
China
Eurozone
U.S.
Japan
-1.3%
-9.0%
7.5%
0.7% 0.1% 1.2% 1.5% 0.9% 0.7%
-10%
-5%
0%
5%
10%
-3.7%
-11.7%
12.5%
-2.5%
0.5% 2.4% 2.2% 1.2% 0.9%
-15%-10%-5%0%5%
10%15%
-0.5%
-8.3%
5.3%1.5% 0.0% 1.3% 0.9% 0.5% 0.4%
-10%
-5%
0%
5%
10%
1Q '20 2Q '20 3Q '20 4Q '20 1Q '21 2Q '21 3Q '21 4Q '21 1Q '22
-10.2%
11.8%
1.8% 3.1% 1.7% 1.1% 1.3% 1.4% 1.3%
-15%-10%-5%0%5%
10%15%
12
5
|GTM – Asia
Glob
al e
cono
my
20
25
30
35
40
45
50
55
60
65
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21
Source: Australian Industry Group, Institute for Supply Management, J.P. Morgan Economic Research, Markit, J.P. Morgan Asset Management.PMIs are relative to 50, which indicates deceleration (below 50) or acceleration (above 50) of the sector. Heatmap colors are based on PMI relative to the 50 level, with green (red) corresponding to acceleration (deceleration). *Developed market includes Australia, Canada, Denmark, euro area, Japan, New Zealand, Norway, Sweden, Switzerland, UK and the U.S. **Emerging market includes Brazil, Chile, China, Colombia, Croatia, Czech Republic, Hong Kong SAR, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Philippines, Poland, Romania, Russia, Saudi Arabia, Singapore, South Africa, Taiwan, Thailand, Turkey and Vietnam. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Global manufacturing and services PMIIndex
Global manufacturing PMI breakdown
Manufacturing
Services
Global Purchasing Managers’ Index (PMI)
Lowest point 4/20: 23.7
Lowest point 4/20: 39.6
13
6 F
eb '2
0
Mar
'20
Apr
'20
May
'20
Jun
'20
Jul
'20
Aug
'20
Sep
'20
Oct
'20
Nov
'20
Dec
'20
Jan
'21
Global 53.8 53.5DM* 54.8 55.2EM** 52.8 52.1U.S. (Markit) 57.1 59.2U.S. (ISM) 60.5 58.7Euro area 55.2 54.8Germany 58.3 57.1France 51.1 51.6Italy 52.8 55.1Spain 51.0 49.3UK 57.5 54.1Australia 55.7 -Japan 50.0 49.8China (Markit) 53.0 51.5China (NBS) 51.9 51.3Korea 52.9 53.2Taiwan 59.4 60.2Indonesia 51.3 52.2India 56.4 57.7Russia 49.7 50.9Brazil 61.5 56.5Mexico 42.4 -# markets above 50 7 3 0 1 5 10 11 11 12 11 14 12
|GTM – Asia
Glob
al e
cono
my
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20-1%
0%
1%
2%
3%
4%
5%
6%
7%
Source: J.P. Morgan Asset Management; (Left) FactSet; (Right) BIS. G4 are the Bank of England, the Bank of Japan (BoJ), the European Central Bank and the U.S. Federal Reserve. *Key deposit rates that central banks charge commercial banks on their excess reserves. **The BoJ has adopted a three-tier system in which a negative interest rate of -0.1% will be applied to the policy rate balance of the aggregate amount of all financial institutions that hold current accounts at the BoJ. ***Count covers the 38 central banks included in the Bank for International Settlements’ central bank policy monitor except Argentina, Croatia and Hong Kong.Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Policy rate Deposit rate*
Eurozone 0.0% -0.5%Japan** -0.1 to 0.0% -0.1%UK 0.1% 0.1%U.S. 0.0 to 0.25% 0.1%
Changes in central bank policy ratesNumber of hikes or cuts***
G4 central bank key policy ratesPer annum
Central bank policy rates
Developed markets
Emerging marketsRate hikes
Rate cutsDeveloped markets
Emerging markets
18
7
-200
-150
-100
-50
0
50
100
150
200
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 YTD'21
|GTM – Asia
Glob
al e
cono
my
Source: BEA, Conference Board U.S., FactSet, U.S. Census Bureau, U.S. Department of Labor, Wards Intelligence, J.P. Morgan Asset Management.Indicators are: Consumer Confidence – Monthly survey index of how consumers perceive their own financial status and the general economy; Wage Growth – Average hourly earnings of production and non-supervisory workers; Nonfarm Payrolls – Monthly change in U.S. nonfarm employment (three-month moving average); Housing Starts – Number of private housing units that construction has started within a specified timeframe; Light Vehicle Sales – Cars and passenger trucks sold in a given month; Business Confidence –Monthly survey of Chief Executive Officers about their outlook for the economy; Capex – Monthly new orders of non-defense capital goods (excluding aircraft); Durable Orders –Monthly new orders of durable goods in the manufacturing sector, seasonally adjusted; Industrial Production – Monthly output of the industrial sector; Leading Economic Index – An index aggregating values of 10 key variables intended to forecast future U.S. economic activity; Credit Conditions – Leading Credit Index that aggregates performance of six financial market instruments to track credit conditions in the U.S. economy.Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
U.S. business cycle indicatorsCurrent percentile rank relative to range of data since Jan. 1990
United States: Business cycle thermometer
Consumers Businesses
3 months
ago
Latest ElevatedR
etrenched
24
8
0
25
50
75
100
ConsumerConfidence
WageGrowth
NonfarmPayrolls
HousingStarts
Light VehicleSales
BusinessConfidence
Capex DurableOrders
IndustrialProduction
LeadingEconomic
Index
CreditConditions
Example
|GTM – Asia
Glob
al e
cono
my
'75 '80 '85 '90 '95 '00 '05 '10 '15 '20-3%
0%
3%
6%
9%
12%
15%
Source: Bureau of Economic Analysis, Department of Labor Statistics, FactSet, Federal Reserve, J.P. Morgan Asset Management.*The required 3-year average to achieve the Federal Reserve’s 2% inflation target. The Federal Reserve uses the Personal Consumption Expenditure (PCE) deflator to measure inflation. Core CPI is defined as CPI excluding food and energy prices. The PCE deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Headline and core consumer price index (CPI)Year-over-year change, seasonally adjusted
United States: Inflation
3-yr. avg.Required average to reach inflation
target*Dec. 20
Headline CPI 1.8% - 1.3%
Core CPI 2.0% - 1.6%
Food CPI 2.4% - 3.9%
Energy CPI -1.4% - -7.3%
Headline PCE deflator 1.6% 2.4% 1.3%
Core PCE deflator 1.7% 2.3% 1.5%
26
9
|GTM – Asia
Glob
al e
cono
my
2.50%
0%
1%
2%
3%
4%
5%
6%
'06 '08 '10 '12 '14 '16 '18 '20 '22 '24Source: Bloomberg Finance L.P., FactSet, U.S. Federal Reserve, J.P. Morgan Asset Management.Market expectations are the federal funds rates priced into the Fed Fund futures market as of 31/01/21. Federal Reserve projections shown are the median estimates of Federal Open Market Committee (FOMC) participants.Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Federal funds rate expectationsMarket expectations for the fed funds rate
United States: Monetary policy
Federal funds rate
FOMC long-run projection
FOMC year-end estimates
Market expectations on 31/01/21
Longrun
FOMC December 2020 forecastsPercent
2020 2021 2022 2023 Longrun
Change in real GDP, 4Q to 4Q -2.4 4.2 3.2 2.4 1.8
Unemployment rate, 4Q 6.7 5.0 4.2 3.7 4.1
PCE inflation, 4Q to 4Q 1.2 1.8 1.9 2.0 2.0
27
10
|GTM – Asia
Equi
ties
Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management.Returns are total returns based on MSCI indices, except the U.S., which is the S&P 500, and China A, which is the CSI 300 index in U.S. dollar terms. China return is based on the MSCI China index. 10-yr total (gross) return data is used to calculate annualized returns (Ann. Ret.) and annualized volatility (Ann. Vol.) and reflect the period 31/01/11 – 31/01/21. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Global and Asia equity market returns 29
11
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4Q '20 YTD '21 Ann. Ret. Ann. Vol.
U.S. India U.S. China A Japan Taiwan China U.S. Taiwan Korea Korea China U.S. China A
2.1% 26.0% 32.4% 52.1% 9.9% 19.6% 54.3% -4.4% 37.7% 45.2% 38.6% 7.4% 13.5% 24.0%
ASEAN China Japan India China A U.S. Korea India China A Taiwan Taiwan Taiwan Taiwan India
-6.1% 23.1% 27.3% 23.9% 2.4% 12.0% 47.8% -7.3% 37.2% 42.0% 23.2% 6.5% 11.2% 23.0%
Europe ASEAN Europe U.S. U.S. Korea India Taiwan U.S. China A India China A China Korea
-10.5% 22.8% 26.0% 13.7% 1.4% 9.2% 38.8% -8.2% 31.5% 38.4% 21.2% 4.0% 8.7% 21.0%
Korea APAC ex-JP
Taiwan Taiwan Europe APAC ex-JP
APAC ex-JP
ASEAN Europe China ASEAN APAC ex-JP
China A China
-11.8% 22.6% 9.8% 10.1% -2.3% 7.1% 37.3% -8.4% 24.6% 29.7% 20.8% 3.5% 8.2% 20.5%
Japan Korea Korea China India ASEAN China A Japan China APAC ex-JP
APAC ex-JP
Korea APAC ex-JP
Taiwan
-14.2% 21.5% 4.2% 8.3% -6.1% 6.2% 32.6% -12.6% 23.7% 22.8% 19.2% 1.3% 7.0% 17.6%APAC ex-JP
Europe China ASEAN Korea Japan ASEAN APAC ex-JP
Japan U.S. China A Japan Korea APAC ex-JP
-15.4% 19.9% 4.0% 6.4% -6.3% 2.7% 30.1% -13.7% 20.1% 18.4% 18.4% -1.0% 6.9% 16.8%
China Taiwan APAC ex-JP
APAC ex-JP
China China Taiwan Europe APAC ex-JP
India Europe U.S. Japan ASEAN
-18.2% 17.7% 3.7% 3.1% -7.6% 1.1% 28.5% -14.3% 19.5% 15.9% 15.7% -1.0% 6.7% 16.7%
Taiwan U.S. China A Japan APAC ex-JP
Europe Europe China Korea Japan Japan Europe Europe Europe
-20.2% 16.0% -2.6% -3.7% -9.1% 0.2% 26.2% -18.7% 13.1% 14.9% 15.3% -1.4% 5.4% 16.6%
China A China A India Europe Taiwan India Japan Korea ASEAN Europe U.S. ASEAN India Japan
-20.5% 10.9% -3.8% -5.7% -11.0% -1.4% 24.4% -20.5% 8.8% 5.9% 12.1% -1.8% 4.6% 13.8%
India Japan ASEAN Korea ASEAN China A U.S. China A India ASEAN China India ASEAN U.S.
-37.2% 8.4% -4.5% -10.7% -18.4% -15.2% 21.8% -27.6% 7.6% -6.2% 11.2% -2.3% 2.3% 13.5%
10-yrs ('11 - '21)
|GTM – Asia
Equi
ties
Earnings growthEarnings per share, year-over-year change, consensus estimates
Source: IBES, MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Asia Pacific ex-Japan, emerging markets (EM), Europe and U.S. equity indices used are the MSCI Asia Pacific ex-Japan, MSCI Emerging Markets, MSCI Europe and S&P 500, respectively. Consensus estimates used are calendar year estimates from IBES. Revisions are based on the current unreported year. Net earnings revisions is (number of companies with upward earnings revisions – number of companies with downward earnings revisions) / number of total companies. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Earnings revisions ratiosNet earnings revisions to consensus estimates, 13-week moving average
Global equities: Earnings expectations
U.S.
Europe
Asia Pacific ex-Japan
Japan
20212019 2020
31
12
2%
-3% -4%
-2%
-15%
-1%-4%
-31%
24%26%
35%38%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
U.S. Asia Pacific ex-Japan
EM Europe -80%
-60%
-40%
-20%
0%
20%
40%
60%
'14 '15 '16 '17 '18 '19 '20 '21
|GTM – Asia
Equi
ties
Source: Bloomberg Finance L.P., China Securities Index, FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management.Price-to-earnings (P/E) and price-to-book (P/B) ratios are in local currency terms. 15-year range for P/E and P/B ratios are cut off to maintain a more reasonable scale for some indices. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Equity market valuations – Price-to-bookTrailing P/B ratios
Equity market valuations – Price-to-earningsForward P/E ratios 15-yr. average
Latest
15-yr. range38.3 35.8
15-yr. averageLatest
15-yr. range5.2
Global equities: Valuations
5.2
41.1
7.2
32
13
2.7
1.7 1.7 1.72.0
2.4
1.6 1.4
3.03.3
1.3 1.2
2.02.5
1.51.9 2.0
1.8
2.7
1.0
4.1
1.9 2.1 2.11.5
2.42.4
1.3
3.3
2.4
1.4 1.4 1.6 1.7
1.1
2.7
1.7
2.31.9
1.0
0x
1x
2x
3x
4x
5x
S&P 500 Europeex-UK
Asia Pacex-Japan
Emergingmarkets
ASEAN China A(CSI 300)
China HongKong
India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Brazil Mexico Russia
15.113.2
12.8 11.6 13.9 15.1 11.915.4
16.9
14.015.4
9.8
15.116.0
13.414.3 12.5 11.4
15.3
7.0
21.617.5
17.3 15.6 15.9 15.9 17.117.4
22.7
16.118.1
14.0 14.2
17.514.5 18.3
19.1
11.314.1
7.9
0x
10x
20x
30x
S&P 500 Europeex-UK
Asia Pacex-Japan
Emergingmarkets
ASEAN China A(CSI 300)
China HongKong
India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Brazil Mexico Russia
|GTM – Asia
Equi
ties
Source: MSCI, J.P. Morgan Asset Management. (Top) IBES. Equity indices used are the respective MSCI indices. Consensus estimates used are calendar year estimates from IBES. (Bottom) FactSet. Sector indices used are from the MSCI AC Asia Pacific ex-Japan Index. Consensus estimates used are calendar year estimates from FactSet. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Earnings growth by sectorEarnings per share, year-over-year change, consensus estimates
Earnings growth by marketEarnings per share, year-over-year change, consensus estimates
APAC ex-Japan equities: Earnings expectations by market and sector
2020 2021
2020 2021
36
14
11.2%21.5%
2.6%
-1.0%
-26.4% -25.1%-40.4%
-1.0%
-39.4%
23.5%
-38.9%
12.8% 14.0% 18.4%26.5% 31.8% 32.3% 35.4% 36.7% 41.8% 45.5% 48.3%
-60%
-40%
-20%
0%
20%
40%
60%
Australia Taiwan China Asia Pacific ex-Japan
Hong Kong Indonesia Thailand India Philippines Korea Singapore
19.6%11.4%
-11.1% -11.2%
0.3%
43.3%
19.0%10.4%
-33.4%-46.5%
-19.1%
9.1% 11.6% 14.3% 16.5% 19.0%28.0% 28.6% 28.8%
42.3%54.6%
65.3%
-60%
-40%
-20%
0%
20%
40%
60%
80%
Utilities Consumerstaples
Real estate Financials Communicationservices
Informationtechnology
Health care Materials Industrials Energy Consumerdiscretionary
|GTM – Asia
Equi
ties
0x
10x
20x
30x
40x
50x
60x
S&P 500 earnings growth estimatesEarnings per share, year-over-year change, consensus estimates
Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. *Energy sector earnings are expected to increase by 740% in 2021. **The energy sector reached a historic maximum of 477x and a historic minimum of -1,435x. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
S&P 500 price-to-earningsForward P/E ratios
15-year rangeCurrent
15-year average
United States: Sector earnings and valuations
2021
2020 2021 relative to 2019
Sector Weight
(%)2.5 2.8 6.2 13.8 10.7 27.8 10.3 100.0 2.6 12.9 8.1 2.4
15
41
-60%
-40%
-20%
0%
20%
40%
60%
-120%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Rea
l Est
ate
Util
ities
Con
s. S
tapl
es
Hea
lth C
are
Com
m. S
ervi
ces
Tech
.
Fina
ncia
ls
S&
P 5
00
Mat
eria
ls
Con
s. D
iscr
.
Indu
stria
ls
Ene
rgy*
|GTM – Asia
Fixe
d in
com
e
Source: Barclays, Bloomberg Finance L.P., FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on Bloomberg Barclays U.S. Aggregate Credit – Corporate High Yield Index (U.S. HY), Bloomberg Barclays U.S. Aggregate Credit – Corporate Investment Grade Index (U.S. IG), J.P. Morgan Government Bond Index – EM Global (GBI-EM) (Local EMD), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Asia Credit Index (JACI) (USD Asian Bond), Bloomberg Barclays Pan European High Yield (Europe HY), J.P. Morgan Government Bond Index – Global Traded (DM Government Bond), J.P. Morgan Asia Credit High Yield Index (Asia HY), Bloomberg Barclays Global U.S. Treasury –Bills (3-5 years) (U.S. Treasury) and Bloomberg Barclays U.S. Treasury – Bills (1-3 months) (Cash). 5-year data is used to calculate annualized returns (Ann. Ret.). Returns are in U.S. dollars and reflect the period from 31/01/16 – 31/01/21. *Duration is a measure of the sensitivity of the price (the value of the principal) of a fixed income investment to a change in interest rates and is expressed as number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. **Correlation to the MSCI AC World Index is a measure over 10 years of data. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Global bond opportunities Fixed income sector returns
Global fixed income: Yields and returns 43
16
Sector YTM Duration*(years)
Correl. to MSCI AC World**
Correl. to 10-year
UST
Asia HY 7.0% 4.4 0.74 -0.12
U.S. HY 5.0% 3.7 0.83 -0.22
USD EMD 4.5% 8.3 0.65 0.09
Local EMD 4.3% 5.0 0.66 -0.08
USD Asian 3.8% 5.7 0.59 0.21
Europe HY 3.2% 3.4 0.82 -0.34
U.S. IG 1.9% 8.7 0.42 0.45
DM Gov't 0.7% 8.7 0.10 0.63
U.S. Treasury 0.6% 7.1 -0.39 0.98
Cash 0.0% 0.2 -0.12 0.14
5-yrs2014 2015 2016 2017 2018 2019 2020 YTD '21 Ann. Ret.USD
Asian Asia HY U.S. HYEurope
HY Cash U.S. IGEurope
HY U.S. HY U.S. HY
8.3% 5.2% 17.1% 21.0% 1.8% 14.5% 10.9% 0.3% 9.0%
U.S. IGUSD
AsianLocal EMD
Local EMD
U.S.Treas
USDEMD U.S. IG Asia HY
Europe HY
7.5% 2.8% 11.4% 15.4% 0.9% 14.4% 9.9% 0.1% 7.5%
Asia HYUSDEMD Asia HY
USDEMD
DM Gov't U.S. HY
DM Gov't Cash
USDEMD
6.1% 1.2% 11.2% 9.3% -0.7% 14.3% 9.7% 0.0% 6.6%USDEMD
U.S.Treas
USDEMD U.S. HY
USD Asian
Local EMD
U.S.Treas
USD Asian Asia HY
5.5% 0.8% 10.2% 7.5% -0.8% 13.1% 8.0% 0.0% 6.5%U.S.
Treas Cash U.S. IG Asia HY U.S. HY Asia HY U.S. HYEurope
HY U.S. IG
5.1% 0.0% 6.1% 6.9% -2.1% 12.8% 7.1% -0.1% 6.4%
U.S. HY U.S. IGUSD
AsianDM
Gov't U.S. IGUSD
AsianUSD
AsianLocal EMD
Local EMD
2.5% -0.7% 5.8% 6.8% -2.5% 11.3% 6.3% -0.6% 5.9%DM
Gov'tDM
Gov'tEurope
HY U.S. IG Asia HYEurope
HYUSDEMD
U.S.Treas
USD Asian
0.7% -2.6% 3.4% 6.4% -3.2% 10.3% 5.9% -1.0% 5.4%
Cash U.S. HYDM
Gov'tUSD
AsianUSDEMD
U.S.Treas Asia HY
USDEMD
DM Gov't
0.0% -4.5% 1.6% 5.8% -4.6% 6.9% 4.9% -1.2% 4.0%Europe
HYEurope
HYU.S.
TreasU.S.
TreasLocal EMD
DM Gov't Cash U.S. IG
U.S.Treas
-6.0% -7.6% 1.0% 2.3% -6.7% 6.0% 0.5% -1.3% 3.1%Local EMD
Local EMD Cash Cash
Europe HY Cash
Local EMD
DM Gov't Cash
-6.1% -18.0% 0.3% 0.8% -8.2% 2.2% -1.2% -1.3% 1.1%
|GTM – Asia
Fixe
d in
com
e
Source: iBoxx, ICE BofA Merrill Lynch, J.P. Morgan Economics Research, J.P. Morgan Asset Management.Based on J.P. Morgan Domestic High Yield Index (U.S. high yield), J.P. Morgan U.S. Liquid Index (JULI) (U.S. investment grade), J.P. Morgan Euro High Yield Index (Euro high yield), iBoxx EUR corporates (Euro investment grade), J.P. Morgan Asia Credit Index (JACI) (USD Asia credit), J.P. Morgan Asia Credit China Index (USD China offshore credit), J.P. Morgan Asia Credit High Yield Index (USD Asia high yield), J.P. Morgan EMBI Global (EMD USD), J.P. Morgan Corporate Emerging Markets Bond Index – CEMBI (USD EMD corporates), J.P. Morgan GBI-EM Global (Local EMD). Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Spread to worst across fixed income sub-sectorsBasis points, last 10 years
Global fixed income: Valuations
10-yr. averageLatest
10-yr. range
YTD minimum
YTD maximum
45
17
537
165
505
108
238312
491
359 330
468448
126
407
73
213242
641
321253
383409
120
349
67
179 193
478
275221
350
1139
387
1045
211
432 437
1130
662606
561
0
200
400
600
800
1,000
1,200
U.S. highyield
U.S.investment
grade
Euro highyield
Euroinvestment
grade
USDAsiacredit
USD Chinaoffshore credit
USD Asiahigh yield
USD EMD USD EMDcorporates
Local EMD
|GTM – Asia
Fixe
d in
com
e
0
400
800
1,200
1,600
2,000
0%
4%
8%
12%
16%
20%
'90 '95 '00 '05 '10 '15 '20
Source: J.P. Morgan Economics Research, J.P. Morgan Asset Management. *Default rate is defined as the percentage of the total market trading at or below 50% of par value and includes any Chapter 11 filing, pre-packaged filing or missed interest payments. Spreads indicated are benchmark yield-to-worst less comparable maturity Treasury yields. **Data reflects 20-year average and is as of 30/09/20. U.S. corporate high yield is represented by the J.P. Morgan Domestic High Yield Index.Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Sector default ratesLast 12-month default rate
High yield spread and default rate*
U.S. high yield bonds
Default rate Spread to worst (basis points)10-yr average Latest
HY spread to worst 537bps 448bpsHY energy spread to worst 672bps 636bpsHY default rate 2.2% 6.0%HY ex-energy default rate 3.0%** 3.8%
Recessions
Default rateIndex weight
54
18
12.3%8.8% 8.2% 7.4% 7.2% 6.2% 5.3% 4.8% 4.3% 4.1% 4.0% 3.8% 3.4% 3.2% 3.1% 2.9% 2.7% 2.5% 2.4% 1.7% 1.7%
19.2%
1.9% 0.7% 1.5% 0.0%
4.1%0.3% 1.8%
12.8%
19.5%
2.2% 1.2% 1.3% 0.0% 0.0%
14.5%
0.0% 0.0% 0.0% 0.0%
4.6%
0%
5%
10%
15%
20%
25%
|GTM – Asia
Oth
er
asse
t cla
sses
Source: Bloomberg Finance L.P., Dow Jones, FactSet, J.P. Morgan Economic Research, MSCI, J.P. Morgan Asset Management. The “Diversified” portfolio assumes the following weights: 20% in the MSCI World Index (DM Equities), 20% in the MSCI AC Asia Pacific ex-Japan (APAC ex-JP), 5% in the MSCI EM ex-Asia (EM ex-Asia), 10% in the J.P. Morgan EMBIG Index (EMD), 10% in the Bloomberg Barclays Aggregate (Global Bonds), 10% in the Bloomberg Barclays Global Corporate High Yield Index (Global Corporate High Yield), 15% in J.P. Morgan Asia Credit Index (Asian Bonds), 5% in Bloomberg Barclays U.S. Aggregate Credit – Corporate Investment Grade Index (U.S. IG) and 5% in Bloomberg Barclays U.S. Treasury – Bills (1-3 months) (Cash). Diversified portfolio assumes annual rebalancing. All data represent total return in U.S. dollar terms for the stated period. 10-year total return data is used to calculate annualized returns (Ann. Ret.) and 10-year price return data is used to calculate annualized volatility (Ann. Vol.) and reflects the period 31/01/11 – 31/01/21. Please see disclosure page at end for index definitions. Past performance is not a reliable indicator of current and future results.Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Asset class returns 57
19
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4Q '20 YTD '21 Ann. Ret. Ann. Vol.
EMDAPAC ex-JP
DM Equities
Asian Bonds
Asian Bonds
EM ex-Asia
APAC ex-JP Cash
DM Equities
APAC ex-JP
EM ex-Asia
APAC ex-JP
DM Equities
EM ex-Asia
8.5% 22.6% 27.4% 8.3% 2.8% 25.2% 37.3% 1.8% 28.4% 22.8% 23.3% 3.5% 10.1% 22.6%
U.S. IGGlobal
Corp HYGlobal
Corp HY U.S. IG EMDGlobal
Corp HYEM ex-
AsiaAsian Bonds
APAC ex-JP
DM Equities
APAC ex-JP
Global Corp HY
APAC ex-JP
APAC ex-JP
8.1% 18.9% 8.4% 7.5% 1.2% 14.0% 24.7% -0.8% 19.5% 16.5% 19.2% 0.2% 7.0% 16.9%Global Bonds EMD Diversified EMD Cash EMD
DM Equities
Global Bonds
EM ex-Asia Diversified
DM Equities Diversified Diversified
DM Equities
5.6% 18.5% 5.4% 5.5% 0.0% 10.2% 23.1% -1.2% 16.9% 11.2% 14.1% 0.2% 6.3% 14.2%Asian Bonds
DM Equities
APAC ex-JP
DM Equities
DM Equities
DM Equities Diversified U.S. IG Diversified U.S. IG Diversified Cash
Global Corp HY Diversified
4.1% 16.5% 3.7% 5.5% -0.3% 8.2% 17.2% -2.5% 16.4% 9.9% 9.8% 0.0% 6.2% 9.1%Global
Corp HY Diversified Cash Diversified U.S. IG DiversifiedGlobal
Corp HYGlobal
Corp HY U.S. IGGlobal Bonds
Global Corp HY
Asian Bonds EMD
Global Corp HY
2.6% 15.4% 0.0% 3.3% -0.7% 8.1% 10.3% -3.5% 14.5% 9.2% 7.2% 0.0% 5.9% 7.9%
CashEM ex-
AsiaAsian Bonds
APAC ex-JP
Global Bonds
APAC ex-JP EMD EMD EMD
Global Corp HY EMD
Global Bonds
Asian Bonds EMD
0.1% 14.8% -1.4% 3.1% -3.2% 7.1% 9.3% -4.6% 14.4% 8.2% 5.5% -0.9% 5.5% 7.8%
DiversifiedAsian Bonds U.S. IG
Global Bonds Diversified U.S. IG
Global Bonds Diversified
Global Corp HY
Asian Bonds
Global Bonds
DM Equities U.S. IG U.S. IG
-2.4% 14.3% -1.5% 0.6% -3.4% 6.1% 7.4% -6.0% 13.4% 6.3% 3.3% -1.0% 5.5% 5.1%DM
Equities U.S. IGGlobal Bonds
Global Corp HY
Global Corp HY
Asian Bonds U.S. IG
DM Equities
Asian Bonds EMD U.S. IG EMD
Global Bonds
Asian Bonds
-5.0% 9.8% -2.6% 0.2% -4.9% 5.8% 6.4% -8.2% 11.3% 5.9% 3.0% -1.2% 2.7% 4.6%APAC ex-JP
Global Bonds EMD Cash
APAC ex-JP
Global Bonds
Asian Bonds
EM ex-Asia
Global Bonds Cash
Asian Bonds U.S. IG Cash
Global Bonds
-15.4% 4.3% -6.6% 0.0% -9.1% 2.1% 5.8% -11.5% 6.8% 0.5% 1.8% -1.3% 0.6% 4.4%EM ex-
Asia CashEM ex-
AsiaEM ex-
AsiaEM ex-
Asia Cash CashAPAC ex-JP Cash
EM ex-Asia Cash
EM ex-Asia
EM ex-Asia Cash
-19.6% 0.1% -9.3% -13.3% -25.1% 0.3% 0.8% -13.7% 2.2% -9.7% 0.0% -2.0% -2.0% 0.2%
10-yrs ('11 - '21)
|GTM – Asia
Oth
er
asse
t cla
sses
-4 -3 -2 -1 0 1 2 3 4
Commodity Index
Natural Gas
Oil
Agriculture
Industrial Metals
Gold
Precious Metals
Example
Source: Bloomberg Finance L.P., FactSet, J.P. Morgan Asset Management; (Left) CME; (Right) Barclays, J.P. Morgan Economic Research, MSCI. Commodities are represented by the appropriate Bloomberg Commodity sub-index priced in U.S. dollars. Crude oil shown is West Texas Intermediate (WTI) crude. Other commodity prices are represented by futures contracts. Z-scores are calculated using daily prices over the past five years. Based on Bloomberg Commodity Index (Comdty.); MSCI ACWI Select – Energy Producers IMI, Metals & Mining Producers ex Gold & Silver IMI, Gold Miners IMI, Agriculture Producers IMI (Energy (E), M&M (E), Gold (E), Agri. (E)); Bloomberg Barclays Global Aggregate Credit – Corporate Energy Index (Energy (FI)); Bloomberg Barclays U.S. Aggregate Credit – Corporate High Yield Metals & Mining Index (U.S. M&M (FI)); Bloomberg Barclays Euro Aggregate Credit – Corporate Metals & Mining Index (Euro M&M (FI)); J.P. Morgan Emerging Market Corporate Credit – Corporate Metals & Mining Index (EM M&M (FI)).5-year total return data is used to calculate annualized returns (Ann. Ret.) and 5-year price return data is used to calculate annualized volatility (Ann. Vol.) and reflects the period 31/01/16 – 31/01/21. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.
Commodity pricesCommodity price z-scores for the past five years, USD per unit
Returns
High levelCurrent
Low level
$52
$2.66
$230
$50
$12 $76
$4.84
$255
$64$34
$152
$1.48
$144$87$133
$2,069$1,127$1,850
$92$59$80
Commodities 63
20
2016 2017 2018 2019 2020 YTD '21 Ann. Ret. Ann. Vol.
Gold (E) M&M (E)Euro M&M
(FI) Gold (E) M&M (E) Agri. (E) M&M (E) Gold (E)
62.9% 37.5% -0.9% 51.1% 27.6% 3.2% 24.7% 36.5%
M&M (E) Agri. (E)US M&M
(FI) M&M (E) Gold (E) Comdty. Gold (E) M&M (E)
57.8% 20.3% -3.5% 17.1% 25.7% 2.6% 21.1% 28.4%
US M&M (FI)
EM M&M (FI)
Energy (FI)
EM M&M (FI) Agri. (E) Energy (E)
US M&M (FI) Energy (E)
45.5% 14.7% -3.7% 16.5% 19.5% 2.3% 14.8% 25.1%
EM M&M (FI)
US M&M (FI)
EM M&M (FI)
US M&M (FI)
EM M&M (FI)
US M&M (FI)
EM M&M (FI) Agri. (E)
32.4% 9.9% -4.1% 14.0% 10.6% 1.0% 13.8% 14.4%
Energy (E) Gold (E) Agri. (E) Agri. (E)US M&M
(FI)Euro M&M
(FI) Agri. (E) Comdty.
29.2% 9.4% -8.9% 13.8% 8.5% 0.3% 13.5% 12.5%
Euro M&M (FI) Energy (E) Comdty.
Energy (FI)
Energy (FI)
EM M&M (FI)
Energy (FI)
EM M&M (FI)
21.9% 9.1% -11.2% 13.4% 6.0% -0.2% 7.5% 11.1%
Agri. (E)Energy
(FI) Energy (E) Energy (E)Euro M&M
(FI) M&M (E)Euro M&M
(FI)Energy
(FI)
15.7% 9.0% -11.4% 9.5% 3.5% -0.9% 6.9% 10.6%
Comdty.Euro M&M
(FI) Gold (E) Comdty. Comdty.Energy
(FI) Comdty.US M&M
(FI)
11.8% 3.9% -13.0% 7.7% -3.1% -1.0% 1.9% 9.5%
Energy (FI) Comdty. M&M (E)
Euro M&M (FI) Energy (E) Gold (E) Energy (E)
Euro M&M (FI)
11.1% 1.7% -17.8% 5.2% -28.5% -3.6% 0.7% 7.0%
2016 - 2021
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Asia Pacific | February 2021
MARKET INSIGHTS