Monthly Market Review - February 2021 - J.P. Morgan Asset ...
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MARKET INSIGHTS
Monthly Market Review
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
Tai Hui plus the Vice President’s tie-breaker vote). Yet, this could be an early test for President
Chief Market Strategist, Asia Pacific
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.MONTHLY MARKET REVIEW | FEBRUARY 2021 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 maintain this 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 Bank of 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 the post-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 to investors 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. Even though 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. 2 M O N THL Y M A R KE T R E V I E W
MONTHLY MARKET REVIEW | FEBRUARY 2021
Global economy: Fixed income:
• COVID-19 vaccinations are well underway for many • 10-year U.S. Treasury (UST) yields breached 1% for the first
countries, although at varying paces. The U.S. and the UK time since March last year, driven by the Democratic win in
are making steady progress in inoculations, with President Georgia that raised expectations of more fiscal spending.
Biden setting a target to inoculate 100 million people in This rise has been capped by Republicans’ opposition to
100 days. On the other hand, Europe has stumbled into a the stimulus, but this has settled around 1.1%. European
roadblock, as its vaccine rollout has been hit by supply and government bond yields also rose slightly as expectations
distribution delays. This has raised investors’ concerns of a rate cut became less likely. (GTMA P. 46, 47)
about the prospects of economic recovery for the region. • Credit spreads traded in a relatively narrow range, ending
(GTMA P. 12, 13)
January at a similar level as the previous month. Back at
• In China, economic growth accelerated in 4Q 2020, rising their pre-pandemic levels, returns for corporate credit are
6.5% year-over-year and putting it back on its trend increasingly being driven by their interest rate component.
growth rate. Whereas state-led infrastructure investment (GTMA P. 45, 52)
led growth previously, this has shifted to consumer and
private enterprise-led demand. Rising COVID-19 cases in
Other assets:
several locations has resulted in governments offering
incentives to keep migrant workers in factories during the • Prospects of economic recovery and demand growth
approaching Lunar New Year holidays to minimize continued to drive the crude oil market, as Brent crude
traveling. This could break the usual seasonality dip in gained 6% in January to USD 55 / barrel. Gold prices fell
production seen in previous holiday seasons. In a sign that 2.4% as a rise in bond yields reduced the appeal of gold.
it is carefully monitoring the risk of asset bubbles, the (GTMA P. 63-65)
People’s Bank of China also acted to drain liquidity from • The USD index rose 0.9% as investors looked toward the
the banking system via open-market operations. U.S. for a stronger recovery from the pandemic relative to
(GTMA P. 7, 8, 10) other countries. In a similar trend, the British pound also
rose relative to the euro over optimism in the UK’s
Equities: vaccination plan and reduced uncertainties from Brexit.
Emerging market currencies fell against the U.S. dollar
• After a strong start to the year, equity markets pared off
after increased worries over vaccine rollouts and increased
some of their gains toward the end of January. The S&P demand for the safe-haven currency. (GTMA P. 60, 61)
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)
J.P. MORGAN ASSET MANAGEMENT 3China: Cyclical indicators GTM – Asia | 8
Fixed asset investment Consumption
local economy
Year-to-date, year-over-year change Year-over-year change, 3-month moving average
Regional and
40% 12% Retail sales Online sales 55%
8%
30%
45%
Private
State-owned enterprises 4%
20%
35%
0%
10%
-4% 25%
0%
-8%
Aggregate
15%
-10%
-12%
5%
-20% -16%
-20% -5%
-30% '16 '17 '18 '19 '20
'11 '12 '13 '14 '15 '16 '17 '18 '19 '20
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.
4Global growth GTM – Asia | 12
Real GDP growth Real GDP levels
Forecast
Quarter-over-quarter change Indexed to 1Q 2006 = 100
15% 11.8% 150 400
China Forecast Eurozone China
10%
1.8% 3.1% 1.7%
5% 1.1% 1.3% 1.4% 1.3% U.S.
0%
Japan
-5%
Global economy
140 340
-10%
-15% -10.2%
10% 7.5%
U.S.
5% 1.2% 1.5%
0.7% 0.1% 0.9% 0.7% 130 280
0%
-5% -1.3%
-10%
-9.0% 120 220
15% 12.5%
Eurozone
10%
5% 2.4% 2.2% 1.2% 0.9%
0.5%
0%
110 160
-5% -2.5%
-3.7%
-10%
-15% -11.7%
10%
Japan 5.3% 100 100
5% 1.5% 1.3%
0.0% 0.9% 0.5% 0.4%
0%
-0.5%
-5%
-10% -8.3% 90 40
1Q '20 2Q '20 3Q '20 4Q '20 1Q '21 2Q '21 3Q '21 4Q '21 1Q '22 '06 '08 '10 '12 '14 '16 '18 '20 '22
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.
5Global Purchasing Managers’ Index (PMI) GTM – Asia | 13
Global manufacturing and services PMI Global manufacturing PMI breakdown
Index
Aug '20
May '20
Nov '20
Feb '20
Jun '20
Sep '20
Dec '20
Mar '20
Apr '20
Oct '20
Jan '21
Jul '20
65
Global 53.8 53.5
Services
60
DM* 54.8 55.2
Global economy
EM** 52.8 52.1
55 U.S. (Markit) 57.1 59.2
U.S. (ISM) 60.5 58.7
Euro area 55.2 54.8
50 Germ any 58.3 57.1
France 51.1 51.6
45 Italy 52.8 55.1
Spain 51.0 49.3
UK 57.5 54.1
40 Lowest point 4/20: 39.6 Australia 55.7 -
Japan 50.0 49.8
China (Markit) 53.0 51.5
35
China (NBS) 51.9 51.3
Manufacturing Korea 52.9 53.2
30 Taiw an 59.4 60.2
Indonesia 51.3 52.2
India 56.4 57.7
25
Lowest point 4/20: 23.7 Russia 49.7 50.9
Brazil 61.5 56.5
20 Mexico 42.4 -
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 # m arkets above 50 7 3 0 1 5 10 11 11 12 11 14 12
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.
6Central bank policy rates GTM – Asia | 18
G4 central bank key policy rates Changes in central bank policy rates
Per annum Number of hikes or cuts***
7% Deposit
Policy rate 200
rate*
Eurozone 0.0% -0.5%
6% Japan** -0.1 to 0.0% -0.1% Developed markets
150 Rate hikes
UK 0.1% 0.1%
Global economy
Emerging markets
U.S. 0.0 to 0.25% 0.1%
5% 100
4% 50
0
3%
-50
2%
-100 Developed markets
1% Rate cuts
Emerging markets
-150
0%
-200
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 YTD
-1%
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '21
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.
7United States: Business cycle thermometer GTM – Asia | 24
U.S. business cycle indicators
Current percentile rank relative to range of data since Jan. 1990
100
Global economy
Latest
75
Elevated
50
Retrenched
25
3
months
ago
0
Consumer Wage Nonfarm Housing Light Vehicle Business Capex Durable Industrial Leading Credit Example
Confidence Growth Payrolls Starts Sales Confidence Orders Production Economic Conditions
Index
Consumers Businesses
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
8 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.United States: Inflation GTM – Asia | 26
Headline and core consumer price index (CPI)
Year-over-year change, seasonally adjusted
15% Required average
3-yr. avg. to reach inflation Dec. 20
target*
Headline CPI 1.8% - 1.3%
12%
Global economy
Core CPI 2.0% - 1.6%
Food CPI 2.4% - 3.9%
Energy CPI -1.4% - -7.3%
9% Headline PCE deflator 1.6% 2.4% 1.3%
Core PCE deflator 1.7% 2.3% 1.5%
6%
3%
0%
-3%
'75 '80 '85 '90 '95 '00 '05 '10 '15 '20
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.
9United States: Monetary policy GTM – Asia | 27
Federal funds rate expectations
Market expectations for the fed funds rate FOMC December 2020 forecasts
6% Percent
Long
2020 2021 2022 2023
Federal funds rate run
FOMC year-end estimates
Change in real GDP, 4Q to 4Q -2.4 4.2 3.2 2.4 1.8
Global economy
5%
Market expectations on 31/01/21 Unemployment rate, 4Q 6.7 5.0 4.2 3.7 4.1
FOMC long-run projection PCE inflation, 4Q to 4Q 1.2 1.8 1.9 2.0 2.0
4%
3%
2.50%
2%
1%
0% Long
'06 '08 '10 '12 '14 '16 '18 '20 '22 '24run
Source: 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.
10Global and Asia equity market returns GTM – Asia | 29
10-yrs ('11 - '21)
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%
APAC APAC APAC APAC
Korea Taiwan Taiwan Europe ASEAN Europe China ASEAN China A China
ex-JP ex-JP ex-JP ex-JP
-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%
APAC APAC APAC
Equities
Japan Korea Korea China India ASEAN China A Japan China Korea Taiwan
ex-JP ex-JP ex-JP
-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 APAC APAC
Europe China ASEAN Korea Japan ASEAN Japan U.S. China A Japan Korea
ex-JP ex-JP 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%
APAC APAC APAC
China Taiwan China China Taiwan Europe India Europe U.S. Japan ASEAN
ex-JP ex-JP ex-JP
-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%
APAC
Taiwan U.S. China A Japan Europe Europe China Korea Japan Japan Europe Europe Europe
ex-JP
-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%
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.
11Global equities: Earnings expectations GTM – Asia | 31
Earnings growth Earnings revisions ratios
Earnings per share, year-over-year change, consensus estimates Net earnings revisions to consensus estimates, 13-week moving average
50% 60%
2019 2020 2021
40% 38%
35%
40%
Japan U.S.
30% 26%
24%
20%
20%
Equities
10% 0%
2%
-2%
0% Europe
-1% -20%
-3% -4% -4%
-10%
-40%
-15%
-20%
Asia Pacific
ex-Japan
-30% -60%
-31%
-40%
U.S. Asia Pacific ex- EM Europe -80%
Japan '14 '15 '16 '17 '18 '19 '20 '21
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.
12Global equities: Valuations GTM – Asia | 32
Equity market valuations – Price-to-earnings 15-yr. range
Forward P/E ratios 41.1 38.3 15-yr. average
35.8
30x
Latest
21.6 22.7
20x 17.5 19.1
17.4 16.9 18.1 17.5
17.3 15.9 15.1 18.3
15.6 15.9 17.1 16.1 15.4 16.0 14.5 14.3 15.3
15.1 15.1 15.4 12.5
12.8 11.6 13.9 11.9 14.0 14.0 13.4 11.4 14.1
13.2 14.2
10x 9.8 11.3
7.9
7.0
0x
S&P 500 Europe Asia Pac Emerging ASEAN China A China Hong India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Brazil Mexico Russia
ex-UK ex-Japan markets (CSI 300) Kong
Equities
Equity market valuations – Price-to-book
Trailing P/B ratios 15-yr. range
7.2 5.2 5.2
5x 15-yr. average
Latest
4x 4.1
3.3 3.3
3x 3.0
2.7 2.4 2.5 2.7
2.4 2.4 2.7
2.0 2.0 2.3
2x 2.1 2.1 2.4 2.0
1.9 1.9 1.9
1.7 1.7 1.7 1.4 1.7 1.5 1.7
1.5 1.6 1.4 1.4 1.6 1.8
1.3 1.3 1.2 1.0
1x 1.1
1.0
0x
S&P 500 Europe Asia Pac Emerging ASEAN China A China Hong India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Brazil Mexico Russia
ex-UK ex-Japan markets (CSI 300) Kong
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.
13APAC ex-Japan equities: Earnings expectations by market and sector GTM – Asia | 36
Earnings growth by market
Earnings per share, year-over-year change, consensus estimates 2020 2021
60% 45.5% 48.3%
41.8%
32.3% 35.4% 36.7%
40% 31.8%
26.5% 23.5%
21.5% 18.4%
20% 11.2%12.8% 14.0%
2.6%
0%
-1.0% -1.0%
-20%
-40% -26.4% -25.1%
-40.4% -39.4% -38.9%
-60%
Australia Taiwan China Asia Pacific ex- Hong Kong Indonesia Thailand India Philippines Korea Singapore
Equities
Japan
Earnings growth by sector
Earnings per share, year-over-year change, consensus estimates
80% 2020 2021 65.3%
54.6%
60% 43.3% 42.3%
40% 28.0% 28.6% 28.8%
19.6% 14.3% 16.5% 19.0% 19.0%
20% 9.1% 11.4%11.6% 10.4%
0.3%
0%
-20% -11.1% -11.2%
-19.1%
-40%
-33.4%
-60% -46.5%
Utilities Consumer Real estate Financials Communication Information Health care Materials Industrials Energy Consumer
staples services technology discretionary
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.
14United States: Sector earnings and valuations GTM – Asia | 41
S&P 500 earnings growth estimates S&P 500 price-to-earnings
Earnings per share, year-over-year change, consensus estimates Forward P/E ratios
120% 60% 60x
2020 2021 relative to 2019
100% Current
2021
80% 40% 15-year range
50x
15-year average
60%
40% 20%
20% 40x
0% 0%
-20%
30x
Equities
-40% -20%
-60%
-80% -40% 20x
-100%
-120% -60% 10x
Comm. Services
Cons. Discr.
Energy*
Tech.
Materials
Real Estate
Utilities
Financials
S&P 500
Industrials
Cons. Staples
Health Care
0x
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
(%)
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.
15Global fixed income: Yields and returns GTM – Asia | 43
Global bond opportunities Fixed income sector returns
Correl. to Correl. to 5-yrs
Duration*
Sector YTM MSCI AC 10-year 2014 2015 2016 2017 2018 2019 2020 YTD '21 Ann. Ret.
(years)
World** UST USD Europe Europe
Asia HY U.S. HY Cash U.S. IG U.S. HY U.S. HY
Asian HY HY
Asia HY 7.0% 4.4 0.74 -0.12 8.3% 5.2% 17.1% 21.0% 1.8% 14.5% 10.9% 0.3% 9.0%
USD Local Local U.S. USD Europe
U.S. IG U.S. IG Asia HY
Asian EMD EMD Treas EMD HY
U.S. HY 5.0% 3.7 0.83 -0.22 7.5% 2.8% 11.4% 15.4% 0.9% 14.4% 9.9% 0.1% 7.5%
USD USD DM DM USD
Asia HY Asia HY U.S. HY Cash
EMD EMD Gov't Gov't EMD
USD EMD 4.5% 8.3 0.65 0.09 6.1% 1.2% 11.2% 9.3% -0.7% 14.3% 9.7% 0.0% 6.6%
USD U.S. USD USD Local U.S. USD
U.S. HY Asia HY
EMD Treas EMD Asian EMD Treas Asian
Local EMD 4.3% 5.0 0.66 -0.08 5.5% 0.8% 10.2% 7.5% -0.8% 13.1% 8.0% 0.0% 6.5%
U.S. Europe
Cash U.S. IG Asia HY U.S. HY Asia HY U.S. HY U.S. IG
Treas HY
USD Asian 3.8% 5.7 0.59 0.21 5.1% 0.0% 6.1% 6.9% -2.1% 12.8% 7.1% -0.1% 6.4%
Fixed income
USD DM USD USD Local Local
U.S. HY U.S. IG U.S. IG
Asian Gov't Asian Asian EMD EMD
Europe HY 3.2% 3.4 0.82 -0.34 2.5% -0.7% 5.8% 6.8% -2.5% 11.3% 6.3% -0.6% 5.9%
DM DM Europe Europe USD U.S. USD
U.S. IG Asia HY
Gov't Gov't HY HY EMD Treas Asian
U.S. IG 1.9% 8.7 0.42 0.45
0.7% -2.6% 3.4% 6.4% -3.2% 10.3% 5.9% -1.0% 5.4%
DM USD USD U.S. USD DM
Cash U.S. HY Asia HY
Gov't Asian EMD Treas EMD Gov't
DM Gov't 0.7% 8.7 0.10 0.63
0.0% -4.5% 1.6% 5.8% -4.6% 6.9% 4.9% -1.2% 4.0%
Europe Europe U.S. U.S. Local DM U.S.
Cash U.S. IG
U.S. Treasury 0.6% 7.1 -0.39 0.98 HY HY Treas Treas EMD Gov't Treas
-6.0% -7.6% 1.0% 2.3% -6.7% 6.0% 0.5% -1.3% 3.1%
Local Local Europe Local DM
Cash Cash Cash Cash
Cash 0.0% 0.2 -0.12 0.14 EMD EMD HY EMD Gov't
-6.1% -18.0% 0.3% 0.8% -8.2% 2.2% -1.2% -1.3% 1.1%
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.
16 Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.Global fixed income: Valuations GTM – Asia | 45
Spread to worst across fixed income sub-sectors
Basis points, last 10 years 10-yr. range
1,200 YTD maximum
Latest
1139 1130 10-yr. average
YTD minimum
1045
1,000
800
662
641
600 606
561
537
505 491
468
Fixed income
448 432 437 478
400 409 407
387 383
349 359 350
312 321 330
238 242 275
253
200 165 211 213 221
179 193
126 108
120 73
67
0
U.S. high U.S. Euro high Euro USD USD China USD Asia USD EMD USD EMD Local EMD
yield investment yield investment Asia offshore credit high yield corporates
grade grade credit
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.
17U.S. high yield bonds GTM – Asia | 54
High yield spread and default rate*
20% Spread to worst (basis points) 2,000
Default rate
10-yr average Latest
16% 1,600
HY spread to worst 537bps 448bps
Recessions HY energy spread to worst 672bps 636bps
12% HY default rate 2.2% 6.0% 1,200
HY ex-energy default rate 3.0%** 3.8%
8% 800
4% 400
0% 0
'90 '95 '00 '05 '10 '15 '20
Sector default rates
Last 12-month default rate
Fixed income
Default rate
25%
Index weight
19.2% 19.5%
20%
14.5%
15% 12.3% 12.8%
10%
8.8% 8.2% 7.4% 7.2% 6.2% 5.3%
4.1% 4.8% 4.3% 4.1% 4.0% 3.8% 3.4% 3.2% 3.1% 2.9% 4.6%
5% 1.9% 1.8% 2.2% 1.2% 1.3% 2.7% 2.5% 2.4% 1.7% 1.7%
0.7% 1.5%
0.0% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
0%
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.
18Asset class returns GTM – Asia | 57
10-yrs ('11 - '21)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4Q '20 YTD '21 Ann. Ret. Ann. Vol.
APAC DM Asian Asian EM ex- APAC DM APAC EM ex- APAC DM EM ex-
EMD Cash
ex-JP Equities Bonds Bonds Asia ex-JP Equities ex-JP Asia ex-JP Equities 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%
Global Global Global EM ex- Asian APAC DM APAC Global APAC APAC
U.S. IG U.S. IG EMD
Corp HY Corp HY Corp HY Asia Bonds ex-JP Equities ex-JP Corp HY ex-JP 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 DM Global EM ex- DM DM
EMD Diversified EMD Cash EMD Diversified Diversified Diversified
Bonds Equities Bonds Asia Equities 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 DM APAC DM DM DM Global
Diversified U.S. IG Diversified U.S. IG Diversified Cash Diversified
Bonds Equities ex-JP Equities Equities Equities Corp HY
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 Global Global Global Global Asian Global
Diversified Cash Diversified U.S. IG Diversified U.S. IG EMD
Corp HY Corp HY Corp HY Bonds Corp HY Bonds 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%
EM ex- Asian APAC Global APAC Global Global Asian
Cash EMD EMD EMD EMD EMD
Asia Bonds ex-JP Bonds ex-JP Corp HY Bonds Bonds
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%
Asian Global Global Global Asian Global DM
Diversified U.S. IG Diversified U.S. IG Diversified U.S. IG U.S. IG
Bonds Bonds Bonds Corp HY Bonds Bonds Equities
-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 Global Global Global Asian DM Asian Global Asian
U.S. IG U.S. IG EMD U.S. IG EMD
asset classes
Equities Bonds Corp HY Corp HY Bonds Equities Bonds Bonds 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%
Other
APAC Global APAC Global Asian EM ex- Global Asian Global
EMD Cash Cash U.S. IG Cash
ex-JP Bonds ex-JP Bonds Bonds Asia Bonds Bonds 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- EM ex- EM ex- EM ex- APAC EM ex- EM ex- EM ex-
Cash Cash Cash Cash Cash Cash
Asia Asia Asia Asia ex-JP Asia Asia Asia
-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%
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.
19 Guide to the Markets – Asia. Data reflect most recently available as of 31/01/21.Commodities GTM – Asia | 63
Commodity prices Returns
Commodity price z-scores for the past five years, USD per unit
2016 - 2021
-4 -3 -2 -1 0 1 2 3 4 2016 2017 2018 2019 2020 YTD '21 Ann. Ret. Ann. Vol.
Euro M&M
Gold (E) M&M (E) Gold (E) M&M (E) Agri. (E) M&M (E) Gold (E)
(FI)
Commodity Index $59 $92
62.9% 37.5% -0.9% 51.1% 27.6% 3.2% 24.7% 36.5%
$80
US M&M
M&M (E) Agri. (E) M&M (E) Gold (E) Comdty. Gold (E) M&M (E)
(FI)
Natural Gas $1.48 $4.84
57.8% 20.3% -3.5% 17.1% 25.7% 2.6% 21.1% 28.4%
$2.66
US M&M EM M&M Energy EM M&M US M&M
Agri. (E) Energy (E) Energy (E)
$76 (FI) (FI) (FI) (FI) (FI)
Oil $12
45.5% 14.7% -3.7% 16.5% 19.5% 2.3% 14.8% 25.1%
$52
EM M&M US M&M EM M&M US M&M EM M&M US M&M EM M&M
Agri. (E)
(FI) (FI) (FI) (FI) (FI) (FI) (FI)
Agriculture $34 $64
32.4% 9.9% -4.1% 14.0% 10.6% 1.0% 13.8% 14.4%
$50
US M&M Euro M&M
Energy (E) Gold (E) Agri. (E) Agri. (E) Agri. (E) Comdty.
Industrial Metals $87 $144 (FI) (FI)
29.2% 9.4% -8.9% 13.8% 8.5% 0.3% 13.5% 12.5%
$133
Euro M&M Energy Energy EM M&M Energy EM M&M
Energy (E) Comdty.
Gold $1,127 $2,069 (FI) (FI) (FI) (FI) (FI) (FI)
$1,850 21.9% 9.1% -11.2% 13.4% 6.0% -0.2% 7.5% 11.1%
Energy Euro M&M Euro M&M Energy
Agri. (E) Energy (E) Energy (E) M&M (E)
asset classes
Precious Metals $152 $255 (FI) (FI) (FI) (FI)
$230 15.7% 9.0% -11.4% 9.5% 3.5% -0.9% 6.9% 10.6%
Other
Euro M&M Energy US M&M
Comdty. Gold (E) Comdty. Comdty. Comdty.
(FI) (FI) (FI)
11.8% 3.9% -13.0% 7.7% -3.1% -1.0% 1.9% 9.5%
Energy Euro M&M Euro M&M
Example Low level Comdty. M&M (E) Energy (E) Gold (E) Energy (E)
High level (FI) (FI) (FI)
Current 11.1% 1.7% -17.8% 5.2% -28.5% -3.6% 0.7% 7.0%
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
20 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.MARKET INSIGHTS Monthly Market Review Asia Pacific | February 2021 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. 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