JPM_Global Asset Allocation_watermark

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Nikolaos Panigirtzoglou	John Normand	Global Cross-Asset Strategy
(44-20) 7134-7815	(44-20) 7134-1816	07 December 2018
nikolaos [e-mail] [e-mail]
Marko Kolanovic, PhD
(1-212) 272-1438
[e-mail]

Global Equity Style View

	Style Recommendation								Narendra SinghAC	Mixo DasAC
									(1-212) 622-0087	(852) 280-00511
	Region	QMI Cycle Value			Momentum Growth Quality			Low Volatility	J.P. Morgan Securities plc
										J.P. Morgan Securities
	US	Slowdown		N	N	OW	N	UW	Khuram ChaudhryAC
	Europe	Slowdown		UW	OW	OW	OW	OW		Lixin BaoAC
	EM Asia	Contraction		OW	UW	N	N	UW	(44-20) 7134-6297	(1-212) 834-4565
									J.P. Morgan Securities plc	J.P. Morgan Securities LLC
	Source: J.P. Morgan Quantitative and Derivatives Strategy
	Table B2: View Rationale and Implementation3
	Region	Equity Style	View		Possible Implementation		View Rationale				Style Definition
	US	Value	N		JPRPULVA, FTUSFLUT,		We are Neutral Value. Value is very cheap and has responded positively to signs				B/P
					FTUSPLUT, FTUSWLUT		of accelerating growth recently, and post-tax cut (mid-Nov to mid-Jan). Growth				1Y Fwd Earnings Yield
							slowdown / trade war is a risk for the style.				Sales Yield
		Momentum	N		JPRPULMO, FTUSMLUT,		The current phase of the cycle and flows favor Momentum. However, we are				12M Price Mom
					FTUSXLUT, FTUSNLUT		Neutral Momentum as it is getting expensive and looks crowded. Momentum often				3M Fwd Earnings Mom
							gets extended late-cycle though we have seen the style sell-off in July.
		Growth	OW		FTUSYLUT		We like Growth, especially sustained growth stocks as hedge againsta possible				Sales Growth (1Y, 3Y)
							slowdown. It is less vulnerable to reflation markers (higher yield, rising inflation).				FCF Growth (1Y, 3Y)
							Valuations are middling and flows are strong for Growth.
		Quality	N		JPRPULQU, FTUSELUT,		We also like Quality as hedge against a possible slowdown. Quality and Growth				ROE
					FTUSILUT, FTUSALUT		benefit from buybacks funded by strong profits, cash repatriation and greater tax				ROA
							certainty. Quality was up strongly in July and YTD.				EPS Quality (Piotroski)
		Low Volatility	UW		JPRPULBE, FTUSVLUT		Rising rates, expensive Valuation and weakest buybacks among styles are				Large Cap
							headwind for Low Volatility stocks. The style sold-off in 1H2018, but has recovered				Low Beta
							partially in July.				Altman-Z score
	Europe	Value	UW		JPERPLVA (L),		We took the opportunity to take profits in Value stocks following a significant rise				Earnings Yield
					QTJPVACS (L/S)		stock prices in April and moderation in the European QMI in May. The QMI for				Dividend Yield
							June & July suggests a shift back to Value may be too early.				FCF Yield
		Momentum	OW		JPERPLMO (L),		As long as the cycle is in 'Expansion' or 'Slowdow' momentum tends to perform				Price Mom
					QTJPMOCS (L/S)		well.				Seasonality
		Growth	OW		QTJPGRCL (L),		We are most nervous of being long Growth given the exposure to Industrials and				Earnings Mom
					QTJPGRCS (L/S)		Technology, but historically Growth stock only suffer major drawdowns if we enter				PEG Ratio
							the 'Contraction'. EPS growth proves to be cyclical!
		Quality	OW		JPERPLQU (L),		Quality remains unloved by investors who also fear a sell-off in bonds. Historically,				ROE
					QTJPQUCS (L/S)		Quality performs well when the QMI is slowinglike today. A further rise in the USD				Net Income Margin
							is the likely beneficiary for Quality stocks and their EPS revisions.				Equity Debt Ratio
		Low Volatility	OW		JPERPLBE (L),		The P/E spread vs Value is correcting and relative EPS revisions seems to have				Low Size
					QTJPVOCS (L/S)		bottomed.				Low Beta
	Asia	Value	OW		JPHASST2 (L),		Conditions have been building for a "Recovery" in business cycle conditions (Asia				Fwd Earnings Yield
					QTJPXEYS (L/S)		QMI has been in "Contraction" last three months) and catalysts are now coming				Dividend Yield
							through (China easing, rising rates) for Value outperformance to resume.				B/P
		Momentum	UW		JPHASSTY (L),		Momentum is likely to be hurt in significant market rotations as the one currently				12M Price Mom
					QTJPXPMS (L/S)		underway.				1m reversal
		Growth	UW		JPHASSTY (L)		Growth style is unlikely to perform well in either scenario (a deeper "Contraction"				EPS Growth
							or a "Recovery" from here). Growth stocks in Asia are also historically expensive.
		Quality	N		QTJPXRES (L/S)		Given the uncertainty in the medium-term outlook, pressures on 2019 numbers and				ROE
							incrementally worse cyclical earnings, we hedge for downside risks with Low Vol				Earnings Certainty
							Given the uncertainty in the medium-term outlook, pressures on 2019 numbers and
		Low Volatility	N		QTJPXLVS (L/S)		incrementally worse cyclical earnings, we hedge for downside risks with Low Vol				Low 90d Vol
							and Quality exposure.

Source: J.P. Morgan Quantitative and Derivatives Strategy. Highlighted are thematic J.P. Morgan Indices, which are one of the many possible implementations of an equity style view. Other implementations include quantitative ETFs, direct trading of long/short stock portfolios, equity risk factor benchmarks designed by other institutions, etc.

3See Framework for Style Investing, Lakos-Bujas et al., May 2015. See Global Equity Style Investing, Chaudhry et al., Nov 2017.

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Nikolaos Panigirtzoglou	John Normand
(44-20) 7134-7815	(44-20) 7134-1816

nikolaos [e-mail] [e-mail]

Marko Kolanovic, PhD (1-212) 272-1438

[e-mail]

Cross-Asset Correlation

Source: J.P. Morgan Quantitative and Derivatives Strategy

Global Cross-Asset Strategy

07 December 2018

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vk.com/id446425943

vk.com/id446425943

Nikolaos Panigirtzoglou	John Normand	Global Cross-Asset Strategy
(44-20) 7134-7815	(44-20) 7134-1816	07 December 2018

[e-mail] [e-mail]

Marko Kolanovic, PhD (1-212) 272-1438

[e-mail]

Macro Momentum

2018 GDP Expectations

In %, GDP estimates of J.P. Morgan and consensus with current J.P. Morgan estimates of potential growth. Consensus Economics forecasts for global growth are done using the same 5-year rolling USD GDP country/region weights that we use for our own global growth forecast.

Source: J.P. Morgan.

37

vk.com/id446425943

Nikolaos Panigirtzoglou	John Normand	Global Cross-Asset Strategy
(44-20) 7134-7815	(44-20) 7134-1816	07 December 2018

[e-mail] [e-mail]

Marko Kolanovic, PhD (1-212) 272-1438

[e-mail]

2019 GDP Expectations

In %, GDP estimates of J.P. Morgan and consensus with current J.P. Morgan estimates of potential growth. Consensus Economics forecasts for global growth are done using the same 5-year rolling USD GDP country/region weights that we use for our own global growth forecast.

Source: J.P. Morgan.

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vk.com/id446425943

Nikolaos Panigirtzoglou	John Normand	Global Cross-Asset Strategy
(44-20) 7134-7815	(44-20) 7134-1816	07 December 2018

[e-mail] [e-mail]

Marko Kolanovic, PhD (1-212) 272-1438

[e-mail]

Forecast Revision indices since 2016

In %, the FRI is cumulative weekly changes in GDP forecasts for the current Quarter (Q), Q-1, Q+1 and Q+2 made by J.P. Morgan economists. The beginning of every series is normalized tobegin at zero.

Source: J.P. Morgan.

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vk.com/id446425943

Nikolaos Panigirtzoglou	John Normand	Global Cross-Asset Strategy
(44-20) 7134-7815	(44-20) 7134-1816	07 December 2018

[e-mail] [e-mail]

Marko Kolanovic, PhD (1-212) 272-1438

[e-mail]

Market Panorama

Source: J.P. Morgan, BIS, MSCI, Datastream, Bloomberg. Market size estimates for sub asset class as of Nov’18. GDP estimates are as of end 2017. Global Fixed income is proxied by the sum of the global domestic debt securities reported by BIS and J P. Morgan’s EMBIG index for external debt. For equities, we used the Datastream world equity index. Global cash is an aggregated M2 (or close proxy of M2) of developed and developing countries. Note: There is some difference between breakup of FI total in column 2 and 4. That is because in column 2 we take the total market size from BIS and adjust it for central bank holdings and in column 4 we take the breakup of sub-asset class of FI from JPMorgan indices, which are easy to track and trade.

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