EFTA01178648.pdf

J.P. Morgan Global Asset Allocation J.P. Morgan Chase Bank NA, J.P. Morgan Securities Ltd. June 29, 2012 he J.P. Morgan View Mini-steps to Euro federalism Jan Loeysit • Asset Allocation — Buy euro bank bonds as they benefit the most with the (1.212) 834.5874 ECB as the new bank regulator and potential TARP money from the ESM. jan.loeyselpmorgan.com • Economics — Q2 likely the weakest quarter this recovery, at 1.4%, but Q3 still John Normand looks like sub 2% for the world. UK growth is cut by 1/4% this year and next. (44-20) 7325-5222 john.normand ipmorgan.com • Fixed Income — Long duration in EM, OW German Blinds cross-market. Nikolaos Panigirtzoglou • Equities — Near-term upside should benefit countries and sectors where (44.20) 7777-0386 positions are more depressed, i.e. Euro area equities and banks globally. [email protected] • Credit — Eurozone banks look to be the relative winner from the EU summit. Seamus Mac Gorain We go long € financial bonds in the GMOS portfolio. (44-20) 7777-2906 seamusnacgorainGipmorgan.com • Foreign exchange — Dollar moves into a range post the Brussels EI summit, but we retain a number of hedges against renewed euro weakness. Matthew Lehmann • Commodities — Hot weather in the US is pushing up corn and US gas prices. (44-20) 7134-7813 matthew.m.lehmann eipmorgan.com • Risk assets are up on the week on great expectations management by the Leo Evans (44.20) 7742-2537 Europeans who had led the world to expect the worst from yesterday's EU loonard.a.ovansliPipmorgan.com Summit. In the end, the EU stepped back from the brink. Euro area leaders compromised on some of their disagreements in a manner that at least tempo- rary eases the negative economic and financial dynamic, even as it not truly YTD returns through Jun 28 reverses them. Ife. equities are in lighter colour. • What did the EU Summit deliver? Here is a top-level view. Our sister publica- EMS Cap. tions (GDW,GFIMS)provide more details. Overall, if 10 is what is needed to US High Yield save EMU, and zero is where we started the week, then one could say we EMBIG moved to 2 — a meaningful step, with many more to be taken, and a risk of S&P500 sliding back when the details need to be filled in. Topie • We argued last week that the Summit ultimately needs to be judged on US High Grade whether it moves the Euro area towards fiscal and political federalism. The MSCI AC World' O Van Rompuy Report on a Genuine Economic and Monetary Union spells out EM Local Bonds" a vision of the federalist end point, but received no agreement, besides an MSCI EM' invitation to try again with more concrete proposals by October. Very little progress thus, except that the issue is now at least openly on the table. US Fixed Income Global Gov Bonds" • Some progress towards federalism was made by agreeing to a single bank EM FX • supervisor under the ECB, to be implemented by year-end. The still future MSCI Europe' 0 ESM would then be allowed to help recapitalize banks — a small move Europe Fixed Income' towards a much needed Euro-TARP. Also, a first step was taken towards dropping the seniority of official lending relative to the private sector in the US cash case of the EFSF/ESM loan to Spain to recapitalize its banks. The subordina- Gold • tion of private investors has been the main reason why official loans never GSCI TR •ffl stabilized the market. Northern EMU is not accepting this as a rule change, but .IS -10 4 0 5 IC one can argue that the cat is out of the bag. Sum:IR Magri. Sbarterg. Rebus in USD 'Lou/ amen% "Hedged efo USD. En Nod Ircane a Ito* Oxfal • Equally important is that some steps are being taken towards ending the Hex. US MG.HY. EMIG rd EMS capare" ate,. EM NisElMla inf. wvvw.morganmarkets.com The certifying analyst is indicated by an AC. See page 7 for analyst certification and important legal and regulatory disclosures. EFTA01178648 Global Asset Allocation The J.P. Morgan View J.P.Morgan fixation with austerity as the solution to the EMU crisis. The €I20bn growth 2012 global GDP growth forecasts: JPMorgan compact would appear too small to pull the region out of recession. Instead we and Consensus note the agreement that the ESM can buy bonds without extra conditionally - 4.0 - read "austerity" — beyond what all EMU members have to deliver already anyway. Yes, countries that have borrowed too much should cut back, but not 3.5 all at the same time, please, as you then run into the Paradox of Thrift. This Paradox of Austerity, as we have renamed it, makes countries with funding 3.0 problems cut spending and raise taxes, thus worsening tax revenues, their 2.5 deficit and, in turn, funding Wen -C. Hence, the cry across Europe that auster- ity is not working. This minor change in conditionally is, by itself, not enough 2.0 to reverse austerity, but, here again, a precedent is set and the cat is out of the bag. 1.5 Jan•II Apr.11 Jul•I1 Oct•11 Jan•I2 Apr•12 • What is missing? The list is long, but to mention the important ones: For one, Saute: J.P. Mergan.Conseraus karma. Consensus Econ:mcs krecasts are fax MOMS all countries that we award usig he the ESM got a bigger mandate, but not more money. It will thus run out sr.e Slew roling USD GDP nips tot to use kc u corn gbbY sooner. On the positive side, with a greater mandate, there is more reason than gem* Ica:east. before to raise its capacity. In addition, the ECB does not yet get the signing 2013 global GDP growth forecasts: JPMorgan up to fiscal union that is really needs to unleash QE and the SMP. But near and Consensus term, the modest progress towards federalism provides some comfort to the ECB and should make it more willing to provide support. Finally, tensions are 3.0 Consensus rising in the Euro area, with Germany feeling it has given up most, even as most economists would argue that Northern EMU's fixation with austerity, 2.8 inflation risk, and joint bond issuance could doom the EMU project. The main risks for markets in coming weeks are thus efforts by Northern EMU to regain 2.6 what it perceived it lost in Brussels. JPM 2.4 • How long with the rally in risk assets last? The last two weekends' attempts at providing support — Greek elections, EFSF funding for Spanish banks — bought less than a day's worth of rally in risk assets. This one should last a bit 2.2 longer, as it achieved a lot more, but will likely over the next month run into Jan-I2 Feb-12 Mar•12 Apr•12 May-12 Jun•12 Scum JP. Merg:n Consensus Ecceorria Comm' Ectracrics resistance from weak economic data and some back sliding on the EMU forecasts se la mans and =onus .e avenged usng the summit as official haggle over the details. we Slew ming USD GOPnips that.e use tx COI eon cfalsal grooth invest. • Investment strategy. We have been close to home with a defensive bias, focused on dollar longs, Cyclicals UWs, Europe UWs, and duration longs. Our main longs in risk are outright longs in corporate bonds and EM FX funded in euros. These produce good value and carry, and we believe fit neatly into the yield and carry focus of most investors. Notice how, despite huge macro uncertainty, our p. I YTD return chart neatly has zero-yielding assets (cash and commodities) at the bottom, while the top has high-yield, and EM corporates and sovereigns in USD. We like to add risk through outright More details in ... longs in euro bank bonds, as their acquisition of the ECB as top regulator — Global Data Watch. Bruce Kasman and David Hensley one that also prints money — as well as the possibility that the ESM will be Global Markets Outlook and Strategy. Jan Loeys. Bruce able to provide equity capital, are huge supports, in our view, even as neither Kasman. el al. the EMU crisis nor the European recession are over. US Fixed Income Markets. Terry Bellon and Srini Ramaswamy Fixed income Global Fixed Income Markets. Pavan Wadhwa and Fabio • The EU summit has brought the sharpest one-day rally of the year in Euro area Bassi peripheral bonds, albeit only reversing the underperformance earlier this week. The prospective recapitalisation of banks by the ESM, rather than their own Emerging Markets Outlook and Strategy. Joyce Chang sovereign, is an important step towards removing the banking sector tail risk Key trades and risk: Emerging Market Equity Strategy. that has dogged peripheral government bonds. This could materially shift the Adrian Mowal el al. Flows and Leath/ Nikos Panioirlzoolou et al June 29,2012 2 EFTA01178649 Global Asset Allocation J.P.Morgan The J.P. Morgan View debt trajectories of Ireland and Spain in particular. As yet, though, the full scope of ESM bank recaps is unclear, while the experience of past EU summits suggests a bumpy road to implementation. Against the backdrop of what remains a very difficult supply-demand balance, that keeps us negative on peripheral bonds. • We have been inclined to oppose the recent cross-market underperformance of German Bunds, on the view that fears of debt socialisation in the near term are overblown. Even though Germany essentially acquiesced overnight to limited fiscal transfers with little extra conditionality in return, we hold to this view, expressed via longs on Bunds vs US Treasuries, and 5s/l0s flatteners on the German curve. InUS Treasuries, we favour long end steepeners, motivated by upcoming supply, elevated positions, and a shift in pension regulations. • In keeping with the bullish tilt of our DM positions, we are long duration in EM. As in DM, weakening growth and loosening monetary policy bullets are supportive, and EM central banks have not run out of conventional monetary policy bullets. Meanwhile, modest outflows from local bond funds have turned to modest inflows in the past two weeks. Equities • Equities rebounded sharply following the results of the EU summit. We view the decisions made at the summit as positive for the near term, and we see most upside on countries and sectors where positions are more depressed, i.e.Euro area equities and banks globally. Open an OW in banks globally. • The MSCI AC World Bank index is still down 12% from its March peak and not far from the bottom of its range seen last September. The decision to use the ESM for bank recaps is equivalent to a Euro TARP. The introduction of the US TARP post Lehman, led eventually to a bank rally but admittedly not immedi- ately. Bank credit was a more immediate beneficiary than bank equities at the time. • For investors willing to chase the rally, we believe the best way is via the capitulation baskets we described in the JPMWew on June 15. Our delta one team constructed three baskets that are likely to benefit from a rebound in equity markets, one for each major region. The objective is to select stocks that underperformed the most over the past months, but possess high quality at the same time, i.e. they have high PIE, P/B and ROE. • Each of the baskets contains 50 stocks with the highest combined factor rankings within their respective regional universe and can be found on Bloomberg under tickers JPUSCLNG (US basket), JPEUCLNG (Europe basket) and JPHACLNG (Asia Pacific basket). Our European basket,JPEUCLNG,is up More details in... by 6% since June 15. EM Corporate Outlook and Strategy. Warren Mar el al. Credit US Credit Markets Outlook and Strategy. Enc Bernstein et al. • Whilst spreads were unchanged leading into the EU summit, its results bettered expectations and a strong risk rally followed today, particularly in High YieW Credit Markets WeeW Peter Acciavalti et al. those assets closest to the problem. The Summit does not pull Europe out of European Credit Outlook & Strategy. Steven Dulake et al. recession, but the move to a single bank regulator — the ECB — that also Emerging Markets Cross Product Strategy Weekly. Eric happens to control the printing press, and permitting the ESM to help Bensten et al. recapitalise banks, should be major positives for bank credit. TARP was June 29, 2012 3 EFTA01178650 Global Asset Allocation J.P.Morgan The J.P. Morgan View followed by a sustained rally in US bank bonds and we see this as an opportu- FX weekly change vs USD nity to go outright long liquid C financial bonds. The combination of a safe 2.0% asset and a risky asset — bunds + spread — offers good diversification for the end investor and is one major reason why spread product has been the I 1.0% best asset class so far this year (chart on p. I). • Given investor positioning towards European credit, our colleagues in Euro- 0.0% pean Credit Derivatives Strategy explored a number of ways to be long Europe vs US credit yesterday, through indices, curves, options and tranches (see Saul Doctor et al, CD Player). They saw room for a reversal of recent trends 1.0% and today's outcomes appear to support their hypothesis. .2.0% Foreign Exchange USD JPY EUR GBP CHF CAD AUD • Although Q3 begins with a potentially watershed EU summit agreement TWI around banking union which presents the test case for fiscal union, the policy Seam: J.P. !lawn backdrop across Europe, the US and China looks more consistent with consolidation in currencies rather than a trend USD sell-off. European parlia- ments face a huge commitment test in coming months in approving debt mutualization; the US will only move closer to the edge of the fiscal cliff in the wake of a divisive Supreme Court ruling on Obama•care; and China's fiscal easing cycle may not lift activity data for another month or two. Forecasts are, therefore, unchanged but risks are now definitely more balanced post- summit. Target ranges: IPMQUSD 82-85,DXY 81-84,EUR/USD 1.22-1.27, AUD/USD 0.99-1.04 and VXY Global 9.5%11%. • In terms of trades, the EU leaders' summit has neutralised yet another near- term tail risk, but questions around willingness to pool sovereignty and debt still justify a handful ofhedges (EUR/USD 1.25-1.20 put spread, bearish EUR/ CHF seagull, long USD/CAD cash). Buy a 3-mo EUR/NOK range binary (7.382- 7.6835) to capitalize on briefstability. Take profits on GBP/USD 1.55 at-expiry digital and focus sterling bearishness on the crosses (short GBP/NOK cash). Stopped out of short GBP/USD at a profit. Short EUR/SEK and EUR/NOK calls expired with small gains. Commodities • Commodities are up around 2% this week with agriculture the notable outperformer, up almost 9%. Corn prices are now up 26% over the last two weeks as very dry weather in the US has led to fears of lower yields. Condi- tions in key corn producing states have declined from "moderate" and "extreme" drought to "exceptional" drought. Our corn crop conditions index has now had the second largest declinein more then two decades.If weather conditions do not improve significantly in the coming days, and weather forecasts currently suggest that they will not, there is significant downside risk to our US corn yield estimate, and thus upside risk to our price forecasts. More details in ... We await confirmation of yield damage before adjusting our forecasts (see Agriculture Weekly, Henri et al., Jun 28). FX Markets Weekly. John Normand et al. Commodity Markets Outlook & Strategy. Colin • US natural gas is up another 4% this week, as the same unusually hot Fenton el al. weather that is affecting the corn crop is resulting in much higher gas demand. Oi Markets Monthly. Fenton et al. In the past week, close to a thousand temperature records were broken in cities across the US and the heat is forecast to continue. Additionally, we have Dairy Metals Note. Fenton et al. seen a recent fall in gas production and the shutting of a nuclear power plant. Agriculture Weekly Dietz et al. June 20, 2012 4 EFTA01178651 Global Asset Allocation The J.P. Morgan View J.P.Morgan Interest rates Current Sep-12 Dec-12 Mar.13 Jun-13 YTD Return' United States Fed kinds rate 0.125 0.125 0.125 0.125 0.125 10-year yields 1.66 2.00 2.25 2.25 2.50 2.1% Euro area Rd rate 1.00 0.75 0.75 0.75 0.75 10-year yields 1.58 1.25 1.50 1.60 1.70 22% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 1.73 1.60 1.85 2.00 2.15 2.7% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 IC-year yields 0.83 0.85 0.95 0.95 0.95 13% GBI.EM hedged in S Yield Global Diversified 6.14 6.50 3.8% Credit Markets Current Index YTD Return' US high grade (bp over UST) 219 JPMorgan JULI Pablo Spread to Treasury 4.9% Euro high grade (bp over Ewe gov) 284 Mot( Euro Corporale Wlex 3.8% USD high yield (bp vs. UST) 667 JPMorgan Global High Yetd Index STW 7.0% Euro high yield (bp over Euro gov) 937 iBoxx Euro HY Index 10.5% EMBIG (bp vs. UST) 374 EMBI Global 6.9% EM Corporates (bp vs. UST) 427 JPM EM Corporates (CEMBI) 7.3% Quarterly Averages Commodities Current 1203 1204 1301 1302 GSCI Index YTD Return' Brent (Mtn 97 95 100 105 95 Energy .17.1% Gold ($oz) 1600 1850 1875 Precious Metals -1.5% Copper (Yrnetrie ton) 7392 8575 9000 Industrial Metals -7.2% Com IS'Bu) 6.37 5.50 5.10 5.30 SAO Agriculture 3.9% 3m cash YTD Daum' Foreign Exchange Current Sep-12 Dec-12 Mar-13 Jun-13 Index In USD EURiUSD 1.27 1.22 1.24 1.25 125 EUR -3.4% UM-RV 79.9 80 78 80 80 JPY 2.81> GBPiUSD 1.57 1.54 1.56 1.56 1.56 GBP 0.6% USUBRL 2.02 1.93 1.95 1.95 1.95 BRL -6.5% USDICNY 6.35 6.33 6.30 6.30 625 CNY -0.4% USOKRW 1145 1200 1150 1140 1140 KRW 1.1% USDfrRY 1.81 1.85 1.80 1.70 1.70 TRY 7.6% YTD Return US Europe Japan EM Equities Current (local eey) Sector Allocation • YTD YTD YTD YTD (3) SEP 1356 6.8% Energy -5.3% .7.3% 11.3% -8.9% Nasdaq 2927 12.3% Materials 3.5% -3.4% .4.3% -5.0% Topix 770 5.4% Industrials 3.9% 0.7% 2.2% 3.4% FTSE 100 5571 2.2% Discretionary 10.9% 83% 10.3% -0.9% MSCI Eurozone 126 .0.8% Staples 6.6% 5.4% 114% 53% MSCI Europe' 1005 0.9% Healthcare 9.0% 6.1% 6.3% 9.8% MSCI EM 907 0.7% Finandals 10.8% 1.1% 20.0% 2.8% Brazil Bovespa 54212 5.3% Information Tech. 9.7% .1.0% 3.5% 7.2% Hang Seng 19441 7.4% Telecommunications 15.4% -3.0% 5.0% 2.6% Shanghai SE 2225 1.2% Utilities 4.2% 0.7% .4.8% 2.4% 'Leyelsleturns as of Jun 28, 2012 Overall 6.8% 0.9% 5.4% 0.7% Local oirrency except MSCI EM Smt. xec.eng Us:rezrn BES. Stwaerd d Pocis 5:feces. JP. ximgr+rlraxs June 29.2012 5 EFTA01178652  Global Asset Allocation The J.P. Morgan View J. P Morgan Global Economic Outlook Summary Real GDP Real GDP Consumer prices % ear a wa• ago % oogrevas period. say % cher a year ago 2011 2012 2013 4Q11 1Q12 2Q12 3012 4Q12 1013 2013 4Q11 2Q12 4012 2Q13 The Americas United States 13 2.1 2.0 3.0 1.9 2.0 2.0 2.0 1.5 2.3 3.3 2.0 1.5 1.4 Canada 2.4 2.1 22 1.9 1.9 LQ 2.1 2.0 22 2.2 2.7 1.9 2.1 2.2 Latin America 42 33 3.8 2.5 3.6 2S 3.7 3.7 3.9 3.9 7.2 6.2 6.2 6.9 Argentina 8.9 3.3 22 22 3.6 -4.5 8.0 6.0 0.0 1.5 9.6 10.0 10.0 11.0 Brazil 2.7 2.1 4.5 0.6 0.8 LI 4.4 4.8 4.5 4.5 6.7 5.0 5.0 5.3 Chile 6.0 5.0 4.5 82 5.7 3.5 3.8 5.0 4.6 4.7 4.0 3.2 3.1 3.0 Wont:Ea 5.9 3.5 4.5 5.1 1.1 a2 3.0 3.5 5.0 6.0 3.9 3.6 3.3 3.0 Ecuador 7.8 4.0 4.0 4.1 2.0 3.5 4.0 4.0 4.0 4.0 5.5 5.1 4.2 4.0 Mexico 3.9 3.6 3.5 2.9 5.3 2.1 1.7 3.4 4.4 3.7 3.5 3.8 4.0 3.9 Peru 6.9 6.0 7.0 4.0 8.2 5.5 5.5 6.0 8.0 8.0 4.5 3.9 3.1 3.0 Venezuela 42 5.5 0.0 52 10.9 6.0 3.0 -6.0 -1.0 0.0 28.5 23.9 23.4 31.7 AsiaPacific Japan -03 2.5 12 0.1 4.7 1.6 1.0 0.8 1.0 1.2 -0.3 0.1 0.1 -0.1 Australia 2.1 32 2.8 2.5 5.3 U 1.6 2.4 4.4 3.3 3.1 1.0 1.5 2.2 New Zealand 13 2.9 23 1.8 4.7 2.1 3.7 31 0.9 3.4 1.8 1.1 2.4 2.7 Asia ex Japan 6.9 5.8 63 52 7.3 52 5.7 6.0 ? 6.4 6.6 4.9 3.8 3.9 4.4 China 92 7.7 8A 8.8 6.8 6.6 8.0 8.2 8.7 8.7 4.6 3.1 3.5 4.4 Hong Kong 5.0 1.9 3.6 1.6 1.6 3.0 3.5 3.5 3.0 3.5 5.7 4.3 3.8 3.7 India 6.5 6.0 6.5 83 5.8 La 5.8 5.6 6.2 6.5 8.4 7.8 8.1 8.4 Indonesia 6.5 5.0 3.7 8.8 4.8 4.0 3.0 3.0 3.5 4.5 4.1 4.5 3.9 3.4 Korea 3.6 2.9 3.5 13 3.5 al 3.5 3.5 3.5 3.5 4.0 2.6 2.9 3.5 Malaysia 5.1 3.0 2.5 53 5.1 1.0 0.0 1.0 2.0 4.0 12 1.7 1.1 1.1 Philippites 32 53 3A 6.9 10.2 1¢ 1.2 1.2 4.5 4.5 4.7 2.9 2.3 2.4 Singapore 4.9 2.8 4.1, -2.5 10.0 2.0 4 -0.8 ? 81? 4.1 4 4.1 4 5.5 5.2 3.1 4 2.4 4 Taiwan 4.0 1.5 42 -2.1 2.8 2.8 3.6 4.0 4.5 4.6 1.4 1.3 1.8 1.6 Thailand 0.1 3.5 2.3 -36.7 52.1 4,0 1.0 0.0 2.0 3.0 4.0 2.5 1.7 1.0 AtrIcalAiddle East Israel 4.8 2.9 4.4 32 3.0 a2 6.1 7.4 4.5 2.8 2.5 2.3 2.5 2.1 South Africa 3.1 2.5 3.6 32 2.7 2.4 3.5 4.5 3.7 3.2 6.1 6.1 6.0 5.8 Europe Euro area 1.5 -0.5 02 -13 0.0 -12 -1.0 0.0 0.5 0.5 2.9 2A 2.1 1.6 Germany 3.1 0.9 12 -03 2.1 La 0.3 1.0 1.5 1.5 2.6 2.1 1.8 1.5 France 1.7 0.0 0.6 03 0.2 :La -0.3 0.5 0.8 1.0 2.6 2.3 2.0 1.6 Italy 0.5 -22 -1.0 -2.6 -3.2 -2,5 -2.5 -1.3 -0.8 -0.5 3.7 3.5 3.8 3.4 Spain 03 -1.4 -02 -12 -1.3 2 -2.8 -1.5 -0.5 0.5 2.7 1.9 1.5 1.0 United Kingdom int 43.4 4 14 4 -1.4 4 -1.3 -1.84 2.0 4 0.5 4 1.5 4 2.0 4.6 2.9 2.5 2.2 Emerging Europe 4.8 2.5 33 4.1 2.7 AU 2.5 2.9 3.3 3.2 6.4 4.9 5.5 5.9 Bulgaria 1.7 1.0 2.5 Czech Republic 1.7 -1.1 0.9 -0.7 -3.1 la 0.2 0.9 1.5 -0.6 2.4 2.7 2.9 2.5 Hungary 1.6 -12 1.0 -0.1 4.1 la -0.5 0.5 1.0 1.5 4.1 5.5 5.4 14 Poland 43 3.0 3.0 4.1 3.2 2.0 2.3 3.0 3.0 3.0 4.6 3.9 3.5 2.8 Romania 2.5 0.8 2.7 -1.0 -0.5 U -0.4 2.8 2.5 3.0 3.4 3.3 4.4 4.0 Russia 43 3.6 3.4 5.9 4.6 -2.0 3.6 3.5 4.0 4.0 6.8 3.7 6.0 6.6 Turkey 8S 2.5 4.5 9.2 9.0 6.8 8.8 Global 2.6 2.1 2A 1.7 2.6 1.4 1.9 2.1 2.3 2.6 3.6 2.7 2.5 2.5 Developed markets 13 1.1 1.3 02 1.5 0.6 0.9 1.1 1.2 1.5 2.8 1.9 1.6 1.4 Emerging markets 52 4.5 5.0 43 5.5 3.6 4.7 4.9 5.2 5.3 5.7 4.6 4.8 5.3 Sctr:e .P Abigr June 29.2012 6 EFTA01178653 Global Asset Allocation The J.P. Morgan View J.P.Morgan Analyst Certification: The research analyst(s) denoted by an "AC" on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an "AC on the cover or within the document individually certifies, with respect to each security or Issuer that the research analyst covers In this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, Is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) In this report. Other Disclosures J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. 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Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3. Level 7. PO Box 506551, Dubai. UAE. Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary. issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish. implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article l9 (5). 38. 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who arc not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries. the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. JPMSAL does not issue or distribute this material to "retail clients- . The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms "wholesale client" and "retail client" have the meanings given to them in section 761O of the Corpora- tions Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd.. Frankfurt Branch and J.P.Morgan Chase Bank. N.A.. Frankfurt Branch which are regulated by the Bundesanstalt 'Ur Finanzdienstleistungsaufsicht. Hong Kong: The 1% EFTA01178654 Global Asset Allocation The J.P. Morgan View J.P,Morgan ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month. the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx websitc: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading. JPMorgan Securities Japan Co.. Ltd.. will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co.. Ltd.. and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co.. Ltd.. Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association. The Financial Futures Association of Japan. Type II Financial Instruments Firms Association and Japan Securities Investment Advisers Association. Korea: This report may have been edited or contributed to from lime to time by affiliates of J.P. Morgan Securities (Far East) Ltd. Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report: for securities where the holding is 1% or greater. the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only. not for sale. Pakistan: For private circulation only. not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business. habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not. and under no circumstances is to be construed as. a prospectus. an advertisement. a public offcring, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein. in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or. alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorpo- rated, formed or created under the laws of Canada or a province or territory of Canada. any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein. and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its aff0iates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take in