EFTA01146380.pdf

J.P. Morgan Global Asset Allocation 12 October 2012 The J.P. Morgan View Patience during political season • Asset allocation — No changes in our medium-term, value-focused strategy to Global Asset Allocation he long assets with high risk premia, equities, credit, and carry trades, even as Jan Loeys AC upcoming political events will likely create shorter-term volatility. (1-212) 834-5874 jan.loeys@jPnlorgaricool • Economics — No major forecast changes, although increasing uncertainty JPMorgan Chase Bank NA around US fiscal cliff posturing creates downside risk on US Q4 and Ql. John Normand Fixed Income — We prefer German Binds to US Treasuries. (44-20) 7134-1816 [email protected] • Equities —US earnings season favors domestically-oriented stocks and US J.P. Morgan Securities plc Financials. Nikolaos Panigirtzoglou (44-20) 7134-7815 Credit — We expect further spread tightening in US HG as the lack of credit nikolaos.panigirtzoglou©jpmorgan.com supply brought about by QE3 is not fully priced in. J.P. Morgan Securities plc • Currencies — We launch a Chinese Economic Surprise Index. Seamus Mac Gorain (44-20) 7134-7761 • Commodities — Stay long Brent time spreads on Middle East uncertainty. [email protected] J.P. Morgan Securities plc Equity markets are trading heavy, and are giving back most of their gains of Matthew Lehmann the past 1.2 weeks, despite no clear change in fundamentals. Other risk markets, (44-20) 7134-7813 such as credit, commodities, and the euro periphery, are not following equities [email protected] this time, indicating we are largely seeing profit taking after the hefty rally in J.P. Morgan Securities plc stocks over the last four months. Leo Evans There are no meaningful changes in growth forecasts this week, except for (44-20) 7702-2537 [email protected] moving 1% in growth from Q4 to Q3 in the Euro area, due to better IP data in Q3 which we do not think will last. But as a result, global growth in Q4 at 2% is J.P. Morgan Securities plc now barely different from the previous two quarters. In GDP terms, there is not YTD returns through Oct 11 as much sign of a rebound as we had hoped, even as the underlying PM1 orders % equities are in tighter color. and inventory data do hint at this coming rebound. &IMO • We are only at the beginning of the Q3 earnings season, but what we have is in EMBIG line with subdued expectations for small oya drops. Profit margins then hit new EMS Corp. highs and world growth has since fallen below potential. But global equities are US High Yield up 10%. Why? We have argued that equities and other risk markets can rally MSCIAC Wald' despite lackluster growth as they offer high risk premia against events that will MSCI Europe' not all come through. Hence, if the world turns out less ugly and volatile than Gold what most feared, as is ow view, then investors will over time gradually switch MSCI EM some of their defensive holdings into better-return, but riskier asset classes. US Hip Grade • This risk-premium-focused strategy into equities, credit and carry assumes Europe Fixed Inc volatility will remain subdued and markets will be buffeted by only modest EM FX adverse shocks. We don't see huge volatility from data or earnings surprises, EM Local Bonds— with macro volatility having collapsed over the past 2 years, and aggregate GSCITR earnings now also showing almost no movement anymore. This leaves us with US Fixed Income the political surprise factor. Here we have to tread more carefully as the next Global Gov Bends— few weeks will see another EU Summit, US elections, and Chinese leadership Topix• change, each of which with potentially momentous impact. US cash 4 0 5 10 15 20 See page 7 for analyst certification and important disclosures. Source: J.P. Morgan, Bloomberg. See blue box on page 2 for description. www.morganmarkets.com EFTA01146380  Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan [email protected] 12 October 2012 • On the last, the top priority of Chinese leaders will likely be stability and 2012 global GDP growth forecasts: JPMorgan and Consensus continuity. We do not foresee a major change in direction nor worsening of the territorial conflict with Japan. The recent rebound in Chinese equities 4.5 shows the market is hoping for positive news coming out of the Communist 4.0 Party Congress on Nov 8. The EU Summit on Oct 18-19 has an ambitious agenda on both long- and short-term issues. But the lack of an imminent 3.5 crisis, thanks to the ECB's OMT promise, means to us we are unlikely to see 3.0 much progress. Unfortunately, given the need to merge sovereignty, EMU members seem to be unable to make major decisions without being subject to 2.5 undue pressure (detailed analysis by Alex White in GDW). 2.0 • That leaves the US elections and nearing fiscal cliff. Irrespective of who wins Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 the elections, both parties will soon have to seek compromise on avoiding a Source: J.P. Morgan. Consensus Economics. Consensus Ecororncs recession caused by fiscal tightening, as it appears extremely unlikely one forecasts are far regons and counoies awl we averaged usirg the party will have a blocking majority. But into the elections, and the yearend same 5-yeer rolling USD GOP weights Owl we use for our cam ebbe' decisions on taxes, inevitable political posturing, as neither side wants to show growth breast. their cards yet, can easily have a depressing effect on economic activity, if not on risk prices. In our view, it supports taking some chips off the table, without going as far as neutral, let alone short risk assets. We stay medium-term 2013 global GDP growth forecasts: JPMorgan and positive on risk assets. Consensus 3.5 - Fixed income Consensus • Bonds edged higher on the week, but essentially remain in the very narrow range they have held since the summer. That overall stability masks some striking crosscurrents, however. One is the Fed-fuelled compression of US 3.0 MBS spreads, which we expect to hold given an extremely tight supply- JPM demand balance. Another is the marked outperformance of Australian bonds, triggered by a more dovish central bank, but also reflecting a long- standing yield compression towards core markets. We are reluctant to oppose 2.5 this outperfomance, given the uncertainty about the RBA's reaction function Jan-12 Apr.12 Jul-12 engendered by last week's rate cut. Source: J.P. Morgan. Consensus Economics. Consensus Economics forecasts are far vegans and counoies awl we averaged usirg the • The most important shift has been the better tone in Euro area sovereign debt same Slear rdling USD GOP weights that we use for our osn gbhal markets. We share the broad view that the promise of the OMT backstop gvAth forecast. marks a major step forward in the Euro area's crisis management, and arc encouraged by some tentative signs of capital returning to the periphery. More details in... These include a fall in Spain's Target 2 balance and bond managers' shift to Global Data Watch. Bruce Kasman and David Hensley ovenveight peripheral bonds, for the first time since 2010, as reported in our Global Markets Outlook and Strategy. Jan Loeys. Bruce European Duration Survey. But for the near term, we are wary of a Spanish Kasman. et al. downgrade from Moody's, to below investment-grade, and thus move to a US Fixed Income Markets. Terry Belton and Srini more defensive stance, including by cutting overweights in the EMU core vs Ramaswamy Germany, and adding outright longs in German Bunds. Global Fixed Income Markets. Pavan Wadhwa and Fabio Bassi Equities Emerging Markets Outlook and Strategy. Joyce Chang • Global equities have paused over the past 5 weeks, following 3 months of Key trades and risk: Emerging Market Equity Strategy. Adrian Mowat et al. strong gains. MSCI AC World at 330 is practically unchanged since the beginning of September and is at the same level as at the end of April, before Flows and Liquidity. Nikes Paniginzoglou et al. the May crash. It is still 8% below its post-Lehman peak seen in May 2011. Description of YTD Chart on front page: • With short covering largely behind us, the equity market appears to be Returns in USD. 'Local currency. "Hedged Into USD. lacking strong drivers. The US reporting season is generating a small Euro Fixed Income is lEioxx Overall Index. US HG. HY. positive surprise, but this is not enough of an impetus. As we argued last EMBIG and EM S Corp are JPM indices. EM FX Is ELMI+ in Y. week a subpar 2% pace in global GDP growth for Q3 is not enough to change the pattern of stagnation seen in S&P500 EPS since Q3 2011. We thus look 2 EFTA01146381  Jan Loeys Global Asset Allocation J.P.Morgan (1-212) 834-5874 The J.P. Morgan View lanioraysigomergan.com 12 October 2012 for a Q3 EPS of around $26, similar to Q2's $25.8 and little changed from Q3 2011. The bottom-up analyst forecast is $25.2, so such an outtum would represent a small positive surprise of around 3%, similar to the previous reporting season. At the time, a 3% surprise in the Q2 reporting season failed to lift equity markets during the first half of July. • There is not enough impetus in the macro picture either. This week's macro news was rather mixed, raising doubts about the anticipated rebound in global manufacturing. The rebound in the September global manufacturing PMI induced us last week to re-enter our Cyclical vs. Defensive equity sector overweight, but the trade has yet to perform. • However, the US reporting season provides two interesting sectoral themes . First, domestically oriented US companies are the ones whose earnings are outperforming, suggesting a focus on US-centric stocks. Second, Financials will likely be one of the bright spots in Q3 driven by improving credit and loan demand and a solid recovery in US housing. Our US Equity Strategist Tom Lee points out that a tailwind is also building for US Financials into 2013, which is the resetting of the credit scores for millions of Americans. The peak year of personal bankruptcies was 2005 and those records are removed from credit reports after 2012. Thus, we should see rapid improvements in the credit quality of millions of Americans in 2013. Credit • Spreads gave a mixed picture this week as US high-grade tightened, treasuries rallied, and lower-quality credit and equity markets sold-off. At 160bp, US high-grade is now back to pre-August 2011 levels, and the Fed's activity in mortgage markets seems to be bolstering demand for high-quality corporates as MBS portfolio holdings are replaced. Yet even as issuers take advantage of low all-in yields to push net supply across all USD spread product towards our forecast of $25bn/month, $40bn of Agency MBS purchases and $60bn of coupon payments per month will drive a $75bn/month shortfall of spread product going forward. We believe such strong technicals are not fully priced in and expect further spread lightening to occur. Eric Beinstein and his team elaborate in this week's CMOS. • Our colleagues in credit derivatives strategy continue to cite liquidity as the over arching theme in European credit markets. Given that OMT can be seen as the ECB taking the role of lender of last resort, just as the Bank of England has done over the last three years, they feel that financial conditions between the UK and Europe will normalize and so examined relative value ideas between the two this week. They argue for a long in Euro vs. UK in investment grade corporates, which comes with an attractive entry point given the UK's recent outperformance. See Saul Doctor and team, CD Player. More details in ... Foreign Exchange US Credit Markets Outlook and Strategy. Eric Beinstein • A few trend reversals this week excepted, currency markets still look listless. el al. The trade-weighted dollar and aggregate FX volatility are unchanged this High Yield Credir Markets Weekly, Peter Acciavani et al. week, FX volumes are below average and manager returns are flat-lining for European Credit Outlook & Strategy, Steven Oulake et some composites. We have argued that easy money from the world's central banks wouldn't deliver easy returns immediately since the global economy Emerging Markets Cross Product Strategy Weekly. Eric looked flaccid, commodity currencies were rich and central bank intervention Bernstein et al. likely. This remains the outlook and — unfortunately — an exercise in patience, particularly ahead of two massive weeks for US earnings and Chinese data. a EFTA01146382  Jan Loeys Global Asset Allocation J.P.Morgan (1-212) 834-5874 The J.P. Morgan View janioeysgsomorgan.com 12 October 2012 Earnings look well on track to be unimpressive but in line with expectations. Chinese Economic Surprise Index Trades are mostly unchanged this week and geared around three themes: carry 68 (long NZD/USD), less sovereign stress in Europe (long EUR/GBP and short EUR/Scandi puts) and commodity FX relative value (AUD/CAD). 48 • China releases its usual array of activity data next week, the last before the 28 November leadership transition. Any data improvement should lift currencies 8 in China's orbit (AUD, NZD, EM Asia), but how much? The China Economic Surprise Index described in this week's FXMW provides some guidance. -12 Identical to the US Economic Activity Surprise Index (US EASI) we -32 developed over 10 years ago, this one tracks the balance of positive versus negative surprises on monthly Chinese data releases since 2009. Months -52 where the balance of surprises is positive are associated with 2% rises that month in commodity currencies, whereas months with negative surprises are Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 JtI-12 Source J.P.Margan associated with small declines (about 0.3%). • Should China disappoint again as the index shows it has been doing for the past two months (see chart on right), it isn't clear that the commodity currencies would decline that much or for that long, given the proximity of the leadership transition. If China observes its usual political-business cycle by engineering stronger growth in the year after the transition, expectation for imminent stimulus would probably prevent much weakness in China-linked currencies. Regardless, we have few strong priors on this month's releases so combine limited commodity FX longs (long NZD/USD) with a relative value trade (sell downside in an oversold cross like AUD/CAD). Commodities • Commodities are up around 2% this week, led by oil as tensions between Turkey and Syria escalated further. Syrian crude output is very small and world oil markets are already insulated from a supply disruption caused by the sanctions and logistical constraints affecting Syrian production. Ofmore concern is the possible threat to the lmbd of crude exports that pass through Turkey from Azerbaijan and Iraq to the Mediterranean around 50 miles from the Syrian border (see Daily Oil Note, Fenton et al., Oct 10). The threat to these pipelines seems low, while the conflict is limited to sporadic border skirmishes, but this does further raise uncertainty in an already tense situation and is likely at least partially responsible for the rally in oil this week. In our GMOS portfolio, we remain long Brent time spreads, to hedge our long risk exposures against an oil shock. This hedge has worked very well over the past weeks and we maintain it. • USDA data out yesterday showed lower than expected corn stocks but soybeans were in line with expectations and wheat stocks were higher, More details in ... although both were lower than previous USDA estimates. This caused a sharp FX Markets Weekly, John Normand et al. rally in grains, which recovered all of the week's earlier decline to finish broadly flat. In GMOS, we remain short agriculture on the argument that the Commodity Markets Outlook & Strategy. US harvest is essentially over and that planting conditions for the new crops Cohn Fenton et al. are much improved and high prices mean much higher future supply. Oil Markets Monthly. Cohn Fenton et al. Agriculture prices have historically exhibited an element of mean reversion Daily Metals Note, Cohn Fenton et al. precisely due to this dynamic and we believe they have peaked over the Agriculture Weekly. Diet et al. summer and will gradually move lower over the coming months. 4 EFTA01146383 Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgen View J.P. Morgan ge.loeysleipmorgan.com 12 October 2012 Interest rates Current Dec-12 Mar-13 Jun-13 Sep-13 YTD Return' Unded States Fed lunds rate 0.125 0.125 0.125 0.125 0.125 10-year yields 1.65 2.00 2.00 2.60 2.25 2.1% Euro area Refi rate 0.75 0.50 0.50 0.50 0.50 10-year yields 1.45 1.50 1.50 1.60 1.70 2.9% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 1.72 1.65 1.65 1.80 1.95 2.4% Japan OvemeN cal rate 0.05 0.05 0.05 0.05 0.05 10-year yields 0.77 0.90 0.90 0.95 1.00 1.9% GBI-EM hedged in S Tield - Global Diversilied 5.79 6.00 6.3% Cm« Mantels Current Index YTD Return' US high grade (bp over UST) 159 JPMorgan JULI Portdie Spread to Treasin 9.6% Euro high grade (bp over Euro gov) 190 i8oxx Euro Caporate Index 8.6% USD high weld (bp vs. UST) 573 JPMorgan Global High Yield Index SW 12.8% Euro high yield (bp over Euro gov) 753 iEloict Euro FfY Index 19.0% EMBIG (bp vs. UST) 292 9.181 Global 15.7% EM Corporates (bp vs. UST) 340 JPM EM Corporates (CEMBI) 14.7% Quarterly Averages Commoditles Current 1204 1301 1302 1303 GSCI Index YTD Return' Brent (Sibbl) 114 105 112 105 120 Energy -1.0% Gold (Stoz) 1754 1725 1750 1775 Precious Metals 122% Cupper (S/mebic ton) 8242 8300 8500 8700 Industrial Metals 5.1% Can (SBu) 7.52 8.75 8.50 825 Agriculture 17.3% 3m cash YTD Return' Forelgn Exchange Current Dec-12 Mar-13 Jun-13 Sep-13 index in USD EURJUSO 1.30 1.30 1.30 1.32 1.34 EUR 0.8% USOMPY 78.4 78 79 79 79 JPY 1.8% GBP/USD 1.61 1.62 1.62 1.63 1.65 GBP 4.5% US12BRL 2.04 2.02 2.02 2.0) 1.98 BRL -3.0% USD/CNY 6.27 6.32 6.32 6.33 6.25 CNY 2.0% USDKRW 1111 1125 1125 1110 1100 KRW 5.5% USD/TRY 1.81 1.80 1.75 1.75 1.70 TRY 112% YTD Return US Europe Japan EM Equities Current (local toi) Sector Allocation • YTD YTD YTD YTD ($) S&P 1427 15.9% Energy 6.8% 0.5% -4.0% 5.5% Nasdaq 3044 17.3% Matenals 11.1% 8.9% -13.1% 3.0% Topix 718 0.2% Industrials 10.9% 13.9% -3.6% 9.9% FISE 100 5793 7.4% Ctscrehonary 19.9% 21.8% 0.0% 10.9% MSCI EurOzone' 144 142% Staples 12.6% 13.7% 11.3% 18.5% MSCI Europe' 1111 12.3% Healthcare 18.5% 16.5% 8.6% 28.3% MSCI EM 3. 996 11.6% FtanwK 25.0% 19.8% 18.2% 14.9% Braut Bovespa 59162 5.5% Inlorrnabon Tech. 17.9% 10.1% -10.4% 17.8% Haag Seng 21136 19.0% Telecommunicalions 24.2% -0.2% 5.5% 13.0% Shangehai SE 2105 -3.0% Ulildies 5.1% 7.5% .18.2% 4.9% 'Lavalseatoms as or Oct 11. 2012 Overall 15.9% 12.3% 0.2% 11.6% Lotet currency excepl MSCI EM Sauce: J.P. Morgen 5 EFTA01146384 Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan [email protected] 12 October 2012 Global Economic Outlook Summary Real GDP Real GDP Consumer prices %over a year ago %over previous period. say %over a year ago 2011 2012 2013 1012 2012 3012 4012 1013 2013 3013 4011 2012 4012 2013 The Americas United Slates 1.8 2.1 1.9 2.0 1.3 1A1 2.0 1.5 2.3 2.5 3.3 1.9 1.9 4 1.6 4 Canada 2.6 2.2 2.1 1.8 1.9 1.9 2.0 2.1 2.1 2.2 2.7 1.6 2.4 2.0 Lae') America 4.2 2.9 3.7 2.8 t 2.4 t 4.5 4.0 3.3 3.6 3.9 7.2 6.0 6.3 7.3 Arge-.ina 8.9 3.3 2.2 2.4 •32 8.0 6.0 0.0 1.5 0.5 9.6 9.9 10.0 11.0 Brazil 2.7 1.4 4.1 0.5 1.6 4.8 4.6 3.8 4.0 4.3 6.7 5.0 5.5 5.6 C e 6.0 5.4 4.5 5.1 7.1 3.0 4.0 4.0 5.0 5.0 4.0 3.1 2.5 3.1 Cdombia 5.9 4.3 4.5 0.9 6.7 2.8 3.8 4.2 5.5 5.5 3.9 3.4 3.1 3.2 Ecuador 8.0 t 4.0 4.0 4.2 t 4.8 t 4.0 4.0 4.0 4.0 5.0 5.5 5.1 4.2 4.4 Mexico 3.9 3.9 3.6 4.9 3.5 3.5 3.5 4.0 3.2 3.3 3.5 3.9 4.4 4.1 Peru 6.9 6.0 7.0 8.3 6.0 5.5 6.0 8.0 8.0 7.0 4.5 4.1 3.4 t 2.8 Uruguay 5.7 3.5 4.0 11.8 2.1 9.0 .9.0 12.0 7.0 9.0 8.3 8.0 7.6 7.2 Venezuela 4.2 5.0 0.0 10.1 0.6 3.5 .3.0 .3.0 0.0 3.0 28.5 22.3 23.4 37.3 AsIa/PacIfic Japan -0.7 2.0 0.6 5.3 0.7 -2.0 -0.8 1.4 1.6 1.3 -0.3 0.2 0.0 4.2 Austral* 2.1 3.5 2.5 5.6 2.6 1.5 1.8 3.8 2.5 1.8 3.1 1.2 1.7 2.7 New Zealand 1.3 2.6 2.9 4.1 2.3 1.5 3.5 3.7 3.3 2.0 1.8 1.0 1.7 1.8 Asia ex Japan 7.4 6.1 6.4 7.2 5.7 5.6 t 6.3 6.4 6.5 6.8 4.9 3.9 3.3 3.8 China 9.3 7.6 8.0 6.5 6.7 7.4 8.2 8.0 8.2 8.2 4.6 2.9 2.2 3.3 Hong Kong 5.0 1.2 3.2 2.4 -0.4 2.0 2.5 3.5 3.5 5.0 5.7 4.2 2.5 2.7 hdia 6.5 5.6 6.0 6.1 5.3 5.2 5.0 5.8 6.0 6.8 8.4 10.1 9.8 9.0 hdonesia 6.5 5.7 t 3.5 4 4.6 6.2 4.0 t 3.0 3.0 1 4.0 1 4.0 1 4.1 4.5 3.9 2.2 Korea 3.6 2.4 3.3 3.5 1.1 2.0 3.5 3.5 3.5 4.0 4.0 2.4 1.9 3.0 Malaysia 5.1 4.7 2.9 5.8 5.9 2.5 1.5 2.0 3.0 3.5 3.2 1.7 1.1 1.2 Philippines 3.8 5.3 3.5 12.6 0.9 1.2 1.2 4.5 4.5 4.5 4.7 2.9 2.3 2.3 Singapore 4.9 2.1 3.4 10.0 -0.7 .1.6 8.2 6.1 .1.2 4.5 5.5 5.3 4.1 3.3 Tartan 4.0 1.1 3.9 1.5 3.5 1.8 3.8 4.5 4.6 4.8 1.4 1.7 2.1 1.8 Island 0.1 5.8 2.7 50.8 13.9 2.0 2.0 1.5 2.0 2.0 4.0 2.5 1.3 1.1 AfrIca/MIddle East Israel 4.6 3.0 3.1 3.1 3.4 2.0 2.8 4.9 6.1 6.1 2.5 1.6 1.3 1.5 South Africa 3.1 2.1 3.0 2.7 3.2 0.3 -12 5.9 3.8 3.6 6.1 5.7 5.3 5.4 Europe Euro area 1.5 4.4 t 0.2 4 0.0 -0.7 0.0 t -1.5 4. 0.8 0.8 1.3 2.9 2.5 2.5 2.0 Germany 3.1 1.0 1.4 4 2.0 1.1 1.0 t 0.0 4. 1.5 2.0 2.5 2.6 2.1 2.1 1.8 France 1.7 0.1 0.0 4 0.1 -0.1 0.5t -1.51 0.0 0.5 1.0 2.6 2.3 1.9 4 1.3 4 Italy 0.5 -2.3 t -0.6 .3.3 .3.3 -1.0 t -2.5 4. 0.0 0.3 0.8 3.7 3.6 3.2 t 2.3 t Spain 0.4 -1.5 -1.3 4 -1.3 -1.7 -1.5 t .4.5 4. .1.0 0.5 0.5 2.7 1.9 3.4 t 2.9 1, United Kingdom 0.9 -0.3 1.5 •12 .1.5 2.0 0.5 1.5 2.0 2.5 4.6 2.8 2.7 2.6 Ermahg Europe 4.8 2.7 2.7 2.4 1.3 1.2 2.1 2.8 2.5 3.8 6.4 5.0 6.1 6.2 Bulgaria 1.7 1.0 1.5 ... Czech Republic 1.7 -1.1 0.9 -3.1 -0.8 -1.2 -1.3 2.1 1.0 4.3 2.4 3.4 2.9 2.4 Hungary 1.6 •12 0.7 .3.5 -0.9 .1.0 -0.5 1.0 1.5 1.8 4.1 5.5 5.9 5.0 Poland 4.3 2.4 2.1 2.4 1.6 1.2 1.6 1.8 2.4 3.5 4.6 4.0 3.7 2.6 Ronan* 2.5 0.6 0.9 0.5 1.9 .1.0 0.8 1.2 -0.4 3.2 3.4 1.9 4.7 6.4 Russia 4.3 3.6 3.0 3.7 1.5 1.8 3.0 3.5 3.0 4.0 6.8 3.9 6.7 7.4 Turkey 8.5 2.8 3.7 ... ... ... ... 9.2 9.4 7.7 6.9 Global 3.0 2.4 2.6 3.0 1.8 1.9 t 2.0 1 2.7 2.9 3.2 3.8 2.8 2.8 2.8 Developed markets 1.3 1.2 1.2 1.7 0.4 0.5 t 0.3 .1. 1.4 1.7 1.9 2.7 1.8 1.9 1.6 Emerging market 6.1 4.7 5.1 5.3 4.2 4.6 t 5.0 5.1 5.2 5.6 5.7 4.6 4.5 5.0 Memo: Global — PPP weighted 3.8 3.0 3.2 3.6 2.4 2.6 t 2.7 4. 3.2 3.4 4. 3.8 4.2 3.3 3.2 4 3.3 Source: J.P. Morgan 6 EFTA01146385 Jan Loeys (1-212) 834-5874 Global Asset Allocation Tne J.P. Morgan View J.P.Morgan janioeysigomorgancom 12 October 2012 Disclosures 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 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. 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Morgan View J.P.Morgan jan.toeysigopmorgan.corn 12 October 2012 contracts and Mock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx websitc: http://uww.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.. 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