EFTA01181258.pdf

J.P. Morgan Global Asset Allocation 21 September 2012 The J.P. Morgan View Weak economy vs. strong liquidity. Who wins? • Asset allocation — Strong liquidity, heavy supply of safe assets, high risk Global Asset Allocation premia, defensive positioning by end investors, and a QE focus on reducing n AC downside risk are not technicals but are true fundamental drivers of the risk rally that trump weak economic growth, in our view. JPK4organ Chase Bank NA Economics — Q3 global growth remains as soft as Q2, confirming bottoming process, but not yet a rebound. Only rising order/inventory ratios and rallying John Normand markets hint at rebound into Q4, we believe. We nudge up 2013 Euro area growth from 0.2% to 0.3% on improved financial conditions. J.P. Morgan Securities plc Fixed Income —Position on wider swap spreads in Treasuries, Bunds and UK. Nikolaos Pan' irtzoglou • Equities — Stay long value stocks in Europe, commodity sectors globally, US- housing-sensitive sectors within the US, and US against EM. J.P. Morgan Secunties plc Credit — Stay long credit spreads across the US HY and EM sovereigns and Seamus Mac Gorain corporates and we expect further spread compression. Currencies — New FX forecasts, with weaker dollar into year-end. J.P. Morgan Securities plc Matthew Lehmann Commodities — We think agriculture prices have peaked and will move lower from here. Open a short in the GSCI agriculture index. J.P. Morgan Securities plc Markets took a breather this week, after last week's fireworks, with equities and credit largely flat, and bonds yields and commodities down. It was a quiet Leo Evans week for data, but what we got was on the softer side. We continue to think global growth is bottoming, but the evidence so far confirms only that growth • has come down and that Q3 seems equally soft as Q2. There seems no real evidence yet of a rebound in growth. All we have is a rise in orders relative to inventories in flash PMIs, a rise in confidence, & surging financial asset prices. J.P. Morgan Securities plc YTD returns through Sep 20 14, equities are in lighter color. SSP500 I I • The weak economic data of the past two years and rising asset prices have MSCI ACWorld' created a conundrum to investors on what they should really follow -- the weak EMBIG fundamentals or the good "technicals"? We have argued here frequently that EMS Corp. liquidity driven asset reflation in a market with high risk premia and defensive positions trumps weak economic growth, as long as the latter does not MSCI Europe' deteriorate into recession. Hence, we have chosen to remain long risk assets US High Yield despite repeated downgrades to economic growth projections. We like to make Gold clear though, that these so-called technicals are to us very fundamental and am MSCIEM' not as short term in nature as many would suspect. And this for three reasons. US HighGrade &rope Faced Inc' • For one, the relative supply and demand for financial assets is not a mere EM FX short-term technical but is based on the first fundamental law of economics, EM Local Bonds" which is that of supply and demand. Government supply of government debt Topix' and cash is many times the supply (net issuance) of corporate debt and equities. Hence the latter, scarcer corporate securities should rise in price against the US Fixed Income much more abundant supply of government liabilities (high-powered money and Global Gov Bonds" ■ government debt). This force is not a short-term technical impact, but in fact GSCI TR works mare slowly and profoundly. US cash .5 5 I IS 20 Source: M. Morgan, Bloomberg. See blue See page 7 for analyst certification and important disclosures. box on page 2 (or description. EFTA01181258  Jen Loeys Global Asset Allocation J.P.Morgan t-2121834-5874 The J.P. Morgan View 21 September 2012 • Second, credit and equities are characterized by much higher risk premia 2012 EM vs. DM consensus GDP growth forecasts versus government debt than we typically see in this point of the cycle. 6.5 2.9 Central banks are now acting not merely to increase the supply of cash, but 2.6 are also casting their policy in term of providing downside risk protection 6.0 ti 2.3 (insurance). We would classify the ECB's OMTs as exactly that. They will be EM 2.0 implemented only if needed and with an explicit objective to eliminate risk premia on sovereign EMU debt. The Fed's new QE3 similarly is conditional 5.5 R E 1.7 on the state of the economy and labor market and will be accelerated if the 1.4 economy weakens. If only US and Euro fiscal authorities could similarly 5.0 1.1 reduce downside risk, risk premia would surely come crashing down. Risk 0.8 premia are thus fundamental and not merely technical. 4.5 0.5 • Third, it is frequently argued that markets are running ahead of still weak Ja •11 Jul-11 Jan-12 Jul-12 fundamentals (growth) and are thus wrong. We would argue that the Source: J.P. lAugan. Consensus Economics. Consensus Economics transmission process of monetary policy in a world of zero interest rates runs forecasts are for regcm and countres mat we swaged using the same S-year roam USD GOP weights that we use br our cmn ebb& exactly from markets to growth. It is through asset reflation that central banks growth forecast. try to stimulate growth. Hence market will lead economies. Don't fight a determined Fed, ECB, BOJ and BoE, especially not when they work together. Global cyclical vs. defensive equities vs. global equities • To be clear, we are not telling you to ignore economic growth. Stronger growth would have given us higher equity prices. But at this point in the cycle Datastream total return Indices. (we assume we are mid-cycle), volatility of economic data is trumped by 310 130 relative supply & demand & changing risk perceptions, as long as we do not 125 290 have another recession. Growth, however, does have an impact on relative 120 country and sector performance. The top chart shows how growth forecasts 270 115 for 2012 have been stable in DM, but have trended down in EM over the past 110 250 6 mths, which likely explains why EM equities have underperformed. The 2nd 105 chart shows how cyclical stocks have not kept up with their high-beta nature 230 100 over the past 2 years, underperforming defensives, despite an overall rally in 210 95 stocks, likely as cyclicals are more vulnerable to downgrades in growth. 190 Fixed income • Yields edged lower on weaker data. Spain's largest bond auction since January 170 provides more evidence of the impact of the ECB's backstop, although it Jan-10 Aug-10 Mar-11 Oct-11 May-12 remains unclear when the backstop will be activated. The Bank of Japan Source: 0ataweam. J.P. Morgan joined its counterparts in announcing further bond purchases, but with the focus remaining on bills and short-dated bonds, the impact is likely to be Moro details in... limited, and we are in fact modestly bearish on duration in Japan. Global Data Watch. Bruce Kasman and David Hensley Global Markers Outlook and Strategy. Jan Loeys. Bruce • G-4 central banks are slated to buy nearly 'trillion net of bonds over the next Kasman. et al. year, half of that due to the Fed's MBS purchases. Together, FX reverse US Fixed Income Markers. Terry Belton and Srini managers and G-4 central banks already own an estimated $11trillion of Ramaswamy bonds, equivalent to over one third of global bonds rated AA and above, or Global Fixed Income Markets. Pavan Wadhwa and Fabio more than half of those rated AAA, following a steady upward trend in recent Bassi years (see Chart, and today's Flows and Liquidity). By hoovering up most of Emerging Markets Outlook and Strategy. Joyce Chang the net issuance of safer bonds, the official sector appears to be continuing to Key trades and risk: Emerging Market Equity Strategy. push investors into riskier or less liquid alternatives. Adrian Mowat et al. Flows and liquidity, Nikos Paniginzoglou et al. • We are not strongly positioned on duration, even as we expect higher US Treasury yields over the balance of the year. We remain positioned for Description of YTD Chart on front page: narrower intra-EMU spreads, consistent with a broader view that credit and liquidity spreads are a more attractive source of carry than extending duration. Returns in USD. *Local currency. "Hedged into USD. Euro Fixed Income is iBoxx Overall Index. US HG. HY. We do, however, look for the sharp narrowing in swap spreads across EMBIG and EMS Corp are JPM indices. EM FX is ELM'. markets, driven in part by heavy swapped issuance, to reverse course, and in S. hold spread wideners (long govies vs swaps) in USTs, Bunds, and UK gilts. 2 EFTA01181259  Jan Loeys Global Asset Allocation J.P.Morgan f1-2121834-5874 The J.P. Morgan View 21 September 2012 Equities Official sector bond holdings relative to global bond market • Equity markets paused this week following two weeks of strong gains of almost 5% for MSCI AC World in the first two weeks September. We find no 60% reason to change our stance. We stay tactically long equities and we favor value stocks in Europe, commodity sectors globally, US-housing-sensitive 50% sectors within the US, and US against EM equities regionally. 40% • Market gyrations have been a permanent feature of the market environment over the past few years. But despite this year's crisis or "soft patch", equities 30% have delivered double digit returns outperforming other asset classes. In our ..0 20% opinion, this justifies a focus on the long term. Our quarterly publication "Trade opportunitiesfor long term investors, Sep 1r does exactly this. It 10% - Relative to bonds rated AA and above looks beyond short-term gyrations and focuses on long-term trading themes. Relative to AAA-rated bends 0% • Our recommendation for the long term is to focus on monetizing extremities 2005 2006 2007 2008 2009 2010 2011 in yield gaps and risk premia, e.g., the multi-decade-high yield gap between Boyce: J.P. Morgan. Blomberg equities and bonds and risk premia such as correlation and skew risk premia. Our equity specific trades are shown below: • Buy high dividend yield US equities vs. l0y USTs • Buy 2013 FTSE 100 dividend futures for defensive growth • Stay short S&P 500 long-dated skew • Stay short S&P500 correlation • Stay short Nikkei convexity • Stay OW European SMid vs US SMid • Buy MSCI EM$ vs. MSCI Worlds • Long Dax vs. EuroStoxx50 Credit • This week was mixed for credit. US HG spreads continued to come in and are now at their lowest level for over a year and US CMBS also rallied further. However, HG spreads in Europe and US HY spreads both widened a little along with EM sovereign and corporate spreads. Some profit taking is not surprising given the almost straight line rally we have seen across spread products over the last few months but we think a big correction is unlikely. In our view, credit remains the most attractive asset from a carry-to-risk perspective and QE is pushing fixed income investors out of low yielding government debt, leaving little choice but to move out further and further along the risk spectrum. • This week saw a record weekly inflow into European HY funds (European More details in ... High Yield Fund Flows: Weeki), Update, Daniel Lamy et al., 21 Sep) Our European credit strategists believe investor positioning in European HY is still US Credit Markets Outlook and Strategy. Ent Bernstein light and supports further spread compression. They also see value in Spanish el at. covered bonds, where there could be significant positive event risk from High Yield Credit Markets Weekly. Peter &cloven/ et al. Spanish bank recapitalization announcements in the next few weeks. European Credit Outlook & Strategy. Steven Oulake et at. Foreign Exchange Emerging Markets Cross Product Strategy Weekly. Eric • We published our monthly Key Currency Views today. We revised forecasts Beinsteiner globally to reflect greater inflation risks in the US and less sovereign stress in Europe following the Fed's proclamation of open-ended asset 3 EFTA01181260  Jan Loeys Global Asset Allocation J.P.Morgan t-21218345870 The J.P. Morgan View 21 September 2012 purchases on September 13 and the ECB's commitment to fund the periphery FX weekly change in USD (within conditions) on September 6. End-2012 targets with previous forecast 1.0% in parentheses are now EUR/USD 1.30 (1.24), GBP/USD 1.62 (1.58), USD/JPY 78 (78), AUD/USD 1.04 (1.02), USD/BRL 1.98 (1.98), USD/MXN 0.5% 12.50 (12.50), USD/CNY 6.32 (6.30), USD/KRW 1125 (1150), USD/TRY 1.8 (1.8) and USD/ZAR 8.50 (8.30). 0.0% • Although the world's biggest central banks (Fed, ECB, BoE, BoJ and SNB) have been engaging in various forms of QE all year, the dollar has been the 45% biggest casualty so far. It is down 3% trade-weighted, outdone only by the declines in IDR, BRL, ARS and GHS. This momentum surprises some who -1.0% think of all balance sheet expansions as equal and therefore offsetting as far as -1.5% their currency influence. Not true, in our view: As we have argued before, balance sheet expansion entails positive and negative effects on currencies, so USD JPY EUR GBP CHF CAD AUD TWI the central bank's decision on how and when to deploy liquidity is critical. The Source J.P. Wean currency-positive effect is lower default risk if the central bank targets distressed assets (ECB). The negative effect is lower real yields if asset purchases push nominal rates down and inflation expectations up. If default rates decline, this impact is positive where investors are underweight the currency as a credit hedge (EUR), since QE drives short-covering. If real rates fall, QE is more negative if the country is a capital importer (US) or if investors had been long the currency (USD in 2009) or close to neutral (September 2012), since investors will fund carry trades in the lowest-yielder. • From this perspective it should be clear why the Fed should have more luck weakening the dollar with its balance sheet than will the ECB or the Bank of Japan. Fed QE is driving up inflation expectations more quickly and from a higher level than are the ECB or BoJ; the US is the current account debtor amongst the G-3; and investors are roughly neutral between funding in dollars and euros after six weeks of short-covering in the euro crosses. To offset the Fed's move, the ECB would need to cut rates again, in our view. Commodities • Commodities sold off sharply this week, led lower by oil. Oil is down 6% as Saudi Arabia stated it will be offering extra oil in an attempt to lower prices. Since then, prices have stabilized somewhat and are moving higher again. It seems unlikely we will see materially lower oil prices for the time being given ongoing tensions in the Middle East and a QE induced weaker USD. We remain long energy and long Brent time spreads in ow GMOS portfolio as a hedge against the risk of a supply shock in the Middle East. • Agriculture prices have been in a choppy range for the last two months and appear to have peaked. Historically, agriculture prices have experienced some element of mean reversion. This should make sense from a fundamental perspective as price spikes typically occur because of some supply shock, often because of unfavorable weather. However, higher prices induce higher More details in planting and so greater supply from subsequent harvests, which pushes prices FX Markets Weekly. John Normand et al. back down. Our Agriculture strategists see prices falling through next year Commodity Markets Outlook 8 Strategy. precisely because of this dynamic. We thus take profit on our longs in corn Colin Fenton et al. and soybeans and open a short GSCI agriculture position. This trade also Oil Markets Monthly. Cohn Fenton el al. has positive slide given the current upward slope of most agriculture curves. Daily Metals Note. Colin Fenton et al. In our GMOS long-only commodity portfolio, we balance this trade by Agriculture Weekly. Dietz el al. removing our UW in base metals so that we are OW energy and gold but UW agriculture. 4 EFTA01181261 Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan view J.P.Morgan 21 September 2012 Interest rates Current Dec-12 Mar-13 Jun-13 Sep-13 YTD Return' Unted States Fed fiords rate 0.125 0.125 0.125 0.125 0.125 10-year yields 1.77 2.00 2.00 2.00 2.25 1.6% Euro area Red rate 0.75 0.50 0.50 0.50 0.50 10-year yields 1.60 1.50 1.50 1.60 1.70 2.5% United Kngdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 1 83 1.65 1.65 1.80 1.95 2.5% Japan Overnght cal rate 0.05 0.05 0.05 0.05 0.05 10-year yields 0.80 0.90 0.90 0.95 1.00 1.6% GBI.EM hedged in S Yield Global Diversified 5.87 6.00 5.7% Credit Markets Current Index YTD Return' US hgh grade (bp over USTI 170 JPfilorgan JULI Porfolo Spread to Treasury 8.0% Euro high grade (bp over Euro gov) 196 IBoxx Euro Corporate Max 7.9% USD high yield (bp vs. UST) 555 JPMorgan Global High Yield index 51W 12.8% Euro high yield (bp over Euro goy) IBoxx Euro HY Index 18.7% EMBIG (bp vs. UST) 293 EMBI Global 14.1% EM Corporates (bp vs. UST) 346 JPMEM Corporates (CEME0) 13.4% Ouartedy Averages Commodities Current 1214 1301 1302 1303 GSCI Index YTD Return' Brent (S/bbl) 111 105 112 105 120 Energy -1.0% Gold (S/o2) 1776 1725 1750 1775 Precious Metals 12.2% Cermet (S/metdc ton) 8263 8300 8500 8700 Industrial Metals 5.1% Can (Nu) 7.50 8.75 850 8.25 Agriculture 17.3% 3m cash YTD Return' Foreign Exchange Current Dec-12 Mar-13 Jun-13 Sep-13 Index In USD EURMSD 1.30 1.30 1.30 1.32 1.34 EUR 0.9% USD'JPY 78.2 18 19 79 79 JPY 1.4% GBP1USD 1.62 1.62 1.62 1.63 1.65 GBP 5.5% USD1RL 2.02 1.98 1.95 1.95 1.95 BRL -2.3% US1ICNY 6.31 6.32 6.32 6.30 6.25 CNY t2% USMR'N 1119 1125 1125 1110 1100 KRW 4.6% USO/IRY 1.79 1.80 1.75 1.75 1.70 TRY 11.7% YID Return US Europe Japan EM Equities Current (local coy) Sector Allocation • YID YTD YTD YTD (S) S&P 1464 18.0% Energy 9.0% 1.6% -4.6% 6.1% Nasdaq 3190 22.6% Materials 14.4% 11.8% -6.3% 5.4% Topix 756 4.8% In0usbials 12.7% 153% 1.1% 10.8% FTSE 100 5853 8.4% Discretionary 23.4% 22.3% 9.1% 10.5% MSCI Eurozcnot 147 16.2% Staples 13.6% 14.0% 12.5% 14.7% MSCI Europe' 1122 13.3% Healthcare 17.5% 15.3% 10.8% 244% MSCI EM 5' 998 11.8% Financials 23.9% 20.1% 22.9% 14.5% Brazil Bovespa 61971 9.3% Information Teal. 24.6% 14.9% -36% 19.9% Hang Seng 20735 14.9% Telecommunications 26.6% 1.8'% 9.2% 123% Shanghai SE 2027 -7.9% Uteties 3.1% 9 -20.0% 4.1% 'Levelsketums as of Sep 20.2012 Overall 18.0% 13.3% 4.8% 11.8% Local currency except MSCI EM Source:. Morgan 5 EFTA01181262 Jan Loeys 1-2121834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan 21 September 2012 Global Economic Outlook Summary Real GDP Real GDP Consumer prices %mw a plat ago % over creeous period. saar % over a year ago 2011 2012 2013 1Q12 2Q12 3Q12 4Q12 1Q13 2013 3013 4011 2Q12 4Q12 2Q13 The Americas Drilled States 1.8 2.2 2.0 2.0 1.7 1.5 2.0 1.5 23 2.5 3.3 1.9 2A 1 1.7 Canada 2.4 2.0 2.1 1.8 1.8 2.0 2.1 2.1 21 2.7 1.6 2.4 2.0 Latin America 4.2 2.9 t 3.7 2.9 yl t 4.5 4.0 3.3 1 3.6 1 3.9 7.2 6.0 6.3 7.2 Argentina 8.9 3.3 2.2 3.6 -4.5 8.0 6.0 0.0 15 0.5 9.6 10.0 10.0 11.0 Brea 27 1.4 4.1 0.5 1.6 4.8 4.6 3.8 4.0 4.3 6.7 5.0 5A 5.5 Chile 6.0 5.0 4.5 5.1 7.1 2.0 4.0 4.6 4.7 4.4 4.0 3.1 23 3.1 Colontia 5.9 431 4.5 091 6.71 22 4 321 4.2 1 53 1 5.51 3.9 3A 3.1 32 Ecuador 7.8 4.0 4.0 2.8 3.5 4.0 4.0 4.0 4.0 5.0 53 5.1 42 4.4 Mexico 19 3.9 3.6 4.9 3.5 3.5 3.5 4.0 3.2 3.3 33 3.9 4A 4.1 Peru 6.9 6.0 7.0 8.3 6.0 5.5 6.0 8.0 8.0 7.0 43 4.1 3.1 2.8 Uruguay 5.7 3.5 4.0 1121 2.1 t 9A 1 4.0 t 12.01 7.0 t 9.01 8.3 8.0 7.6 72 Venezuela 4.2 5.0 0.0 10.1 0.6 3.5 .3.0 .3.0 0.0 3.0 283 22.3 23.4 373 Asia/Pacific Japan -0.7 2.0 0.6 5.3 0.7 ag 0.0 1.0 12 1.3 4.3 02 0.0 -02 Australia 2.1 35 25 5.6 2.6 1.5 1.8 3.8 25 1.8 3.1 12 1.7 2.7 New Zealand 1.3 2.6 t 2.9 t 4.1 1 2.3 t 131 33 t 3.7 t 3.31 2.01 1.8 1.0 1 1.71 1.8 L Asa ex Japan 7.4 6.1 6.5 7.2 5.7 5.5 6.4 6.6 62 7.1 42 32 33 32 China 9.3 7.6 8.3 6.5 6.7 8.5 8.5 8.7 8.7 4.6 29 23 3.5 Hong Kong 5.0 1.2 3.2 2.4 4.4 2.0 2.5 3.5 35 5.0 5.7 42 23 2.7 India 6.5 5.6 6.0 6.1 5.3 5.2 5.0 5.8 6.0 6.8 8A 10.1 9.8 9.0 Indonesia 6.5 5.0 3.7 4.6 6.2 3.0 3.0 3.5 45 5.0 4.1 43 32 22 Korea 16 2.4 3.3 35 1.1 2.0 35 35 35 4.0 4.0 24 1.9 31 Malaysia 5.1 4.7 2.9 5.8 5.9 2.5 13 2.0 3.0 35 32 1.7 1.1 1.2 Phiippines 18 5.3 3.5 12.6 0.9 La 1.2 4.5 45 4.5 4.7 2.9 23 23 Singapore 4.9 2.1 3.4 9.5 4.7 ta 4.1 4.1 4.1 4.1 55 53 3.4 2.4 Taiwan 4.0 1.1 3.9 1.5 3.5 1.8 3.8 4.5 4.6 4.8 1A 11 21 1.8 Thaland 0.1 5.8 27 50.8 13.9 2.0 2.0 15 2.0 2.0 4.0 2S 1.3 1.1 Africa/Middle East Israel 4.61 3.0 3.1 1 3.1 t 3.4 t 2.0 2.8 4.9 6.1 6A 25 1.6 1.3 13 South Afnca 3.1 2.6 3.2 2.7 3.2 2.3 2.4 3.8 32 3.6 6.1 5.7 53 5.6 Europe Euro area 13 4.5 0.3 t -0.1 47 j. Q 45 0.8 t 02 1 1.31 2.9 25 2.5 1.9 Germany 3.1 1.0 1.3 t 2.0 1.1 0.3 0.5 1.5 1.8 1 2.0 1 2.6 2.1 2.1 1 1.8 1 France 1.7 0.1 0.71 0.1 43.2 4.3 0.0 0.8 13 t 1.5 1 2.6 2.3 2.1 1 1.5 Italy 03 4.5 1 4.7 1 -3.3 -3.3 1 -2.5 -13 43 1 0.0 1 0.5 t 3/ 16 3.1 1 2.2 1 Spain 0.4 -1.41 451 -1.3 -1.7 211 -2.0 0.0 t 1.0 t 1.0 1 2.7 1.9 331 2.7 United Kingdom 0.8 4.4 1.5 -1.3 -1.8 2.0 0.5 1.5 2.0 2.5 4.6 2.8 2.7 2.6 Emenjog Europe 4.8 2.7 3.0 2.4 1.3 1.3 2.2 3.1 3.1 3.6 6.4 5.0 5.9 5.9 Bulgaria 1.7 1.0 2.5 Czech Republic 1.7 -1.1 0.9 -3.1 43.8 -1.2 -1.3 2.1 1.0 4.3 24 3.4 22 24 Hungary 1.6 -1.2 0.8 -3.5 4.9 SU 0.5 1.0 15 1.8 4.1 53 53 33 Poland 4.3 2.4 2.1 2.4 1.6 La 1.6 1.8 24 15 4.6 4.0 3.7 2.6 Romania 2.5 0.6 0.9 0.6 2.1 -1.0 0.8 1.2 4.4 32 3.4 1,9 4.7 6.4 Russia 4.3 3.6 3.4 3.7 1.5 2.0 3.0 4.0 4.0 17 6.8 3.9 6.7 7.4 Turkey 8.5 2.8 4.1 ... ... ... ... 92 9.4 63 52 Global 10 2.4 2.6 3.0 191 1.8 23 2.7 3.0 t 3.2 32 2.8 291 2.8 1 Developed markets 13 1.2 1.2 1/ 0.6 0.2 0.8 1.3 1 1.6 1 1.9 1 2/ 12 1.9 1 1.61 Emerging markets 6.1 4.7 5.2 5.3 421 4.6 5.1 5.3 55 5.8 5.7 4.6 4.5 5.0 Source: Morgan 6 EFTA01181263 Jan Leap t1-2121834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan 21 September 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 (I) 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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For the purposes of this paragraph the terms "wholesale client' and 'retail client" have the meanings given to them in section 761G of the Co rations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt Branch and J.P.Morgan Chase Ibnk. IJank. M. Frankfurt Branch which arc regulated by the Bundcsanstalt fiir Finanzdienstleistungsaufsicht. Hong Kong: The 1% 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.). Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear 7 EFTA01181264 Jan Loeys (t-2121834-5870 Global Asset Allocation The J.P. Morgan View J.P.Morgan 21 September 2012 contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.conthk. 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 F