EFTA01148765.pdf

J.PMorgan Global Asset Allocation J.P.AAorgan Chase Bank NA, J.P. Morgan Securities Ltd. Nov 11, 2011 he J.P. Morgan View How can risk markets rally in an ugly world? Jan LoeysA.- • Economics - US data keep supporting a 2.5% pace in H2. • Portfolio strategy — Heavy ovenveights in cash, that pays no yield, and less acute risks on US growth and Chinese inflation keep us overweight risk assets John Normand • Fixed Income — We close tactical shorts in long end Treasuries, and keep only a value-based short in 2-year Germany. Nikolaos Panigirtzoglou • Equities — Both US and European companies have beaten Q3 EPS consensus by 4% on average. • Credit — We keep a preference for long US vs. European credit. Seamus Mac Gorain • Foreign exchange — Large-scale ECB bond buying should not be a negative for the euro. But we keep hedges by being long JPY. • Commodities — We close the short leg of our EM Asia vs. US relative trade Matthew Lehmann and double up on the long leg. Be long brent, gasoil, gold, sugar, corn and wheat. Leo Evans • After a quite volatile week, risk markets are net up on the week, and safe bonds are down, though by amounts that could be reversed in minutes. Let's just call it range trading, therefore. The great majority of institutional investors YTD returns through Nov 10 we see remain quite sceptical about risk assets as the politics of fiscal consoli- %. equities are in lighter colour. dation in a slow-growth world continue to be quite ugly. And the Euro Area is Gold little closer to agreement on measures to stop their debt crisis, while now more US High Grade O • openly debating whether it is better to just shrink the currency union. How is it possible for risk markets to gain in a world with so much risk, EMBIG US Fixed Income O C • unknowns, volatility, disequlibria, and pure political ineptitude? One answer is to look at the main problem that end investors face — where do I get a return? The top chart on p. 2 shows that the yields on global cash and bonds remain near all-time lows. After tax and inflation, these yields are negative. Equity Global Gov Bonds" EM Local Bonds" US High Yield O O yields — earnings yields plus inflation— are, in contrast, high by historic EM $ Corp. standards, but obviously require you to buy a very volatile asset. The last GSCI TR 0 month saw very significant inflows into equity, high-yield, and muni mutual SW500 funds, much of which we believe is driven by the dire returns on safe assets. US cash • Even more important than the low value of safe assets is that concerns about Europe Fixed Income' the world are starting to edge down, in a very up-and-down fashion, from the EM FX end-is-nigh sentiment that prevailed this summer. Fear of a US economy MSG AC World' I=I stalling has receded, but has not gone away, as H2 growth is rebounding to MSCI EM' O about 2.5%, from less than I% in HI. This week alone, trade, claims and confidence all surprised on the positive side. That said, there remains no sign MSCI Europe' O of compromise in Washington on deficit reduction for next year nor for the Toper' next decade. 40 40 0 10 V.1 90 Smote: AP. Mown Ettriberg. Pans n USD. 'Leal • In China, the continued fall in inflation, and move to monetary easing are earercy. - Naked do USD. Eum Fixed ti nv is Wm Dana greatly reducing fears of a hard landing. This induced us a few weeks ago to Index. US HG. HY. D.191G rd EM SCtxp are At Sect Eli Fite ELM. in S. The certifying analyst is indicated by an AC. See page 7 for analyst certification www.morganmarkets.com and important legal and regulatory disclosures. EFTA01148765 Global Asset Allocation The J.P. Morgan View J.P.Morgan go overweight on EM equities. On the negative side of the ledger, the massive Expected return on a global portfolio of fixed floods in Thailand will have a similar supply-chain effect as the Japanese income. equities. and cash tsunami in March, though only some 40% of its impact (see Global IP hit by 16 Thaifloods, Hensley and Lupton in today's GDW). The floods should take 2.25% off global industrial growth this quarter, translating into a 0.5% cut in 14 12 Equities global GDP growth. As with Japan, we should expect this loss to be recouped in HI of next year. Markets should be able to see through this IP decline. 10 8 • The Euro area remains at the core of investor concerns, and rightly so. Last month's EU summit commitments had both a carrot and a stick — fiscal 6 solidarity (funding) and fiscal discipline (austerity) — but needed to have a lot 4 of blanks filled in. This week saw little progress on the carrot, but more on the stick. Greece now has a new PM who was a "Euro technocrat", and Italy seems set to get one next week. Both should give the EMU creditor nations 89 92 95 98 01 04 07 10 better confidence that austerity conditions of financial support will actually be implemented. But debitor nations cannot live on austerity alone, as their Sturm: JP. Mxgr. The especkel rekm on Ugh is oWend a the teed co Pe JP.Morgan Gel Octal cash n*x fed ern de/doped rafts* filed economies are entering recession, depressing tax revenues even as tax rates ircane see lie J.P.Menvel GABi pea rd Ne elpeeed relLm m conks are being raised. is the 'ambled Odd cede Dalasliern ecdd it dus free toe redng reeked Octal tritalen • The Euro area thus needs to urgently make progress on creating a lender of last resort function that can exert overwehelming funding power to stop the Global portfolio weighting of fixed Income, widening run on EMU governments. Austerity by itselfhas limited power in equities, and cash % of total portfolos: J.P. Morgan estimates from Oct 2011 stopping this run on government debt. The EFSF remains too small, underde- 45% Cash veloped. and not well thought out to provide the shock-and-awe that de- pressed bond investors need. The IMF seems to be coming closer to getting 40% involved but itself has a challenge answering the question why it needs to provide funding for a region that has almost no external deficit.The ECB is limited by its no-bailout clause to follow the Fed and other central banks in 35% moving to a full QE for the Euro area. We think that ultimately the Euro area will step away from the break-up abyss and will rely on a combination of much 30% larger IMF,EMS, ECB liquidity support, quite likely with the ECB providing extra funding to one or both of the other two. 25% Fixed income 20% • Largely unchanged US Treasury and German Bund yields hardly tell the 8992 95 98 01 04 07 10 story of another turbulent week in the Euro area. France and Austria Outstanding: Estim. 31 Oct Average Gap underperformed, on concerns about their AAA ratings, but more damaging was the I% round-trip in Italian yields. The heightened volatility and reduced Cash $58 41.1% 37.3% 3.8% liquidity of Italian bonds raise questions about both market access in the short Equity $40 28.4% 32.4% -4.0% term, and the longer-term demand for Italian debt. Indeed, our economists now Bonds $43 30.5% 30.3% 0.2% see an EU-IMF support package for Italy as increasingly likely (See Nicola Total $141tr Mai, Italy edges towards the IMF, I I Nov). With discussion of EMU breakup Gauze: J.P Megan. BM DaqinCOTI1 Gebel rl a Foxed by re van of to Octal ctrereste dcbl sect:ties reporled by GIS alt JP. kbroan's EMBIG rdto increasing, it is striking that this year's underperformance of Italian BTPs vs re warn debt Fa MACS. se used the Odadrean weld CqJty German Bunds already rivals that seen in the 1990s, when the position in- Gtrtel CM" is 51 agiregted 1.12 (sr dose ;racy el 1121 el &mixed rd deodecie ceueies. cluded currency risk (see chart). • We stay flat overall on the periphery. The turmoil in Italian bonds bodes ill, but the new government expected next week may steady the ship for a time. We close tactical shorts and steepeners in long end Treasuries, with poorly- received supply now out of the way, and keep only a value-based short in 2yr Gemrany. • Our latest Inflation Expectations Survey (J. Garayo and A. Chordia, out today) Nov 11, 2011 2 EFTA01148766 Global Asset Allocation J.P. Morgan The J.P. Morgan View points to slightly lower expectations since July. The looming recession has led Return of 10yr Italy vs 10yr German goverment bond to a reappraisal of tail risks in the Euro area, with survey respondents now lyr rolling total return. per cent. Measured in Deutschemark pre•1999 i.e. inducing FX risk seeing deflation as equally likely as high inflation (>4%). By contrast, high inflation remains the overwhelming tail risk in the US and especially the UK. 60% Long 30yr UK breakevens, at historically attractive levels, is our favoured inflation trade. 40% Equities 20% • Equities rebounded this week, helped by optimism from political changes in Greece and Italy. Excessive pessimism and bearish positions among investors, 0% continue to create an asymetric outlook for equity markets, with bearish news creating limited downside and positive news more pronounced re- •20% bounds. As we highlight in Flows&Liquidity, positions remain low, support- ing further equity rallies in the absence of big negative news. 40% • The reportingseason is adding to positive momentum. More importantly, 89 91 92 94 96 98 00 02 04 06 08 10 profit margins appear to have expanded over the past year. S&P500 EPS grew Sane J.P.14:egan 16% YoY in Q3, vs 11% for Sales-per-Share. The size of the EPS surprise has been higher in Europe, 4% for DJStoxx600 vs 3% for the S&P500. • We continue to believe in the importance ofhaving peripheral hedges in an equity portfolio. OverweightingDAX vs. Eurostoxx.50 is such a hedge. This trade posted a gain in both September and October. Although this trade can operate as a hedge, it is also motivated by the growth outperformance of Germany vs. the rest of the Euro area. This theme is still in place as healthier balance sheets (both private and public) in Germany allow the country to escape the painful adjustments that other Euro area countries have to make. Credit • Attention this week shifted to Italy and political turmoil in Europe remains a central theme in credit performance. The wave of optimism that brought about October's rally has seemingly abated and spreads across the board finished net up on the week. Still, US economic numbers have turned the corner and we continue to see value inUS vs. European credit. • Our US and European strategists both published client surveys this week. US investors are typically bearish on the direction ofspreads: 41% expect spreads to widen this month vs. 20% last month. 25% expect to see tightening vs. 63% last month. 71% of US investors reported being underweight Euro- pean issuers. • In Europe, investors maintained credit overweights but cut back positions in lower rated credit. Our strategists also asked where clients saw the biggest risk of dissapointment going forward. Topping the list were EFSF leverage and More details in ... Greek PSI, for which the respondents forecast a mean acceptance rate of 68%. EM Corporate Outlook and Strategy. Warren Mar el al. Foreign Exchange US Creoll Markets Outlook and Strategy, Eric Beinstein et al. • By now almost everyone outside of the ECB and the German government High Yeti Credit Markers Weekly, Peter Acciavalti et al. contends that massive debt monetization will be required to manage Europe's European Crack Ourlook & Strategy. Steven Dulake et al. sovereign funding crisis. Most would also argue that this process will be Emerging Markets Cross Product Strategy Weekly, Eric hugely euro-negative. At this stage in the inflation and global rate cycle, Beinstein el al. however, it isn't clear that large-scale asset purchases would be so destruc- Nov11,2011 3 EFTA01148767 Global Asset Allocation J.P,Morgan The J.P. Morgan View live. If QE undermines currencies through higher inflation or inflation expecta- FX w ekly change vs USD tions, the 2012 recession is a much more auspicious time for debt monetization 2% currency-wise than the Fed and Bank of England's first attempts at QE in 2009. 1% • The evidence around QE's currency effect is mixed. The US's QE experience ran from March 2009 to June 2011 and was textbook across all variables. Inflation expectations oscillated around 2.25%, nominal rate expectations 0% declined versus the rest of the world, real yields fell to zero and the dollar declined trade-weighted. The UK's experience was less consistent. Inflation -1% expectations averaged 3%, nominal rate expectations trended lower, real rates fell to zero, but trade-weighted sterling traced a range. Perhaps sterling's stability simply reflected Europe's disarray: Were it not for recurring sovereign .2% stress, sterling might have responded to the declining level of real yields. USD EUR GBP JPY CHF CAD AUD TWI • The implication for the ECB is that QE shouldn't undermine currency Soute:1P Maw stability unless real yields fall relative to other countries. That could happen in 2012 only if Euro area inflation outpaces other countries', and if bond pur- chases push nominal rates much lower than elsewhere. Both will be hard to achieve next year when commodity inflation is muted and other central banks pursuing QE (UK) or considering it (US). For the next year, even a doubling of ECB purchases is probably consistent with euro stability. The more material question is what amount is consistent with European political harmony, since the governments of most of Europe's AAA countries share the ECB's anti- monetization philosophy. These countries sound resolutely opposed to further QE now, but their stance may soften if the revamped EFSF fails to launch. With European sovereigns still without a clear source of guaranteed funding, we retain hedges against another financing squeeze through shorts in EUR/JPY,USDIJPY andGBP/JPY. Commodities • In a volatile week,commodities are up around 1% helped by oil markets which offset declines in base metals and agriculture. Yesterday, our commod- ity strategist Colin Fenton took profit on the short leg of his EM Asia vs. US commodity basket and recommended that investors double up on the long leg. This means being outright long Brent, gasoil, gold, sugar, corn and wheat. The recent rotation of the WTI futures curve into backwardation (downward sloping) coupled with drawdowns in crude oil product inventories show markets are tight and give us confidence in our bullish view (see Commodity Mementos: Exit Commodity Bear Basket - Buy Gas Vol, C. Fenton, Nov 10). • In contrast to crude markets, base metals still give us some cause for concern that downside risks to the global economy have not gone away. Both copper and steel prices have fallen sharply and remain depressed. We thus advise that investors hedge the above bullish exposure. The long gold position More details in ... should do well if either the European or US political situation worsens but we also recommend buying 10% OTM puts on US natural gas in the Mar-12, Apr- FX Markets Weekly. John Normand et at. 12 and May-12 contracts. These trades should do well if US IP unexpectedly Commodity Markets Outlook & Strategy. Cohn falls or if the Deficit Supercommittee fails and political gridlock worsens in the Fenton et al. US. The gas puts would also benefit from a warm winter or if permits to drill for 0)1Markets Monthly. Lawrence Eagles et al. gas in the US Outer Continental Shelf are given out aggressively. We also recommend buying Calendar 2015 straddles in NYM natural gas, or variance Metals Revmaw and Outlook. Michael Jansen swaps on that calendar strip. Global Metals °toiletry. Michael Jansen Nov 11,2011 4 EFTA01148768 Global Asset Allocation The J.P. Morgan View J.P.Morgan Interest rates Current Dec-11 Mar-12 Jun-12 Sep-12 YTD Return' United Slates Fed fundsrate 0.125 0.125 0.125 0.125 0.125 10.year yields 2.C6 2.25 2.50 2.50 2.50 8.8% Euro area Reg rate 125 1.00 1.00 1.00 1.00 10-year Oda 1.89 1.75 2.00 2.10 2.15 9.1% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10.year yields 2.29 2.45 2.45 2.55 2.65 14.4% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10.year yields 0.97 0.85 1.00 1.10 1.10 2.1% GBI-EM hedged in S Yiekl • Global Diversified 6.45 6.70 4.7% Credit Markets Current Index YTD Return' US high grade (bp Over UST) 223 JPMorgan JULI Porfolio Spread to Treasury 8.2% Euro high grade (bp over Euro gov) 226 iBoxx Euro Corporate Index 1.7% USD high yield (bp vs. UST) 726 JPMorgan Glottal High Yield Index STW 5.2% Euro high yield (bp over Euro gov) 812 iBoxx Euro HY Index .2.4% EMBIG tbp vs. UST) 395 EMBI Global 8.3% EM Corporates (bp vs. UST) 439 JPM EM Corporates (GEMS!) 4.0% Quarterly Averages Commodities Current 1104 1201 1202 1203 GSCI Index YTD Return' Brent (SIbl) 114.2 115.0 120.0 120.0 125.0 Energy 7.5% Gold aux) 1787 2150 1925 1875 1850 Preoous Metals 23.3% Copper (Vmetrie ton) 7457 7250 8250 8500 9250 Industrial Metals -21.5% Corn '5Bu' 6.38 6.40 6.70 7.00 6.80 Agriculture -14.1% 3m cash YTD Return' Foreign Exchange Current Dec-11 Mar-12 Jun.12 Sep-12 Index In USD EUR(USD 1.38 1.38 1.38 1.40 1.42 EUR 2.7% USDOPY 77.2 75 74 73 72 JPY 4.9% GBP/USD 1.61 1.59 1.58 1.58 1.60 GBP 2.5% USDBRL 1.74 1.80 180 1.80 1.80 SRL 0.5% USD/CNY 6.34 6.30 620 6.10 6.00 CNY 2.7% USDKRW 1127 I CSC 1090 i C60 1030 HAW 1.9% USD/TRY 137 1.78 1.82 1.80 1.75 TRY -9.7% YTD Return US Europe Japan EM Equities Current (local ccy) Sector Allocation YTD YTD YID YTD (S) S&P 1265 2.4% Energy 5.4% 0.2% -1.3% -11.5% Nasdaq 2683 1.9% Matenals .8.3% -21.6% 23.6% -19.5% Topix 729 .17.0% Industrials .3.8% -19.2% -14.6% -25.8% FTSE 100 5545 3.0% 0scrolionary 4.0% -10.9% 22.8% -4.2% MSGIEurozone' 129 -16.0% Staples 8.1% 0.9% 2.2% MSCI Europe' 998 .11.5% Hea thcare 8.2% 3.2% -8.3% 20.3% MSCI EM S' 954 -15.0% Financials -17.9% -25.7% 25.7% -20.6% Brant Bovespa 58543 .15.5% Informal on Tech. 3.4% -5.7% 264% •15.7% Hang Seng 19137 -19.0% Telecommunications 2.0% -2.0% 2.8% .259E Shanghai SE 2481 .13.3% Wales 14.9% -13.0% .47.7% -12.7% 'Levels/mums as of Nov 10.2011 Overall 2.4% -113% -17.0% -15.0% Local amency except MSCI EM Sarre: el:amber% OW:dna WS Standard a Pout SeniCOS. J P Masan 15111911.1 Nov 11, 2011 EFTA01148769  Global Asset Allocation The J.P. Morgan View J. P Morgan Global Economic Outlook Summary Real GDP Real GDP Consumer prices over a year ago % over premous perod. saw % aver a year ago 2010 2011 2012 1011 2Q11 3011 4011 1012 2012 3012 2011 4011 2012 4012 The Americas United Slates 3.0 1.8 1.7 0.4 13 25 25 0.5 1.5 2.5 3.3 3.31 1.51 12 Canada 3.2 2.2 2.2 3.6 -0.4 1.8 2.4 2.6 2.6 2.4 3.4 2.6 1.6 1.7 Latin America 6.0 4.1 1 3.1 $ 5.6 421 2.91 2.01 1.6 481 4.9 7 6.7 7.2 6.41 6.2 Argentina 9.2 7.0 1 3.0 13.1 102 AO 2.0 0.0 6.0 4.0 9.7 11.0 10.0 10.0 Brazil 7.5 3.01 3.11 5.0 3.1 1 1.31 2.91 5.0 t 531 6.6 6.7 5.3 5.2 Chile 5.2 6.5 4.0 6.4 5.7 35 2.5 3.5 4.5 5.0 3.3 3.6 3.6 3.4 Colombia 4.3 5.3 3.7 2.9 8.5 3., 1.5 3.0 4.0 5.0 3.0 3.9 3.0 2.9 Ecuador 3.6 6.0 3.0 7.11 9.11 2.0 1.0 2.0 3.5 4.0 4.1 3.9 3.6 3.5 Mexico 5.4 4.0 2.5 2.4 4.5 5.7 2.6 -1.7 4.1 4.8 3.3 3.2 3.5 35 Peru 8.8 6.7 1 4.5 6.9 45 _371 2.71 4.5 5.0 6.2 3.1 4.0 3.6 2.7 Venezuela -15 35 4.01 14.7 -32 3,p t 4.0 7 6.0 7 6.0 7 48 1 24.6 28.61 26.71 25.3 AsIalla cIfic Japan 4.0 -0.6 1.9 -3.7 -21 55 2.0 1.8 15 1.3 -0.4 -01 -0.7 -05 Australia 2.7 1.4 3.5 -3.4 4.8 21 2.2 4.1 3.4 4.8 3.6 3.8 3.2 3.3 New Zealand 1.7 2.31 2.81 3.5 0.4 5.7 7 2.41 -021 6.5 7 3.71 5.3 2.91 221 2-5 Asia ex Japan 9.1 7.1 6.4 1 9.0 5.7 5.9 5.51 6.7 6.5 7.1 5.7 5.0 1 4.1 1 4.1 China 10.4 9.0 8.3 9.0 7.9 7.9 8.0 8.2 8.2 8.9 5.7 4.9 3.8 3.5 Hong Kong 7.0 5.0 3.0 1 13.0 -1.61 0.41 1.51 3.5 1 4.0 1 5.5 5.2 5.2 43 4.5 India 8.5 7.4 7.7 8.3 7.7 73 7.0 6.9 7.3 8.5 8.9 8.6 7.6 7.8 Indonesia 6.1 6.3 5.2 6.8 5.4 62 5.5 5.0 4.5 5.0 5.9 3.21 3.61 4.0 1 Korea 6.2 3.8 3.8 1 5.4 3.6 3.0 4.2 3.0 1 4.0 4.0 42 3.7 3.1 3.5 Malaysia 7.2 4.0 1.5 5.5 32 _201 0.01 1.01 1.0 1 2.0 7 3.3 2.4 1 1.5 1 131 Phkfines 7.6 4.1 4.0 7.8 2.4 4.1 2.4 2.4 7.4 5.3 5.0 4.9 7 3.91 4.0 Singapore 14.5 4.81 1.5 27.2 -65 1.6 -3.9 2.0 6.1 6.1 4.7 5.6 4.0 2.8 Taiwan 10.9 4.4 3.0 14.5 0.6 -1.1 2.5 3.5 4.3 4.6 1.6 2.2 2.0 2.4 Thailand 7.8 1.91 2.21 8.1 -0.8 LI -15.01 20.0 1 1.0 1 1.3 4.1 3.51 3.9 1 3.5 1 AlricallIddle East Israel 4.8 4.3 2.9 4.8 3.7 M di 1.31 0.8 3.2 6.1 4.1 2.8 2.3 2.5 South Africa 2.8 3.1 2.7 4.5 1.3 1.0 3.9 23 2.6 1 2.81 4.6 6.2 6.4 6.1 Europe Euro area 1.8 1.61 -0.6 3.1 0.7 121 -1.0 -1.5 -1.5 -0.3 2.8 2.9 1.81 1.4 Germany 3.6 3.0 0.3 5.5 05 1._Q -0.5 -0.3 -0.3 0.5 2.5 2.7 I. 1.7 7 1.3 France 1.4 1.61 -0.21 3.7 0.0 g1 -1.0 -0.8 -0.8 0.5 22 2.4 7 1S 7 1.2 7 Italy 1.2 0.51 -1.61 0.5 12 -051 -2.0 -2.5 -25 -1.0 2.9 3.8 2.7 1.7 Norway 2.1 2.2 0.7 1.9 4.1 Lk 05 0.0 0.0 1.0 1.4 1.1 1.2 1.3 Sweden 5.4 4.1 0.4 3.1 3.6 2.0 0.0 -0.5 -0.5 0.5 2.9 2.5 1.1 1.1 United Kingdom 1.8 1.0 0.8 1.6 0.4 2.0 1.0 0.5 -1.0 2.5 4.4 4.9 2.8 1.8 Emerging Europe 4.5 4.1 1 2.41 3.6 12 251 1.0 1 2.71 2.71 3.5l 7.1 6.2 5.61 5.7 Bulgaria 0.2 2.8 2.4 Czech Republic 2.3 2.0 0.6 3.5 0.3 0.3 -0.3 0.0 0.8 2.0 1.8 1.8 2.5 2.8 Hungary 1.2 1.2 0.5 1.2 -02 0.0 -0.3 0.0 0.8 1.5 4.0 3.7 4.4 5.1 Poland 3.8 4.0 2.7 4.5 45 a 2.0 2.0 2.5 3.0 4.6 3.9 2.5 2.7 Romania -13 1.5 0.8 82 4.0 35 3.5 Russia 4.0 3.6 3.0 3.7 0.4 2.8 1.0 4.0 3.5 4.5 9.6 7.1 7 6.3 7 731 Turkey 9.0 7.01 2.2 1 ... 5.9 8.3 7.8 6.0 Global 4.0 2.6 2.0 2.6 1.7 2.91 1.81 1.4 1.7 2.6 3.7 3.6 2.4 2.2 Developed markets 2.7 1.4 0.9 1 0.9 al 24 1 11 0.1 1 0.4 1.5 2.7 2.8 T 1.4 12 Emerging markets 7.3 5.7 4.71 7.2 43 4.41 3.81 4.7 5.4 7 5.9 6.1 5.7 1 5.01 491 Space JP. kixgan Nov 11.2011 6 EFTA01148770 Global Asset Allocation The 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 19 (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 are 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 76IG of the Corpora- tions Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd.. Frankfun Branch and J.P.Morgan Chase Bank. N.A.. Frankfurt Branch which are regulated by the Bundesanstalt fur Finanzdienstleistungsaufsicht. Hong Kong: The 1% EFTA01148771 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 website: 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 Finns Association and Japan Securities Investment Advisers Association. Korea: This report may have been edited or contributed to from time to lime 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 repon: 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 offering, 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