EFTA01149242.pdf

J.P. Morgan Global Asset Allocation J.P.Morgan Chase Bank NA, J.P. Morgan Securities Ltd. Sep 23, 2011 he J.P. Morgan View Who will win the race to recession? Jan Loe SAC • Economics — Europe is falling into recession, by our new forecast. Weaker PMI's suggest serious downside to Asian forecasts. US is tracking our already weak growth forecasts. John Normand • Portfolio strategy —The market reversal signals of Value, Positions, Timing, Data and Policy remain in defensive mode. Stay underweight risky assets. • Fixed Income — We think a more severe Greek restructuring than agreed in Nikolaos Pani irtzoglou July is inevitable, and stay cautious on the Euro area. • Equities — Worsening technicals and fundamentals and the lack of clear triggers justify a defensive stance. • Credit — We stay defensive. • Foreign exchange — Yen and dollar are the world's strongest currencies in Matthew Lehmann the face of surging volatility. • Commodities — The sharp fall in base metal prices implies a close to 50% chance of a US recession. The global risk-off trade moved into the phase of cross hedging and indis- criminate selling. Witness the 20% drop in the Mexican peso, and falls in EM YTD returns through Sep 22 local bonds and gold. Unfortunately, by itself this does not signal that we are %. equities are in lighter colour. near the end. But it does help clear the deck and creates relative value oppor- Gold tunities that investors will move to once volatility becomes less threatening. A squaring of aggressive positions and building of defensive postures are both US High Grade required conditions to define a market bottom and coming reversal. What we US Axed Income 0 need in addition is that most of the worst news is priced in, data and events no Global Gov Bonds" longer surprise on the downside, and policy actions are taken to reverse the EMBIG ❑ negative fundamentals. And here the news remains broadly negative and EM Local Bonds- ❑ keeps us in defensive mode. US High Yield On value, risk markets have cheapened significantly, but most remain well off EMS Corp. worst-news levels, which we equate to a US recession here. By our reckoning, Europe Fixed Income' we would need to see that S&P500 to have fallen by its average move of past US cash recessions — to about 1,000 — to give comfort that the almost-worst is priced in. Similarly, we would need to see HY widen another 2% and base metals fall EM FX ■ another 20% to price in a US recession. Two markets are much closer to pricing GSCI TR in a recession: US HG, and USTs. USHG spreads, now near 240bp over USTs, S&P500 arc already wider than all US recessions, with the exceptions of the 2008.09 MSCI AC Workr crisis, when they peaked over 500bp. And 10-year USTs already saw near Tops II historic lows. MSCI EM' • However relevant the Value signal will be to signal a bottom, it needs to get MSCI Europe . I support from Timing. We know that risk markets typically do not rebound .20 40 0 10 20 30 until the light at the end of the recession tunnel is in sight — on average 3 Some: ■ Mown IStriberst. Flans n UW. 'Lea/ months before the end. But any US and European fiscal tightening induced wilency. —Naked Ala USG. LOD Fixed Income is Isom Omni recession may not even have started yet. In the Euro area, we think this We.. US HG. HY. DABIG rd EM stop are JPII Sim. Eli Ris ELL% Ent rrrrccion will start any moment (Q4).In the US, fiscal policy will only begin tightening seriously in January, and only if the Administration's Jobs Act is www.morganmarkets.com The certifying analyst is indicated by an AC. See page 7 for analyst certification and important legal and regulatory disclosures. EFTA01149242 Global Asset Allocation The J.P. Morgan View J.P.Morgan not passed. So the US is probably not yet in recession. Investors that con- 2012 JPMorgan global GDP growth forecast vs. sider buying equities should do so on a no-recession view rather than on a Global equities view that it is in the price. 4.0 360 • An end to negative economic surprises is also needed to reverse the sell off. 340 The good news is that our US Economic Activity Surprise Index is no longer in 3.5 the red. And Q3 US data are tracking a bit better than our I% call for quarter. 320 But elsewhere, we continue to see worse data. In the Euro area, the combina- 3.0 tion of weak PMIs, accelerated fiscal austerity and likely hard restructuring of 2012 JP/il global GDP 300 growth forecast Greece has induced our economists to project a 0.9% economic contraction 2.5 starting next quarter (Q4). And in Asia, weaker trade and PMIs are all creating 280 significant downside risks to our forecasts. 2.0 260 Ja 4I Mar.11 Marl I Jul.11 • Finally, decisive policy action is the last, but not least element of a market Sawce JP. Wagrek Cmsensus Emelt Ceramsus Emeteries reversal. Here, we have raised the concern that US policy makers may be out fecemsts ore let regions mid count Pal we averaged userg the of bullets, and that the Europeans ones are extremely reluctant to make the same low ming USD GDP weigIns thin voe arse be cJr men VeDal growth breast. TALF-like move to fiscal federalism that markets demand. The negative reaction to this week's FOMC announcement to add duration to its SOMA portfolio underlines this fear. Our economists currently assume that very little 2011 global GDP growth forecasts: JPMorgan and of the Administration's fiscal plans will get through Congress. In the Euro Consensus area, we see little reason to change our view that conditions need to get a lot worse before EMU members accept and commit to the need for fiscal solidarity 4.0 and discipline — an EFSF with both a bigger carrot and bigger stick. EM policy 3.8 JPN makers have a lot more ammunition, but the dramatic drop in their currencies 3.6 will already prevent many from easing now. 3A • The quartet of our value, positions, date and policy signals remains bearish 3.0 and keeps us defensively positioned on the risky asset world of equities, credit, commodities, and EM. Within each asset class, this implies 2.8 overweighting lower-beta subclasses and securities. 2.6 2.4 Fixed income Jan•I0 May.10 Sep.I0 Jan.11 May11 Sep.11 • New yield lows in DM have become commonplace, as concerns over the EMU Scum/. JP. thargrk Cossensus Ecceorrim. Consensus Emearim crisis and the global economy mount. EM local yields are backing up sharply forecasts zre let mats and =elms tor .e weraged usng the same 5-i ming USD GOP %mire that.e use be cue an ow though, caught in the downdraft of a violent derisking in currencies. groat!, beams!. • Investors are spooked in part because of worries about whether unconven- tional monetary policy, like the Fed's Operation Twist, can affect the wider economy much. It has certainly not lost its ability to impact the markets directly targeted, as evidenced by the near 50bp rally in 30yr Treasuries this More details in ... week. The Fed's unexpected decision to reinvest MBS and Agency bullet Global Data Watch. Bruce Kasman and David Hensley maturities back into the mortgage market (instead of into Treasuries), has decisively shifted the supply-demand landscape in that market, and prompts Global Markets Outlook and Strategy. Jan theys. Bruce us to go long US MBS (see Matt Jozoff, MBS Market Commentary, Sep 21). Kasman. el al. US Fixed Income Markets. Terry Belton and Srini • Euro area funding conditions continue to worsen, and surely demand a Ramaswamy decisive policy response. Weak growth and slippage in fiscal targets mean we Global Fixed Income Markets. Pavan Wadhwa and Fabio now think a more severe Greek debt restructuring than that agreed in July is Bassi inevitable. That means a deeper recession in Greece. and (via asset price Emerging Markets Outlook and Strategy. Joyce Chang contagion) recession in the Euro area as a whole. And that forecast assumes a very active policy response, with ECB support for sovereign bond markets Key trades and risk: Emerging Market Equity Strategy. Adrian Mowal et al. possibly reaching fltr. See David Mackie et al., Directing the Greek tragedy: default, a regional recession and spillover risks, for details. We stay defen- Rows and Liquithiy. Nikos Paniginzoglou el al. Sep 23,2011 2 EFTA01149243 Global Asset Allocation The J.P. Morgan View J.P,Morgan sive in the Euro area, with peripheral underweights and duration longs. Industrial production growth EM IP op minus DM IP oya. Equities 25 % • Investors' derisking intensified this week, resulting in sharp underperforrnance EMI? vs DM IP 20 by high beta sectors, i.e. cyclicals, small caps and EM equities. While equities oya% are now pricing more than 50% chance of recession, worsening technicals 15 and fundamentals and the lack of clear triggersjustify a defensive stance. Earnings expectations are being cut and uncertainty, proxied by the standard 10 deviation of 12-month ahead analysts EPS forecasts, is on the rise (top chart). 5 • We favour large-cap defensive stocks in the US. We are reluctant to recom- mend an overweight in EM vs. DM equities despite better overall fundamen- 0 tals in EM economies. EM equities are perceived as high beta during crises. 01 03 05 07 09 11 In addition, our EM vs. DM equity signals based on relative IP growth and 2- Soiree: AP. lbw month return momentum is currently neutral in EM (The EM vs Developed Markets equity allocation, Apr 2009). Relative IP growth favours EM but 2- Dispersion of analysts' EPS forecasts month return momentum favours DM. And the IP signal, although positive for Sid Dev. of twelve month ahead S&P 500 forecasts by bottom up analysts. EM, is rather weak. As the chart at the top shows, it is only marginally above $ its 5% threshold. 13 12 I • We favour less directional cross-country trading themes. We remain over- II • weight DAX vs. Eurostoxx50. The main motivation is German growth 10 outperformance vs. the rest of the Euro area. Healthier balance sheets (both 9 private and public) in Germany allow the country to escape the painful 8 adjustments that other Euro area countries have to make. In contrast, auster- 7 ity is pushing peripheral economies deeper into contraction. 6 • 5 • Within EM, we continue to underweight BRICs and focus ow exposure on 08 09 10 11 ASEAN countries. Investors remain sceptical about BRICs, concerned about Sane: JP. Magni overheating and corporate governance. CDX IG vs. iTraxx Main • Our model for allocating between the US and Euro area equities currently Weeldy speed levels stce June 2010. suggests a long in S&P500 vs. MSCI EMU currency hedged (Panigirtzoglou Bp et al., Trading the US vs Europe, June 24). Of the three signals, the perform- 200 ance of global equities over the past 3 months and the change in the US-Euro PM1 difference point to an UW of Euro area equities. They dominate the third signal, the change in the EURUSD over the past three months, which favours iTraxx Main 150 Euro area equities. Credit 100 • Spreads lurched wider this week. German and French CDS hit new records CDX IG (108bp and 203bp) and yet again headlines were focused on the EMU crisis. The downgrade of Italy comes amongst a larger wave of rating cuts. US and 50 Italian banks saw downgrades on Wednesday, following French banks last Ju -10 Nov-10 April Sep-11 week. In fact, this quarter, downgrades outnumber upgrades by all three Scum: Spank's; major rating agencies for the first time since Q12010. More details in ... • Our European credit strategists believe the likelihood of banks holding, raising or taking more capital is gaining traction among policymakers. They neutralise EM Corporate Outlook and Strategy, Warren Mar et al. their underweight Financials vs. Corporates position (see Stephen Dulake et US Credit Markets Outlook and Strategy. Eric 8einstein el al. al., The Preferred Route: ECOS, Sep 22). High Yield Credt Markets Weekly. Peter Acciavalli el al. • In the US, the JULI widened 16bp to 246bp and the US HY Cash Index widened European Credit Outlook 8 Strategy, Steven Dulake el al. Sep 23,2011 3 EFTA01149244 Global Asset Allocation J.P.Morgan The J.P. Morgan View 36bp to 775bp. Likewise, CDS indices were wider although some of this likely FX weekly change vs USD related to the index rolls to series 17. The CDX.IG stands at 141bp and the 4% CDX.HY at 728. Our US strategists remain UW HG corporate credit. 2% • Our EM strategists are looking towards less developed "next generation" 0% sovereigns given the declining yield trends of core EM external debt as well as increased correlation with more traditional asset classes (see Joyce Chang et -2% al., "Next Generation" Emerging Markets: Opportunitiesfor Diversification andHigher Welds, Sep 20). They are overweight Nigerian external debt given -4% a relatively low debt burden and recent fiscal improvement On the week, -6% EMBIG spreads were 72bp wider at 457bp and CEMBI spreads were 61bp wider at 496bp. -8% USD EUR GBP JPY CHF CAD AUD Foreign Exchange • As the US Congress and European parliaments dither around decisions Sosce:J.P. Mcegan required to avoid joint recessions, references to a Lehman moment are becom- ing increasingly appropriate. Currencies reflect these exceptional times, with over 25 pairs posting moves in excess of two sigmas over the past week , mostly through deleveraging in emerging markets. As with Lehman, the yen and dollar are the world's strongest currencies in the face of surging volatility, highlighting what determines safe-haven status. It is the low rates which tempt investors to fund in that currency during expansions, thus obliging them to repurchase the same unit during deleveraging. To a lesser degree the same phenomenon has driven the euro's September rally versus the emerging markets and commodity currencies, since it has been used exten- sively to fund or hedge longs in those currencies. Hence the argument for avoiding the euro as a hedge for the sovereign crisis despite its European epicenter. The yen's behavior remains more predictable. • As precarious as the current environment appears, there are few opportunities outside of the yen. Currency managers are already very long dollars, and the underlying position risk is more in EM assets than G-10 ones. Thus we hedge further deleveraging selectively by keeping a USD/JPY put spread and buying USD/NOK today in cash. There is decent risk of Bank of Japan intervention before the fiscal half-year end on Sep 30, at which time we would probably re- enter the short EUR/JPY and GBP/JPY positions we took profits on last week. Commodities • Commodities sold off heavily across the board this week, down around 8% with the worst losses coming from base metals which fell almost 11%. Given base metals are the commodity most leveraged to global growth, this suggests investors are pricing in a much higher risk of recession than before. In our "How much ofa US recession is priced in Y', Aug 11, we concluded that over the past five US recessions, base metals had fallen an average of 43% from More details in ... peak to trough. Based on this, and given base metals have fallen around 21% since the recent peak at the end of July, this very simple analysis suggests FX Markets Weekly. John Normand et af. current prices imply around a 50% chance of a US recession. Commodity Markets Outlook & Strategy. Cohn Fenton et al. • Expanding the above analysis to other commodities we find that over the past 04 Markets Monthly. Lawrence Eagles et al. five recessions precious metals have fallen on average -5%, agriculture - 8% and oil -19%. We only use the past three recessions for oil because the Meats Rowew and Outlook Michael Jansen contractions in the early 80s involved an oil supply shock which is not the Global Metals Ouarterly. Michael Jansen case currently. Based on this, if a serious recession were to materialise, we would expect energy and base metals to underperform other commodities. Sep 23, 2011 4 EFTA01149245 Global Asset Allocation .J.P.Morgan The J.P. Morgan View Interest rates Current Sep-11 Dec.11 Mar-12 Jun.12 YTD Return' United States Fed funds rate 0.125 0.125 0.125 0.125 0.125 10-year yields 1.79 2.05 2.60 2.80 3.00 10.0% Euro area &di rate 1.50 1.50 1.50 1.50 1.50 10-year yields 1.75 2.10 2.05 2.00 2.00 8.9% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 2.37 2.45 2.55 2.55 2.55 11.1% Japan Overnight cad rate 0.10 0.05 0.05 0.05 0.05 10-year yields 0.98 0.90 0.95 1.05 1.10 2.1% GBI-EM hedged in $ Yield • Global Diversified 6.78 6.90 2.8% Credit Markets Current Index YTD Return' US high grade (bp over UST) 236 JP/Aorgan US Index (JULI) ispread 7.5% Euro high grade (bp over Euro gov) 314 Aka Euro Corporate Index 3.5% USD high yield (1:9 vs. UST) 791 JPMorgan Global High Yield Index 1.7% Euro high yield llop over Euto goy) 936 Abe Euro HY Max -62% EMBIG (bp vs. UST) 455 EMBI Global 4.3% EM Corporates (bp vs. UST) 499 JPM EM Corporates (CEMBI) 0.6% Quarterly Averages Commodities Current 1103 1104 1201 1202 GSCI Index YTD Return' Brent (SIM; 104.5 110.0 115.0 115.0 110.0 Energy -5.5% Gold (See 1640 1650 1800 1800 1750 Precious Metals 22.0% Copper (5/metric ton) 7653 9750 10000 10250 9500 Industrial Metals -18.4% Corn 130u) 6.44 7.20 6.90 7.10 7.40 Agncullure -12.1% 3m cash TTD Return' Foreign Exchange Current Sep-11 Dec.11 Mar-12 Jun.12 Index In USD EUFULISD 1.35 1.38 1.38 1.40 1.42 EUR 1.5% USC,JPY 76.5 75 74 73 72 JPY 6.5% GBAUSD 1.54 1.59 1.58 1.58 1.60 GBP -1.2% USO:BFIL 1.85 1.70 1.70 1.70 1.70 BRL -6.7% USDICNY 6.39 6.30 6.20 6.10 6.00 CNY 1.9% USO:KRW 1167 1070 1050 1020 1010 KRW -2.3% USD/TRY 1.85 1.65 1.65 1.65 1.65 TRY .12.8% YTD Return US Europe Japan EM Equities Current (local eey) Sector Allocation • YTD YTD YTD YTD (S) S&P 1135 -8.5% Energy 11.2% -13.1% -7.8% -23.2% Nasdaq 2475 -6.4% Materials -19.0% -29.5% -17.1% -24.4% Topix 745 -16.1% Industrials •I5.3% -24.5% 43.9% -29.7% FTSE 100 5067 -11.7% Discretionary .4.9% -17.2% -21.1% -12.8% MSCI Eurozone 117 -24.1% Staples 2.8% 4.8% 2.2% 4.0% MSCI Europe' 918 -18.8% Healthcare 1.6% .2.3% .5.1% -22.4% MSCI EMS' 881 -21.7% Financials .26.8% 31.9% -25.7% -26.5% Brad Bovespa 53166 .23.3% Information Tech. 4.6% -14.8% -27.7% -21.9% Hang Sting 17669 -21.1% Telecommunications 40% •1OA% 4.6% -7.2% Shanghai SE 2433 -13.4% UtilAies 8.9% -17.6% 43.2% 'Levels 'retums as of Sep 22.2011 Overall 43% .188% 46.1% -21.7% Local currency except MSCI EM $ Sane: &airbag. Cabana,. IBM Sandra a Pozes Smite,. JP Mo.e.in et,mete: Sep 23, 2011 EFTA01149246  Global Asset Allocation The J.P. Morgan View J. P Morgan Global Economic Outlook Summary Real GDP Real GDP Consumer prices % ever a year ago % over [menus perti. saat % over a year ago 2010 2011 2012 1011 2011 3011 4011 1012 2012 3012 4010 2011 4011 2012 The Americas United States 3.0 1.4 1.2 0.4 1.0 A 1.0 0.5 1.5 2.5 12 3.3 3.21 1.4 Canada 3.2 2.2 2.2 3.6 -0.4 1.8 2.4 2.6 2.6 2.4 2.3 3.4 2.6 1.6 Lath America 6.0 4.3 3.5 5.61 LI 3.4 3.1 2.6 4.3 4.4 6.7 6.71 7.2 1.2 Argentina 9.2 7.0 4.8 13.1 1 102 1 6.0 3.0 4.0 6.0 4.0 11.0 9.71 11.0 13.0 Brazil 7.5 3.4 3.8 5.0 3.1 2,3 3.9 4.3 4.1 3.5 5.6 6.6 6.7 5.3 Chile 5.2 6.5 4.5 6.4 5.7 3.5 2.5 5.0 4.5 4.3 2.5 3.3 4.0 3.6 Colombia 4.3 5.3 4.0 291 8.5 1 3.5 1.5 4.2 4.7 5.2 2.7 3.0 3.5 3.1 Ecuador 3.6 6.0 3.0 7.3 3.0 2.0 1.0 2.0 3.5 4.0 3.4 4.1 3.9 3.6 Mexico 5.4 4.0 2.5 2.4 4.5 5.7 2.6 -1.5 3.7 4.9 42 3.3 3.4 3.6 Peru 8.8 6.3 5.0 6.9 4.5 ,Z5 3.0 7.0 5.3 5.3 2.1 3.1 3.6 3.0 Venezuela -1.5 3.5 3.0 14.7 -32 -1.5 3.0 3.0 5.0 6.5 27.3 24.6 29.0 33.6 AsiaiPacific Japan 4.0 -0.3 2.5 -3.7 -2.1 LB 3.5 2.0 1.7 1.5 -0.3 -0.4 -0.2 -0.7 Australia 2.7 1.4 3.5 -3.4 4.8 2.1 2.2 4.1 3.4 4.8 2.7 3.6 3.8 3.2 New ZeaLand 1.7 2.01 3.81 3.5 1 0.4 1 2.81 4.1 1 3.9 1 391 5.61 4.0 5.3 3.2 2.4 Asia ex Japan 9.1 7.2 7.0 8.9 5.3 6.1 6.7 7.2 7.5 7.6 4.9 5.7 4.9 4.5 China 10.3 8.9 8.5 8.9 7.0 7.5 8.5 8.7 8.9 9.0 4.7 5.7 4.6 4.3 Hong Kong 7.0 5.2 4.0 13.0 -2.0 A 3.5 5.5 5.6 4.5 2.7 5.2 5.1 4.3 India 8.5 7.6 8.5 8.3 7.6 7.5 7.1 8.6 9.0 9.5 92 9.1 8.7 7.8 Indonesia 6.1 6.4 6.2 6.8 5.4 5.5 6.2 6.2 6.2 6.2 6.3 5.9 4.5 5.6 Korea 6.2 4.0 4.2 5.4 3.6 4.8 4.0 4.0 4.5 4.5 3.6 4.2 3.7 3.1 Malaysia 7.2 4.2 3.3 5.5 32 Lfg 3.2 3.6 3.6 3.6 2.0 3.3 2.8 2.4 PhipiLines 7.6 4.3 1 4.8 1 7.8 2.4 4,11 5.3 1 4.9 4.9 5.3 3.5 5.0 4.6 3.3 Singapore 14.5 5.1 3.8 27.2 -6.5 SO 3.2 4.5 6.1 7.0 4.0 4.7 4.6 3.0 Taiwan 10.9 5.0 3.8 14.6 0.9 135 3.8 4.2 4.7 4.8 1.1 1.6 2.2 2.0 Thailand 7.8 3.1 3.3 8.1 -0.8 20 3.5 4.0 3.8 3.8 2.9 4.1 3.7 3.6 Afrkalliddle East Israel 4.8 4.3 2.9 4.7 3.5 1 2,4 1.2 0.8 3.2 6.1 2.5 4.1 2.8 2.3 South Africa 2.8 3.1 1 2.7 4.5 1.3 1.01 4.81 2.3 2.6 2.9 3.5 4.6 5.8 5.1 Europe Euro area 1.7 1.6 -031 3.1 0.6 (LB -0.51 -1.01 -1S 1 0.01 2.0 2.8 2.7 1.6 Germany 3.6 2.8 0.21 5.5 0.5 1.51 0.01 •05 1 0.51 1.6 2.5 2.41 1.4 1 France 1.4 1.6 4.1 1 3.6 0.0 1.0 7 0.01 -0.51 -1.0 1 OS 1 1.9 2.2 2.3 1.4 Italy 1.2 0.51 -1.21 OS 12 -141 -13 -1.51 -2.5 1 -0.51 2.0 2.9 3.41 2.5 1 Noway 2.1 2.21 0.71 1.9 4.1 1S 1 OS: 0.01 0.0 1 1.01 22 1.4 1.31 1.2 1 Sweden 5.4 4.1 1 0.41 3.1 1 3.61 2,0 t 0.0 -0.51 -0.5 1 0.51 1.9 2.9 2.61 131 United Kingdom 1.4 1.0 0.81 1.9 0.7 1.5 1.0 0.51 -1.0 1 2.5 1 3.4 4.4 4.91 2.8 Emerging Europe 4.5 3.8 2.9 3.6 12 1,4 2.2 4.0 3.8 3.8 6.6 7.1 6.0 5.2 Bulgaria 0.2 2.8 2.7 Czech Repubac 2.3 2.0 1.6 15 0.3 0.3 0.8 1.3 1.8 2.0 2.1 1.8 2.1 2.8 Hungary 1.2 1.5 1.3 1.2 -02 Q.B 1.0 1.0 1S 1.8 4.4 4.0 3.8 3.1 Poland 3.8 3.8 3.0 4.5 4.5 2.0 2.5 2.8 2.8 3.0 2.9 4.6 4.0 2.5 Romania -1.3 1.2 1.0 7.9 8.2 4.0 3.5 Russia 4.0 3.4 3.5 3.7 0.4 1.1 2.0 5.0 4.7 4.5 8.2 9.6 7.4 6.5 Turkey 9.0 6.3 2.7 7.4 5.9 6.7 6.0 Global 3.9 2.5 2.1 1 2.6 1,5 2.ST 2.01 1.71 1.9 1 2.81 2.7 3.7 3.5 2.4 Developed markets 2.6 1.3 0.9 1 0.9 0.4 1 1.71 0.91 0.41 0.41 1.6 1 1.5 2.7 2.7 1.3 Emerging markets 7.3 5.7 5.2 7.1 1 431 4.5 1 5.0 5.3 5.9 6.1 5.6 6.2 5.7 5.3 Space JP. Mxgan Sep 23.2011 6 EFTA01149247 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: (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. 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 19(5), 38. EFTA01149248 Global Asset Allocation The J.P. Morgan View J.P. Morgan 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 Corporations 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 fUr 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.) J.P. Morgan Stoking (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., Lid., 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. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Lid, 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. 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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