EFTA01176904.pdf

J.P. Morgan Global Asset Allocation J.P. Morgan Chase Bank NA, J.P. Morgan Securities Ltd. May 18.2012 The J.P. Morgan View Q&A on Greek exit risk Jan LoeysAc • Asset Allocation — With little policy support before June 17 Greek elections, (1-212) 834-5874 there is little supporting current risk prices. Cover remaining longs in risk. [email protected] • Economics — Data are tracking Q2 forecasts, but the recent fall in equities John Normand offsets the impact of lower oil prices. This pushes growth risk to the (44-20) 7325-5222 downside. [email protected] • Fixed Income — Stay flat duration, and hold EMU hedges. Nikolaos Panigirtzoglou (44-20) 7777-0386 • Equities —Take profit on Dax OW in Europe as risk of shorting bans is rising. [email protected] • Credit — We move underweight credit, and cover our remaining longs in the Seamus Mac Gorain GMOS portfolio. Near-term, we look for relative value in CDS vs. equity. (44-20) 7777-2906 [email protected] • Foreign exchange —We use a 1.22 EUFt/USD fair value forlune on 50/50 odds of pro vs anti EMU results in the June 17 Greek elections. Matthew Lehmann • Commodities —This week's start-up of the Seaway pipeline between the US (44-20) 7777-1830 malthew.m.lehmannepipmorgan.com Midwest and Gulf Coast should help narrow the Brent-WTI Spread. Leo Evans (44-20) 7742-2537 Risk markets all lurched down as one this week, and safe government bonds [email protected] and the dollar all rose as one, as markets positioned for Lehman-like conta- gion risk emanating from Greek election risks. Unfortunately, the June 17 date of these elections is still a month away, and Euro policy makers do not want to YTD returns through May 17 give the shop away even before the elections, for fear of strengthening the %. equities are in lighter colour. hands of those who are calling for a hard renegotiation with the Troika. That means little upside news over the month and markets being driven by posi- US High Yield tioning on different post election scenarios. With this outlook, and equities EMS Corp. now flat on the all-important 6-month lookback, we need to neutralise remain- 582500 O ing equity and credit longs. EMBIG US High Grade Economic news remains broadly neutral and are tracking our Q2 forecasts. Q1 GDP for both Japan and the Euro area came in better than expected at 0% and Tope* I I 4.1%, respectively. Forward looking indicators, including the last set of PMIs, MSC' AC World' O and recent falls in global equity prices, give us no reason to raise the rest of MSCI EAR O the year, but with high Q1, the 2012 projections automatically move up. Over EM Local Bonds— the past month, both oil and global equities are down about 10%. Further Greek turmoil would push down again. The equity fall, however, has a higher EM FX impact on economic activity than the same %fall in oil prices. Hence, we must US Fixed Income now accept a negative risk bias on the economic outlook. Global Gov Bonds— me Europe Fixed Income• • Given the almost exclusive focus of global markets on the evolving Greek Gold drama, we provide below a concise Q&A on Greek EMU exit risk. The box on p. 2 lists a number of recent reports from JPMorgan analysts on this topic. US cash MSCI Europe• 0 • Why do we care? Greek elections are having many times the impact that the GSCI TR recent slowing in Chinese growth is having, despite China's economy being 30 4 0 5 times larger than the Greek one. The higher impact of local shocks depends on Son J P Maga,. 8bookig Robins n WO •tcca how they affect the world's two main "contagion conductors" — banks and awry. fledged inb USD Ewa Axed Intone is Itexc Omni oil. China has little negative on either, and thus the impact of its growth Irdex. US MG. HY.E1.131GridEMS Cap aie JP/A inoces. Eli Face ELM. MS The certifying analyst is indicated by an Ac. See page 7 for analyst www.morganmarkets.com certification and important legal and regulatory disclosures. EFTA01176904 Global Asset Allocation The J.P. Morgan View J.P,Morgan fluctuations are largely local, and on relative pricing. Greek exit risk threatens 2012 global GDP growth forecasts: JPMorgan the integrity of the euro financial system, and could thus initiate a Lehman-like and Consensus world crisis. 4.0 • Why have policy makers not neutralised this risk yet? Euro policy makers 3.5 have consistently underestimated the macro impact of what have been really micro economic decisions. Telling countries they need to reduce debt through 3.0 austerity and should not depend on others (and surely not the ECB) to repay 2.5 debt, and telling banks they need to rebuild capital all makes eminent sense, but has the reverse, unintended impact of destroying markets and economies 2.0 — a colossal inability to understand the paradox of thrift. A divided leadership does not help. Only the ECB has more concentrated leadership, but has the 1.5 problem that the ultimate solution is fiscal, not monetary. Ja 11 Apr-11 Jul 11 Oct-11 Jan l2 Apr.12 Soiree JP. Meson Ccosensus Ecercmcs.Ozoseress Eceo:mcs Wonts a'o Ns reyais aro commis Ow aoca3e, uwg he What should policy makers do? Aside from the ultimate need to create fiscal sore yes wing USO GDP sorts fel se use lx of unn gtbS and political federalism, one can read the post-Lehman script, where slower Fungi laecasi. austerity and monetary financing of forced capital injections in all banks prevented the onset of depression. Call it Euro-TARP. This does not consti- Research on a Greek exit from EMU tute core EMU throwing good money after bad, but, to this analyst, is invest- ing at a great entry price. In addition, why does the ECB not intervene to push More thoughts on a Greek exit process and timing. David the euro down? The world would likely applaud an ECB that focuses on Mackie. May 18. 2012 growth instead of reducing moral hazard. The macro consequences of a Greek exit. David Mackie. May 18. 2012 What are policy makers likely to do? Very little before June 17, not to tip their The gory details of Greek EMU exit. Targel2 and the ECB, hand to Greek voters. A new government that is willing to work to remain an Malcom Barr. May IT. 2012 EMU member, will likely receive some leniency and assistance. A new gov't that instead unilaterally abrogates previous agreements to repair Greece's Global implications from a Greek exit from EMU. Conference call. replay +1 203 369 0254. passcode 7972 creditworthiness would face stubborn Euro leaders, who would be forced to circle the wagons to protect the rest of EMU against capital flight. Initially FX Markets Weekly - A roadmap and roadblocks to EMU policy makers would be reactive, providing funding to banks and countries exit. John Normand. May 11.2012 where markets have closed. At some point, it will dawn on them that a massive Global Fixed Income Markets Wooly. Pavan Wadhwa. euro-TARP provides the best defence per buck. Kedran Panageas et al.. May 11. 2012 Flows and Liquidity: Greek Contagion, Nikos • How? A Greek exit is in neither side's true interest. It would thus probably not Panigirtzetfou et al.. May 11. 2012 be a clean, surgical decision, but more the result of an escalation of acrimoni- Alternate States: EMU Breakup. Seamus Mac Gorain. ous actions and counteractions that bring both sides to a point neither really Sep 8. 2011 wanted to be. One can imagine a scenario where a leftist government unilater- ally stops austerity and debt payments could easily see the rest of EMU stopping payments. A Greek government running out of cash would instead write IOUs, which would soon end up as a new currency running alongside More details in ... old EMU bills. Global Data Watch. Bruce Kasman and David Hensley What impact? Our economists judge that Greek exit would push Euro GDP Global Markets Outlook and Strategy. Jan Loeys. Bruce down a further 2%. Market consensus is converging on 50/50 odds of exit, but Kasman. et al. we do not sense full capitulation yet on long risk exposures, nor a dominance US Fixed Income Markets. Terry Belton and Srini of risk undenveights. There would be significant further downside on equities Ramaswamy and credit if a chaotic Greek exit were to unfold, likely double digit in the case Global Fixed Income Markets. Pavan Wadhwa and Fabio of equities. Still, given the memory of the Lehman aftermath, global policy 8assi makers would likely react more decisively, and thus limit the downside. The Emerging Markets Outlook and Strategy. Joyce Chang euro would approach parity versus the dollar. Key trades and Ask: Emerging Market Equity Strategy. Fixed income Adrian Mont et al. • Bonds rallied for the fourth week in a row, with German Bunds and UK gilts Flows and Liquidity. Nikos Panigirtzegiou et S. May 18.2012 2 EFTA01176905 Global Asset Allocation J.P.Morgan The J.P. Morgan View hitting new yield lows, the latter boosted by a relatively dovish BoE Inflation Report. We remain flat duration overall, reluctant both to chase yields at these lows, and to take bearish positions with the Greek political outlook still so uncertain. Nor is the economic data providing a clear steer either way. • With the Greek election looming, investors are likely to remain cautious unless the polls swing clearly towards the mainstream parties. Given the likely cata• strophic impact of a Greek EMU exit, we still see merit in EMU hedges, includ- ing swap spread wideners, German curve flatteners, and modest intra-EMU spread wideners. The possibility of a reactivation of the ECB's bond purchases is one factor keeping spreads in check, though the ECB's halfhearted approach to this programme in the past suggests it would provide only a temporary balm. • EM local yields have backed up in the past few weeks, even as DM yields made new lows. EM is now about flat to DM for the year. EM local bond funds are still seeing modest inflows, though hard currency EM bonds continue to be more favoured. While remaining broadly neutral duration inEM, we add an underweight in Indonesia, where the central bank, the main bond buyer over the past nine months, has signalled a less supportive stance. Equities • Country trades constitute the core ofour equity portfolio. OW US vs. Euro equities and OW MSCI EM Asia vs. MSCI AC World are our preferred calls. The first is justified by the escalation of the euro debt crisis and the impact it will have on the euro area economy. Last year, the euro debt crisis caused a dramatic decline in euro area economic activity in H2, and unless the Greek issue is resolved quickly, this year's second half will look more like last year's. • OW EM Asia equities is predicated on an expectation that Chinese policy makers will announce more stimulus via a FAI program in the summer, ahead of autumn's leadership change. Last week's disappointing data in China have raised the probability of that happening. • We tactically exit our OW inDAX vs. Eurostoxx.50. The economic divergence between Germany and the rest of the Euro area is still in place and perhaps it is widening as financial conditions get tighter for periphery. But we see a high risk that a short sale ban will be introduced in Spain or Italy given sharp declines in bank stocks. When that happened last August, investors were forced to use DAX futures to reduce their exposure to Euro area equities, causing sharp DAX under performance. Credit • The sell-off continues and credit, which had been outperforming, has now joined in with Greece again driving prices. Against this uncertain backdrop, we More details in... close our remaining directional trades in the GMOS portfolio. EM Caporals Outlook and Strategy, Warren Mar et al. • Our colleagues in US credit moved to underweight US HG with a spread target US Crater Markets Outlook and Strategy. Eric Beinstein et al. of 235bp for JULI and 125bp for CDX.IG given the potential fallout from impending events. They also recommend CDX.IG vs. the S&P500, given the High Weld Credit Markets Weekly. Peter Acciavatti at al. sharp sell-off in the former (see Eric Beinstein, CMOS) a call shared by our European Credit Outlook B Strategy. Steven Dulake et al. European team for iTraxx Main vs. EuroStoxx (see Tina Zhang, The State of Emerging Markets Cross Product Strategy Weekly. Eric Play). Beinstein et al. May18,2012 3 EFTA01176906 Global Asset Allocation J.P,Morgan The J.P. Morgan View Foreign Exchange FX weekly change vs USD 2.0% • For the second time in six months, Greece's EMU exit seems imminent. Although we always expected the next Greek government to renegotiate the troika accord and for such tensions to create volatility this summer, Syriza's 1.0% agenda is much more extreme than in our previous base case. If the Radical Left obtains an outright majority on June 17 and implements its agenda, it could initiate a chain of events resulting in its withdrawal or de facto ejection 0.0% from EMU. Significant influence in a coalition government could also deliver this outcome. Given these risks, we are revising down EUR/USD forecasts to -1.0% reflect intensification of the current crisis. New targets for all currencies will be released on Monday, May 21 in our monthly Key Currency Views. -2.0% • For EUR/USD, 1.22 is fair target for June. This forecast reflects the probabil- USD .1W EUR GBP CHF CAD AUD ity-weighted outcome of various scenarios outlined last week. Following fresh TWI elections in June, the benign scenario envisions an outright victory by or Sotrce.J.P IC= coalition of centrist parties, minor renegotiation of the troika program. and orderly restructuring of official debt if Greece achieves its fiscal targets. EUR/ USD would revert to its earlier range in the low 1.30s in such an environment, since Europe has a stronger balance of payments position than the US and investors are very short the currency. The adverse scenario envisions an outright victory by the Radical Left or significant influence in a coalition and declaration of a debt moratorium, which the troika would respond to by ending the financing program and denying Greece access to ECB borrowing. If Greece then introduced the drachma, EUR/USD would probably decline to 1.10 due to widespread capital flight from the region. If instead the government back- tracked and re-engaged the troika given that 80% of the electorate favours retaining the euro, the currency would stabilise around 1.20. For a fuller discussion of EMU break-up issues, see also Answers to 10 common ques- tions on EMI!break-up, Normand and Sandilya, Dec 7, 2011. • Taking 50/50 odds to a centrist versus leftist government and 50/50 odds to the drachma (chaos scenario) versus backtracking (epiphany scenario) yields a baseline 1.22 forecast for Q2. We remain short EUR, GBP, CAD and AUD in anticipation of further deleveraging. Commodities • Commodities continued to drift lower this week, down another 2%. Oil and base metals fell most, offsetting strong gains for agriculture. Oil and metals are suffering as the Euro crisis has escalated. Greece is not a significant consumer of commodities, but the possibility of a material contraction in Europe and high uncertainty raise the risk of a more systemic event threatening commod- ity demand globally. For example, Europe is China's largest export market and China is the most important country for commodity demand growth globally. More details in ... • Yesterday the Seaway pipeline between Cushing in the US Midwest and the US Gulf Coast started up. This was one of the short term events we had FX Markets Weekly. John Normand el al. expected to help narrow the spread between Brent and WTI as it will alleviate Commodity Maikets Outlook & Strategy. Cohn some of the bottleneck of oil that has built up at Cushing. We continue to be Fenton et al. short this spread as we think it will narrow further to around $7bbl in Q3. Orl Markets Monthly. Lawrence Eagles et al. However, there remains a risk that US Midwest and Canadian production, which flows into Cushing, increases more rapidly than expected which would Metals Review and Outlook, Michael Jansen somewhat offset the impact of the Seaway pipeline. Global Metals Quarterly. Michael Jansen May18,2012 4 EFTA01176907 Global Asset Allocation J.P. Morgan The J.P. Morgan View Interest rates Current Jun-12 Sep-12 Dec-12 Mar-13 YTD Return' United States Fed funds rate 0.125 0.125 0.125 0.125 0.125 10-year yields 1.72 2.40 2.50 2.50 2.50 1.4% Euro area Rd rate 1.00 1.00 1.00 1.00 1.00 10-year yields 1.43 1.80 2.00 2.00 2.00 2.9% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 1.83 2.55 2.55 2.40 2.40 0.5% Japan Overnight call role 0.05 0.05 0.05 0.05 0.05 10-year yields 0.83 1.15 1.05 1.05 1.15 1.3% GBI-EM hedged in S Yield -Global Diversified 6.44 6.30 2.1% Credit Markets Current Index YTD Return' US high grade (bp over UST( 218 JPMorgan JULI Portia Spread to Treasury 3.9% Euro high grade (bp over Euro gov) 280 Elmo( Euro Corporate Index 4.1% USD high yield (bp vs. UST) 666 JPMorgan Global high Yield Index STW 5.8% Euro high yield (bp over Euro gov) 925 Eton Euro HY Index 10.0% BASIC (bp vs. UST) 404 EMS' Global 4.4% EM Corporates (bp vs. UST) 432 JPM EM Corporates (CEMBI) 5.6% Quarterly Avenges Commodities Current 1202 1203 12Q4 1301 GSCI Index no Return' Brent (SW) 107 112 120 125 125 Energy 0.6% Gold (S!oz) 1589 1750 1850 1875 Precious Metals 1.5% Copper (S/metric ton) 7695 8150 8575 9000 Indusbial Metals 2.7% Corn (3/13u) 6.35 6.35 5.85 5.65 Agriculture .5.3% 3m cash YTD Return' Foreign Exchange Current Jun-12 Sep-12 Dec-12 Mar-13 Index In USD EUR/USD 1.27 1.34 1.36 1.36 1.36 EUR -1.4% USOLIPY 79.1 78 80 78 80 JPY 32% GBP/USD 1.58 1.61 1.62 1.62 1.62 GBP 2.4% USCUBRL 2.02 1.90 1.90 1.90 1.90 BRL -4.1% USD/CNY 6.33 6.20 6.20 6.10 6.10 CNY 0.3% USD/KRW 1173 1120 1100 1090 1090 KRW 0.1% USD/TRY 1.84 1.75 1.75 1.70 1.70 TRY 6.6% YTD Return US Europe Japan EM Equities Current (local ccy) Sector Allocation YTD YTD YTD YTD (3) SW 1306 4.6% Energy -6.3% -9.9% -6.6% -5.5% Nasdaq 2817 7.7% Mated& -1.2% -0.9% 0.1% -5.2% Topix 726 3.7% Industrials 23% 2.2% 2.6% 3.6% FTSE 100 5268 -3.8% Discretionary 8.9% 11.4% 10.4% 2.7% IASCI Eurozone 126 -1.8% Staples 4.6% 3.9% 6.6% 5.2% MSCI Europe' 994 -0.8% Healthcare 5,6% 1.6% -0.3% 9.1% MSCI EMS' 921 1.5% Finandals 7.5% -2.6% 77.3% 1.5% Brazil Bovesoa 54513 -3.9% Information Tech. 9.5% 0.5% 3.7% 10.9% Hang Seng 18952 3.3% Telecommunications 8.1% -8.9% -4.5% 2.2% Shanghai SE 2345 8.2% Utddies -0.4% -5.3% -4.6% 0.9% 'Levels/returns as of May 17.2012 Overall 4.6% -0.8% 3.7% 15% Local currency except MSCI EM S SOurOF 810:crtgr9, Dalailream, EIES, Slaidied a Pon Situ**. J P Linen 'giros May18.2012 5 EFTA01176908  Global Asset Allocation The J.P. Morgan View J. P Morgan Global Economic Outlook Summary Real GDP Real GDP Consumer prices %Cast a )Sal ago %crier preacts penod sax %CIO, a y8313)0 2011 2012 2013 4Q11 1Q12 2Q12 3012 4Q12 1013 2Q13 4011 2Q12 4Q12 2Q13 The Americas United States 1.7 24 22 3.0 2.2 2.5 3.0 2.0 1.5 2.3 3.3 2.0 1.8 1.6 Canada 2.5 2.3 2.5 1.8 2.1 2.6 2.3 2.4 2.7 2.4 2.7 1.7 1.7 2.0 Latil America 4.3 3.7 4.0 2.9t 4 t 4.0 4.5 4.3 4.4 3.8 7.2 6.4 62 6.9 Argentna 8.9 4.0 3.9 3.2 4.8 -2.0 8.0 8.0 3.0 4.0 9.6 10.0 10.0 11.0 Brabi 2.9 2.9 4.5 1.3 li 4.5 5.7 5.7 4.5 4.5 6.7 5.0 5.0 5.3 Chile 6.0 5.0 4.5 8.2 5.7 t 4.9 4.6 4.7 4.5 4.4 4.0 42 3.9 3.4 Colombia 5.9 5.0 5.0 5.4 4.5 4.9 4.1 3.0 5.7 6.0 3.9 3.6 3.3 3.0 Ecwador 7.8 4.0 4.0 4.1 an 3.5 4.0 4.0 4.0 4.0 5.5 5.3 4.7 4.7 Mexico 3.9 3.8 3.5 2.9t 5.3t 3.9 2.0 3.2 4.9 2.8 3.5 42 4.0 3.8 Peru 6.9 5.5 7.0 2.8 5.2 5.8 6.2 7.3 8.0 8.0 4.5 3.9 3.1 3.0 Venezuela 4.2 4.0 1.0 5.2 t 10.9 t Q.Q 4.0 3.0 0.0 0.0 28.5 23.9 23.4 31.7 Asia/Pacific S -0.7 2.51 1.3 0.1 t 4.1 t 2.0 1.4 1.2 1.0 1.2 -0.3 0.1 0.1 -0.1 Australia 2.0 3.0 3.3 1.7 3.1 1.9 3.7 4.1 4.5 2.0 3.1 2.5 3.3 3.0 New Zealand 1.4 2.9 21 1.4 II 2.1 3.7 3.0 0.9 3.4 1.8 12 23 2.7 Asa ex Japan 7.0 6.3 7.0 4.5 8.0 6.3 7.0 7.1 7.0 7.0 4.9 3.8 4.3 4.8 China 9.2 8.0 8.9 8.8 6.8 7.0 9.1 9.5 9.1 8.7 4.6 32 3.6 4.5 Hong Kong 5.0 2.4 42 1.6 1.6 10 6.0 6.5 3.0 3.0 5.7 4.4 3.5 3.4 India 7.0 7.1 7.3 3.8 13.0 5.5 6.3 6.5 6.7 7.5 8.4 7.8 82 8.5 Indonesia 6.5 5.3 5.5 8.8 4.8 5.0 4.5 5.0 5.5 5.5 4.1 3.9 7.4 7.3 Korea 3.6 3.3 4.0 1.3 3.7 4.0 4.5 4.0 4.0 4.0 4.0 2.6 2.9 3.5 Malaysia 5.1 3.9 32 4.8 5.0 2.0 2.0 2.5 4.0 4.5 32 2.6 22 1.8 Philippines 3.7 4.3 4.8 3.5 43 4.9 5.7 4.9 4.5 4.5 4.7 3.9 4.0 4.0 Singapore 4.9 3.7 4.0 -2.5 10.0 t 4.91 4.5t 3.2 t 3.21 4.5 5.5 4.9 t 31 t 3.0 t Taiwan 4.0 2.4 5.0 -0.6 1.0 4.8 6.5 5.8 4.5 4.6 1.4 1.3 1.7 1.2 Thailand 0.1 5.1 3.5 36.4 45.0 20.0 2.0 0.5 5.0 6.5 4.0 3.7 3.5 3.2 AfricalMiddle East Israel 4.8 2.9 44 3.2 3.0 t 3.2 6.1 7.4 4.5 2.8 2.5 2.3 2.5 2.1 South Africa 3.1 2.51 3.6 3.2 2,0 1 2.4 1 3.51 4.5 ? 3.7 1 3.2 1 6.1 6.1 ? 6.0 1 5.8 1 Europe Euro area 1.5 -0.3 t OA -1.2 0.1 t -0.8 -0.5 0.3 0.5 0.5 2.9 2.6 2.4 t 1.8 Germany 3.1 1.11* 1.4 -0.7 2.1 t 1.0 0.8 1.3 1.5 1.5 2.6 2.3 2.1 1.8 France 1.7 0.3 0.7 0.3 1 0.2 t IQ 0.3 0.5 0.8 1.0 2.6 2.6 2.3 1.9 Italy 0.5 -2.01 -0.7 -321 •2.5 -1.5 -1.0 -0.5 -0.5 3.7 3.8 42 3.8 Norway 2.7 14 1.8 2.5 0.0 0.0 1.0 1.0 2.0 2.5 0.9 0.9 10 1.7 Sweden 4.0 -0.3 1.7 4.4 -0.5 -0.5 0.5 1.0 2.0 2.3 2.3 1.1 1.1 1.5 United Kingdom 0.7 0.1 1.9 -1.2 -0.8 -1.0 2.5 1.5 2.0 2.0 4.6 3.0 2.7 2.4 Emerging Europe 4.8 2.7 3.4 4.21 2.4 t •1.01 2.61 3.3 t 3.6 t 3.1 60 4.91 53 6.01 Bulgaria 1.7 1.01 23 Czech Republic 1.7 -02 0.9 -0.5 •3.91 •1.0 1.0 2.2 1.1 -1.7 2.4 2.7 2.9 2.5 Hungary 1.7 -1.2 1 1.0 1 0.0 1 3.11 -0.5 0.0 0.8 1.0 1 1.5 4.1 5.8 5.9 3.8 Poland 4.3 3.01 3.0 4.5 2.31 2.0 2.31 3.0 3.0 3.0 4.6 3.9 3.5 2.8 Romania 2.5 0.8 2.7 -0.8 •0.4t -1.5 0.8 2.4 2.5 3.0 3.4 3.3 4.4 4.0 Russia 4.3 3.7 3.7 5.91 4.6t •2.01 3.51 4.01 4.5t 4.0 6.8 3.71 6.01 6.61 Turkey 8.5 2.5 4.5 92 9.0 6.8 8.8 Global 2.6 2.3 t 2.6 1.6 t 2.7t 2.0 1 2.6 2.5 2.5t 2.6 3.6 2.7 2.7 2.7 Developed markets 13 1.3 t IL 0.8 1.5 t 1.0 1.5 1.3 1.3 1.5 2.8 2.0 1.91 1.6 Emerging markets 5.8 4.9 5.5 4.0 6.1 t 4.41 5.6 1 5.8 t 5.7 5.5 5.7 4.7 5.0 5.5 wow May18,2012 6 EFTA01176909 Global Asset Allocation The J.P. Morgan View J.P.Morgan Analyst Certification: The research analyst(s) denoted by an "AC" on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an "AC" on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Other Disclosures J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS- ) and its affiliates worldwide. J.P. 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Morgan India Private Limited. having its registered office at J.P. Morgan Tower. Off. C.S.T. Road. Kalina. Santacruz East. Mumbai - 400098. is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237) and is regulated by Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Boise. S.A. de C.V.. J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Ranking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 088/04/2012 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank. N.A.. Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (I8146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to catty out dealing as an agent. arranging. advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor. Al-Faisaliyah Tower. King Fahad Road. P.O. Box 51907. Riyadh 11553. Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank. N.A.. 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 JPNISL'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 arc not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients- only. JPMSAL does not issue or distribute this material to "retail clienti'. 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 761G of the Corpora- tions Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd.. Frankfurt Branch and J.P.Morgan Chase Bank. N.A.. Frankfurt Branch which are regulated by the Bundesanstalt fiir Finanzdienstleistungsaufsicht. Hong Kong: The 1% EFTA01176910 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 Braking (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 time by affiliates of J.P. Morgan Securities (Far East) Ltd. Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report: for securities where the holding is l% 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 securities regulators and only by a dealer properly registered under applicable securities laws or. alternatively, pursua