EFTA01172124.pdf

J.P. Morgan Global Asset Allocation J.P.Morgan Chase Bank NA, J.P. Morgan Securities Ltd. Dec 16, 2011 he J.P. Morgan View Returns and risks for 2012 Jan Loeys' • Economics —World growth slows to 2% next year, down from 2.6%. But growth should rise back to trend in H2. Inflation falls from 3.6% to 2.2%. World portfolio — A difficult Q1 should be followed by better returns on John Normand riskier asset classes as growth rebounds and major risks become less acute. Fixed Income — Coupon-like government bond returns and flatter curves. Euro area periphery risks to the downside, near term. Nikolaos Panigirtzoglou Equities— Double digit returns in 2012. Credit — Strong credit fundamentals underpin bullish forecasts. Seamus Mac Gorain Foreign exchange — A weaker US dollar and good returns on EM currencies. Commodities — Weak demand in Q1 should turn to a strong H2, helping commodities to a 10% total return for 2012. Matthew Lehmann • This is the last issue of the year. We wish our readers joyful holidays and a less stressful new year. Leo Evans • For our last issue of the year, we present our 2012 outlook, focusing on the economy, asset class returns, risks, lessons, and strategy. • 2011 was not a great year for investors with global equities losing 10%, giving YT0 returns through Dec 15 hack 2010 gains, only partly offset by a 5.7% return on global fixed income 94. equities are in lighter colour. (chart on right). Commodities are down 2% while the credit component of Gokl spread product produced significant losses. The world economy grew at a trend-like 2.6% in 2011, less than the 4% of 2010, and less than the 3.4% we EMBIG had predicted a year ago. US High Grade US Ned Income • 2012 should turn out better for risk markets, even as it will likely be volatile Gbbal Gov Bonds- and start hesitantly, producing a mirror image to 2011's first-strong-then-weak US High Yield performance. 2011 began with all of us bullish on growth and risk assets, and turned down by mid-year as we cut growth projections. 2012 will instead start EM Local Bonds" with a surplus of bearish growth views and defensive positions. For the year EMS Corp. ■ as a whole, we see 2% global growth, split between 0.9% in DM and 4.7% in US cash EM. The first half is set to produce only 1.5% growth, as Europe is in reces- Europe Fixed Income' sion and China slows. The second half should see global growth back to a S&P500 trend pace of 2.7%, but with upside risk. GSCI TR • Charts 2-3 shows our expected returns by asset class, both outright and as an EM FX excess return over volatility. Equities are on top with returns around 20%, MSCI AC World' O followed by credit and EM currencies between 5% and 10%, depending on MSCI Europe O quality. Only GI0 government bonds and the dollar underperfom US cash. These return projections line up cleanly with relative risk/beta, with over half MSCI EPA' the riskier asset classes promising returns to risk ratios near 1.0. Topic• I .20 .10 0 10 20 • We had similar return projections a year ago. They badly disappointed and Source: JP. lAcrsan. ES:ate% Rams in USO. local underline that 2012 will be a year ofrisk management. Fear will dominate greed *mow. "Hedged Ho USG. Euro Flied heart is ton Offal Index US HG. HY. Ehle4G so OJ S Cop ye Faiocn. EM early in 2012. Our best guess is that investors will never truly become bullish, FX is EU& in S. www.morganmarkets.com The certifying analyst is indicated by an AC. See page 7 for analyst certification and important legal and regulatory disclosures. EFTA01172124 Global Asset Allocation The J.P. Morgan View J.P.Morgan but that they will instead turn less bearish, inducing them to deploy cash. 2012 return forecasts %, &plies are in lighter colour MSCI EM • What risks in 2012? Three local risks have the most chance of turning global, EMU breakup, Chinese real estate,and US fiscal policy. In each case, both MSCI AC World policy makers and portfolio managers have all incentive to prevent a global SW500 crisis, through the right policies and positioning. The risk is that they underes- MSCI Europe (LC) timate these forces and do not adjust policies and positions on time. US High Yield GSCI TR • EMU breakdown surely ranks as the highest risk, given its size, leverage, LACI interconnectedness, and magnitude of the challenge. Investors are positioned EM FX for trouble, but not a blow-up. We have argued the crisis needed to get worse ADXY before it creates the incentives to swallow the bitter pills needed to solve the EM Local Bonds (U) crisis. This year, we surely underestimated how bad the crisis needed to get. Gold Our current view is one of neither dissolution nor resolution. Movement to a EMBIG needed fiscal union and ECB QE will be incremental and full of setbacks. A full US High Grade resolution will not come early as the crisis itself is needed to extract necessary EM Kap. changes in EMU South. But an EMU dissolution is also quite unlikely as the US Axed Income costs are unacceptably high. EMU blow-up risk is higher for 2013.14. US cash EM Local Bonds (H) • The slump in Chinese real estate activity and prices invites comparison with Global Gov Bonds 01) f the US in 2007.09. We see enough differences, including that the Chinese DXY slowing is policy induced and can be turned around, but the situation mast be 40 0 10 20 90 monitored closely. US fiscal fireworks in August likely triggered this year's big SOU/DC JP. Wien Sheinberg. rietrns ki LSD tame Pe) is hated equity sell off. As in Europe, we see a controlled crisis where both sides will kto USD.IUIe:irhedgeSn mtrssdnCI is kcal cumrcy. US Ha HY. EMIG rd DA S c ps PM irdees. EM FX is rum to S. keep the battle going, but neither side wants a crash. • What will be the trigger for a risk-on move? Not a single event but a 2012 sharpe ratio forecasts condition: risk not aggravating in the presence of high risk premia and risk- equities are in lighter colour. Return forecasts minus cash forecast. divided by the volatility of underweight investors. monthly excess returns (annualized) over the past three years. • What have we learned from 2011? ( I ) Be tactical and respect stop losses and MSG AC World momentum. Our momentum-based asset allocation models— Efficiente and MSC' EM Mosaic — performed very well, and we should have stayed closer to them. (2) MSCI Europe(LC) Use Value only as a strategic bias. The average UW of risk should be smaller US High Yield than the average OW during the year. (3) Be objective and don't get emotional S&RS0D on what should happen. Focus instead on what will and could happen. US High Grade FX • Asset allocation. Strategic long-only: 41% equities, 49% Fl( US Agg, HY), 7.5% gold, 2.5% cash. Tactical: Small OW of risk through US equities and HY. LAG EMBIG Fixed income EM Local Bonds(U) • Global government bonds have had their best year since the panic of 2008, EMS Cap. marked by dramatic yield divergence within the Euro area. The EMU crisis will Gold remain front and centre next year. The main pitfalls: a hard Greek restructuring GSCI 18 early in 2012, and especially Italian and Spanish refinancing, with the scale of ADXY liquidity support for EMU sovereigns still uncertain. Our expectation is that US Fixed Income enough liquidity support to stabilise the crisis will eventually be forthcoming, EM Local Bonds(H) mostly through a faster pace of ECB bond purchases, but only in the face of Global Gov Bonds(H) more market pressure. That implies a tactically negative view on peripheral DXY bonds. even as we expect stabilisation later in the year. -0.5 00 0.5 1.0 15 Son J.P. raga Bcanterg. Returns II USD exact 041s hedged • More stability in the Euro area is one prerequisite for core yields to rise alb USD. M s unledged in Man rd ILG) is bail arreney. US HG. significantly from these historically anomalous levels (see chart). The other is Ht. BING and al S Cap area Sees. EM FX SEIM in S. Dec 16, 2011 2 EFTA01172125 Global Asset Allocation The J.P. Morgan View J.P,Morgan monetary policy tightening, but that seems as far away as ever. Indeed, we G4 and US non-financial corporate financing gap expect G-4 central banks to buy something of the order of $1.3tr of bonds next The financing surplus is the difference between cash flows and capex as % GDP. G4 includes the US. the year, the most since 2008. Any Fed QE3 (a 40% shot) would likely support UK. the Euro area and Japan MBS more than Treasuries, however, making the supply-demand outlook more challenging for Treasuries in 2012. 11.0 10.5 - G4 capex • We expect slightly higher yields and roughly zero excess returns over cash 10.0 overall for government bonds in both DM and EM. The low yield environment favours generally flatter curves, notably in the UK where BoE purchases in 9.5 the long end are likely to far outweigh supply. Australia, the highest-yielding 9.0 AAA government, is likely to outperform again, with risks of a more aggres- 8.5 sive easing cycle than the 50bp we forecast for 2012. 8.0 7.5 Equities G4 cash toms 7.0 • Equities should generate double digit returns in 2012 driven by a rebound in 6.5 growth from Q2 on; a gradual covering of equity UWs; a US presidential year 95 97 99 01 03 05 07 09 II (a positive when the presidential approval rating is below 50); and continued Saxe. J. P. Abgan. Fed. EU. Bat 8.1 profit margin expansion. As the top chart shows, G4 non-financials corporate cash flow as % of GDP reached new highs in 2011. More importantly, capex is G4 and US nonfinancial corporate sector net debt rising, gradually closing the gap with cash flows, while non-financial and equity Issuance corporates equity buying activity remains on an uptrend (bottom chart). Sbn per quarter at annual pace. G4 includes the US. the UK. the Euro area and Japan • Our main trading themes for 2012 are: 1)OW Cyclical vs. Defensive sectors. 2.5 Str non-financial corporates The Global PMI, our main signal for this allocation, is still forming a bottom 2.0 just below 50. But we expect a rebound from Q2 to 55 by end 2012. 2)OW US Equities as the Euro crisis lingers and EM economies slow in HI. US elections 1.5 G4 net debt Issuance are another supportive factor. 3) OW BRICs within EM as the shift in EM 1.0 policy priorities from inflation to growth is even more dramatic in BRICs. 4) .5 OW the Core in the Euro area as German growth continues to outperform. 5) OW High Dividend Yield Stocks. High risks induces investors to focus on .0 income. There are several indices and ETFs that track the universe of high dividend yield US stocks. The highest yielding are S&P US Preferred Stock Index (DivYield 7.1%). We recommend an OW of S&P US Preferred Stock. 4.0 G4 net equity issuance I.5 Credit Sane. J. P Ma.;an Fed. EC& ScE • The slowdown in global growth in HI will likely initially widen credit spreads. but then, as growth re-accelerates, these spreads should gain come in, and end the year tighter than today. We remain overweight US vs. European credit on diverging growth prospects. Our forecast is that US high grade bond spreads will end 2012 at 175bp, down from 240bp today, implying a 6.5% total return for the asset class. Non-financial corporates are in particularly good shape as profit margins arc at decade highs. We look for further underperformance of financials as balance sheets are subject to increasing pressure from both peripheral exposure and regulatory changes in IHII. More details in ... • Tepid growth and the Fed's commitment to a low-for-long policy should push EM Corporate Outlook and Strategy. Warren Mar el al. investors towards high-income products. With default rates at historical lows, US Creetit Markets Outlook and Strategy, Eric Beinstein et at. US HY thus looks particularly attractive. Our 2012 YE spread forecast is High Vied Credit Markers Weekly, Peter Acciavalli et al. 705bp with a total return of 11%. B rated issuers offer the best trade-off in terms of income vs. default risk. All told, stFlingcredit fundamentals and low European Credit Outlook & Strategy. Steven Dulake et al. default rates underpin our bullish forecasts for US credit in 2012. Emerging Markets Cross Product Strategy Weekly, Eric Spinster) el al. • Within EM, we see sovereigns as vulnerable to a global slowdown in I H12 and Dec 16, 2011 3 EFTA01172126 Global Asset Allocation J.P.Morgan The J.P. Morgan View stay overweight vs. corporates. We forecast EMBIG and CEMBIspreads to FX weekly change vs USD narrow to 350bp and 400bp, respectively, implying total returns of7.5% and 3% 6.5% in 2012. Like DM, EM will remain hostage to events coming out of 2% - Europe. but EM fundamentals are better than those of DM, including higher growth, greater policy flexibility and an increasingly diverse investor base. I% - Foreign Exchange 0% I • The dollar is ending 2011up about 1% in trade-weighted terms, with losses versus some G-10 currencies like WY and CHF offsetting gains vs most EMs. •I% This broad stability is remarkable in a year which delivered the sort of cyclical and policy shocks which typically drive substantial USD strength versus all currencies but the yen. It is a stretch to call this pattern a regime shift, but it .3% nonetheless highlights the dollar's poor monetary and fiscal fundamentals. USD EUR GBP JPY CHF CAD AUD TWI • 2012 presents a unique tension between unprecedented economic fragility and Soute:1P Maw very defensive investor positioning. Avoiding a sovereign credit event and global recession should be sufficient to ease the dollar lower, even as the global economy stagnates, since investors are already longer of the currency than they have been prior to any previous recession/financial crisis. • Yearsend targets are modest, with less than 2% trade-weighted decline: DXY 76, JPMQUSD 80, USDLIPY 72,EUR/USD 1.38, GBP/USD 158 andAUD/USD L04. FX volatility should remain above average (12% - 15% on VXY Global). • Top five trading themes and recommendations: (I) huge risks around Europe (EUR/JPY put spreads , USD/SEK fly); (2) desperate times demand desperate action (short USD/JPY lx2 put spreads, short GBP/JPY through seagulls, short 6-mo EUR/CHF puts; (3) no winners in European cage match (3-mo range binaries in EUR/GBP and EUR/NOK); (4) some safe havens are safer than others (long NOK/SEK); and (5) valuation reasserts itself(sell NZD/CAD). Commodities • We expect a 12% total return for commodities in 2012 with a weak first quarter offset by a strong performance in H2. Global growth is likely to be subdued over the next few months as Europe moves deeper into recession and China slows. This weakness will translate into lower demand for industrial commodities and should bring negative returns over the next few months. Lower commodity prices should alleviate the inflation pressures that had built up earlier this year in China and should allow policy makers there to shift into a more stimulative stance. We believe that, coupled with more supportive measures from US policy makers, this should help push global growth and commodity demand higher from Q2 onwards. Given still tight supply condi- tions, this should make for strong gains through 12H2. More details in ... • We expect energy to be the best performing commodity sector in 2012 with oil moving steadily higher towards $130/bbl by the end of the year. Base FX Markets Weekly. John Normand et al. metals should do next best although gains will be heavily weighted towards Commodity Markets Outlook & Strategy. Colin I-12 when we should see strong Chinese demand. We continue to believe that Fenton et al. gold will move steadily higher in the near term, driven by strong demand in 04 Markets Monthly. Lawrence Eagles et al. EM from both consumers and central banks but prices will likely peak in Q2 once policy makers take more coordinated action to support the economy. Metals Review and Outlook. Michael Jansen Agriculture should produce the lowest gains as increased production reduces Global Metals Ouarteny, Michael Jansen some of the supply pressures we have seen this year. Dec les 2011 4 EFTA01172127 Global Asset Allocation The J.P. Morgan View J.P.Morgan Interest rates Current Mar-12 Jun-12 Sep•12 Dec•12 YTD Return' United Stales Fed tundsrate 0.125 0.125 0.125 0.125 0.125 10.year yields 1.84 1.70 2.50 2.50 2.50 9.7% Euro area Ref rate 1.00 0.75 0.50 0.50 0.50 10.year yields I.85 1.90 1.70 2.00 2.00 91% Unled Kngdom Repo rate 0.50 0.50 0.50 0.50 0.50 10.year yields 2.04 1.85 1.90 2.10 2.20 15.1% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10.year yields 0.98 0.90 0.95 1.10 1.15 2.2% GB1114 hedged in Yield • Global Diversified 6.60 6.70 4.3% Credit Markets Current Index Y11) Return' US high grade Ibp over UST) 244 JPMergan JULI Porfoko Spread to Treasury 7.5% Euro high grade (bp over Euro gov) 279 iBoxx Euro Corporate Index 2.4% USD high yield (bp vs. UST) 744 JPMergan Global High Yield Index STW 5.6% Euro high yield (bp over Euro gov) 992 iBoxx Euro HY Index -4.4% EMB1G Op vs. UST) 429 EMBI Global 7.8% EM Corporates (bp vs. UST) 474 JPM EM Corporates (CEMBI) 2.8% 0uanedy Averages Commodities Current 1201 1202 1203 1204 GSCI Index YTD Return' Brent (Sbbl) 102.6 105.0 110.0 115.0 120.0 Energy 4.2% Gold ISiort 1591 1925 1875 1850 1825 Precious Metals 18.9% Copper (SMetric ton) 7192 8250 8850 9250 9000 Industrial Metals .24.2% Corn (Saul 584 6.70 7.00 6.80 6.30 Agricucure .20.4% 3m cash YTD Return' Foreign Exchange Current Mar•12 Jun-12 Sep•12 Dec-12 index In USD EUR'USD 120 1.30 1.34 1.36 1.38 EUR •1.6% USDJPY 77.8 76 76 74 72 JPY 4.3% GBP/USD 1.55 1.54 156 1.57 1.58 GBP 0.0% USD'BRL 1.86 1.80 180 1.80 1.80 BRL 4.1% USD/CNV 625 6.20 6.10 6.00 6.05 CNY 2.1% USDXRW 1159 1120 1080 1060 1040 RAW .0.3% USD/TRY 1.89 1.80 1.80 1.82 1.80 TRY -13.4% YTD Return US Europe Japan EM Equities Current (local ccy) Sector Allocation ' YTD YTD YTD YTD (3) S&P 1217 0.2% Energy 2.9% 1A% -1.7% -12.8% Nasdaq 2551 -1.1% Materials -10.1% -22.2% -20.2% 232% To& 724 •15.4% Industrials .3.3% •185% -112% -25.6% FTSE 100 5387 -4.0% Discretionary 4.7% -12.2% -19.9% 4.5% MSCI Eurozone' 126 •15.6% Staples MA% 3.3% 3.2% 2.3% MSCI Europe' 989 .10.6% Healthcare 7.7% 7.9% 4.4% .21.1% MSCI EMS' 897 •155% Financials -18.6% .242% •23.3% -20.5% Brazd Bovespa 56142 .17.4% Information Tech. 35% 4.9% -24.3% Hap Sena 18285 •14.7% Telecommunications 1.4% -2.1% -0.8% •32% Shanghai SE 2225 .20.3% Utilities 13.8% -13.7% .47.6% -13.3% 'Levelskelurns as of Dec 15.2011 Overall 0.2% -10.6% -15A% -15.5% Local currency except MSCI EM Sarin: Bkomberg Dantilfft SES Standard a Pout SeniCOS. J.P lAtegan Soaks Dec 16.2011 EFTA01172128  Global Asset Allocation The J.P. Morgan View J. P Morgan Global Economic Outlook Summary Real GDP Real GDP Consumer prices %afar a seal ago %am, pregious period. saw %ow a yea, ago 2010 2011 2012 2011 3011 4011 1Q12 2012 3012 4012 2011 4Q11 2012 4012 The Americas United States 3.0 1.8 1.91 1.3 2.0 3.5T 0.5 1.5 2.5 2.5 3.3 3.3 1.5 1.2 Canada 32 2.3 2.2 -0.5 3.5 1.7 2.1 2.6 2.3 2.4 3.4 2.8T 1.7T 1.7 Latin America 6.1 4.1 3.0 4.3 a 2.0 1.5 5.0 5.1 3.7 6.7 72 6.3 6.1 Argentina 92 7.0 1.0 10.2 4.0 2.0 0.0 6.0 4.0 4.0 9.7 11.0 10.0 9.0 Brazil 7.5 2.8 3.1 2.9 -0.2 1,5 2.6 5.7 5.5 5.7 6.6 6.7 5.0 5.0 Chile 52 6.3 4.0 5.3 2.6 21 4.0 4.5 6.0 6.0 3.3 3.6 3.6 3.4 Colombia 43 5.3 3.7 8.5 3.5 1.5 3.0 4.0 5.0 4.8 3.0 3.9 3.0 2.9 Ecuador 3.6 6.5 3.0 9.1 3.0 1.0 2.0 3.0 3.0 4.0 4.1 5.5 5.3 4.6 Mexico 5.4 4.0 2.5 5.2 5.5 a -1.7 4.1 4.8 1.5 3.3 32 3.5 3.5 Pew 8.8 6.7 4.5 4.6 6.5 2.7 2.4 4.1 6.5 7.6 3.1 4.5 4.1 2.8 Venezuela -1.5 3.8 4.0 -4.1 6.8 a 6.0 6.0 4.0 -3.0 24.6 28.6 26.7 25.3 AslaiPacifIc Japan 43 -0.8 1.9 -2.0 5.6 0.5 2.8 IS 13 13 -0.4 -0.1 -0.5 -0.5 Australia 2.6 1.8 2.8 5.7 3.9 0.9 2.5 21 3.8 4.0 3.6 3.8 3.2 3.3 New Zealand 1.7 2.3 2.8 0.4 51 2.4 -02 6.5 3.7 1.0 5.3 2.9 22 2.5 Asia ex Japan 9.1 7.0 6.4 1 5.4 6.0 4.9 6.1 7.1 7.4 8.0 5.6 4.9 3.9 3.9 China 10.4 9.0 8.2 7.9 7.9 7.4 72 82 9.5 10.4 5.7 4.8 3.6 3.4 Hong Kong 7.0 5.0 3.0 -1.6 0.4 1.5 3.5 4.0 5.5 6.0 5.2 5.7 4.4 4.2 kxlia 8.5 7.4 7.7 5.0 7.5 7.0 6.9 7.3 8.5 8.7 8.9 8.6 7.6 7.8 Indonesia 6.1 6.3 5.2 5.4 6.2 5.5 5.0 4.5 5.0 5.0 5.9 3.2 3.6 4.0 Korea 62 3.7 3.6 3.6 3.3 a 3.0 4.0 4.5 5.0 4.0 3.7 3.1 3.5 Malaysia 72 4.0 1.5 2.1 5.8 0.0 1.0 1.0 2.0 25 3.3 2.4 1.5 1.3 Phiippines 7.6 3.7 3.8 2.0 1.3 4.5 2.8 4.9 5.7 4.9 5.0 4.9 3.9 4.0 Singapore 143 5.6 1.3 -6.4 1.9 4.1 -5.9 82 4.1 4.1 4.7 5.6 4.0 2.8 Taiwan 10.7 4.7 2.9 2.4 -0.6 2.0 3.5 4.3 4.6 5.0 1.6 0.9 0.4 1.8 Thailand 7.8 1.0 1.5 0.2 2.1 -25.0 20.0 120 0.5 2.0 4.1 3.5 2.8 1.4 AlricaMiddle East Israel 4.8 4.3 2.9 3.5 3.4 1.3 0.8 32 6.1 7.4 4.1 2.8 2.3 2.5 South Africa 2.9 3.1 2.7 1.3 1.4 a 2.3 2.6 2.8 3.2 4.6 6.2 6.4 6.1 Europe Euro area 1.8 1.6 -0.7 0.7 0.6 -1.0 -1.5 -1.5 -03 0.31 2.8 3.07 2.07 1.7 Germany 3.6 3.0 0.31 1.1 2.0 -0.5 -0.51 0.0T 1.01 1.0 2.5 2.71 1.7 1.51 France 1.4 1.6 -0.61 -0.2 1.6 -1.0 -1.5 1 -1.01 0.01 0.01 2.2 2.67 1.87 13 Italy 12 0.5 -1.6 1.2 -0.5 -2.0 -2.5 -23 -1.0 -1.01 2.9 3.7 T 3.0 T 3.31 Norway 1.8 2.5 1.1 5.4 3.4 1.0 0.0 0.0 1.0 1.0 1A 1.1 1.2 13 Sweden 5.3 4.7 1.1 4.2 6.6 1.0 -0.5 -0.5 0.5 1.0 2.9 2.5 1.1 1.1 United Kingdom 12 0.9 OS 0.4 2.0 0.5 0.0 -1.5 25 12 4.4 4.6 2.51 2.0 Emerging Europe 4.6 4.5T 2.4 1.6 32 2.8 2.0 1.6 2.6 3.5 7.1 6.5T 5.8T 5.91 Bulgaria 02 22 22 Czech Republic 2.7 1.9 1 0.51 0.8 -03 -03 0.0 0.8 2.0 2.0 1.8 2.4 T 2.7 T 2.9 Hungary 13 1.5 05 0.9 2.2 -0.3 -0.3 03 1.0 2.0 4.0 4.17 4.97 5.1 Poland 3.9 4.0 2.7 4.9 4.1 22 2.0 2.5 3.0 35 4.6 4.6 1 3.3T 3.3 1 Romania -13 2.7 0.8 0.8 7.4 -0.5 -12 -1.5 0.8 2.4 8.2 3.5 3.3 4.4 Russia 4.0 3.8 3.0 0.7 3.5 4.2 3.0 20 3.0 4.0 9.6 7.1 6.3 7.3 Turkey 9.0 827 2.0 5.9 9.0 7 8.1 7 6.2 Global 4.0 2.6 2.01 11 2.9 1.9T 1.2 1.8 2.6 2.81 3.7 3.6 25T 2.31 Developed markets 2.7 1.4 0.9 0.7 2.2 1.2 T 02 03 1.4 131 2.7 2.8 1.5 1.3 Emerging markets 73 5.7 4.7 1 4.4 4.7 3.8 4.1 5.6 6.0 6.1 6.1 5.7 4.9 T 4.8 Sync JP. Megan Dec 16. 2011 6 EFTA01172129 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 indi- vidually 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. Other Disclosures J.P. Morgan (- 112M") 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 Bolsa. 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 Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 025/01/2011 and Co. Reg. No.: 199405335RJ 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 (18146-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 Markel Authority of the Kingdom of Saudi Arabia (CMA) to carry 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 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% EFTA01172130 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 websitc: 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 cast 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 constr