EFTA01175987.pdf

J.PMorgan Global Asset Allocation J.P. Morgan Chase Bank NA, J.P. Morgan Securities Ltd. Apr 2O, 2O12 he J.P. Morgan View Seven puzzles Jan Loeyee Asset Allocation — No changes. Long equities and credit vs bonds and cash over next 3 months. Signals for next few weeks seem quite neutral. • Economics — No forecast changes, but weaker data bias our 2.5% Q2 US John Normand forecast to the lower 2's. • Fixed Income— We recommend bearish money market positions. Nikolaos Panigirtzoglou Equities — Earnings expectations momentum favours US vs other regions. Credit — We stay overweight senior financials and LTII bonds. Foreign exchange —Low FX vol to stay. Focus trades on mean reversion. Seamus Mac Gorain Commodities — We expect the spread to continue to narrow and stay long Dec-12 WTI vs. Dec-12 Brent with a S5ibbl target. Matthew Lehmann • In a week where a lot of price screens are reading UNCH (unchanged) and economic forecasts have not moved, we would like to focus on some longer- term issues — not views, nor concerns, but things that puzzle many of us. For Leo Evans each, we provide our best explanation, while admitting they remain puzzles. Each requires a much longer and deeper study. Why has neither Greece nor Germany left EMU, yet? Or even, why did they YTD returns through Apr 19 ever get in? The crisis has revealed the cost of giving up one's currency. ••, %. equities are in lighter colour. Resolution requires massive deflation in the periphery and massive funding from the core. The reason countries joined into EMU and have not (yet) left is Taco' I that monetary union was planned as the first step towards a political union — MSC' ESA I a US of E. The cost of abandoning EMU is not merely related to capital flight S8P500 I and creation of a new currency, but is paramount to ditching European MSCI AC World integration, and moving back to the bad old days of a divided and quarrelsome EM $ Corp. Europe. EMU members will likely do everything they can to keep the union together, even as they will need more crises to push them that way. US High Yield EMBIG fi Why has the euro not collapsed, yet, given a recession and EMU break-up EM FX risk? The EMU periphery cannot devalue against the core, but would greatly MSCI Europe' benefit from a drop in the euro. The answer is likely that currencies are relative prices, and the fiscal situation in the US, UK, and Japan is as bad as in the Gold fly Euro area, even as the latter has problems with internal funding. Each of these GSCI TR 'MI four currencies has fallen dramatically against the smaller GI0 countries that US High Grade are in better shape (CAD, CHF, AUD, NOK). The Euro area also has no EM Local Bonds•' I♦ external deficit, and funding problems may have led to capital repatriation, US Fixed Income ■ supporting the euro. Global Gov Bonds" ■ Why are US HG credit spreads still near recession levels? US HG remains Ems* Fixed Income' about 200bp above USTs, a spread level that before Lehman was only seen US cash I 10 IS Serve: IP. Wpm Sbortcq. Ratan USD 'Leal unary. "Heed Et USD. En And Income z Itzu The certifying analyst is indicated by an AC. See page 7 for analyst Mu. US IC. HY. EMIG and EMS Cap alt JP/1 odces. EU AthELF41. int. certification and important legal and regulatory disclosures. www.morganmarkets.com EFTA01175987 Global Asset Allocation J.P.Morgan The J.P. Morgan View around recessions. We are almost 3 year out of the last recession. Much of Long-term US industrials spread to treasuries this puzzle goes away when we take out financials, with nonfinancials HG Barclays Industrial Intermediate yield Barclays Government Intermediate yield spreads trading near historic averages, even as they are somewhat wide for 7 % this point in the cycle (charts opposite). But this explanation moves the puzzle to why Financials are so wide against history, especially given stronger capital 6 and other regulations that are making banks much safer than before. The only 5 likely explanation is that the Lehman crisis changed investors perceptions 4 Industrials away from the old view that banks are too big to fail. The EMU crisis is 3 keeping bank risk elevated. 2 • Who dosome many investors pile into safe assets that offer no real return after taxes and inflation? The average yield on all global bonds now stands at 0 2.4%. Managers tell us that the end investors care most about capital preser- 73 76 79 82 85 88 91 94 97 00 03 06 09 12 vation. If so, they are forgetting about taxes and inflation — global headline Scutce Ovate= CPI was +3.8% oya in 2011. Two explanations come to mind. Institutional Long-term US financials spread to treasuries investors are steered away from equities, as regulators are forcing them to Barclays Financial Intermediate yield • Barclays judge the risk on equities, which are long-term investments, on the basis of Government Intermediate yield short-term volatility (I-year), despite equities being long term assets. G4 10 insurers and pension funds have been buying $6 of bonds for every SI of equity over the past 6 years. The puzzle is greater for unregulated end inves- 8 tors, in particular retail. YTD, funds and ETFs have seen the same 6-for-1 6 bonds to equity inflows. Widespread fear and persistent uncertainty are likely behind this puzzle. 4 2 Why no deflation, given global slack, nor rise in inflation expectations given debt demonetization? Simple output gap models would indeed have suggested 0 a dramatic drop in global inflation, if not outright deflation. We did not get 73 76 79 82 85 88 91 94 97 00 03 06 09 12 this, showing there is clear downward rigidity to nominal wages, and also less Saxe: Dolan= useable slack than we thought. These give this puzzle a name but are not an explanation. A better explanation could be ultra easy monetary policy that killed deflation fears. But why have these not turned into inflation fears? Part of the explanation is that central bankers have done a tremendously good job in convincing us they are only combating deflation and will react decisively when inflation emerges. And the world wants them to be right. Why are commodities up 65% since the recession, while the world economy is growing below capacity? The answer is likely an application of the hog cycle. During the recession, commodity prices cratered and project financing evaporated. Commodity producers cancelled investment projects, greatly restraining future supply growth. Demand growth since the recession has MOM details In ... outstripped weak supply growth, pushing up commodity prices. But with Global Data Watch, Bruce Kasman and David Hensley much higher commodity prices and easier funding, producers are investing and capacity is increasing. The hog cycle is not dead. Global Markers Outlook and Strategy. Jan Loeys. Bruce Kasman, et al. • Why do Japanese investors keep buying their own public sector debt, which US Fixed Income Mathes, Terry Belton and Srini is racing to 250% of GDP by 2015, twice the level that got Greece in trou- Ramaswamy ble? Part of the explanation is what we call financial repression, where the Global Fixed Income Markets, Pavan Wadhwa and Fablo government puts pressure on domestic institutional investors, frequently Bassi through regulations. But much of the explanation is likely deflation, which Emerging Markets Outlook and Strategy. Joyce Chang creates acceptable real return to bonds, that are not taxed. The eventual JGB crisis must await 2015 or later, when demographics drive the country into an Key trades and risk: Emerging Market Equity Strategy. Adrian Mowat et al. external balance that requires foreign borrowing, something that will not be possible at current yields. Flows and Liquidity. Nikos Panigifizoglou et al. Apr20,2012 2 EFTA01175988 Global Asset Allocation The J.P. Morgan View J.P. Morgan Fixed income Expected change in DM policy rates %. I yly 015 tales less policy rate (less 1m 0IS • Bonds are flattish on the week, but with Canada and the UK notable rate for Gun)) underperformers, as their central banks signalled a more hawkish outlook. Canada has weathered the crisis better than most in DM, and the Bank of 0.6 Canada now envisages full employment by mid-2013. There is a limit to how far OA monetary policy in Canada can diverge from the US, but even so we agree with 02 the market's move to price a 4Q12 hike, and expect more to come in 2013. 0 .02 • The UK is in a far more difficult position. Growth is still anaemic, but inflation remains stubbornly above target, having surprised to the upside again this .0.6 week, dampening the prospects of more QE. Persistently high inflation means 0.6 we continue to favour short-dated UK linkers. And though we think hikes are s a long way off in the UK, we recommend money market steepeners, expecting C) ‘6 1 a greater risk premium to be priced into the curve (see GFIMS WO. Sauce. Bk>o—berq JP. Mega, • With short rates so low, similar arguments for greater money market risk premia apply to varying degrees in many developed markets. For example, we think Fed Funds implied rates do not fully reflect the risk that unemployment will fall faster than the FOMC expects, and advise shorts in late 2014 Fed Funds. • In the Euro area, French bonds were weak ahead of the first round of the Presidential election. Spain outperformed Italy, and relative supply means we expect that move to continue: Spain has aggressively frontloaded its bond 2012 EPS forecast change since Sept 30th issuance this year, while Italy has not. 0% Equities .5% a • The US reporting season is on track to post another positive surprise with the •10% - S&P500 Q1 EPS up 5% vs. the bottom analysts' expectation at the beginning of the month. In absolute terms there is little reason to celebrate, though, as •15% - both Revenues-Per-Share and Earnings-Per-Share are down Q4 and up only •20% - modestly from a year ago. But this weakness, the result of weak global growth and higher commodity prices, is well telegraphed. •25% SW500 MSCI EM Eurostoxx T0PIX • This decent positive earnings surprise has failed to boost equity markets, 50 Saxe. Dalotearn13(.5 though. We believe uncompelling macro data and continued uncertainty around the Euro debt crisis and China are making investors reluctant to buy equities despite the 5% correction. Indeed the equity fund flow picture remains weak with US equity funds and ETFs seeing large outflows of -S7.9bn this week, making this the fifth consecutive week of outflows. • Last week, we reiterated our OW in US equities. We mention the headwind.% from the Euro debt crisis and the Chinese hard landing fears as reasons to be more cautious in Europe and EM. But there is another reason that makes the US look better: earnings momentum. This factor has been largely behind the More details in ... outperformance of US equities last year and the top chart suggests that it is still in place. Analysts have cut their 2012 US EPS projections by 3% over the EM Corporate Outlook and Strategy. Warren Mar el al. past six months, but much more in the rest of the world. US Credit Markets Outlook and Strategy, Eric Bernstein et al. Credit Mph Vied Credit Markets Weekly, Peter Acciavani et al. • Credit spreads were a bit of a mixed picture this week. CDS mostly widened, European Credit Outlook & Strategy. Steven Dulake et al. equities gained, and bonds went both ways. Thus far, earnings season is Emerging Markets Cross Product Strategy Weekty. Eric providing some upside surprises, which, in light of the weaker tone in US Beinstein el al. economic data of late, helps reaffirm that corporate credit fundamentals are Apr20,2012 3 EFTA01175989 Global Asset Allocation J.P.Morgan The J.P. Morgan View solid, if not improving.In particular, large financials have generally surpassed FX weekly change vs USD expectations in terms of revenues and credit losses. On the flip-side, rating 1.0% reviews hang over banks and last week Moody's pushed the process out by roughly a month (to begin mid May). We suspect that the impact of the 0.5% downgrades will be less severe than the market anticipates for three main reasons. 1) Haircuts applied by the ECB are not particularly sensitive to any 0.0% one agencies' ratings. 2) In the aggregate, downgrades will already be priced in spreads and 3) the delay in publishing new ratings gives more lime to shore -0.5% up collateral to meet derivative requirements if necessary. The positive impact of term liquidity provided by the LTRO is a much more important driver of -1.0% spreads and we stay overweight senior financiaLs and Lower Tier II bonds (See Alan Bowe, The Great Batik Downgrade Pan 110. -1.5% USD ,WY EUR GBP CHF CAD AUD Foreign Exchange • The dollar continues to traverse three-month ranges on below-average Sauce: J.P. Wegan volumes, flattening volatility to its lowest level in four years (VXY Global at 9.8%) and creating one of the stingiest return environments for FX managers since the Lehman crisis. We have discussed previously the reasons for this pattern: a collection of low-intensity, local dramas which are largely offsetting, including funding stress and political risk in Europe (USD positive); a sidelined Fed (USD negative); China's Ql deceleration (USD positive) but its Q2 promise of further stimulus (USD negative). Even though currencies are the asset class most sensitive to regional divergences, as FX is simply a relative price, this abundance of crosscurrents has become too much of a good thing for anyone but the best of range-traders. • The alternative strategy is usually to earn carry, which would be as profitable in FX as in credit were it not for the fact that most high-yield currencies belong to commodity exporters (so exposed to China) or central banks inclined to intervene aggressively (Brazil). Given these offsets it is unsurprising that the trade-weighted USD continues to weave between 80 and 82 on our index (JPMQUSD) and 78 and 81 on the DXY. The case for a range break remains weak since the chain of events which would convert a local event to a global one requires too many things to all go right (Fed tightening) or all go wrong (China, Europe). French elections could confuse an always-complicated European situation in Q2.If the euro will break the 1.30. 1.34 range which has held for most of the year, it should do so this quarter. By comparison China, Japan and the US provide fewer triggers for large currency moves over the next few weeks. Commodities • Commodities were down again this week, led, lower by energy as Brent fell around 3%, offsetting a 1% gain for WTI. The spread between the two oil benchmarks has narrowed significantly over the past few weeks from $20/bbl More details in ... at the beginning of April to around $15/bbl currently. The Seaway pipeline between Cushing, where WTI is priced, and the US Gulf Coast is due to be FX Markets Weekly. John Normand et af. reversed in early May which should help alleviate the bottleneck at Cushing. Commodity Markets Outlook & Strategy. Cohn This should help WTI to reconnect to world oil markets. This week, the Fenton et al. company operating Seaway announced a tariff proposal for its use. This OA Markets Monthly. Lawrence Eagles et al. provided much needed clarity around the economics of moving oil out of Cushing now via other means versus storing the oil and moving it later once Metals Revkaw and Outlook Michael Jansen the pipeline is available. We expect the spread to continue to narrow and stay Global Metals Quarterly. Michael Jansen longDec-12 WTI vs. Dec-12 Brent with a $5/bbl target. Apr 20,2012 EFTA01175990 Global Asset Allocation The J.P. Morgan View J.P,Morgan 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 1.98 2.40 2.50 2.50 2.50 0.0% Euro area Ref rate 1.00 1.00 1.00 1.00 1.00 10-year yields 1.71 1.80 2.00 2.00 2.00 1.2% United Kingdom Repo tale 0.50 0.50 0.50 0.50 0.50 10-year yields 2.18 2.55 235 2.40 2.40 1.8% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10-year yelds 0.93 1.15 1.05 1.05 1.15 0.6% GBI-EM hedged in $ Yield • Global Diversified 6.34 6.30 2.3% Credit Markets Current Index YTD Return' US high grade (bp over UST) 201 JPMorgan JULI Porfolo Spread to Treasury 3.1% Euro high grade (bp over Euro got) 268 Bon Euro Corporal. Index 3.5% USD high yield (bp vs. UST) 6.49 JPMorgan Global High Yield Index STW 5.5% Euro high yield (bp over Euro gov) 876 IBoxx Euro HY Index 10.6% EMBIG (bp vs. UST) 351 EMBI Global 5.8% EM Corporates (bp vs. UST) 400 JPM EM Corporates (GEM) 6.2% Quarterly Averages Commodities Current 1202 1203 1204 1301 GSCI Index YTD Return' Brent ($bbl) 119 112 120 125 125 Energy 6.6% Gold ill's) 1643 1825 1900 1925 1850 Plecous Meals 2.7% Copper (Dmetrio ton) 8094 8500 8875 9000 8750 Industrial Metals 5.0% Corn iSBul 6.02 6.70 6.50 6.60 Agriculture 1.3% 3m cash YTD Return' Foreign Exchange Current Jun-12 Sep-12 Dec-12 Mar-13 index in USD EUFUUSD 1.32 1.34 1.36 1.36 1.36 EUR 1.9% USDIJPY 81.6 86 84 83 82 JPY 5.6% GEUNUSD 1.61 1.61 1.62 1.62 1.62 GBP 3.9% usask 186 1.84 182 1.80 1.80 BRL 1.9% USDICNY 6.31 6.20 620 6.10 6.10 CNY 0.5% USD1(RW 1140 1120 1100 1090 1090 KRW 2.1% USD/TRY 1.79 1.80 137 1.75 1.70 TRY 8.2% YTD Return US Europe Japan EM Equities Current (local ccy) Sector Allocation' YTD YTD YTD YTD ($) S&P 1386 12.6% Energy 2.5% .1.1% 10.5% 11.7% Nasdaq 3024 18.0% Materials 102% 8.3% 15.0% 10.0% Ton< 812 15.6% Industrials 103% 8.6% 13.9% 18.0% FTSE 100 5772 4.0% Discretonary 15.0% 152% 26.3% 14.5% MSCI Eurozone' 134 64% Staples 5.5% 4.5% 13.9% 12.6% hISCI Evispe. 1061 5.6% Healthcare 8.7% 2.7% 5.3% 13.6% MSCI EM S' 1023 13.7% Financials 20.3% 10.5% 28.9% 14.3% Brazil Bovespa 63011 12.6% Information Tech. 21.0% 12.4% 17.5% 21.7% Hang Sang 21011 14.4% Telecommunications 2.7% 4.8% .1.3% 6.4% Shanghai SE 2407 2.9% UtilAies -1.3% .0.2% 8.5% 12.3% 'Love:stratums as of Apr 19.2012 Overal 12.6% 5.6% 15.6% 133% Local currency except MSCI EM $ Slow acemberp, D.2135PPY11.13E.S. Str6rd d POYS Seeecet.. JP. Werga, «anale: Apr 20,2012 5 EFTA01175991  Global Asset Allocation The J.P. Morgan View J. P Morgan Global Economic Outlook Summary Real GDP Real GDP Consumer prices %over steal ago %treer trams penal scar %owa year ago 2011 2012 2013 4011 1012 2012 3012 4012 1013 2013 4011 2012 4012 2013 The Americas Unried Stales 1.7 2.5 22 3.0 2.5 2.5 3.0 2.0 1.5 2.3 33 22 1.9 1.7 Canada 2.5 2.3 2.5 1.8 ad 2.6 2.3 2.4 2.7 2.4 2.7 1.7 1.7 2.0 Lath America 4.3 3.8 4.0 2.4 3,2 5.1 4.3 4.1 4.4 3.8 72 6.4 63 6.9 Argentaia 8.9 4.5 4.0 3.2 (kg 5.5 6.5 5.0 3.0 4.0 9.6 10.0 10.01 11.0 2.9 3J 4.5 13 2,5 5.7 5.5 5.7 45 45 62 5.1 Si 53 Chile 6.0 5.0 4.5 8.2 51 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 1,5 4.9 4.1 3.0 5.7 6.0 3.9 3.6 33 3.0 Ecuador 7.8 4.0 4.0 4.1 2.0 3.5 4.0 4.0 4.0 4.0 5.5 5.3 4.7 4.7 Mexico 3.9 32 35 1.7 5.1 3.9 2.0 3.2 4.9 2.8 3S 42 4.0 3.8 Pew 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 Venezia 4.2 4.0 1.0 3.5 6.0 6.0 4.0 -3.0 0.0 0.0 28S 23.9 23.4 31.7 Ask:Paciiic Japan -0.7 2.0 13 -0.7 La 2.0 1.4 1.2 1.0 1.2 -03 0.1 T 0.1 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 1A 2.9 2.7 1.4 5.1 2.1 3.7 3.0 0.9 3.4 12 12 25 2.7 Asia ex Japan 7.0 6.5 7.1 4.6 8.0 6.7 72 7.5 7.0 7.0 4.9 31 4A 4.9 T China 9.2 82 9.1 8.8 6.8 7.8 9.5 10.0 9.1 81 4.6 33 3.6 4.6 Hong Kong 5.0 2.8 42 1.6 31 4.0 5.5 6.0 3.0 3.5 5.7 4.5 3.6 3.2 India 7.0 7.1 73 3.8 j31 5.5 6.3 6.5 6.7 7.5 8A 72 82 8.5 Indonesia 6.5 5.3 5.5 9.9 5,5 5.0 4.5 5.0 5.5 5.5 4.1 3.9 7.4 7.3 Korea 3.6 33 4.0 1.3 all 4.0 4.5 5.0 4.0 4.0 4.0 3.0 3,5 3.8 Malaysia 5.1 3.9 32 4.8 5_,Q 2.0 2.0 2.5 4.0 4.5 32 2.6 22 1.8 Philippines 3.7 43 42 3.5 La 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 j 6.6 3.2 2.0 4.5 4.5 5S 4.6 3A 2.8 Taiwan 4.0 22 5.1 -0.6 3.3 4.8 5.8 6.5 4.5 4.6 1A 13 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 3.71 3.5 3.21 Mks:Middle East Israel 4.8 2.9 4.4 3.2 La 3.2 6.1 7.4 4.5 2.8 2S 23 2.5 2.1 South Africa 3.1 2.7 3.6 3.2 LI 2.6 2.8 3.2 3.8 3.5 6.1 6.0 62 5.9 Europe Euro area 1.5 -OA 0.4 -1.2 15 -0.8 -0.5 0.3 0.5 0.5 2.9 2A 221 1.7 Germany 3.1 0.6 IA -0.7 (1.1 1.0 0.8 1.3 1.5 13 2.6 22 2.1 1.7 = France 1.7 03 0.7 0.6 DA 0.0 0.3 0.5 OS 1.0 2.6 2.6 T 2.3 T 1.9 1 Italy 0.5 -1.91 -0.7 -2.6 7211 -2.5 -1.5 -1.0 -0.5 -0.5 3.7 3.6 T 4.0 T 3.6 T Norway 2.7 1.4 12 2.5 0.0 0.0 1.0 1.0 2.0 2.5 0.9 0.9 1.4 1.7 Sweden 4.0 -0.3 1.7 -4.4 -0.5 -0.5 0.5 1.0 2.0 2.3 23 1.1 1.1 15 United Kingdom 0.7 0.4 1.9 -1.2 0.5 -1.0 2.5 1.5 2.0 2.0 4.6 3.0 3D 2.7 Emerging Europe 4.8 2.8 3.5 4.6 1.2 1 1.4 3.0 T 3.1 ! 3.5 3.2 6A 5.0 1 5.5 6.1 Bulgaria 1.7 1.5 2.5 Czech Republic 1.7 -0.2 1.7 -0.5 -0.8 -1.0 1.1 2.3 3.3 -1.3 2A 2.7 2.9 2.5 Hungary 1.7 0.5 15 1.2 -0.3 0.3 1.0 1.5 1.5 2.0 4.1 5.8 5.9 32 Poland 4.3 32 3.0 4.5 2,a 2.0 2.5 3.0 3.0 3.0 4.6 3.9 3.5 2.8 Romania 2.5 02 2.7 -0.8 J.2 -1.5 0.8 2.4 2.5 3.0 3A 33 4.4 4.0 Russia 4.3 3.7 3.7 6.4 15 1 2.0 4.0 T 3.5 1 4.0 4.0 62 3.9 1 6.1 1 6.8 Turkey 8.5 2.5 4,5 92 9.0 62 8.8 Global 2.6 2.3 2.6 1.5 2.5 1 2.2 2.7T 2.5 2.5 2.6 3.6 2.8 22T 2.71 Developed market 1.3 13 15 0.6 LS 1.0 15 13 12 15 25 2.0 1.9 T 1.6 T Emerging markets 5.8 5.0 5.6 4.0 Si 1 5.3 5.7 T 5.9 5.7 5.5 5.7 4.8 5.1 5.6 T Satre: JP. Morgan Apr20,2012 6 EFTA01175992 Global Asset Allocation The J.F. 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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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 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 7610 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 (Ur Finanzdienstleistungsaufsicht. Hong Kong: The 1% EFTA01175993 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 Firms 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. 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To the extent that the information contained herein references securities of an issuer incorpo- rated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or