EFTA01146217.pdf

J.P.Morgan Global Asset Allocation 26 October 2012 . Morgan View Lower fiscal uncertainty needed to unleash capital • Asset allocation — Value dictates that long-term investors start switching from Global Asset Allocation credit to equities, but low growth, fiscal uncertainties, still attractive credit Jan Loeys AC spreads, and little sign of worsening credit fundamentals keep us overweight (1-212) 834-5874 both equity and credit vs government debt, especially in higher-yield. • Economics - Bottom in global growth is now 3-quarters wide. Rebound in Q1 JPMorgan Mass Bank NA requires lifting of fiscal risks in the US, in our view. John Normand (44-20) 7134-1816 • Fixed Income — Favor EM local bonds over DM. Equities — UW US equities against Europe and EM Asia. lam. Morgan Securities plc Credit — EMBIG year-end spread target is lowered to 250bp, from 275bp, and Nikolaos Panigirtzoglou (44-20) 7134-7815 CEMB1 to 300bp, from 325bp. Currencies - We are long the yen, as the sell off appears overdone. Morgan Securities plc Curt modities — Low oil inventories and high uncertainty in the Middle East Seamus Mac Gorain (44-20) 7134-7761 keep us long Brent time spreads. • Risk markets continue to yo-yo, with this week being down, while last week Morgan Securities plc was up. Bond markets are sitting out the last wiggle, with government yields Matthew Lehmann barely changed an the week, and corporate bonds only a few bips wider. Most (44-20) 7134-7813 assets remain in their 2-month trading range. M. Morgan Securities plc • Range trading is hiding a lot of anxiety in markets and economies, recently focused on the US. We have argued that world growth is in a bottom formation, Leo Evans but the low part of this pattern keeps getting longer and is up to 3 quarters now (44-20) 7742-2537 (Q2-to Q4). The expected rebound has been pushed out now to Q1, and is softer than we originally thought. There are a whole host of forces holding back M. Morgan Securities plc growth, but one negative that we believe explains both weaker corporate YTD returns through Oct 25 spending and still massive capital flows into fixed income must be %, equities are in lighter color. fundamental uncertainty about gov't policies. The consumer has not been affected much, but our reading of institutional and company managers is that EMBIG many have simply postponed major investments in real and financial capital BA S Corp. until the fog lifts around the US and European fiscal crises, and the direction of SEP500 China's economy. US High Yeb • The recent rebound in European and Chinese equities suggests investors have MSCI AC World' become less worried about these two regions. It is probably too early to see the MSCI Europe' impact on capex, but we do expect this to show up in coming months and to MSCI EM' support a growth rebound in Ql. The US fiscal crisis is now right upon us, with US High Grade the Nov 6 elections letting voters express their views on tax hikes versus cuts in Europe Fixed Inc' spending. Congress then needs to act urgently to avoid a fiscal tightening caused Gad recession in January, and needs to continue next year on a 10-year fiscal plan, or EM Local Bonds" Simpson Bowles Take 2, in our view. Our best estimate is that the elections do not provide a clear mandate for either side, that Congress does act to bring 2013 EM FX fiscal drag down to 2% of GDP, instead of 3.7% without action, but that a Topix' longer-term plan remains elusive, keeping a tab on investing by both investors US Fixed Income and companies. If we were to get a US long-term fiscal plan next year, then it Global Gov Bonds" would surely create upside on stock markets, and be supportive to growth, both US cash US and global, in our view. GSCI TR 45 0 5 10 15 20 See page 7 for analyst certification and important disclosures. Source: E. Morgan, Bloomberg. See blue box on page 2 for description. EFTA01146217  Jan Loeys (1-2121834-5874 Global Asset Allocation The S Morgan View J.P.Morgan 26 October 2012 2012 global GDP growth forecasts: JPMorgan and • The big decision that most long-term investors now face is how long they will Consensus keep piling into bonds, even better-yielding HY and EM, pushing yields 4.5 every month to new all-time lows, instead of moving on to where we believe the real long-term returns are, in stocks. We remain overweight both higher- 4.0 yielding credit and equities versus cash and safer government debt. But equity returns are lagging. Given their higher beta, stocks should have shown double 3.5 the return of HY and EMBI YTD and they are not (p. I ). Mutual fund flows are showing $0.5tr bond inflows, and nothing in equities, YTD. 3.0 • Our discussions with many investors are telling us that they will only switch from credit to equities if they see strong growth in economies and 2.5 earnings, and/or, forces that make bonds less attractive, but do not hurt stocks. The latter include soft monetary tightening, higher inflation, corporate 2.0 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 leverage, and/or spreads near all-time lows. None of these conditions are in place, yet, and we do not see them emerging in coming months. But we are Source:. Morgan. Consensus Economics. Consensus Economics monitoring the steady tightening of spreads to cycle lows, and early signs of forecasts are br regions and counoies tel we averaged using the same S-year rdling USD GOP weights tel we use Sar our own gbbal corporate leverage. No flashing red here, but surely not all green anymore growth forecast. either, with amber signs starting to pop up. Our hope is that over the coming year, we can increasingly switch risk from credit to equities. 2013 global GDP growth forecasts: JPMorgan and Consensus Fixed Income 3.4 • The bond selloff stalled, without managing to break the summer range, amid a modest downdraft in risky assets. Euro area peripherals gave back some of their recent gains. We remain positive on peripheral bonds, and are encouraged by a range of signs of capital flowing back to the periphery, including increased Spanish bank borrowing from private repo markets, and a 2.9 continued drift down in aggregate bank borrowing from the ECB. Our European Client Survey (Chordia, 26 October) indicates a rise in bond managers' over-benchmark in peripheral bonds. These positions may look high right now, but they are relative to benchmarks that are now a lot lower than they used to be 2.4 Jan-12 Apr-12 Jul-12 Oct-12 • In a week of mixed economic signals, the strong Q3 gain in UK GDP caught the eye, and prompted us to scale back our call for more BoE QE next month, Source:. Morgan. Consensus Econcera. Consensus Economics forecasts are br regions and counoies tel we averaged using the to £25bn from £50bn. Diminished prospects of further QE represent a modest seine S-year rdling USD GOP weights tel we use br our own global headwind for gilts. More broadly, we remain bearish on duration in DM, growth brecast. reflecting reduced tail risks in the Euro area, and the view that elevated long positions in US Treasuries will be unwound as year end approaches. More details in... Global Data Watch. Bruce Kasman and David Hensley • EM local bonds have largely sidestepped the October rate selloff, and their Global Markets Outlook and Strategy. Jan boys. Bruce 4% gain relative to DM govies (currency hedged) so far this year is in keeping Kasman. et al. with a steady pattern of outperformance since 2009. One supporting factor has US Fixed Income Markets. Terry Belton and Sdni been a step up in inflows to EM local currency bond funds in recent weeks, Ramaswamy triggered by QE3. The rate outlook is more idiosyncratic across countries in Global Fixed Income Markets. Pavan Wadhwa and Fabio EM than DM, and we counterbalance long positions supported by yield- Bassi seeking inflows, with shorts elsewhere (e.g. Mexico, with its closer link to US Emerging Markets Outlook and Strategy. Joyce Chang Treasuries). Full details in our EM Cross Product Weekly (Beinstein et al.). Key trades and risk: Emerging Market Equity Strategy. Adrian Mowat et al. Equities Flows and Liquidity. /Mos Paniginzoglou et al. • Last week, we opened a US UW within a global equity portfolio. The Description of YTD Chart on front page: reporting season appears to be lending support to this view. With around half Returns in USD. 'Local currency. "Hedged into USD. of S&P500 and a quarter of DJStoxx600 companies having reported so far, Euro Fixed Income is i8oxx Overall Index. US HG. HY. the reporting season is showing a significant divergence between the US and EMBIG and EM S Corp are JPM indices. EM FX is ELhIl+ in S. Europe. In the case of the S&P500, the Q3 EPS is coming in line with the 2 EFTA01146218  Jan Loeys Global Asset Allocation J.P.Morgan (1-2121634-5674 The Morgan View 26 October 2012 expectation at the beginning of the month, but revenues have disappointed by around -1%. In the case of the DJStoxx600, both EPS and revenues are so far posting positive surprises of 2% and 1%, respectively. These results are consistent with UW US vs. European equities. • Similarly, we see more upside in EM Asian EM equities. This week's disappointing US durables report is adding to concerns regarding corporate retrenchment in the US, which contrasts with an improvement in orders and shipments in Asia x Japan. To play this EM Asia outperformance against US equities, we prefer option structures rather than delta one exposures. Our colleague Tony Lee in derivatives research recommends taking advantage of current volatility levels to buy a Call Spread on MSC1 Asia Pacific x Japan (MXAPJ index) and sell a Call Spread on the S&P500 index. This structure allows the investor to receive a premium upfront. • The OW in Cyclical vs. Defensive equity sectors we initiated a month ago has barely performed. Given rising US growth risks, it would appear to make more sense to have this trade in Europe or in EM. Credit • A softer tone this week fed into single-digit widening in bond spreads. Since QE3 was announced on Sep 13, US HG spreads have rallied 27bp, stocks have lost over 3% and CDX.1G has widened 10bp. Clearly, cash bond technicals remain overwhelming positive, especially for higher-rated, shorter- dated bonds, which are the closer proxy for mortgages and Treasuries. • Such strong demand is likely a key factor in the CDS-bond basis pushing towards zero in the investment-grade space this week as well, an otherwise infrequent event. However, the broad fixed-income market wide reversing of leveraged carry positions, on the anticipation of falling liquidity into year end, may also be playing a role. We believe the equilibrium level of the basis going forward is around -lObp, based on current funding and repo costs. Eric Bernstein's team elaborates in this week's CMOS. • The equity sell-off has seen EM external and corporate debt climb back to the top of our YTD performance. Despite uncertainties about the US, we anticipate further spread tightening as the macro backdrop remains broadly credit supportive. Also, yesterday's EM client survey points to solid hard currency fund inflow momentum continuing to support these asset classes. We move our YE targets for EMBIG to 250bp, down from 275bp, and to 300bp for CEMBI, down from 325bp. Foreign Exchange • For the first time in several quarters, stocks are falling and the dollar is rising during US earnings season. This pattern partly reflects comeuppance, since EPS have stagnated for a year but this season is the first since late 2011 during which hedge funds and currency managers have entered longs stocks & short dollars. Thankfully other parts of the world (China, Brazil) are accelerating More details in ... modestly while corporate America idles, which is likely why currencies such US Credit Markers Outlook and Strategy. Eric Beinstein as AUD, NZD, EM Asia & BRL are outperforming USD, CAD & MXN. el al. High Yield Credit Markets Weekly. Peter Acciavatti et al. • The next two weeks are crowded in every region — more US earnings, European Credit Outlook 6 Strategy, Steven Oulake et global PMIs, US payrolls, Bank of Japan and Reserve Bank of India decisions, US elections on Nov 6 and China's leadership transition on Nov 8. Emerging Markets Cross Product Strategy Weekly. Ent The last two events deserve considerable attention, and not just because Bernstein et al. 3 EFTA01146219  Jan Loeys Global Asset Allocation J.P.Morgan (1-21216345674 The Morgan View 26 October 2012 political cycles in the world's two largest economies have never coincided as they do next month. In the US, the election outcome determines management FX weekly change in USD of likely the most serious (and imminent) fiscal challenge in a generation. In China, the leadership transition is assumed to unblock additional stimulus, so 1.0% could reinforce the outperfonnance of China-linked currencies. Unfortunately history provides little evidence that Republicans or Democrats better manage 0.5% the US economy or strengthen the dollar. There is also little confirmation of China's political business cycle. Keep directional risk limited to an options 0.0% hedge against the fiscal cliff (USD/JPY), take part profits on a trade predicated on China's upturn (AUD/CAD), but keep positions which profit from less sovereign tress (EUR/GBP, EUR/NOK). 43.5% • The Bank of Japan's Oct 30 decision is highly anticipated judging from USD/JPY's behavior this month. Although the Bank of Japan will probably -1.0% deliver another round of its 2012 QE strategy ofupping its asset purchase USD JPY EUR GBP CHF CAD AUD TWI program by I °trillion each quarter, USD/JPY appears to be pricing in a risk Source:. hVgan premium for something more dramatic, such as an increase in the BoYs inflation goal from 1% to 2% or purchases of foreign bonds (i.e. FX intervention). Indeed, USD/JPY trades about I% too strong controlling for US-Japanese rates spreads, similar in trajectory to the 4% USD/JPY overshoot of fair value which occurred when the Bank first announced its inflation goal on Feb 14. We suspect changing the inflation goal is an issue for the next BoJ Governor in spring 2013 and that purchasing foreign bonds (FX intervention) is off limits under the Obama Administration, much less a Romney one. We remain short USD/JPY through options to hedge the US fiscal cliff. Commodities • Commodities corrected sharply this week, down 3% with energy and base metals leading. We continue to prefer picking and choosing among commodity sectors rather than taking an outright position across the asset class. We are neutral energy, as we think the weak economic picture is balanced by still low inventories and high uncertainty in the Middle East. We maintain our long Brent time spread position, which has performed well in spite of the drop in oil prices. This trade benefits from the very low state of inventories and high uncertainty as the front of the Brent curve outperforms relative to longer dated contracts. The trade also carries positively and should, we believe, perform well should a supply shock materialize. • We are long base metals but this trade has not performed recently and is down around 6% month-to-date. We went long on the argument that global growth is bottoming and should start to pick-up modestly over the coming months. In addition, we think that the Chinese leadership change should bring more positive news out of the world's biggest metal consumer. We have not changed this view and recommend investors use the recent underperformance as an opportunity to go long. • Recent announcements of capex deferrals and cancellations by miners coupled More details in ... with slower Chinese growth have raised the question of whether the FX Markets Weekly. John Normand et al. commodity supercycle is intact. We think it is. Our commodity strategist, Commodity Markets Outlook & Strategy. Colin Fenton, estimates that capex has still not expanded production capacity Cohn Fenton et al. enough for supply to catch up with demand for metals and that demand from Oil Markets Monthly. Cohn Fenton et al. other countries outside China over the next 10 years will keep the supercycle Daily Metals Note. Cohn Fenton et al. going (see Commodity Mementos, Oct 25). Agriculture Weekly. Dietz et al. 4 EFTA01146220 Jan Loeys 1-212) 834-5874 Global Asset Allocation The n Morgan View J.P.Morgan 26 October 2012 Interest rates Current Dec-12 Mar-13 Jun-13 Sep-13 YTD Return' United States Fed funds rate 8125 0.125 0.125 0.125 0.125 10-year yields 1.76 2.00 2.00 2.00 2.25 1.4% Euro area Ran rate 0.75 0.75 0.75 0.75 0.75 10-year yields 1.54 2.00 2.15 2.25 2.25 2.4% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 1.87 2.20 2.30 2.35 2.35 1.6% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10-year yields D.77 0.85 0.90 0.95 1.00 1.7% GBI-EM hedged in $ Yield • Global Diversified 5.70 6.00 6.8% Credit Markets Current Index YTD Return' US high grade (bp over UST) 151 JPMorgan JUL! Pablo Spread to Treasury 9.4% Euro Ngh grade (bp over Euro gov) 179 iBoxx Euro Corporate Index 8.7% USD high yield (bp vs. UST) 563 JPMorgan Global High Yield Index STA, 13.2% Euro high yield (bp over Euro gov) 726 Bon Euro HY Index 20.3% EMBIG (bp vs. UST) 286 EhIBI Global 16.1% EM Corporates (bp vs. UST) 321 JPM EM Corporates (CEMBI) 15.2% Quarterly Averages Commodities Current 1204 1301 13Q2 1303 GSCI Index YTD Return' Brent (Sabi) 109 105 112 105 120 Energy -1.0% Gold (5/oz) 1713 1725 1750 1775 Precious Metals 12.2% Capper (S/metric ton) 7814 8300 8500 8700 IndusDial Metals 5.1% Corn (SBu) 7.40 8.75 8.50 8.25 Agocultut 17.3% 3m cash YTO Return' Foreign Exchange Current Dec-12 Mar-13 Jun-13 Sep-13 Index In USD EURIUSD 1.30 1.30 1.30 1.32 1.34 EUR 1.0% USDJJPY 79.3 78 79 79 79 JPY 3.8% GBPIUSD 1.60 1..61 1.60 1.62 1.63 GBP 5.2% USD/BRL 2.03 2.02 2.02 2.00 1.98 BRL -2.0% USD/CNY 6.25 6.32 6.32 6.30 6.25 CNY 2.6% USDIKRW 1103 1125 1125 1110 1100 KRW 7.2% USD/TRY 1.80 1.80 1.75 1.75 1.70 TRY 11.8% YTD Return US Europe Japan EM Equities Current (local ccy) Sector Allocation • YTD YTD YTD YTD (Si S&P 1406 17.9% Energy 9.8% 2.0% 0.0% 7.5% Nasdaq 3021 19.8% Materials 15.2% 11.9% -5.3% 5.0% TOO 741 5.6% Industrials 13.8% 16.5% 2.5% 13.1% FTSE 100 5807 9.7% Discretionary 23.0% 22.8% 7.2% 12.9% MSCI Eurozont 143 17.5% Staples 131% 14.1% 15.1% 2t3% MSCI Europe' 1106 14.7% Healthcare 21.3% 18.8% 12.8% 29.7% MSG EM 5' 999 13.7% Finandals 27.3% 25.2% 25.3% 171% Brazil Bovespa 59166 8.9% Information Tech. 18.0% 12.3% -3.8% 19.8% Hang Se® 21552 19.6% Teleccmmunicabons 24.6% 0.2% 3.6% 13.5% Shanghai SE 2128 -3.1% (Aides 72% 183% -15.0% 5.8% 'Levele'retumS as of Oct 25, 2012 Overall 17.9% MI% MY. 137% Local (warty except MSCI EM S Sctrce:. Morgan 5 EFTA01146221 Jan Loeys Global Asset Allocation J.1? Morgan 1-2121834-5874 The M. Morgan View 26 October 2012 Global Economic Outlook Summary Real GDP Real GDP Consumer prices %over a rar ago %over prewous pool Saar ',. OW a year ago 2011 2012 2013 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3013 4011 2Q12 4Q12 2013 The Americas United States 1.8 2.2 1.7 2.0 1.3 2.0 T 20 1.0 1.5 2.5 3.3 1.9 1.9 1.7 Canada 2.6 2.2 2.1 1.8 1.9 1.9 2.0 2.1 2.1 2.2 2.7 1.6 2.4 2.0 Latin America 4.2 2.9 3.9 T 2.8 2.4 4.2 1 4.5 T 3.4 I' 3.7 I' 4.0 T 7.2 6.0 6.0 6.8 Argentina 8.9 2.7 1 3.6 T 2.4 -3.2 Ell 10.0 T 2.0 14 2.5 T 2.0 T 9.6 9.9 10.0 11.0 Brazil 2.7 1.4 4.1 0.5 1.6 4.8 4.6 3.8 4.0 4.3 6.7 5.0 5.5 5.6 Chile 6.0 5.4 4.5 5.1 7.1 3.0 4.0 4.0 5.0 5.0 4.0 3.1 2.5 3.1 Colombia 5.9 4.3 4.5 0.9 6.7 2.8 3.8 4.2 5.5 5.5 3.9 3.4 3.1 3.2 ECuadOr 8.0 5.0 4.0 4.2 4.8 3.0 5.5 5.0 3.0 3.0 5.5 5.1 5.1 5.4 Mexico 3.9 3.9 3.6 4.9 3.5 aa5 3.5 4.0 3.2 3.3 3.5 3.9 4.4 4.1 Peru 6.9 6.0 7.0 8.3 6.0 5.5 6.0 8.0 8.0 7.0 4.5 4.1 3.4 2.8 Uruguay 5.7 3.5 4.0 11.8 2.1 9,Q -9.0 12.0 7.0 9.0 8.3 8.0 7.6 7.2 Venezuela 4.2 5.0 0.0 10.1 0.6 3.5 0.0 -4.0 0.0 3.0 28.5 22.3 18.5 30.2 Asia/Pacific Japan -0.7 1.81 0.5 1 5.3 0.7 a0 -0.8 1.4 1.6 1.3 -0.3 0.2 0.0 -0.2 Australa 2.1 3.5 2.5 5.6 2.6 1.5 1.8 3.8 2.5 1.8 3.1 1.2 1.7 2.7 New Zealand 1.3 2.6 2.9 4.1 2.3 1.1 3.5 3.7 3.3 2.0 1.8 1.0 1.4 1.5 Asia ex Japan 7.4 6.1 6.4 7.2 5.9 5.6 1 6.3 6.4 6.5 6.8 4.9 3.9 3.4 3.8 China 9.3 7.6 8.0 6.6 7.1 7.7 82 8.0 8.2 8.2 4.6 2.9 2.2 3.3 Hong Kong 5.0 1.2 3.2 2.4 .0.4 2.0 2.5 3.5 3.5 5.0 5.7 4.2 2.5 2.7 India 6.5 5.6 6.0 6.1 5.3 5.2 5.0 5.8 6.0 6.8 8.4 10.1 9.8 9.0 Indonesia 6.5 5.7 3.5 4.6 6.2 10 3.0 3.0 4.0 4.0 4.1 4.5 3.9 2.2 Korea 3.6 2.3 1 3.2 1 3.5 1.1 0.6 1 3.5 3.5 3.5 4.0 4.0 2.4 1.9 3.0 Malaysia 5.1 4.7 2.9 5.8 5.9 2.5 1.5 2.0 3.0 3.5 3.2 1.7 1.1 1.2 Philippines 3.8 5.3 3.5 12.6 0.9 1/ 1.2 4.5 4.5 4.5 4.7 2.9 2.3 2.3 Singapore 4.9 2.1 3.4 10.0 -0.7 4.6 8.2 6.1 -1.2 4.5 5.5 5.3 4.1 3.3 Taiwan 4.0 1.1 3.9 1.5 3.5 La 3.8 4.5 4.6 4.8 1.4 1.7 2.1 1.8 Thaiand 0.1 5.8 2.7 50.8 13.9 2.0 1.5 1.5 2.0 2.0 4.0 2.5 3.3 3.0 Africa/Middle East Israel 4.6 3.0 3.1 3.1 3.4 2.0 2.8 4.9 6.1 6.1 2.5 1.6 1.3 1.5 South Africa 3.1 2.2 2.7 2.7 3.2 1.6 -1.3 5.4 3.3 3.6 6.1 5.7 5.3 5.4 Europe Euro area 1.5 .0A 0.2 0.0 -0.7 0.0 -1.5 0.8 0.8 1.3 2.9 2.5 2.5 2.0 Germany 3.1 1.0 1.4 2.0 1.1 1.0 0.0 1.5 2.0 2.5 2.6 2.1 2.1 1.8 France 1.7 0.1 0.0 0.1 -0.1 0.5 -1.5 0.0 0.5 1.0 2.6 2.3 1.9 1.3 Italy 0.5 -2.3 -0.6 -3.3 .3.3 .1.0 .2.5 0.0 0.3 0.8 3.7 3.6 3.2 2.3 Spain OA -1.5 -1.3 -1.3 -1.7 -1.5 -4.5 -1.0 0.5 0.5 2.7 1.9 3.4 2.9 United Kingdom 0.9 0.0 t 1.814 .1.2 -1.5 4.1 t 0.5 1.5 2.0 2.5 4.6 2.8 2.6 J. 2.5 1 Emerging Europe 4.8 2.6 1. 2.7 2A 1.3 tj. 1 2.0 4. 2.8 2.5 3.8 6.4 5.0 6.1 6.2 Bulgaria 1.7 1.0 1.5 Czech Republic 1.7 .1.1 0.9 -3.1 -0.8 12 -1.3 2.1 1.0 4.3 2.4 3.4 2.9 2.4 Hungary 1.6 -12 0.7 -3.5 -0.9 .1.0 -0.5 1.0 1.5 1.8 4.1 5.5 5.9 5.0 Poland 4.3 2.4 2.1 2A 1.6 1.2 1.6 1.8 2.4 3.5 4.6 4.0 3.7 2.6 Romania 2.5 0.0 1 0.81 0.5 1.9 1,91 -121 1.2 -0.4 3.2 3.4 1.9 4.7 6.4 Russia 4.3 3.6 3.0 3.7 1.5 1.8 3.0 3.5 3.0 4.0 6.7 4. 3.8 / 6.7 7.4 Turkey 8.5 2.8 3.7 9.2 9.4 7.7 6.9 Global 3.0 2.5 2.5 3.0 1.8 2.1 2.0 2.6 2.7 3.2 3.8 2.8 2.8 2.8 Dave/aped markets 1.3 1.2 1.1 1.7 0.4 0.7 0.3 1.2 1.4 1.9 2.7 1.8 1.9 1.6 Emerging markets 6.1 4.7 5.1 5.4 4.3 4.0 .1. 5.1 t 5.1 5.2 5.6 5.7 4.6 4.4 4.9 Source Morgan 6 EFTA01146222 Jan Loeys 1-212)834-5874 Global Asset Allocation The M. Morgan View J.P.Morgan 26 October 2012 Disclosures 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. Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Other Disclosures E. Morgan ("JPM") is the global brand name for M. Morgan Securities LLC ("JPMS") and its affiliates worldwide... Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries. Options related research: if the information contained herein regards options related research, such information is available only to persons who have received the proper aion risk disclosure documents. For a copy of the Option Clearin Co ration's Characteristics and Risks of Standardized Options. please contact your M. 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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 parry or outside Australia without the prior written consent of JPMSAL. 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Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear 7 EFTA01146223 Jan Loeys 1-212 834-5870 Global Asset Allocation The is Morgan View J.P.Morgan 26 October 2012 contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: 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.. 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