From: US GIO <[email protected]>

From: US GIO <[email protected]> To: Undisclosed recipients:; Subject: JPM View 10.26.2012 Date: Fri, 26 Oct 2012 20:13:56 +0000 Attachments: JPM_View_10.26.2012-pdtzip Inline-Images: image003.png EFTA01146215 a. Morgan The Morgan View Lower fiscal uncertainty needed to unleash capital • Asset allocation — Value dictates that long-term investors start snitching from credit to equities. but low growth fiscal uncertainties. still attractive credit spreads. and little sign of worsening credit fundamentals keep us overweight both equity and credit vs government debt especially in higher-yield. • Economics — Bottom in global growth is now 3-quarters wide. Rebound in Q1 requires lifting of fiscal risks m the US. in our view. • Fixed Income — Favor EM local bonds over Mt • Equities —UW US equities against Europe and EM Asia. • Credit — E.MBIG year-end spread target is lowered to 250bp. from 275bp. and CEMBI to 300óp. from 325bp. • Currencies — We re long the yen. as the sell off appears overdone. • Commodities — Low oil inventories and high uncertainty in the Middle East keep us long Brent time spreads • Risk markets continue to yo-yo. with this week being down, while last week was up. Bond markets are sitting out the last wiggle. with government yields barely changed on the week and corporate bonds only a few hips wider. Most assets remain in their 2-month trading range. • 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. but the low part of this pattern keeps getting longer and is up to 3 mutters now (Q2-to Q4). The expected rebound has been pushed out now to Q I. and is softer than we originally thought. There are a whole host of forces holding back growth. but one negative that we believe explains both weaker corporate spending and still massive capital flows into fixed income mug be fundamental uncertainty about govt policies. The consumer has not been affected much, but ow reading of institutional and company- managers is that many have simply postponed major investments in real and financial capital until the fog lifts around the US and European fiscal crises, and the direction of China's economy. • The recent rebound in European and Chinese equities suggests investors have become less worried about these two regions. It is probably too early to see the impact on apex, but we do expect this to show up in coming months and to support a growth rebound in Q1. The US fiscal crisis is now tight upon us. with the Nov 6 elections letting voters express their views on tax hikes versus cuts in spending. Congress then needs to act urgently to avoid a fiscal tightening caused recession in January, and needs to continue next year on a 10-year fiscal plan, or 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 fiscal drag down to 2% of GDP, instead of 3.7% without action. but that a longer-term plan remains elusive, keeping a tab on investing by both investors and companies. If we were to get a US long-term fiscal plan next year. then it would surely create upside on stock markets. and be supportive to growth both US and globaL in our view. See page 7 for analyst certification and important disclosures. Global Asset Allocation 26 OdOber 2012 Global Asset Allocation Jan Loeys AC 041211344174 Jent erase Bank Na John Normand (an), 7134.1$10 pon neananajkomegoan tan E Morgan Soeunots pk PlikOlaOS Paniginzogiou (44.20i 7+34.7115 ~445 4344 45545104CIP.4493. COM ▪ mon,..•s•••"'"'"'` Seamus Mac Gorain (44.20, 7134.770 n‘sotrnnernocosn own ■ Morgan S•cootmi pc matthew Lehmann (44.30p 7134.7113 a Mort Swoon pie Leo Evans (44.201 7741-2537 ` Mogan senates of VTD serum, I h ',fug ti Oct )5 nabes we "IOW Woe EUBIG EM $ Can SdP5)0 US HO Veld Al XI AC IsArte IASCI EUIC{X USCI EM' US ligt Grade Beopeniellee ode EIllocallkads" Ell FX Tope US F aed !rimer* Giabai Gov Bcack- US each Wet TR 4 5 15 IS Source.. skagen. Bloomberg. See blue boxen 9 This email ix confidential and subject to important disclaimers and conditions includio on offers for the • orchase or sale of %ocarina. accuracy and completeness of information. viruses. confidentiality. legal privilege. and legal entity disclaimers. available at EFTA01146216