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From: US O1O Cus.gitmorgan.com> To: Undisclosed recipients:; Subject: JPM View 10.12.2012 Date: Fri, 12 Oct 2012 20:58:44 +0000 Attachments: JPM_View_10.12.2012-pdtzip Inline-Images: image003.png J.P. Morgan The J.P. Morgan View Patience during political season • Asset allocation — No changes in our medium-tom value-focused strategy to be long assets with high risk premia. equities. credit and carry trades. even as upcoming political events milady create shorter-term volatility. • Economics — No major forecast changes. although increasing uncertainty around US fiscal cliff posturing creates downside risk on US Q4 and Q1. • Fixed Income — We prefer Gentian Bends to US Treasuries. • Equities —US earnings season favors ckosesnealtronenied stocks and US Financials • Credit — We expect further spread tightening in US MG as the lack of credit supply brought about by QE3 is nor fully priced in • Currencies — We launch a Chinese Economic Stopilse Index. • Commodities — Stay long Brent time spreads on Middle East uncertainty. • Equity markets are trading heavy, and are giving back most of their gains of the past 1-2 weeks. despite no clear change in fundamentals. Other risk markets. such as credit. commodines. and the euro periphery. are not following equities this time. indicating we are largely seeing profit taking after the hefty rally in stocks over the last four months. • There are no meaningful changes in growth forecasts this week. except for rowing I% in growth from Qi to Q3 in the Euro area. due to better II data in Q3 which we do not think will last. But as a result. global growth in Q4 at 2% is now barely different from the previous two quarters. In GDP terms, there is not as much sign of a rebound as we had hoped, even as the underlying PMI orders and inventory data do hint at this coming rebound • We are only at the beginning of the Q3 earnings season. but what we have is in line with subdued expectations for mull op drops. Profit margins then hit new lughs and world growth has since fallen below potential. But global equities are up 10%. Why? We have argued that equities and other risk markets can rally despite lackluster growth as they offer high risk memo against events that will not all come through. Hence, if the world turns out less ugly and volatile than what most feared. as is our view. then investors will over tune god/wily switch some of their defensive holdings into better-return. but tuber asset classes. • This risk-prenuum- focused strategy into equities, credit and earn' assumes volatility will remain subdued and markets will be buffeted by only modest adverse shocks We don't we huge volatility from data or earnings surprises, with macro volatility having collapsed over the past 2 years, and aggregate earnings now also showing almost no movement anymore. Tins leaves us with the political surprise factor. Here we have to tread can carefully ac the next few weeks will see another EU Surnemt US elections, and Chinese leadership change. each of winch with potentially momentous impact See page 7 for analyst certification and important disclosures. Global Asset Allocation 12 ockter 2012 Gloom Asset Allocation Jan Loeys AC 0212163-0574 on ben OP~pan can JPL1Aew Chase IkrA NA John Normand osadot 71)1.1810 NM sonn.wc111hP~1.ceen JP. Marian SWM*, cie NikOlaraS Panipinzoolou (44.20)7134-O415 Sia°5.04~20013~JA can J.P. Mc.», 3*os~ pie Seamus Mac Gorain (44.20) 7134.7761 seamtArnacf.1~9PAPPN J P. Mown ~an plc Matthew Lehmann (44.2011114.7.1) ~thew" NhenA M9Prieeoa J.P. Monipn 5PoareAl pie Leo Evans (44.20, 7`42.2537 leonard a vonse~ga11 tan J • Martian Sewn», pee 'CD returns through Oct 11 eiuroes allge cdot. St.P500 E1AB/S EMSCary TtS Itufr Year 1tSCI AC World' LISC I Ent' Goar laSCI EM US Hno, Gale Crape Feed bre• Ell EX Ell located*" OSCI TR US Rea incorne %bat Crod3onelen Tested LIScase San. JP. Morgan, suikert. See blue haw page 2 lot descapn www.morganniarketssom EFTA01146378 This email is confidential and subject lo impertant disclaimers andconditions including an oilers per the purchase or sale o( securities. accuracy and corripleteness of information. vinnes. confidentiality. legal privilege. and legal entity disclaimers. available at hltp:/Avnuipmorgan.compages,disclosureaemail. EFTA01146379