J.P. Morgan

J.P. Morgan The J.P. Morgan View Patience during political season • Asset allocation — No changes in our medium-term, value-focused strategy to he long assets with high risk premia, equities, credit, and carry trades, even as upcoming political events will likely create shorter-term volatility. • Economics — No major forecast changes, although increasing uncertainty around US fiscal cliff posturing creates downside risk on US Q4 and Ql. Fixed Income — We prefer German Binds to US Treasuries. • Equities —US earnings season favors domestically-oriented stocks and US Financials. Credit — We expect further spread tightening in US HG as the lack of credit supply brought about by QE3 is not fully priced in. • Currencies — We launch a Chinese Economic Surprise 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, commodities, 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 moving 1% in growth from Q4 to Q3 in the Euro area, due to better IP 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 PM1 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 small oya drops. Profit margins then hit new highs 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 premia against events that will not all come through. Hence, if the world turns out less ugly and volatile than what most feared, as is ow view, then investors will over time gradually switch some of their defensive holdings into better-return, but riskier asset classes. • This risk-premium-focused strategy into equities, credit and carry assumes volatility will remain subdued and markets will be buffeted by only modest adverse shocks. We don't see 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. This leaves us with the political surprise factor. Here we have to tread more carefully as the next few weeks will see another EU Summit, US elections, and Chinese leadership change, each of which with potentially momentous impact. See page 7 for analyst certification and important disclosures. Global Asset Allocation 12 October 2012 Global Asset Allocation Jan Loeys AC (1-212) 834-5874 jan.loeys@jPnlorgaricool JPMorgan Chase Bank NA John Normand (44-20) 7134-1816 [email protected] J.P. Morgan Securities plc Nikolaos Panigirtzoglou (44-20) 7134-7815 nikolaos.panigirtzoglou©jpmorgan.com J.P. Morgan Securities plc Seamus Mac Gorain (44-20) 7134-7761 [email protected] J.P. Morgan Securities plc Matthew Lehmann (44-20) 7134-7813 [email protected] J.P. Morgan Securities plc Leo Evans (44-20) 7702-2537 [email protected] J.P. Morgan Securities plc YTD returns through Oct 11 % equities are in tighter color. &IMO EMBIG EMS Corp. US High Yield MSCIAC Wald' MSCI Europe' Gold MSCI EM US Hip Grade Europe Fixed Inc EM FX EM Local Bonds— GSCITR US Fixed Income Global Gov Bends— Topix• US cash 4 0 5 10 15 20 Source: J.P. Morgan, Bloomberg. See blue box on page 2 for description. www.morganmarkets.com EFTA01146380 Jan Loeys (1-212) 834-5874 [email protected] Global Asset Allocation The J.P. Morgan View 12 October 2012 • On the last, the top priority of Chinese leaders will likely be stability and continuity. We do not foresee a major change in direction nor worsening of the territorial conflict with Japan. The recent rebound in Chinese equities shows the market is hoping for positive news coming out of the Communist Party Congress on Nov 8. The EU Summit on Oct 18-19 has an ambitious agenda on both long- and short-term issues. But the lack of an imminent crisis, thanks to the ECB's OMT promise, means to us we are unlikely to see much progress. Unfortunately, given the need to merge sovereignty, EMU members seem to be unable to make major decisions without being subject to undue pressure (detailed analysis by Alex White in GDW). • That leaves the US elections and nearing fiscal cliff. Irrespective of who wins the elections, both parties will soon have to seek compromise on avoiding a recession caused by fiscal tightening, as it appears extremely unlikely one party will have a blocking majority. But into the elections, and the yearend decisions on taxes, inevitable political posturing, as neither side wants to show their cards yet, can easily have a depressing effect on economic activity, if not on risk prices. In our view, it supports taking some chips off the table, without going as far as neutral, let alone short risk assets. We stay medium-term positive on risk assets. Fixed income • Bonds edged higher on the week, but essentially remain in the very narrow range they have held since the summer. That overall stability masks some striking crosscurrents, however. One is the Fed-fuelled compression of US MBS spreads, which we expect to hold given an extremely tight supply- demand balance. Another is the marked outperformance of Australian bonds, triggered by a more dovish central bank, but also reflecting a long- standing yield compression towards core markets. We are reluctant to oppose this outperfomance, given the uncertainty about the RBA's reaction function engendered by last week's rate cut. • The most important shift has been the better tone in Euro area sovereign debt markets. We share the broad view that the promise of the OMT backstop marks a major step forward in the Euro area's crisis management, and arc encouraged by some tentative signs of capital returning to the periphery. These include a fall in Spain's Target 2 balance and bond managers' shift to ovenveight peripheral bonds, for the first time since 2010, as reported in our European Duration Survey. But for the near term, we are wary of a Spanish downgrade from Moody's, to below investment-grade, and thus move to a more defensive stance, including by cutting overweights in the EMU core vs Germany, and adding outright longs in German Bunds. Equities • Global equities have paused over the past 5 weeks, following 3 months of strong gains. MSCI AC World at 330 is practically unchanged since the beginning of September and is at the same level as at the end of April, before the May crash. It is still 8% below its post-Lehman peak seen in May 2011. • With short covering largely behind us, the equity market appears to be lacking strong drivers. The US reporting season is generating a small positive surprise, but this is not enough of an impetus. As we argued last week a subpar 2% pace in global GDP growth for Q3 is not enough to change the pattern of stagnation seen in S&P500 EPS since Q3 2011. We thus look J.P.Morgan 2012 global GDP growth forecasts: JPMorgan and Consensus 4.5 4.0 3.5 3.0 2.5 2.0 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Source: J.P. Morgan. Consensus Economics. Consensus Ecororncs forecasts are far regons and counoies awl we averaged usirg the same 5-yeer rolling USD GOP weights Owl we use for our cam ebbe' growth breast. 2013 global GDP growth forecasts: JPMorgan and Consensus 3.5 - 3.0 2.5 JPM Consensus Jan-12 Apr.12 Jul-12 Source: J.P. Morgan. Consensus Economics. Consensus Economics forecasts are far vegans and counoies awl we averaged usirg the same Slear rdling USD GOP weights that we use for our osn gbhal gvAth forecast. More details in... Global Data Watch. Bruce Kasman and David Hensley Global Markets Outlook and Strategy. Jan Loeys. Bruce Kasman. et al. US Fixed Income Markets. Terry Belton and Srini Ramaswamy Global Fixed Income Markets. Pavan Wadhwa and Fabio Bassi Emerging Markets Outlook and Strategy. Joyce Chang Key trades and risk: Emerging Market Equity Strategy. Adrian Mowat et al. Flows and Liquidity. Nikes Paniginzoglou et al. Description of YTD Chart on front page: Returns in USD. 'Local currency. "Hedged Into USD. Euro Fixed Income is lEioxx Overall Index. US HG. HY. EMBIG and EM S Corp are JPM indices. EM FX Is ELMI+ in Y. 2 EFTA01146381 Jan Loeys (1-212) 834-5874 lanioraysigomergan.com Global Asset Allocation The J.P. Morgan View 12 October 2012 for a Q3 EPS of around $26, similar to Q2's $25.8 and little changed from Q3 2011. The bottom-up analyst forecast is $25.2, so such an outtum would represent a small positive surprise of around 3%, similar to the previous reporting season. At the time, a 3% surprise in the Q2 reporting season failed to lift equity markets during the first half of July. • There is not enough impetus in the macro picture either. This week's macro news was rather mixed, raising doubts about the anticipated rebound in global manufacturing. The rebound in the September global manufacturing PMI induced us last week to re-enter our Cyclical vs. Defensive equity sector overweight, but the trade has yet to perform. • However, the US reporting season provides two interesting sectoral themes . First, domestically oriented US companies are the ones whose earnings are outperforming, suggesting a focus on US-centric stocks. Second, Financials will likely be one of the bright spots in Q3 driven by improving credit and loan demand and a solid recovery in US housing. Our US Equity Strategist Tom Lee points out that a tailwind is also building for US Financials into 2013, which is the resetting of the credit scores for millions of Americans. The peak year of personal bankruptcies was 2005 and those records are removed from credit reports after 2012. Thus, we should see rapid improvements in the credit quality of millions of Americans in 2013. Credit • Spreads gave a mixed picture this week as US high-grade tightened, treasuries rallied, and lower-quality credit and equity markets sold-off. At 160bp, US high-grade is now back to pre-August 2011 levels, and the Fed's activity in mortgage markets seems to be bolstering demand for high-quality corporates as MBS portfolio holdings are replaced. Yet even as issuers take advantage of low all-in yields to push net supply across all USD spread product towards our forecast of $25bn/month, $40bn of Agency MBS purchases and $60bn of coupon payments per month will drive a $75bn/month shortfall of spread product going forward. We believe such strong technicals are not fully priced in and expect further spread lightening to occur. Eric Beinstein and his team elaborate in this week's CMOS. • Our colleagues in credit derivatives strategy continue to cite liquidity as the over arching theme in European credit markets. Given that OMT can be seen as the ECB taking the role of lender of last resort, just as the Bank of England has done over the last three years, they feel that financial conditions between the UK and Europe will normalize and so examined relative value ideas between the two this week. They argue for a long in Euro vs. UK in investment grade corporates, which comes with an attractive entry point given the UK's recent outperformance. See Saul Doctor and team, CD Player. Foreign Exchange • A few trend reversals this week excepted, currency markets still look listless. The trade-weighted dollar and aggregate FX volatility are unchanged this week, FX volumes are below average and manager returns are flat-lining for some composites. We have argued that easy money from the world's central banks wouldn't deliver easy returns immediately since the global economy looked flaccid, commodity currencies were rich and central bank intervention likely. This remains the outlook and — unfortunately — an exercise in patience, particularly ahead of two massive weeks for US earnings and Chinese data. J.P.Morgan More details in ... US Credit Markets Outlook and Strategy. Eric Beinstein el al. High Yield Credir Markets Weekly, Peter Acciavani et al. European Credit Outlook & Strategy, Steven Oulake et Emerging Markets Cross Product Strategy Weekly. Eric Bernstein et al. a EFTA01146382 Jan Loeys (1-212) 834-5874 janioeysgsomorgan.com Global Asset Allocation The J.P. Morgan View 12 October 2012 Earnings look well on track to be unimpressive but in line with expectations. Trades are mostly unchanged this week and geared around three themes: carry (long NZD/USD), less sovereign stress in Europe (long EUR/GBP and short EUR/Scandi puts) and commodity FX relative value (AUD/CAD). • China releases its usual array of activity data next week, the last before the November leadership transition. Any data improvement should lift currencies in China's orbit (AUD, NZD, EM Asia), but how much? The China Economic Surprise Index described in this week's FXMW provides some guidance. Identical to the US Economic Activity Surprise Index (US EASI) we developed over 10 years ago, this one tracks the balance of positive versus negative surprises on monthly Chinese data releases since 2009. Months where the balance of surprises is positive are associated with 2% rises that month in commodity currencies, whereas months with negative surprises are associated with small declines (about 0.3%). • Should China disappoint again as the index shows it has been doing for the past two months (see chart on right), it isn't clear that the commodity currencies would decline that much or for that long, given the proximity of the leadership transition. If China observes its usual political-business cycle by engineering stronger growth in the year after the transition, expectation for imminent stimulus would probably prevent much weakness in China-linked currencies. Regardless, we have few strong priors on this month's releases so combine limited commodity FX longs (long NZD/USD) with a relative value trade (sell downside in an oversold cross like AUD/CAD). Commodities • Commodities are up around 2% this week, led by oil as tensions between Turkey and Syria escalated further. Syrian crude output is very small and world oil markets are already insulated from a supply disruption caused by the sanctions and logistical constraints affecting Syrian production. Of more concern is the possible threat to the lmbd of crude exports that pass through Turkey from Azerbaijan and Iraq to the Mediterranean around 50 miles from the Syrian border (see Daily Oil Note, Fenton et al., Oct 10). The threat to these pipelines seems low, while the conflict is limited to sporadic border skirmishes, but this does further raise uncertainty in an already tense situation and is likely at least partially responsible for the rally in oil this week. In our GMOS portfolio, we remain long Brent time spreads, to hedge our long risk exposures against an oil shock. This hedge has worked very well over the past weeks and we maintain it. • USDA data out yesterday showed lower than expected corn stocks but soybeans were in line with expectations and wheat stocks were higher, although both were lower than previous USDA estimates. This caused a sharp rally in grains, which recovered all of the week's earlier decline to finish broadly flat. In GMOS, we remain short agriculture on the argument that the US harvest is essentially over and that planting conditions for the new crops are much improved and high prices mean much higher future supply. Agriculture prices have historically exhibited an element of mean reversion precisely due to this dynamic and we believe they have peaked over the summer and will gradually move lower over the coming months. J.P.Morgan Chinese Economic Surprise Index 68 48 28 8 -12 -32 -52 Nov-10 Mar-11 Source J.P.Margan Jul-11 Nov-11 Mar-12 JtI-12 More details in ... FX Markets Weekly, John Normand et al. Commodity Markets Outlook & Strategy. Cohn Fenton et al. Oil Markets Monthly. Cohn Fenton et al. Daily Metals Note, Cohn Fenton et al. Agriculture Weekly. Diet et al. 4 EFTA01146383 Jan Loeys (1-212) 834-5874 ge.loeysleipmorgan.com Interest rates Global Asset Allocation The J.P. Morgen View 12 October 2012 Current Dec-12 Mar-13 Jun-13 Sep-13 J.P. Morgan Unded States Fed lunds rate 0.125 0.125 0.125 0.125 0.125 1.65 10-year yields 2.00 2.00 2.60 2.25 Euro area Refi rate 0.75 0.50 0.50 0.50 0.50 1.45 0.50 0.50 0.50 0.50 0.50 10-year yields 1.50 1.50 1.60 1.70 United Kingdom Repo rate 10-year yields 1.72 0.05 0.05 0.05 0.05 0.05 0.77 0.90 0.90 0.95 1.00 1.65 1.65 1.80 1.95 YTD Return' 2.1% 2.9% 2.4% Japan OvemeN cal rate 10-year yields 1.9% GBI-EM hedged in S Tield - Global Diversilied 5.79 6.00 6.3% Cm« Mantels US high grade (bp over UST) Euro high grade (bp over Euro gov) USD high weld (bp vs. UST) Euro high yield (bp over Euro gov) EMBIG (bp vs. UST) EM Corporates (bp vs. UST) Current Index YTD Return' 159 JPMorgan JULI Portdie Spread to Treasin 190 i8oxx Euro Caporate Index 573 JPMorgan Global High Yield Index SW 753 iEloict Euro FfY Index 292 340 JPM EM Corporates (CEMBI) 9.6% 8.6% 12.8% 19.0% 15.7% 14.7% 9.181 Global Commoditles Brent (Sibbl) Gold (Stoz) Cupper (S/mebic ton) Can (SBu) Current Quarterly Averages 1204 1301 1302 1303 GSCI Index YTD Return' 114 105 112 105 1754 1725 1750 1775 8242 8300 8500 8700 7.52 8.75 8.50 825 Agriculture 17.3% 120 Energy -1.0% Precious Metals 122% Industrial Metals 5.1% Forelgn Exchange EURJUSO USOMPY Current Dec-12 Mar-13 Jun-13 Sep-13 3m cash YTD Return' index in USD 1.30 78.4 78 79 79 1.30 1.30 1.32 1.34 EUR 0.8% JPY 1.8% 79 GBP/USD US12BRL USD/CNY 1.61 2.04 2.02 2.02 2.0) 1.98 6.27 6.32 6.32 6.33 6.25 1.62 1.62 1.63 1.65 GBP 4.5% BRL -3.0% CNY 2.0% USDKRW USD/TRY 1111 1.81 1125 1125 1110 1100 1.80 1.75 KRW 5.5% TRY 112% 1.75 1.70 YTD Return Equities Current (local toi) S&P Nasdaq Topix FISE 100 5793 7.4% MSCI EurOzone' 144 142% MSCI Europe' 1111 12.3% MSCI EM 3. 996 11.6% Braut Bovespa 59162 5.5% Haag Seng 21136 19.0% Shangehai SE 2105 -3.0% 'Lavalseatoms as or Oct 11. 2012 Lotet currency excepl MSCI EM Sauce: J.P. Morgen 1427 15.9% 3044 17.3% 718 0.2% US Sector Allocation • YTD Energy Matenals Europe YTD Japan YTD -4.0% -13.1% -3.6% 0.0% 11.3% 8.6% 18.2% -10.4% 5.5% .18.2% 0.2% EM YTD ($) 6.8% 0.5% 11.1% 8.9% 10.9% 13.9% 19.9% 21.8% 12.6% 13.7% 18.5% 16.5% 25.0% 19.8% 17.9% 10.1% 24.2% -0.2% 5.1% 7.5% 15.9% 12.3% 5.5% 3.0% 9.9% 10.9% 18.5% 28.3% 14.9% 17.8% 13.0% 4.9% 11.6% Industrials Ctscrehonary Staples Healthcare FtanwK Inlorrnabon Tech. Telecommunicalions Ulildies Overall 5 EFTA01146384 Jan Loeys (1-212) 834-5874 [email protected] Global Asset Allocation The J.P. Morgan View 12 October 2012 Global Economic Outlook Summary J.P.Morgan Real GDP %over a year ago Real GDP %over previous period. say Consumer prices %over a year ago 2011 2012 2013 1012 2012 3012 4012 1013 2013 3013 4011 2012 4012 2013 The Americas United Slates 1.8 2.1 1.9 2.0 1.3 1A1 2.0 1.5 2.3 2.5 3.3 1.9 1.9 4 1.6 4 Canada Lae') America Arge-.ina 2.6 4.2 8.9 2.2 2.9 3.3 2.1 3.7 2.2 1.8 2.8 t 2.4 1.9 2.4 t •32 1.9 4.5 8.0 2.0 4.0 6.0 2.1 3.3 0.0 2.1 3.6 1.5 2.2 3.9 0.5 2.7 7.2 9.6 1.6 6.0 9.9 2.4 6.3 10.0 2.0 7.3 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 C e 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 Cdombia 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 t 4.0 4.0 4.2 t 4.8 t 4.0 4.0 4.0 4.0 5.0 5.5 5.1 4.2 4.4 Mexico 3.9 3.9 3.6 4.9 3.5 3.5 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 t 2.8 Uruguay 5.7 3.5 4.0 11.8 2.1 9.0 .9.0 12.0 7.0 9.0 8.3 8.0 7.6 7.2 Venezuela AsIa/PacIfic 4.2 5.0 0.0 10.1 0.6 3.5 .3.0 .3.0 0.0 3.0 28.5 22.3 23.4 37.3 Japan -0.7 2.0 0.6 5.3 0.7 -2.0 -0.8 1.4 1.6 1.3 -0.3 0.2 0.0 4.2 Austral* 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 1.5 3.5 3.7 3.3 2.0 1.8 1.0 1.7 1.8 Asia ex Japan 7.4 6.1 6.4 7.2 5.7 5.6 t 6.3 6.4 6.5 6.8 4.9 3.9 3.3 3.8 China 9.3 7.6 8.0 6.5 6.7 7.4 8.2 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 hdia 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 hdonesia Korea Malaysia 6.5 3.6 5.1 5.7 t 2.4 4.7 3.5 4 3.3 2.9 4.6 3.5 5.8 6.2 1.1 5.9 4.0 t 2.0 2.5 3.0 3.5 1.5 3.0 3.5 2.0 1 4.0 3.5 3.0 1 4.0 4.0 3.5 1 4.1 4.0 3.2 4.5 2.4 1.7 3.9 1.9 1.1 2.2 3.0 1.2 Philippines 3.8 5.3 3.5 12.6 0.9 1.2 1.2 4.5 4.5 4.5 4.7 2.9 2.3 2.3 Singapore Tartan Island AfrIca/MIddle East 4.9 4.0 0.1 2.1 1.1 5.8 3.4 3.9 2.7 10.0 1.5 50.8 -0.7 3.5 13.9 .1.6 1.8 2.0 8.2 3.8 2.0 6.1 4.5 1.5 .1.2 4.6 2.0 4.5 4.8 2.0 5.5 1.4 4.0 5.3 1.7 2.5 4.1 2.1 1.3 3.3 1.8 1.1 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 Europe 3.1 2.1 3.0 2.7 3.2 0.3 -12 5.9 3.8 3.6 6.1 5.7 5.3 5.4 Euro area 1.5 4.4 t 0.2 4 0.0 -0.7 0.0 t -1.5 4. 0.8 0.8 1.3 2.9 2.5 2.5 2.0 Germany 3.1 1.0 1.4 4 2.0 1.1 1.0 t 0.0 4. 1.5 2.0 2.5 2.6 2.1 2.1 1.8 France 1.7 0.1 0.0 4 0.1 -0.1 0.5t -1.51 0.0 0.5 1.0 2.6 2.3 1.9 4 1.3 4 Italy Spain United Kingdom Erma hg Europe Bulgaria 0.5 0.4 0.9 4.8 1.7 -2.3 t -1.5 -0.3 2.7 1.0 -0.6 -1.3 4 1.5 2.7 1.5 .3.3 -1.3 •12 2.4 ... .3.3 -1.7 .1.5 1.3 -1.0 t -1.5 t 2.0 1.2 -2.5 4. .4.5 4. 0.5 2.1 0.0 .1.0 1.5 2.8 0.3 0.5 2.0 2.5 0.8 0.5 2.5 3.8 3.7 2.7 4.6 6.4 3.6 1.9 2.8 5.0 3.2 t 3.4 t 2.7 6.1 2.3 t 2.9 1, 2.6 6.2 Czech Republic 1.7 -1.1 0.9 -3.1 -0.8 -1.2 -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 2.4 1.6 1.2 1.6 1.8 2.4 3.5 4.6 4.0 3.7 2.6 Ronan* Russia Turkey Global Developed markets 2.5 4.3 8.5 3.0 1.3 0.6 3.6 2.8 2.4 1.2 0.9 3.0 3.7 2.6 1.2 0.5 3.7 ... 3.0 1.7 1.9 1.5 1.8 0.4 .1.0 1.8 1.9 t 0.5 t 0.8 3.0 2.0 1 0.3 .1. 1.2 3.5 ... 2.7 1.4 -0.4 3.0 ... 2.9 1.7 3.2 4.0 ... 3.2 1.9 3.4 6.8 9.2 3.8 2.7 1.9 3.9 9.4 2.8 1.8 4.7 6.7 7.7 2.8 1.9 6.4 7.4 6.9 2.8 1.6 Emerging market 6.1 4.7 5.1 5.3 4.2 4.6 t 5.0 5.1 5.2 5.6 5.7 4.6 4.5 5.0 Memo: Global — PPP weighted 3.8 3.0 3.2 3.6 2.4 2.6 t 2.7 4. 3.2 3.4 4. 3.8 4.2 3.3 3.2 4 3.3 Source: J.P. Morgan 6 EFTA01146385 Jan Loeys (1-212) 834-5874 janioeysigomorgancom Disclosures Global Asset Allocation Tne J.P. Morgan View 12 October 2012 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 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. 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Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised September 29, 2012. Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. 8 EFTA01146387