J.P.Morgan

J.P.Morgan Global Asset Allocation 31 August 2912 •, The J.P. Morgan View Adding risk in the US • Asset allocation — Cover long EMFX funded in euros and instead go outright long US equities as US has least event risk in September, upside risk on the economy and a more supportive central bank. • Economics — Upside risks on US, due to better consumption, are offset by downside risks on China and Japan to keep our global growth forecasts and risk balance unchanged. • Fixed Income — Portugal 2-yr yields include some 3% in EMU exit premium, making a clear case for new ECB SMP buying. Equities — Overweight US industries that benefit from sustained housing recovery. Credit — US HY and CMBS should benefit from any move to QE3, and are less exposed to event risk in Europe. • Currencies — Shorts on EUR/USD are about 75% covered. • Commodities — Stay OW energy vs. base metals. Markets have been largely in a holding pattern over the past fortnight, though giving back a touch of the risk rally of the previous fortnight. Equities are a percent or so lower, credit spreads a few bp wider and government bond yields some 10bp lower. With little news, investors are waiting for the potential policy fireworks over the next few weeks to decide which way to tilt their holdings. Two weeks ago, we upgraded our global growth outlook from a negative risk bias to a more balanced one. There has not been a lot of news since then, but the releases we did receive appear to be confirming that a bottoming process has taken place in world growth. We currently have the world economy expanding at a 2% pace in Q3, slightly up from Q2. We have seen no reason to change our 2012 and 2013 global projections for the past month now. Across regions, better consumer spending is creating some upside for Q3, but only modestly so given the recent rise in gas prices. European data are largely tracking our forecast for continued contraction of the economy. In Asia, weaker data are creating downside risks to both Japan and China. Economic data not getting worse is no source of comfort, as the current growth pace is some 1% below potential and risks driving the world into global deflation, if not depression. Hence, our eyes remains on what policy makers can do to prevent this. The US Federal Reserve is probably closest to having exhausted its armory, but is also seen as the policy maker most willing to do whatever it takes to reverse conditions. Hence, the preference of many investors to hold US equities relative to the rest of the world. Mr Bernanke today confirmed his commitments again at Jackson Hole, but is making us wait to the next FOMC meeting for details. He will then likely extend rate guidance for another year, with close to even odds of another bout of balance sheet extension. See page 7 for analyst certification and important disclosures. Global Asset Allocation Jan Loeys AC (1-212)834-5874 [email protected] JPMorgan Chase Sank NA John Normand (44-20) 7134-1816 john.normand@pmorgan corn J.P. Morgan Secumies plc Nikolaos Panigirtzoglou (44-20) 7134-7815 [email protected] J.P. Morgan Securities plc Seamus Mac Gorain (44-20) 7134-7761 [email protected] J.P. Morgan Secunties plc Matthew Lehmann (44-20) 7134-7813 [email protected] J.P. Morgan Securities plc Leo Evans (44-20) 7742-2537 [email protected] J.P. Morgan Securities plc YTD returns through Aug 30 % equines are in lighter color. EMBIG SW500 EM SCorp. US High Yield MSCI ACWcdd' MSCI Europe' US HO Grade Europe Fixed Inc' MSCI EM' EM Local Bonds God GSCI TR US Fixed Income EMFX Topes' Global Gov Bonds— I US cash 4 0 e to t5 Source: J.P. klagen. Bbonterg. See blia boxes page 2 fat descripticrt www.morganmarkets.com EFTA01146788 Jan Loeys (1-212)834-5874 lan.ioeysgipmorgan.com Global Asset Allocation The J.P. Morgan View 31 August 2012 • Overall, we do not count on any of his actions to directly lift growth, and see it more as a boost to asset prices. Hence, our overall positive stance in US asset prices. • EM policy makers clearly have more ammunition than DM ones, both on fiscal and monetary policy, and their current growth paces are underperforming potential as much as those in DM. We have seen some 60bp in EM rate cuts over the past year, but the average EM policy rate remains above 5.5% (GDW, p. 6), as the EM output gap remains small and inflation is close to their targets. Only modest rate cuts, little fiscal easing and disappointing data have combined to make EM stocks underperfonn DM and prevented EM currencies from benefiting much from the global search for yields so prevalent in fixed income. We retain an OW of EM sovereigns (vs USTs), but not in EM equities, given still weak data and unconvincing policy action. Our long EM FX funded in euros has given back some of its gains most recently from the combination of weak EM data and hopes of ECB policy action. We thus cover this position now. • The real policy focus over the next fortnight will likely be on the Euro area (see this week and last GDWand GFIMS). Most important will be Thursday's ECB meeting when the world expects Mr Draghi to provide more information on his new SMP program to bring funding costs of EMU members in trouble to more economically sensible levels. There is ample scope for surprises on both sides, but the market is expecting some details and then some action. This analyst's views, at least, are biased to the upside for the near term given increased acceptance within Germany that some action must be taken and Mr Draghi's track record when he upgraded the ECB's liquidity provision to the shock and awe of LTRO last December. • Specifically, we expect the ECB to confirm it will intervene in (buy) the shorter end of euro sovereign bond markets of countries in an EFSF program and compliant with EFSF conditionality, in an effort to bring down EMU exit (convertibility) risk premia (see below under Fixed Income). It should similarly confirm it will respect contract law (ie, no seniority), although the market will likely want to test this in practice over time. Our best guess is that the ECB will show off its new SMP program by buying 2-3 year debt of Portugal, given that is both in an EFSF program, is compliant, and its 2-year funding costs appear to include some 3% in EMU exit risk premium. Fixed income • Bonds edged up on the week. As so often over the past few years, all eyes are on central banks. Fed Chairman Bemanke delivered no major surprises today. But then Jackson Hole speeches last year and the year before did not provide clear signals or material rallies on the day (see chart), even as they were followed within a few months by policy action. We continue to expect the Fed's September meeting to bring more asset purchases, including in MBS, where we remain ovenveight on carry and negative net issuance. • The Fed is likely to be overshadowed by next week's ECB meeting, however. The underlying rationale of the ECB's new bond purchase program is to reduce government yields it judges to be inflated by convertibility premia: the risk that a country could leave the euro, and re-denominate its bonds into a weaker currency. We estimate that convertibility risk has pushed up two-year yields by some 3% for Portugal and 2% for Spain (see Convertibility Risk in Euro area peripheral bonds, Seamus Mac Gorain, for details). And importantly, the uncertainty about the precise impact of convertibility risk 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 Sane: J.P. Masan. Consensus Economics Consensus Ecurombs forecasts are Sr regcm and country's matte averaged using the same 5-year ruling USD GDP wegits terse use for au oem global prom], forecast 2013 global GDP growth forecasts: JPMorgan and Consensus 3.5 3.0 2.5 JPM Consensus Ja -12 Apr-12 Jul-12 Sane J.P. lAorgan. Consensus Econarrics. Consensus Eanarrics forecasts we for regan and cantons mat we ansraged using the same 5-year Ming USD GDP weights that we use for our own global growth 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 Mowal et al. Flows and Liquidity. Nikos Paniginzoglou el al. Descnption of YTD Chart on front page: Returns in USD. 'Local currency. s•Hedged into USD. Euro Fixed Income is iBoxx Overall Index. US HG. HY. EMBIG and EMS Corp are JPM indices. EM FX is ELk1l. In S. 2 EFTA01146789 Jan Loeys (1-212) 834-5874 lanioeysiggimorgan.com Global Asset Allocation The J.P. Morgan View 31 August 2012 gives the ECB significant leeway, in deciding the yield levels at which to conduct bond purchases. Though the ECB may not be ready to lay out the full detail of the new program at next week's meeting, we would expect purchases of short-dated Portuguese bonds to follow soon after. With yields on 2-year Portugal still close to 5%, there appears considerable room for them to fall further. Equities • The equity rally lost steam over the past two weeks in the absence of any significant news. The MSCI AC World index is slightly down, but still up 10% from its June low. The fading of the equity rally over the past two weeks can be considered normal after five straight weeks of gains. The equity market uptrend since June has never been a straight line, but it has rather followed an oscillating pattern with occasional pullbacks (see chart). • Central bank policy response in Europe and the US is essential for this rally to continue, in ow view. We remain of the view that forthcoming policy response by the ECB and the Fed will be adequate to sustain the equity rally into September Admittedly, September is seasonally a weak month from a technical point of view and our technical strategists are warning us that the S&P 500 index support zone at 1390-1400 (closed at 1399 yesterday) is absolutely critical. Two closes below this zone risk a downside acceleration to 1350, if not 1325. • Two weeks ago, we closed ow global Cyclical sector underweight. Our colleagues in Europe, Mislay Matejka and team, did the same this week for European equities (see European Equity Strategy, Aug 28). The stabilization in economic data induced us to make this change. Indeed, our US Economic Activity Surprise Index (EASI) has risen to positive territory this week, for the first time in 6 months. • The recovery in US housing indicators has been partly behind the rise in the EASI. We believe this recovery is on a solid footing and recommend an OW in 5 US industry groups for this US sectoral play: Home Furnishing & Retail, Housing Infrastructure plays, Homebuilders, Timber stocks and Banks/Financials. Credit • Headline bond indices were a mixed picture this week Major spread moves in either direction were absent but fresh yield lows were recorded in several markets. Most notably among the higher echelons of ow YTD performance parade (p.1), EMBIG yields fell to 4.7%, CEMBI to 5.1% and US HY now offers a yield of just 6.7% vs a decade long average of closer to 10%. Such a yield environment is continuing to support primary markets, with $238bn of corporate gross issuance globally this month. This is average for a normal month, but a record for August, which is normally a very quiet month. • Additional monetary stimulus from the Fed remains the focus of markets, but September is littered with potential pitfalls in Europe, including German legal review of the ESM, clarity on the size of bond purchases by the ECB, and a Spanish downgrade among others. Ow main call is that the FOMC will extend its rates guidance into 2015 and initiate a smaller scale round of purchases of Treasuries and mortgages, perhaps to the tune of $150bn over two months and more if required. Such an outcome would likely prove beneficial to spread product, but carry strategies should steer clear of European event risks as far as possible. US HY, the stalwart of our credit strategy at present, is an obvious J.P.Morgan Change in 10-year Treasury yields on day of Bernanke Jackson Hole speech Per cent 0.2 0.15 0.1 0.05 0 .0.05 • 2008 2009 20t0 2011 2012 Sane: J.P. Mogan MSCI AC World Total return index 400 390 380 370 360 350 340 330 Dec-11 Feb-12 Seam: P. lAagan Apr-12 Jun-12 More details in ... US Credit Markets Outlook and Strategy. Enc Beinslein el al. High Yield Credit Markets Weeldy. Peter Acciavaui et at. European Credit Outlook & Strategy. Steven Oulake et al. Emerging Markers Cross Product Strategy Weekly, Eric Bernstein err at 3 EFTA01146790 Jan Loeys (1-212)834-5874 lanioeysiggimorgan.com Global Asset Allocation The J.P. Morgan View 31 August 2012 candidate, but ow colleagues in the US also make a case for CMBS based the relative sensitivity of the asset class to past Fed duration purchases and its relative immunity to past European blow-ups (see US FIMS, Aug 24). Foreign Exchange • As August segues into September, the complacency which characterised late summer has started to recede ahead of potential pivot points for the Big 3 economies. FX vols and vol premia have started to rise, the dollar has gained versus most commodity currencies and euro-funded carry has been mostly unwound. September is important for every region but it may not be decisive. The ECB bond buying program will need to be judged by secondary market actions rather than an explicit press conference, in our view; China's putative upturn may need yet another month to materialise; and Fed easing is of questionable value ahead of the fiscal cliff. We therefore keep a portfolio of defensive and RV trades. • Regarding the ECB meeting next week, buying bonds of 1-yr duration or less would be pointless for economic and financial stability. If this tenor is the extent of the bank's comfort zone, the euro would likely be sold. If the bank purchases debt longer than 3 years, the euro will likely rally on a view that the bank is willing to provide decent term financing to sovereigns. If the bank proves unwilling to push 2-yr yields below 2%-3%, the euro will also probably be sold on realisation that the ECB isn't doing much to reverse the periphery's recession. This meeting also comes against a much more balanced technical position in the euro market: managers appear to have shifted from very short of EUR/USD and euro crosses to slightly underweight, and short- term fair-value models indicate that the crosses have shifted from about 5% too cheap in July to fair value now. Together these two indicators suggest that short covering in the euro crosses is about 75% complete, arid hence we expect EUR/USD to slip into the low 1.20s in September barring a Fed announcement on Sep. 13 of sizable asset purchases (more than $250bn). Commodities • Commodities are broadly flat this week with a further rise in agriculture offsetting a fall in base metals, while energy is flat. Oil markets endured two further supply setbacks over the last two weeks. A fire at the world's second largest refinery in Venezuela has reduced production by c.330-390kbd and Hurricane Isaac has reduced crude production in the Gulf of Mexico by around I mbd or 1% of world supply. Both outages should prove temporary but they do create further impetus for a release from strategic reserves, which has been much in focus as we get closer to the US presidential election. • Our commodity strategist Colin Fenton has also raised the issue that a release from strategic reserves could make it easier for Israel to launch a surgical strike on Iran as the impact an oil prices would likely be less extreme (See Commodity Mementos Video: Do Isaac and refinery cuts lift odds Israel attacks in September?, Aug 30). We are by no means military experts and we are not forecasting such an event. However, negotiations with Iran have broken down and the IAEA's latest report out yesterday showed further development of uranium enrichment capabilities. As such, it does appear prudent to have some hedges against such a scenario in one's portfolio. We are OW energy vs. base metals which should provide some protection but more direct exposure to oil and oil volatility via options also makes sense. FX weekly change in USD 1.0% 0.0% J.P.Morgan II .1.014 USD JPY EUR GBP CHF CAD AUD T Vet Scuts J P Magan More details in FX Markets Weekly. John Normand et al. Commodity Markets Outlooks Strategy, Cohn Fenton et al. Oil Markets Monthly. Fenton et al. Daily Metals Note. Fenton et al. Agriculture Weekly. Dietz et al. 4 EFTA01146791 Jan Loeys (1-212) 834-5874 janioeysgsmorganoorn Interest rates Global Asset Allocation The J.P. Morgan View 31 August 2012 Current J.P.Morgan Sep•12 Dec-12 Mar-13 Jun-13 YTD Return` United States Fed funds rate 0.125 0.125 0.125 0.125 0.125 1.58 1.75 2.00 2.00 2.25 2.3% • 10-year yields Euro area Ref rate 0.75 0.75 0.50 030 0.50 1.33 1.00 0.90 1.00 1.20 4.0% 10-year yields United Kingdom Repo rate 0.50 0.50 0.50 030 0.50 1.46 1.35 1.50 1.70 1.80 4.0% 10-year yields Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 0.80 0.85 0.95 0.95 0.95 1.6% 10-year yields GBI-EM hedged in S Yield • Global Diversified 5.89 6.00 5.4% Credit Markets Current Index YTD Return' US hgh grade (bp over UST) Euro high grade (bp over Euro gov) USD high yveld (bp vs. USTI Euro high yield (bp over Euro gov) EMBIG (bp vs. USTI EM Corporates (bp vs. UST) 188 JPMorgan JUU Porta° Spread to Treasury 221 7.6% iBoxx Euro Corporate Index 7.2% 602 JPMorgan Global High Yield Index 5TW 878 iBoxx Euro HY Index 10.6% 15.3% 0 EMBI Global 13.0% 381 JPM EM Corporates (CEMBI) 11.4% Commodities Current Cwarterty Averages 1203 1204 1301 1302 GSCI Index YTD Return' Brent (Slbbl) Gotd (Sibz) Copper (S/metric tan) Corn (Sa3u) 114 95 100 105 95 Energy 1.2% 1681 1655 1725 1750 1775 Precious Metals 5.0% 7557 8000 8300 8500 8700 Industrial Metals -5.6% 7.97 8.25 8.25 8.00 7.75 Agricultre 23.5% Foreign Exchange Current Sep•12 Dec-12 Mar-13 Jun-13 3m cash YID Return' Index In USD EURAJSD 1.26 1.22 1.24 1.25 1.25 EUR -2.7% USOMPY 78.4 78 78 80 80 JPY 1.8% GBP/USD 1.59 1.56 1.58 1.58 1.58 GBP 2.9% USDARL 2.05 2.00 1.98 1.95 1.95 BRL -3.9% USD/CNY 6.35 6.33 6.30 6.30 6.25 CNY 0.3% USDARW 1135 1150 1150 1090 1090 KRW 3.4% USD/TRY 1.82 1.82 1.80 1.75 1.75 TRY 10.0% YTD Return Equities Current (local ccy) Sector Allocation * US YID Europe YTD Japan YTD EM YTD (5) S&P 1410 129% Energy 3.2% 0.3% -8.3% -1.4% Nasdaq 3049 17.2% Materials 6.7% 2.8% -11.6% 3.4% Topix 732 3.4% Industrials 8.8% 9.6% 0.2% 5.4% FTSE 100 5711 5.6% Discretonary 17.2% 19.3% 8.6% 6.8% MSCI Eurozone' 139 9.8% Staples 10.9% 13.8% 16.4% 10.9% MSCI Europe' 1078 8.8% Healthcare 13.0% 13.3% 10.5% 20.9% MSCI EM 5' 944 5.6% Franca 16.9% 10.1% 16.2% 8.2% Braze Bovespa 57256 0.7% Information Tech. 19.4% 10.4% -5.9% 12.1% Hang Seng 19483 7-5% Tel 20.9% 0.4% 9.0% 9.1% Shanghai SE 2048 'Levels/returns as of Aug 30 2012 Local currency except MSCI EM S -6.9% Vlilities 12% 4.1% -19.9% 5.1% Overall 12.9% 8.8% 3A% 5.6% Scam: J.P. Unger 5 EFTA01146792 Jan Loeys (1-212) 834-5874 [email protected] Global Asset Allocation The J.P. Morgan View 31 August 2012 Global Economic Outlook Summary .1.13.Morgan Real GDP ti ow a year ago Real GDP 40w* crevws pencd. saar Consumer prices i o a year ago 2011 2012 2013 1012 2012 3012 4012 1013 2013 3013 4011 2012 4012 2013 The Americas United States 1.8 2.2 2.0 2.0 1.7 t 13 2.0 1.5 2.3 2.5 3.3 1.9 2.1 2.3 Canada 2.4 2.01 2.2 1.8 1 1.81 2.1 2.0 2.2 2.2 24 2.7 1.6 24 2.0 Latin America 4.2 2.9 3.7 2.9 1 Lq 1 4.0 3.8 3.5 3.8 3.9 7.2 6.0 6.1 7.0 Argentina 8.9 3.3 2.2 3.6 4.5 8.0 6.0 0.0 1.5 0.5 9.6 10.0 10.0 11.0 Brazil 2.7 1.7 4.1 0.5 1 1.6 1 4.5 4.6 3.8 4.0 4.3 6.7 5.0 5.2 5.2 Chile 6.0 5.0 4.5 5.1 7.1 2.0 4.0 4.6 4.7 4.4 4.0 3.1 2.5 3.1 Colorrida 5.9 3.5 4.5 1.1 2.2 3.0 3.5 5.0 6.0 6.0 3.9 3.4 2.9 3.3 Ecuador 7.8 4.0 4.0 2.8 3.5 4.0 4.0 4.0 4.0 5.0 5.5 5.1 4.2 4.4 Mexico 3.9 3.6 3.5 4.9 3.5 2.2 3.0 4.4 3.7 3.3 3.5 3.9 4.2 3.6 Peru 6.9 6.0 7.0 8.2 5.5 5.5 6.0 8.0 8.0 7.0 4.5 4.1 2.9 2.8 Uruguay 5.7 3.5 4.0 11.65 28.0 .10.3 13.5 .11.0 25.0 8.3 8.0 7.6 7.2 Venezuela AsialPaelfic 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 2.5 0.9 5.5 1.4 :Q,.3 0.5 1.0 1.2 1.3 .0.3 0.2 0.1 -0.1 Australia 2.1 3.7 2.5 5.3 3.8 2.1 1.2 3.9 2.4 1.8 3.1 1.0 1.5 2.7 New Zealand 1.3 2.5 2.8 4.7 11,4 3.3 3.0 2.3 3.4 3.2 1.8 1.1 2.5 2.8 Asia ex Japan 7.4 6.2 6.6 1 7.3 T 5.8 1 5.9 1 6.4 1 6.8 6.9 4 7.1 4.9 3.9 3.4 3.9 China 9.2 7.7 8.5 6.8 6.9 BSI 8.5 8.7 8.7 8.7 4.6 2.9 2.4 3.5 Hong Kong 5.0 1.2 3.2 2.4 -0.4 IQ 2.5 3.5 3.5 5.0 5.7 4.2 2.5 2.7 India 6.5 5.6 1 6.0 1 6.1 t 5.3 1 5.2 1 5.0 1 5.81 6.01 6.8 8.4 10.1 1 9.8 9.0 Indonesia 6.5 5.0 3.7 4.6 6.2 IQ 3.0 3.5 4.5 5.0 4.1 4.5 3.9 2.2 Korea 3.6 2.5 3.3 3.5 1.5 2.0 3.5 3.5 3.5 4.0 4.0 2.4 1.9 3.1 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 Phippmes 3.8 5.3 3.5 12.6 t 0.9 1 1/ 1.2 4.5 4.5 4.5 4.7 2.9 2.3 2.3 Singapore 4.9 2.1 3.4 9.5 -0.7 0.8 4.1 4.1 4.1 4.1 5.5 5.3 3.4 2.4 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 Thailand AfrIcattalddle East 0.1 5.8 2.7 50.8 13.9 2.0 2.0 1.5 2.0 2.0 4.0 2.5 1.3 1.1 Israel 4.6 2.9 4.4 2.8 3.2 a 2.8 4.9 6.1 6.1 2.5 1.6 1.3 1.5 South Mica Europe 3.1 2.5 3.6 2.7 3.21 3.5 4.5 3.7 3.2 3.4 6.1 5.7 5.5 5.6 Euro area 1.5 -0.4 0.2 0.1 -0.7 .1.0 -0.5 0.5 0.5 1.0 2.9 2.5 2.5 1.9 Germany 3.1 1.0 1.2 2.0 1.1 0.3 0.5 1.5 1.5 1.8 2.6 2.1 1.9 1.6 France 1.7 0.1 0.6 0.1 -0.2 -0.3 0.0 0.8 1.0 1.3 2.6 2.3 2.3 1.7 Italy 0.5 -2.3 -1.0 -3.3 -2.9 :2.5 -1.5 -0.8 -0.5 0.0 3.7 3.6 3.4 2.5 Spain 0.41 -1.51 -0.9 -1.3 -1.71 .2.8 -2.0 -0.5 0.5 0.5 2.7 1.9 3.2 2.6 United Kingdom 0.8 .0.4 1.5 -1.3 -1.8 2.0 0.5 1.5 2.0 2.5 4.6 2.8 2.7 2.6 Emerging Europe 4.8 2.7 1 3.1 1 2.3 1 1.3 1.4 1 2.4 t 3.1 / 3.1 / 3.3 6.4 5.0 5.8 t 5.8 Bulgaria 1.7 1.0 2.5 Czech Reptile 1.7 -1.1 0.9 .3.1 -0.8 LQ,2 0.1 0.6 2.0 2.5 2.4 3.4 2.9 2.4 Hungary 1.6 -1.2 0.8 -4.1 -0.8 -0.5 0.5 1.0 1.5 1.8 4.1 5.5 5.5 3.3 Poland 4.3 2.4 1 2.1 1 2.4 1 1.6 t 121 1.6 1 1.8 / 2.41 3.5 4.6 4.0 3.7 2.6 Romania 2.5 0.8 1.0 -0.5 2.0 -0.4 2.8 1.6 .1.2 1.2 3.4 1.9 4.4 4.2 Russia 4.3 3.61 3.4 3.7 1.5 2.0 1 3.0 T 4.0 4.0 3.7 6.8 3.9 6.7 t 7.4 Turkey 8.5 2.8 4.5 9.2 9.4 6.5 5.9 Global 3.0 2.5 2.7 3.1 1_91 2.0 2.4 2.7 2.9 1 3.2 3.8 2.8 2.9 2.9 Developed markets 1.3 1.3 1.2 1.8 0.7 0.5 0.8 1.2 1.5 1.8 2.7 1.8 2.0 1.6 Emerging markets 6.1 4.71 5.3 5.4 4,21 4.71 5.2 5.4 5.6 5.7 5.7 4.6 4.51 4.9 Source: J.P. Morgan 6 EFTA01146793 Jan Loeys (1-212) 834-5874 janioeysigomorgan.corn Disclosures Global Asset Allocation The J.P. Morgan View 31 August 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 (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. 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