J.P. Morgan

J.P. Morgan he J.P. Morgan View Returns and risks for 2012 • Economics—World growth slows to 2% next year, down from 2.6%. But growth should rise back to trend in H2. Inflation falls from 3.6% to 2.2%. World portfolio — A di fficult Q1 should be followed by better returns on riskier asset classes as growth rebounds and major risks become less acute. Fixed Income — Coupon-like government bond returns and flatter curves. Euro area periphery risks to the downside, near term. Equities— Double digit returns in 2012. Credit — Strong credit fundamentals underpin bullish forecasts. Foreign exchange — A weaker US dollar and good returns on EM currencies. Commodities — Weak demand in Q1 should turn to a strong H2, helping commodities to a 10% total return for 2012. • This is the last issue of the year. We wish our readers joyful holidays and a less stressful new year. • For our last issue of the year, we present our 2012 outlook, focusing on the economy, asset class returns, risks, lessons, and strategy. • 2011 was not a great year for investors with global equities losing 10%, giving hack 2010 gains, only partly offset by a 5.7% return on global fixed income (chart on right). Commodities are down 2% while the credit component of spread product produced significant losses. The world economy grew at a trend-like 2.6% in 2011, less than the 4% of 2010, and less than the 3.4% we had predicted a year ago. • 2012 should turn out better for risk markets, even as it will likely be volatile and start hesitantly, producing a mirror image to 2011's first-strong-then-weak performance. 2011 began with all of us bullish on growth and risk assets, and turned down by mid-year as we cut growth projections. 2012 will instead start with a surplus of bearish growth views and defensive positions. For the year as a whole, we see 2% global growth, split between 0.9% in DM and 4.7% in EM. The first half is set to produce only 1.5% growth, as Europe is in reces- sion and China slows. The second half should see global growth back to a trend pace of 2.7%, but with upside risk. • Charts 2-3 shows our expected returns by asset class, both outright and as an excess return over volatility. Equities are on top with returns around 20%, followed by credit and EM currencies between 5% and 10%, depending on quality. Only GI0 government bonds and the dollar underperfom US cash. These return projections line up cleanly with relative risk/beta, with over half the riskier asset classes promising returns to risk ratios near 1.0. • We had similar return projections a year ago. They badly disappointed and underline that 2012 will be a year of risk management. Fear will dominate greed early in 2012. Our best guess is that investors will never truly become bullish, The certifying analyst is indicated by an AC. See page 7 for analyst certification and important legal and regulatory disclosures. Global Asset Allocation J.P.Morgan Chase Bank NA, J.P. Morgan Securities Ltd. Dec 16, 2011 Jan Loeys' John Normand Nikolaos Panigirtzoglou Seamus Mac Gorain Matthew Lehmann Leo Evans YT0 returns through Dec 15 94. equities are in lighter colour. Gokl EMBIG US High Grade US Ned Income Gbbal Gov Bonds- US High Yield EM Local Bonds" EMS Corp. US cash Europe Fixed Income' S&P500 GSCI TR EM FX MSCI AC World' MSCI Europe MSCI EPA' ■ O O Topic• I .20 .10 0 10 20 Source: JP. lAcrsan. ES:ate% Rams in USO. local *mow. "Hedged Ho USG. Euro Flied heart is ton Offal Index US HG. HY. Ehle4G so OJ S Cop ye Faiocn. EM FX is EU& in S. www.morganmarkets.com EFTA01172124 Global Asset Allocation The J.P. Morgan View J.P. Morgan but that they will instead turn less bearish, inducing them to deploy cash. • What risks in 2012? Three local risks have the most chance of turning global, 2012 return forecasts %, &plies are in lighter colour MSCI EM EMU breakup, Chinese real estate, and US fiscal policy. In each case, both policy makers and portfolio managers have all incentive to prevent a global crisis, through the right policies and positioning. The risk is that they underes- timate these forces and do not adjust policies and positions on time. MSCI AC World SW500 MSCI Europe (LC) US High Yield GSCI TR • EMU breakdown surely ranks as the highest risk, given its size, leverage, interconnectedness, and magnitude of the challenge. Investors are positioned for trouble, but not a blow-up. We have argued the crisis needed to get worse before it creates the incentives to swallow the bitter pills needed to solve the crisis. This year, we surely underestimated how bad the crisis needed to get. LACI EM FX ADXY EM Local Bonds (U) Gold Our current view is one of neither dissolution nor resolution. Movement to a needed fiscal union and ECB QE will be incremental and full of setbacks. A full resolution will not come early as the crisis itself is needed to extract necessary changes in EMU South. But an EMU dissolution is also quite unlikely as the costs are unacceptably high. EMU blow-up risk is higher for 2013.14. EMBIG US High Grade EM Kap. US Axed Income US cash EM Local Bonds (H) • The slump in Chinese real estate activity and prices invites comparison with the US in 2007.09. We see enough differences, including that the Chinese slowing is policy induced and can be turned around, but the situation mast be Global Gov Bonds 01) f DXY 40 0 10 20 90 monitored closely. US fiscal fireworks in August likely triggered this year's big SOU/DC JP. Wien Sheinberg. rietrns ki LSD tame Pe) is hated equity sell off. As in Europe, we see a controlled crisis where both sides will kto USD.IUIe:irhedgeSn mtrssdnCI is kcal cumrcy. US Ha keep the battle going, but neither side wants a crash. HY. EMIG rd DA S c ps PM irdees. EM FX is rum to S. • What will be the trigger for a risk-on move? Not a single event but a 2012 sharpe ratio forecasts condition: risk not aggravating in the presence of high risk premia and risk- equities are in lighter colour. Return forecasts underweight investors. minus cash forecast. divided by the volatility of monthly excess returns (annualized) over the past three years. • What have we learned from 2011? ( I ) Be tactical and respect stop losses and momentum. Our momentum-based asset allocation models— Efficiente and MSG AC World MSC' EM Mosaic — performed very well, and we should have stayed closer to them. (2) MSCI Europe(LC) Use Value only as a strategic bias. The average UW of risk should be smaller than the average OW during the year. (3) Be objective and don't get emotional US High Yield on what should happen. Focus instead on what will and could happen. S&RS0D US High Grade • Asset allocation. Strategic long-only: 41% equities, 49% Fl( US Agg, HY), FX 7.5% gold, 2.5% cash. Tactical: Small OW of risk through US equities and HY. LAG EMBIG Fixed income EM Local Bonds(U) • Global government bonds have had their best year since the panic of 2008, marked by dramatic yield divergence within the Euro area. The EMU crisis will remain front and centre next year. The main pitfalls: a hard Greek restructuring early in 2012, and especially Italian and Spanish refinancing, with the scale of liquidity support for EMU sovereigns still uncertain. Our expectation is that enough liquidity support to stabilise the crisis will eventually be forthcoming, mostly through a faster pace of ECB bond purchases, but only in the face of more market pressure. That implies a tactically negative view on peripheral bonds. even as we expect stabilisation later in the year. EMS Cap. Gold GSCI 18 ADXY US Fixed Income EM Local Bonds(H) Global Gov Bonds(H) DXY -0.5 00 0.5 1.0 15 Son J.P. raga Bcanterg. Returns II USD exact 041s hedged • More stability in the Euro area is one prerequisite for core yields to rise alb USD. M s unledged in Man rd ILG) is bail arreney. US HG. significantly from these historically anomalous levels (see chart). The other is Ht. BING and al S Cap area Sees. EM FX SEIM in S. Dec 16, 2011 2 EFTA01172125 Global Asset Allocation The J.P. Morgan View J.P, Morgan monetary policy tightening, but that seems as far away as ever. Indeed, we expect G-4 central banks to buy something of the order of $1.3tr of bonds next year, the most since 2008. Any Fed QE3 (a 40% shot) would likely support MBS more than Treasuries, however, making the supply-demand outlook more challenging for Treasuries in 2012. • We expect slightly higher yields and roughly zero excess returns over cash overall for government bonds in both DM and EM. The low yield environment favours generally flatter curves, notably in the UK where BoE purchases in the long end are likely to far outweigh supply. Australia, the highest-yielding AAA government, is likely to outperform again, with risks of a more aggres- sive easing cycle than the 50bp we forecast for 2012. Equities • Equities should generate double digit returns in 2012 driven by a rebound in growth from Q2 on; a gradual covering of equity UWs; a US presidential year (a positive when the presidential approval rating is below 50); and continued profit margin expansion. As the top chart shows, G4 non-financials corporate cash flow as % of GDP reached new highs in 2011. More importantly, capex is rising, gradually closing the gap with cash flows, while non-financial corporates equity buying activity remains on an uptrend (bottom chart). • Our main trading themes for 2012 are: 1)OW Cyclical vs. Defensive sectors. The Global PMI, our main signal for this allocation, is still forming a bottom just below 50. But we expect a rebound from Q2 to 55 by end 2012. 2)OW US Equities as the Euro crisis lingers and EM economies slow in HI. US elections are another supportive factor. 3) OW BRICs within EM as the shift in EM policy priorities from inflation to growth is even more dramatic in BRICs. 4) OW the Core in the Euro area as German growth continues to outperform. 5) OW High Dividend Yield Stocks. High risks induces investors to focus on income. There are several indices and ETFs that track the universe of high dividend yield US stocks. The highest yielding are S&P US Preferred Stock Index (DivYield 7.1%). We recommend an OW of S&P US Preferred Stock. Credit • The slowdown in global growth in H I will likely initially widen credit spreads. but then, as growth re-accelerates, these spreads should gain come in, and end the year tighter than today. We remain overweight US vs. European credit on diverging growth prospects. Our forecast is that US high grade bond spreads will end 2012 at 175bp, down from 240bp today, implying a 6.5% total return for the asset class. Non-financial corporates are in particularly good shape as profit margins arc at decade highs. We look for further underperformance of financials as balance sheets are subject to increasing pressure from both peripheral exposure and regulatory changes in IHI I. • Tepid growth and the Fed's commitment to a low-for-long policy should push investors towards high-income products. With default rates at historical lows, US HY thus looks particularly attractive. Our 2012 YE spread forecast is 705bp with a total return of 11%. B rated issuers offer the best trade-off in terms of income vs. default risk. All told, st Fling credit fundamentals and low default rates underpin our bullish forecasts for US credit in 2012. • Within EM, we see sovereigns as vulnerable to a global slowdown in I H12 and G4 and US non-financial corporate financing gap The financing surplus is the difference between cash flows and capex as % GDP. G4 includes the US. the UK. the Euro area and Japan 11.0 10.5 - G4 capex 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 95 G4 cash toms 97 99 01 03 05 07 09 II Saxe. J. P. Abgan. Fed. EU. Bat 8.1 G4 and US nonfinancial corporate sector net debt and equity Issuance Sbn per quarter at annual pace. G4 includes the US. the UK. the Euro area and Japan 2.5 2.0 1.5 1.0 .5 .0 4.0 Str non-financial corporates G4 net debt Issuance G4 net equity issuance I.5 Sane. J. P Ma.;an Fed. EC& ScE More details in ... EM Corporate Outlook and Strategy. Warren Mar el al. US Creetit Markets Outlook and Strategy, Eric Beinstein et at. High Vied Credit Markers Weekly, Peter Acciavalli et al. European Credit Outlook & Strategy. Steven Dulake et al. Emerging Markets Cross Product Strategy Weekly, Eric Spinster) el al. Dec 16, 2011 3 EFTA01172126 Global Asset Allocation The J.P. Morgan View J.P. Morgan stay overweight vs. corporates. We forecast EMBIG and CEMBI spreads to narrow to 350bp and 400bp, respectively, implying total returns of 7.5% and 6.5% in 2012. Like DM, EM will remain hostage to events coming out of Europe. but EM fundamentals are better than those of DM, including higher growth, greater policy flexibility and an increasingly diverse investor base. Foreign Exchange • The dollar is ending 2011 up about 1% in trade-weighted terms, with losses versus some G-10 currencies like WY and CHF offsetting gains vs most EMs. This broad stability is remarkable in a year which delivered the sort of cyclical and policy shocks which typically drive substantial USD strength versus all currencies but the yen. It is a stretch to call this pattern a regime shift, but it nonetheless highlights the dollar's poor monetary and fiscal fundamentals. • 2012 presents a unique tension between unprecedented economic fragility and very defensive investor positioning. Avoiding a sovereign credit event and global recession should be sufficient to ease the dollar lower, even as the global economy stagnates, since investors are already longer of the currency than they have been prior to any previous recession/financial crisis. • Yearsend targets are modest, with less than 2% trade-weighted decline: DXY 76, JPMQUSD 80, USDLIPY 72, EUR/USD 1.38, GBP/USD 158 andAUD/USD L04. FX volatility should remain above average (12% - 15% on VXY Global). • Top five trading themes and recommendations: (I) huge risks around Europe (EUR/JPY put spreads , USD/SEK fly); (2) desperate times demand desperate action (short USD/JPY lx2 put spreads, short GBP/JPY through seagulls, short 6-mo EUR/CHF puts; (3) no winners in European cage match (3-mo range binaries in EUR/GBP and EUR/NOK); (4) some safe havens are safer than others (long NOK/SEK); and (5) valuation reasserts itself (sell NZD/CAD). Commodities • We expect a 12% total return for commodities in 2012 with a weak first quarter offset by a strong performance in H2. Global growth is likely to be subdued over the next few months as Europe moves deeper into recession and China slows. This weakness will translate into lower demand for industrial commodities and should bring negative returns over the next few months. Lower commodity prices should alleviate the inflation pressures that had built up earlier this year in China and should allow policy makers there to shift into a more stimulative stance. We believe that, coupled with more supportive measures from US policy makers, this should help push global growth and commodity demand higher from Q2 onwards. Given still tight supply condi- tions, this should make for strong gains through 12H2. • We expect energy to be the best performing commodity sector in 2012 with oil moving steadily higher towards $130/bbl by the end of the year. Base metals should do next best although gains will be heavily weighted towards I-12 when we should see strong Chinese demand. We continue to believe that gold will move steadily higher in the near term, driven by strong demand in EM from both consumers and central banks but prices will likely peak in Q2 once policy makers take more coordinated action to support the economy. Agriculture should produce the lowest gains as increased production reduces some of the supply pressures we have seen this year. FX weekly change vs USD 3% 2% - I% - 0% •I% .3% USD EUR GBP JPY CHF CAD AUD TWI Soute:1P Maw I More details in ... FX Markets Weekly. John Normand et al. Commodity Markets Outlook & Strategy. Colin Fenton et al. 04 Markets Monthly. Lawrence Eagles et al. Metals Review and Outlook. Michael Jansen Global Metals Ouarteny, Michael Jansen Dec les 2011 4 EFTA01172127 Global Asset Allocation The J.P. Morgan View Interest rates Current Mar-12 Jun-12 Sep•12 Dec•12 J.P. Morgan YTD Return' United Stales Fed tundsrate 0.125 0.125 0.125 0.125 0.125 10.year yields 1.84 1.70 2.50 2.50 2.50 9.7% Euro area Ref rate 1.00 0.75 0.50 0.50 0.50 10.year yields I.85 1.90 1.70 2.00 2.00 91% Unled Kngdom Repo rate 0.50 0.50 0.50 0.50 0.50 10.year yields 2.04 1.85 1.90 2.10 2.20 15.1% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10.year yields 0.98 0.90 0.95 1.10 1.15 2.2% GB1114 hedged in Yield • Global Diversified 6.60 6.70 4.3% Credit Markets Current Index Y11) Return' US high grade Ibp over UST) 244 JPMergan JULI Porfoko Spread to Treasury 7.5% Euro high grade (bp over Euro gov) 279 iBoxx Euro Corporate Index 2.4% USD high yield (bp vs. UST) 744 JPMergan Global High Yield Index STW 5.6% Euro high yield (bp over Euro gov) 992 iBoxx Euro HY Index -4.4% EMB1G Op vs. UST) 429 EMBI Global 7.8% EM Corporates (bp vs. UST) 474 JPM EM Corporates (CEMBI) 2.8% Commodities Current 0uanedy Averages 1201 1202 1203 1204 GSCI Index YTD Return' Brent (Sbbl) 102.6 105.0 110.0 115.0 120.0 Energy 4.2% Gold ISiort 1591 1925 1875 1850 1825 Precious Metals 18.9% Copper (SMetric ton) 7192 8250 8850 9250 9000 Industrial Metals .24.2% Corn (Saul Foreign Exchange 584 Current 6.70 7.00 6.80 6.30 Mar•12 Jun-12 Sep•12 Dec-12 Agricucure .20.4% 3m cash YTD Return' index In USD EUR'USD 120 1.30 1.34 1.36 1.38 EUR •1.6% USDJPY 77.8 76 76 74 72 JPY 4.3% GBP/USD 1.55 1.54 156 1.57 1.58 GBP 0.0% USD'BRL 1.86 1.80 180 1.80 1.80 BRL 4.1% USD/CNV 625 6.20 6.10 6.00 6.05 CNY 2.1% USDXRW 1159 1120 1080 1060 1040 RAW .0.3% USD/TRY 1.89 1.80 1.80 1.82 1.80 TRY -13.4% YTD Return Equities Current (local ccy) US Europe Sector Allocation ' YTD YTD Japan YTD EM YTD (3) S&P 1217 0.2% Energy 2.9% 1A% -1.7% -12.8% Nasdaq 2551 -1.1% Materials -10.1% -22.2% -20.2% 232% To& 724 •15.4% Industrials .3.3% •185% -112% -25.6% FTSE 100 5387 -4.0% Discretionary 4.7% -12.2% -19.9% 4.5% MSCI Eurozone' 126 •15.6% Staples MA% 3.3% 3.2% 2.3% MSCI Europe' 989 .10.6% Healthcare 7.7% 7.9% 4.4% .21.1% MSCI EMS' 897 •155% Financials -18.6% .242% •23.3% -20.5% Brazd Bovespa 56142 .17.4% Information Tech. 35% 4.9% -24.3% Hap Sena 18285 •14.7% Telecommunications 1.4% -2.1% -0.8% •32% Shanghai SE 2225 .20.3% 'Levelskelurns as of Dec 15.2011 Local currency except MSCI EM Utilities 13.8% -13.7% .47.6% -13.3% Overall 0.2% -10.6% -15A% -15.5% Sarin: Bkomberg Dantilfft SES Standard a Pout SeniCOS. J.P lAtegan Soaks Dec 16.2011 EFTA01172128 Global Asset Allocation The J.P. Morgan View J. P Morgan Global Economic Outlook Summary %afar Real GDP a seal ago Real GDP %am, pregious period. saw Consumer prices %ow a yea, ago 2010 2011 2012 2011 3011 4011 1Q12 2012 3012 4012 2011 4Q11 2012 4012 The Americas United States 3.0 1.8 1.91 1.3 2.0 3.5T 0.5 1.5 2.5 2.5 3.3 3.3 1.5 1.2 Canada 32 2.3 2.2 -0.5 3.5 1.7 2.1 2.6 2.3 2.4 3.4 2.8T 1.7T 1.7 Latin America 6.1 4.1 3.0 4.3 a 2.0 1.5 5.0 5.1 3.7 6.7 72 6.3 6.1 Argentina 92 7.0 1.0 10.2 4.0 2.0 0.0 6.0 4.0 4.0 9.7 11.0 10.0 9.0 Brazil 7.5 2.8 3.1 2.9 -0.2 1,5 2.6 5.7 5.5 5.7 6.6 6.7 5.0 5.0 Chile 52 6.3 4.0 5.3 2.6 21 4.0 4.5 6.0 6.0 3.3 3.6 3.6 3.4 Colombia 43 5.3 3.7 8.5 3.5 1.5 3.0 4.0 5.0 4.8 3.0 3.9 3.0 2.9 Ecuador 3.6 6.5 3.0 9.1 3.0 1.0 2.0 3.0 3.0 4.0 4.1 5.5 5.3 4.6 Mexico 5.4 4.0 2.5 5.2 5.5 a -1.7 4.1 4.8 1.5 3.3 32 3.5 3.5 Pew 8.8 6.7 4.5 4.6 6.5 2.7 2.4 4.1 6.5 7.6 3.1 4.5 4.1 2.8 Venezuela -1.5 3.8 4.0 -4.1 6.8 a 6.0 6.0 4.0 -3.0 24.6 28.6 26.7 25.3 AslaiPacifIc Japan 43 -0.8 1.9 -2.0 5.6 0.5 2.8 IS 13 13 -0.4 -0.1 -0.5 -0.5 Australia 2.6 1.8 2.8 5.7 3.9 0.9 2.5 21 3.8 4.0 3.6 3.8 3.2 3.3 New Zealand 1.7 2.3 2.8 0.4 51 2.4 -02 6.5 3.7 1.0 5.3 2.9 22 2.5 Asia ex Japan 9.1 7.0 6.4 1 5.4 6.0 4.9 6.1 7.1 7.4 8.0 5.6 4.9 3.9 3.9 China 10.4 9.0 8.2 7.9 7.9 7.4 72 82 9.5 10.4 5.7 4.8 3.6 3.4 Hong Kong 7.0 5.0 3.0 -1.6 0.4 1.5 3.5 4.0 5.5 6.0 5.2 5.7 4.4 4.2 kxlia 8.5 7.4 7.7 5.0 7.5 7.0 6.9 7.3 8.5 8.7 8.9 8.6 7.6 7.8 Indonesia 6.1 6.3 5.2 5.4 6.2 5.5 5.0 4.5 5.0 5.0 5.9 3.2 3.6 4.0 Korea 62 3.7 3.6 3.6 3.3 a 3.0 4.0 4.5 5.0 4.0 3.7 3.1 3.5 Malaysia 72 4.0 1.5 2.1 5.8 0.0 1.0 1.0 2.0 25 3.3 2.4 1.5 1.3 Phiippines 7.6 3.7 3.8 2.0 1.3 4.5 2.8 4.9 5.7 4.9 5.0 4.9 3.9 4.0 Singapore 143 5.6 1.3 -6.4 1.9 4.1 -5.9 82 4.1 4.1 4.7 5.6 4.0 2.8 Taiwan 10.7 4.7 2.9 2.4 -0.6 2.0 3.5 4.3 4.6 5.0 1.6 0.9 0.4 1.8 Thailand Al ricaMiddle East 7.8 1.0 1.5 0.2 2.1 -25.0 20.0 120 0.5 2.0 4.1 3.5 2.8 1.4 Israel 4.8 4.3 2.9 3.5 3.4 1.3 0.8 32 6.1 7.4 4.1 2.8 2.3 2.5 South Africa Europe 2.9 3.1 2.7 1.3 1.4 a 2.3 2.6 2.8 3.2 4.6 6.2 6.4 6.1 Euro area 1.8 1.6 -0.7 0.7 0.6 -1.0 -1.5 -1.5 -03 0.31 2.8 3.07 2.07 1.7 Germany 3.6 3.0 0.31 1.1 2.0 -0.5 -0.51 0.0T 1.01 1.0 2.5 2.71 1.7 1.51 France 1.4 1.6 -0.61 -0.2 1.6 -1.0 -1.5 1 -1.01 0.01 0.01 2.2 2.67 1.87 13 Italy 12 0.5 -1.6 1.2 -0.5 -2.0 -2.5 -23 -1.0 -1.01 2.9 3.7 T 3.0 T 3.31 Norway 1.8 2.5 1.1 5.4 3.4 1.0 0.0 0.0 1.0 1.0 1A 1.1 1.2 13 Sweden 5.3 4.7 1.1 4.2 6.6 1.0 -0.5 -0.5 0.5 1.0 2.9 2.5 1.1 1.1 United Kingdom 12 0.9 OS 0.4 2.0 0.5 0.0 -1.5 25 12 4.4 4.6 2.51 2.0 Emerging Europe 4.6 4.5T 2.4 1.6 32 2.8 2.0 1.6 2.6 3.5 7.1 6.5T 5.8T 5.91 Bulgaria 02 22 22 Czech Republic 2.7 1.9 1 0.51 0.8 -03 -03 0.0 0.8 2.0 2.0 1.8 2.4 T 2.7 T 2.9 Hungary 13 1.5 05 0.9 2.2 -0.3 -0.3 03 1.0 2.0 4.0 4.17 4.97 5.1 Poland 3.9 4.0 2.7 4.9 4.1 22 2.0 2.5 3.0 35 4.6 4.61 3.3T 3.31 Romania -13 2.7 0.8 0.8 7.4 -0.5 -12 -1.5 0.8 2.4 8.2 3.5 3.3 4.4 Russia 4.0 3.8 3.0 0.7 3.5 4.2 3.0 20 3.0 4.0 9.6 7.1 6.3 7.3 Turkey 9.0 827 2.0 5.9 9.0 7 8.1 7 6.2 Global 4.0 2.6 2.01 11 2.9 1.9T 1.2 1.8 2.6 2.81 3.7 3.6 25T 2.31 Developed markets 2.7 1.4 0.9 0.7 2.2 1.2 T 02 03 1.4 131 2.7 2.8 1.5 1.3 Emerging markets Sync JP. Megan Dec 16. 2011 73 5.7 4.7 1 4.4 4.7 3.8 4.1 5.6 6.0 6.1 6.1 5.7 4.9 T 4.8 6 EFTA01172129 Global Asset Allocation The J.P. Morgan View 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 indi- vidually 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. Other Disclosures J.P. Morgan (-112M") is the global brand name for J.P. 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JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. 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 30. 2011. Copyright 2011 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. Dec 16,2011 8 EFTA01172131