EFTA00598496.pdf

J.P.Morgan Global Asset Allocation 04 January 2013 ▪ em . Morgan View Game changers or new games in town? • Asset allocation — We stay with significant overweights of equities Global Asset Allocation and credit over cash and bonds. We prefer the bond UW over the short Jan Loeys AC duration trade as we do not see an early Fed QE exit. (1-212)834-5874 • Economics — Better activity data and PMIs are comforting, but they JPMorgan Chase Bank NA still only support the expected grinding up in growth rates towards trend by midyear, and are not enough to upgrade growth prospects, in John Normand (44-20) 7134-1816 our view. We do raise Japan by a notch to 0.5% given a weaker yen. • Fixed Income — We are fading the early QE exit trade and go flat M. Morgan Securities plc duration, even as we remain UW bonds vs credit and equities. Nikolaos Panigirtzoglou • Equities — EM equities continue to outperform their DM counterparts (44-20) 7134-7815 for four straight months helped by strong flows. Morgan Secunties plc • Credit — Stay long but hedge duration risk. Seamus Mac Gorain • Currencies — Remain short JPY. (44-20)7134-7761 • Commodities — We close our long gold position. We would look to Morgan Securities plc reopen the position around $1,550/oz Matthew Lehmann Risk markets started the new year in a strong fashion, and bonds (44-20) 7134-7813 fell badly, as US Congress clinched a last-minute deal to avoid much of the fiscal cliff tax hikes, and the FOMC minutes showed the M. Morgan Securities plc committee discussed an early exit from QE. Leo Evans (44-20) 7742-2537 • At issue for investors are now whether the new-found compromise in Congress and hawkishness at the Fed are true game changers, or only M. Morgan Securities plc short-term tactical market games that will soon fade. The same can be asked about the Japanese reflation and the EMU yield convergence 2012 returns trades that were put in the later months of last year. To this analyst, the %, equities are in tighter color. Japanese reflation trade — or `Abenomics' — has the highest chance of Toplx becoming a game changer, followed by EMU, with the new EMBIG Washington compromise or Fed hawkishness more in the camp of MSCI EM* shorter-term tactical games. EM S Corp. MSCI AC Work! • Starting in Japan, new PM Abe has strong convictions, incentives, and MSCI Europe we believe the ability to push true fiscal stimulus financed by massive US Hip Yield QE. Expectations of Japanese reflation have driven down the yen 10% SIP500 vs the dollar since mid November and pushed up the Nikkei 23%, three Europe Faced Inc times the gain in the S&P500. For Japanese reflation to become a true US Hip Grade game changer, though, we believe the policy needs to be implemented EM Local Bonds and needs to produce results. There seems little doubt about EM FX implementation, with Abe co-opting the BoJ to raise its inflation target Gold to 2%, and then replacing the top 3 people at the BoJ at the end of the quarter. Expect rapid action on fiscal policy also. Results will likely be Global Gov Bonds— harder to come by. The 10% drop in the yen vs the dollar will only U S Fixed Income ■ have a small impact on domestic inflation. But it is helping us to raise US cash growth expectations with calendar year growth raised from 0.4% to GSCI TR 0.5% (see discussions by Kanno and Adachi in today's GDW). .6 0 5 10 15 20 2S See page 7 for analyst certification and important disclosures. Source: lAcigark Bbornberg. See bbe tox on page 2 fat clesoiptico. EFTA00598496  Jan Loays Global Asset Allocation J.P.Morgan 1-21218345874 The S Morgan View 04 January 2013 • In the Euro area, we continue to see the beneficial impact of the ECB's 2013 global GOP growth forecasts: JPMorgan and Consensus promised OMT, even as no cent has been spent yet, with liquidity for 3.6 sovereigns and bonds continuing to improve. But so far, there have been little of these gains showing up in overall credit supply or the economy. And EMU 3.4 policy makers are not exactly using the relative quiet productively at the 3.2 - Consensus moment, in ow view. Euro equities have been outperforming the US for the 3.0 past 6 months, and we keep the Euro OW, but this is one trade we are eyeing nervously for the right time to take profit. 2.8 - • In the US, the December 31budget deal came in largely as expected and thus 2.6 - JPM does not require any change in economic forecasts. But this was likely the 2.4 easy part. Now Congress has to work on deciding what to do with the debt 2.2 ceiling that will effectively be breached within 2 months, the automatic spending cuts in entitlements and the military coming from sequestration that Jan-12 Apr-12 Jul-12 Oct-12 now start on March I, and the expiring of the continuing resolution that Source:. Morgan. Consensus Econorncs. Consensus ECODNIIICS krecasts are for repos and canines awl •e averaged using the expires on March 27. It would indeed be a game changer if both sides of the same S-year rolling USD GOP weights harm use kir our cmngbbal aisle recognize that governing is all about the art of compromise and that both growth forecast. the health of the economy and the country's finances require a combination of still higher revenues and lower spending. The body language and new YTD 2012 and expected 2013 returns by asset class %. U Is unItedged into USD. H means hedged composition of Congress give us no such confidence. Expect thus an ugly 2 months of difficult negotiations even, as we expect an ultimately last minute 2013E 2012 MSCI EM 15.0 17.4 deal to prevent default and shutting down of the government. EM Local Fl (U) 10.0 8.9 • A last and most tantalizing potential game changer was raised by yesterday's EMFX 10.0 7.5 FMOC Minutes from its Dec 11-12 meeting. The minutes were quite GSCI 10.0 0.1 MSCI World 10.0 16.0 surprising as they showed members again discussing the timing of an eventual US HY 7.5 16.2 exit from QE large-scale asset purchases in terms of calendar guidance, CEMBI 7.0 16.7 instead of the economic objectives that they told us they were moving to. The EMBIG 7.0 18.5 range of likely QE exit timings was shown to be mid-to-late this year and thus JACI 6.5 14.3 well before the early 2014 that we have assumed. The bond markets reacted EU HY 6.0 25.0 badly to this, but equities have been largely ignoring it. We retain a best guess US HY Loans 5.5 9.7 that the Fed will keep buying until early next year, as our 2% Q4/Q4 GDP US KG 5.4 9.9 growth projection is well below the FOMC's forecast of 2.7%. That is, we Gold 5.0 6.1 EU KG ■ 1.5 11.2 think the FOMC will see a weaker economy than it currently expects and thus EM Local Fl (H) 0.0 9.0 be induced to extend its purchases. That said, the Minutes probably also show DM GovLs (H) -0.3 4.2 that the FOMC is a bit more hawkish than we or the market had assumed. DXY -3.0 0.0 • How do we position on these new games in town? Our overall strategy -5 0 5 10 15 20 remains long equities and credit against cash and bonds on the argument that equity and credit risk premia provide greater compensation for risk than are Source:. Morgan. i8ozx. Barclays likely to be realized. Low delivered risk and continued asset reflation from QE were also ow major themes for 2012. We accept that these drivers are getting More details in ... spent and are thus not as powerful anymore this year. The major tail risks a Global Data Watch. Bruce Kasman and David Hensley Global Markets Outlook and Strategy. Jan Loeys el al. year ago — China hard landing, EMU exits, Middle East war, and US fiscal US Fixed Income Markets. Pavan Wadhwa. Matthew crush — did not get realized. From here, investors probably do not have as Jozolf, and Srini Ramaswamy many fears and have thus likely reduced a decent part of their safe asset Global Fixed Income Markets. Pam Bassi allocations. We do not go as far as to say that the market has become Emerging Markets Outlook and Strategy. Joyce Chang complacent, but it is surely not as driven by fear anymore. Our long in risk Key trades and risk: Emerging Marker Equity Strategy. assets is more a broad value and momentum consideration rather than outright Adrian Mowat el al. bullishness on the world economy, earnings, or event risk. Flows and Liquidity. Nikes Panigirtzoglou et al. • The four mini game changers, and more likely new tactical games in town, Description of YTD Chart on p. 1: Returns in USD. 'Local keep us overweight Japanese and euro equities against the US, and short the currency. "Hedged Into USD. Euro Fixed Income Is illoxx Overall Index. US HG, HY, EhIBIG and EMS Corp yen. We fade the "Feds are coming" short-duration trade by taking profit on are JPM Indices. EM FX Is ELMI+ in S. our shorts in the euro area, and staying neutral in the US. At the same time, 2 EFTA00598497  Jan Loeys Global Asset Allocation J.P.Morgan (1-2121834-5874 The Morgan View 04 January 2013 given we are only in the first week of the year, the early QE exit trade probably has a bit further to go, as managers do not yet have a lot of profit to show. We thus tactically exit our long gold, and wait for a lower re-entry EM equity portfolio inflows point. Our overall long equities to bonds should also benefit from any further Left axis shows EM equity portfolio flows in Sbn. backup in bonds yields, as we do not see yields going up to a level that 200 60% threatens the economy and equities. (If they did, the Fed would likely send a EM equity nortfolioflows $bn 50% quick message it has been misunderstood). And finally, we continue to hedge 150 the duration of our longs in credit (except HY) by selling government debt 40% 100 against them. 30% Fixed Income 20% • Bonds backed violently this week, both due to the US Fiscal Cliff deal and 10% 0 the hawkish FOMC minutes. Technically, and because most traders only went 0% short over the past 24 hours, yields will likely rise further near term. We are -50 -10% not changing yield forecasts, as we need to see significant growth upgrades MSCI Skin ISCI Wald -10a -20% for us to become confident of an early Fed QE exit. In the meanwhile, we 05 06 07 08 09 10 It 12 cover shorts that we still had on in thc Europe. Be short duration, here. Equities Source: IF. Blomberg. • Equity markets rose sharply over thc past month with the MSCI AC World index making a new high for the past year to a level that is only 3% below its May 2011 peak. The rally in equities over the past month may seem excessive given the lack of upgrades of earnings or growth expectations. But the rally is consistent with the steady fading of tail risk fears that kept some investors on the sidelines. In our GMOS model equity portfolio, we continue to focus on regional and sector allocations: UW US equities, OW home builders and banks within the US, and OW commodity equity sectors. • EM equities have been outperforming their DM counterparts for four straight months. The improvement in EM equities is reflected in flows. Over these four months close to $40bn was injected into EM equity funds. For the year as a whole, we estimate that flows into EM equities improved by almost $90bn in 2012 relative to 2011 (see today's Flows & Liquidity). • And that flow improvement is providing strong support to EM equities. Indeed, the chart at the top shows that the relative performance of EM vs. DM equities, i.e. between MSCI EM and MSCI World, correlates well with EM equity flows. The flow trend should remain positive into 2013 helped by stabilization in Chinese growth following two years of downshifting and by a steady improvement in overall bank lending conditions in EM. We capture the EM theme via a long in MSCI EM Asia vs. S&P500. Credit • Spreads have come in significantly this week, both on the US budget deal and the backup in government yields. We stay long, focused on crossover, EM and HY, but hedge duration risks. We do not expect an imminent rotation More details in ... from credit to equities until investors start upgrading significantly their growth US Credit Markets Outlook and Strategy. Eric Beinstein and earnings projections. el al. Foreign Exchange High Yield Credit Markets Weekly, Peter Acciavatu er European Credit Outlook & Strategy, Steven &dab et • The dollar is starting 2013 quite mixed — higher vs EUR, JPY and GBP but lower versus AUD, CAD and most of Latin America and Asia. Thus, there has Emerging Markets Cross Product Strategy Weekly. Eric been little trend in the broad dollar, despite the 18bp backup in US Treasury 8einsrein et al. yields this week. There may be some optimism towards the US economy and 3 EFTA00598498  Jan Loeys Global Asset Allocation J.P.Morgan (1-2121834-5874 The. Morgan View 04 January 2013 the dollar given how little fiscal tightening Congress has delivered and how recent Fed minutes suggest less commitment to unlimited asset purchases, but FX weekly change in USD we do not think the first week of trading is indicative of much. All of our 2.5% - short-term fair-value models and position indicators were suggesting that the dollar was entering 2013 slightly cheap/oversold versus all currencies but the 2.0% - yen, so it is natural that this week's Treasury sell-offhas prompted some 1.5% short-covering. Note, however, that the sell-off in US bonds is no more 1.0% - extreme than that of several other government bond markets (Germany +22bp, UK +29bp, Australia +17bp). When government bond sell-offs reflect a global rather than a solely US phenomenon, USD rallies tend to represent corrections 0.5% 0.0% 1 • rather than trend shifts. Last week, we raised our USD/JPY forecasts from a 2013 range of 75.85 to a range of 80-90. We have always been sceptical that the Bank of Japan would be able to drive up Japanese inflation and drive down real yields versus the 45% -1.0% -1.5% - I' USD JPY EUR GBP CHF CAD AUD US to power USD/JPY higher throughout 2013, but there is no denying the TWI pair's momentum. There is also no denying that USD/JPY continues to rally Source:. Morgan well beyond what shifts in US versus Japan interest rate spreads would imply, such that the yen is about 7% weaker than Fed versus Bank of Japan policy implies. This is a massive disconnect relative to the occasional overshoots of FX relative to rates, and would appear to reflect a growing consensus that this time is different. We suspect the consensus will be disappointed but not until later this spring when Boil policies likely prove ineffective. In the interim, we remain short the yen versus a basket of USD, EUR, CHF, NOK and KRW, which was one of the top trades from the 2013 Global FXStrategy Outlook. Commodities • Gold sold off sharply yesterday following the release of the FOMC minutes, which suggested that the Fed's open-ended asset purchase program could end as early as June. Many investors had put on long gold positions based on a view of unlimited QE for the foreseeable future and we think the FOMC minutes mean gold will fall further as more of these trades are unwound. We still like gold as a hedge against future inflation once global growth returns to trend, but we do not expect this anytime soon and so we tactically take profit on our gold position and wait for a better entry point. We would look to reopen a long in gold at around $1,550/oz. • Our commodity strategists have published their 2013 outlook and expect a 10% total return for the GSCI index for the coming year. Energy is forecast to make the largest gain with close to 14%, closely followed by base metals and precious metals with 12% and 9% respectively. Our oil strategists see Brent at $120/bbl by year end, driven by higher demand as the global economy should improve sequentially towards the end of 2013. Agriculture More details in ... prices are expected to continue to fall, losing another 5% in total return terms FX Markets Weekly, John Normand et al. by year end (see Commodity Markets Outlook and Strategy, Colin Fenton et Commodity Markets Outlook 8 Strategy. al., Dec 18, 2012). Cohn Fenton et al. Oil Markets Monthly. Cohn Fenton et al. Daily Metals Note. Cohn Femme et al. Agriculture Weekly. Dietz et al. 4 EFTA00598499 Jan Loeys Global Asset Allocation JP Morgan 1-212)834-5874 The M. Morgan View 04 January 2013 Interest rates Current Mar-13 Jun-13 Sep-13 Dec-13 2012 Return' linked States Fed funds rate 0.125 0125 0.125 0.125 0125 10-year yields 1.93 1.80 1.80 1.80 2.00 2.2% Euro area Roll rate 0.75 0.75 0.75 0.75 0.75 10-year yields 1.54 1.55 1.75 1.85 2.00 4.5% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 2.12 2.00 2.25 2.35 2.40 2.6% Japen Overnight call rate 0.05 0.05 0.05 0.05 0.05 10-year yields 0.84 0.75 0.75 0.85 0.90 1.8% GBI£M hedged h $ Yield - Global Diversified 5.45 5.90 8.9% Credit Markets Current Index 2012 Return' US high grade (bp over UST) 160 JPMorgan JULI Podolio Spread to Treasury 9.9% Euro high grade (bp over Euro gov) 161 i8oxx Euro Corporate Index 11.2% USO high yield (bp vs. UST) 548 JPMorgan Global High Yield Index STW 15.4% Euro high yield (bp over Euro goy) 649 Eloxx Euro HY Index 24.9% EAIBIG (bp vs. UST) 244 BIB! Global 18.5% EM Corporates (bp vs. UST) 319 JPM EM Corporates (CEMBI) 16.1% Quarterly Averages Commodities Current 1301 1302 1303 1304 GSCI Index 2012 Return' BreM(S/R4) 111 112 105 120 120 Energy -1.4% Gold (Sfoz) 1645 1750 1775 1800 1775 Precious Metals 6.1% Copper (StmetrIc ton) 8137 8500 8700 9000 9200 Industrial Metals 1.4% CC411(S/BU) 6.85 8.50 8.25 7.00 6.50 Agriculture 6.5% 3m 2012 Return' Foreign Exchange Current Mar-13 Jun-13 Sep-13 Dec-13 Cash In USD EURILISD 1.30 1.28 1.30 1.32 1.34 EUR 2.8% USOMPY 882 88 90 88 87 JPY 10.7% GBPMSD 1.60 1.58 1.60 1.61 1.63 GBP 6.0% AUDUSD 1.05 1.04 1.05 1.06 1.07 AUD 6.2% USD/BRL 2.03 2.10 2.08 2.07 2.05 BRL -2.1% USO/CNY 6.2 6.28 6.25 6.2 6.15 CNY 2.4% USDMRW 1063.68 1070 1060 1040 1020 KRW 10.3% USD/TRY 1.8 1.8 1.8 1.75 1.75 TRY 14.0% 2012 Return US Europe Japan EM Equities Current (local ccy) Sector Allocation 2012 2012 2012 2012 (s) • 1459 16.0% Energy 4.6% -3.0% 0.2% 6.4% Nasdaq 3105 16.6% Materials 15.0% 15.8% 14.6% 10.4% Topix 889 20.9% Industrials 15.3% 21.4% 16.8% 172% FTSE 100 6047 10.0% Discretionary 23.9% 32.1% 30.0% 16.5% MSCI Eurozone• 155 20.6% Staples 10.8% 15.8% 17.9% 25.6% MSCI Europe' 1176 16.4% Healthcare 17.9% 17.6% 14.9% 33.5% MSCI EM 5' 1083 18.6% Rnandals 28.8% 30.0% 58.7% 25.9% Brazil Bovespa 62632 7.5% Information Tech. 14.8% 25.4% 11.0% 29.0% Hang Sang 23331 27.6% Telenommmications 18.3% -5.8% 7.0% 14.5% Shanghai SE 2277 52% Mines 1.3% 5.1% -4.5% 6.8% 'Levels as of Dec 31. 2012/returns as of Jan 3.2012 Overall 16.0% 16.4% 20.9% %ft Local twenty except MSCI EM S &vice: M. Morgan 5 EFTA00598500 Jan Leap f1-2121834-5874 Global Asset Allocation The M. Morgan View J.P.Morgan 04 January 2013 Global Economic Outlook Summary Real GDP Real GDP Consumer prices oar a year ago 'A, ova. prenous prod. say N wet a )ea• ago 2011 2012 2013 2012 3012 4012 1013 2013 3Q13 4013 2012 4012 2013 4013 The Americas United States 1.8 2.3 1.8 1.3 3.1 1.5 1.0 1.5 2.5 3.0 1.9 1.9 1.6 1.4 Canada 2.6 2.0 1.7 1.7 0.6 1.5 1.7 2.0 2.2 2.5 1.6 1.6 1.4 2.0 Lath America 4.2 2.4 1 3.7 2.0 2,2 4 3.7 3.9 4.1 4.0 t 3.9 4.9 5.3 5.3 5.1 Argentina 8.9 2.7 3.6 .3.7 1 2.51 lag 2.0 2.5 2.0 2.0 9.9 10.0 10.0 11.0 Brawl 2.7 1.0 3.4 1.0 2.4 31 3.9 3.8 3.6 3.8 5.0 5.6 6.0 5.5 Chile 6.0 5.5 4.6 8.3 5.7 2.2 4.0 5.0 5.0 4.6 3.1 2.7 2.2 3.1 Colom0ia 5.9 3.2 1 4.0 1 5.3 -2.6 3.7 1 42 6.1 t 6.1 t 5.3 t 3.4 2.8 2.1 2.4 Ecuador 8.0 5.0 4.0 4.8 3.0 5.5 5.0 3.0 3.0 4.0 5.1 5.1 5.4 4.7 Mexico 3.9 3.9 3.6 3.3 1.8 2.3 3.9 4.5 4.6 4.0 3.9 4.4 4.1 3.5 Peru 6.9 6.2 6.0 6.0 5.5 6.0 6.5 6.0 5.0 5.0 4.1 2.8 2.1 2.5 Uruguay 5.7 3.5 4.0 2.2 t 7.8 t a 6.0 4.3 4.0 4.0 8.0 8.9 8.1 7.6 Venezuela 4.2 5.0 0.0 -0.5 42 0.0 .4.0 0.0 3.0 4.0 22.3 18.6 30.2 35.0 Asia/Pacific Japan 1.5 2.0 0.5 t -0.1 3.5 415 1.0 2.0 t 1.7 t 2.7 t 0.2 0.1 0.1 t 0.3 t Australia 2.4 3.5 2.5 2.3 1.9 11 3.7 2.8 2.4 2.4 1.2 2.6 3.2 2.7 New Zealand 1.4 2.3 1 2.8 t 1.0 0.8 2.5 1 3.8 4 4.3 t 1.6 t 3.1 t 1.0 1.4 1.5 2.3 Asia ex Japan 7.5 6.1 6.5 5.8 5.7 6.5 6.5 1 6.6 6.8 7.0 t 3.9 3.2 3.8 4.1 China 9.3 7.6 8.0 7.1 7.7 82 8.0 82 8.2 8.2 2.9 2.0 3.0 3.5 Hong Kong 4.9 1.2 3.2 -0.4 24 j 3.5 3.5 5.0 5.0 4.2 3.5 3.5 3.3 India 6.5 5.2 5.8 5.3 4.1 5.1 62 5.7 5.8 6.0 10.1 9.8 9.0 8.5 Indonesia 6.5 5.7 4.5 6.0 4.9 j 4.5 4.5 5.0 5.5 4.5 4.3 3.9 4.6 Korea 3.6 2.2 3.01 1.1 02 15 2.51 4.0 4.5 4.5t 2.4 1.74 2.44 3.0 4 Malaysia 5.1 5.3 5.1 6.3 3.6 6,5 5.0 4.5 4.5 5.0 1.7 1.2 2.3 2.6 Philippines 3.8 6.4 4.8 5.0 52 43 t 4.5 4.9 t 5.3 t 5.3 t 2.9 2.3 2.3 2.9 Singapore 4.9 1.2 1 2.3 0.5 -5.9 1.8 1 6.1 t 1.6 4.1 6.1 5.3 3.9 3.8 4.0 Taiwan 4.1 1.2 3.4 -0.4 3.9 3.8 3.5 3.5 3.8 4.0 1.7 1.6 1.3 2.3 Thailand 0.1 5.7 4.5 11.7 5.0 2.5 3.5 3.5 4.5 4.5 2.5 3.0 3.6 3.0 Africa/Middle East Israel 4.6 3.0 3.1 3.4 2.9 a 32 2.8 3.6 3.6 1.6 1.9 1.9 2.2 South Mica 3.5 2.3 2.7 3A 12 dig 4.4 4.0 4.1 3.8 5.7 5.6 5.9 5.4 Europe Euro area 1.5 -0.4 0.0 -0.7 -02 -1.5 0.0 0.8 1.3 1.5 2.5 2.3 1.8 1.7 Germany 3.1 0.9 1.1 1.1 0.9 .1.0 1.0 2.0 2.5 2.5 2.1 2.1 1.9 1.8 France 1.7 0.1 0.0 -0.2 0.9 -1.5 -0.5 0.5 1.0 1.0 2.3 1.8 1.5 1.7 Italy 0.6 -2.1 M.5 .2.9 -0.8 -2.0 M.5 0.5 1.0 1.0 3.6 2.6 1.6 2.3 Spain OA -1.4 -1.6 -1.7 -1.1 :15 -2.5 -1.5 0.0 0.0 1.9 3.2 2.5 2.5 United Kingdom 0.9 0.0 1.2 .1.5 3.8 Q,Q 0.8 1.5 2.0 2.0 2.8 2.7 2.7 24 Emerging Europe 4.8 2.5 2.5 0.6 14 1,8 2.4 2.6 3.6 3.0 5.0 5.8 5.8 5.1 Bulgaria 1.7 0.7 1.5 Czech Republic 1.9 -1.1 0.0 -1.6 -1.3 -1.6 0.0 0.8 2.4 1.4 3.4 2.7 2.2 2.4 Hungary 1.6 -1.4 0.0 .1A -0.7 •1.0 0.0 0.5 1.8 2.0 5.5 5.5 3.7 3.9 Poland 4.3 2.1 1.6 0.8 1.6 0.5 1.3 2.3 3.0 2.3 4.0 2.9 1.9 2.4 Romano 2.5 0.0 0.8 0.5 -2.0 .12 .0.4 3.2 4.1 2.4 1.9 5.4 6.3 5.1 Russia 4.3 3.6 3.0 1.0 22 a 3.5 3.0 4.0 3.5 3.8 6.6 7.0 5.7 Turkey 8.5 2.6 3.7 9.4 6.8 6.7 6.3 Glo0al 3.1 2.4 2.5 1.6 21 1.8 2.4 2.8 3.2 3.5 2.7 2.7 2.6 2.5 Developed markets 1.4 1.2 1.0 0.3 0.9 0.1 0.8 1.4 1.9 2A t 1.8 1.8 1.6 t 1.5 t Emerging markets 6.2 4.6 5.1 4.1 4.2 5.0 5.3 5.4 5.6 5.6 4.3 4.1 4.5 4.5 Source: t Morgan 6 EFTA00598501 Jan Loeys 1-212)834-5874 Global Asset Allocation The is Morgan View J.P.Morgan 04 January 2013 Disclosures 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. Company-Specific Disclosures: IraImportant disclosures, includin rice charts, are available for compendium reports and all Morgan- covered corn ies b visitin calling 1-800-477-0406, or c-mailing with your request. Morgan's Strategy, Technical, and Quantitative Research teams may screen companies not covered by Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Other Disclosures E. Morgan ("JPM") is the global brand name for Morgan Securities LLC ("JPMS") and its affiliates worldwide... Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries. Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper mien risk disclosure documents. Fora copy of the Option Clcarin Co ration's Characteristics and Risks of Standardized Options. please contact your M. Morgan Representative or visit the OCC's website at Legal Entitles Disclosures US.: JPMS is a member of NYSE, F1NRA. SIPC and the NFA. JPMorgan Chase Bank, is a member of FDIC and is authorized and regulated in the M. UK by the Financial Services Authority. U.K.: E. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Registered in England & Wales No. 2711006. Registered Office 25 Bank Street. London, El 4 5JP. South Africa: E. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities Exchange and is regulated by the Financial Services Board. Hong Kong:. Morgan Securities (Asia Pacific) Limited (CE number AAJ32 ) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: • Morgan Securities (Far East) Ltd, Seoul Branch. is regulated by the Korea Financial Supervisory Service. Australia: s Morgan Australia Limited (JPMAL) (ABN 52 002 888 01I/AFS Licence No: 238188) is regulated by ASIC and Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: Securities Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: Morgan India Private Limited, having its registered office at Morgan Tower, Oft. C.S.T. Road, Kalina, Santacruz East. Mumbai 400098, is a member of the National Stock Exchange ofIndia Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number-INB 010675237/INF 010675237) and is regulated by Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT E. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: M. Morgan Securities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities ClearingSorporation of the Philippines and the Securities Investor Protection Fund. It is regulated by thc Securities and Exchange Commission. Brazil: Banco M. Morgan S.A. is regulated by the Comissao de Valera Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: • Morgan Casa de Bolus. S.A. de C.V.... Morgan Grupo Financier° is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by E. Morgan Securities Singapore Private Limited (JPMSS) Nick (P) 088/04/2012 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase I3ank. S. Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: 1. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: M. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging. advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor. AI-Faisaliyah Tower, King Fahad Road. M. Box 51907. Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, •., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3. Level 7, PO Box 506551, Dubai, UAE. Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc. Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38,47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who arc not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In