EFTA01146788.pdf

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 Global Asset Allocation long US equities as US has least event risk in September, upside risk on the Jan Loeys AC economy and a more supportive central bank. (1-212)834-5874 Jan.loeys@rpmorgan.corn • Economics — Upside risks on US, due to better consumption, are offset by JPMorgan Chase Sank NA downside risks on China and Japan to keep our global growth forecasts and risk balance unchanged. John Normand (44-20) 7134-1816 • Fixed Income — Portugal 2-yr yields include some 3% in EMU exit premium, john.normand@pmorgan corn making a clear case for new ECB SMP buying. J.P. Morgan Secumies plc Nikolaos Panigirtzoglou Equities — Overweight US industries that benefit from sustained housing (44-20) 7134-7815 recovery. nikolaos.panigirtzoglou@ljomorgan.com J.P. Morgan Securities plc Credit — US HY and CMBS should benefit from any move to QE3, and are less exposed to event risk in Europe. Seamus Mac Gorain (44-20) 7134-7761 • Currencies — Shorts on EUR/USD are about 75% covered. seamus.macgorain@pmorgan.com J.P. Morgan Secunties plc • Commodities — Stay OW energy vs. base metals. Matthew Lehmann (44-20) 7134-7813 Markets have been largely in a holding pattern over the past fortnight, mathew.m.lehmann@prnorgan.com though giving back a touch of the risk rally of the previous fortnight. Equities J.P. Morgan Securities plc 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 Leo Evans (44-20) 7742-2537 policy fireworks over the next few weeks to decide which way to tilt their leonard.a.evans@jpmorgan.com holdings. J.P. Morgan Securities plc •, 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 YTD returns through Aug 30 % equines are in lighter color. EMBIG expanding at a 2% pace in Q3, slightly up from Q2. We have seen no reason to SW500 change our 2012 and 2013 global projections for the past month now. Across EM SCorp. regions, better consumer spending is creating some upside for Q3, but only US High Yield modestly so given the recent rise in gas prices. European data are largely MSCI ACWcdd' tracking our forecast for continued contraction of the economy. In Asia, weaker MSCI Europe' data are creating downside risks to both Japan and China. US HO Grade Europe Fixed Inc' Economic data not getting worse is no source of comfort, as the current growth MSCI EM' 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 EM Local Bonds can do to prevent this. The US Federal Reserve is probably closest to having God exhausted its armory, but is also seen as the policy maker most willing to do GSCI TR whatever it takes to reverse conditions. Hence, the preference of many investors US Fixed Income to hold US equities relative to the rest of the world. Mr Bernanke today EMFX confirmed his commitments again at Jackson Hole, but is making us wait to the Topes' next FOMC meeting for details. He will then likely extend rate guidance for Global Gov Bonds— I another year, with close to even odds of another bout of balance sheet US cash extension. to 4 0 e t5 Source: J.P. klagen. Bbonterg. See blia boxes See page 7 for analyst certification and important disclosures. page 2 fat descripticrt www.morganmarkets.com EFTA01146788  Jan Loeys (1-212)834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan lan.ioeysgipmorgan.com 31 August 2012 • Overall, we do not count on any of his actions to directly lift growth, and see 2012 global GDP growth forecasts: JPMorgan and Consensus it more as a boost to asset prices. Hence, our overall positive stance in US asset prices. 4.5 • EM policy makers clearly have more ammunition than DM ones, both on 4.0 fiscal and monetary policy, and their current growth paces are 3.5 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 3.0 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 2.5 disappointing data have combined to make EM stocks underperfonn DM and 2.0 prevented EM currencies from benefiting much from the global search for Jan-11 May-11 Sep-11 Jan-12 May-12 yields so prevalent in fixed income. We retain an OW ofEM sovereigns (vs Sane: J.P. Masan. Consensus Economics Consensus Ecurombs USTs), but not in EM equities, given still weak data and unconvincing policy forecasts are Sr regcm and country's matte averaged using the action. Our long EM FX funded in euros has given back some of its gains same 5-year ruling USD GDP wegits terse use for au oem global most recently from the combination of weak EM data and hopes of ECB prom], forecast 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 2013 global GDP growth forecasts: JPMorgan and ECB meeting when the world expects Mr Draghi to provide more information Consensus on his new SMP program to bring funding costs of EMU members in trouble 3.5 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. Consensus 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 3.0 Draghi's track record when he upgraded the ECB's liquidity provision to the JPM shock and awe of LTRO last December. • Specifically, we expect the ECB to confirm it will intervene in (buy) the 2.5 shorter end of euro sovereign bond markets of countries in an EFSF program Ja -12 Apr-12 Jul-12 and compliant with EFSF conditionality, in an effort to bring down EMU exit (convertibility) risk premia (see below under Fixed Income). It should Sane J.P. lAorgan. Consensus Econarrics. Consensus Eanarrics similarly confirm it will respect contract law (ie, no seniority), although the 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 market will likely want to test this in practice over time. Our best guess is that growth forecast. 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 More details in ... funding costs appear to include some 3% in EMU exit risk premium. Global Data Watch. Bruce Kasman and David Hensley Fixed income Global Markets Outlook and Strategy. Jan Loeys. Bruce Kasman. et al. • Bonds edged up on the week. As so often over the past few years, all eyes are US Fixed Income Markets. Terry Belton and Srini on central banks. Fed Chairman Bemanke delivered no major surprises today. Ramaswamy But then Jackson Hole speeches last year and the year before did not provide Global Fixed Income Markets, Pavan Wadhwa and Fabio clear signals or material rallies on the day (see chart), even as they were Bassi followed within a few months by policy action. We continue to expect the Emerging Markets Outlook and Strategy. Joyce Chang Fed's September meeting to bring more asset purchases, including in MBS, Key trades and risk: Emerging Market Equity Strategy. where we remain ovenveight on carry and negative net issuance. Adrian Mowal et al. Flows and Liquidity. Nikos Paniginzoglou el al. • 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 Descnption of YTD Chart on front page: reduce government yields it judges to be inflated by convertibility premia: Returns in USD. 'Local currency. s•Hedged into USD. the risk that a country could leave the euro, and re-denominate its bonds into a Euro Fixed Income is iBoxx Overall Index. US HG. HY. weaker currency. We estimate that convertibility risk has pushed up two-year EMBIG and EMS Corp are JPM indices. EM FX is ELk1l. yields by some 3% for Portugal and 2% for Spain (see Convertibility Risk in In S. Euro area peripheral bonds, Seamus Mac Gorain, for details). And importantly, the uncertainty about the precise impact of convertibility risk 2 EFTA01146789  Jan Loeys Global Asset Allocation J.P.Morgan (1-212) 834-5874 The J.P. Morgan View lanioeysiggimorgan.com 31 August 2012 gives the ECB significant leeway, in deciding the yield levels at which to Change in 10-year Treasury yields on day of conduct bond purchases. Though the ECB may not be ready to lay out the full Bernanke Jackson Hole speech Per cent detail of the new program at next week's meeting, we would expect purchases of short-dated Portuguese bonds to follow soon after. With 0.2 yields on 2-year Portugal still close to 5%, there appears considerable room 0.15 for them to fall further. Equities 0.1 • The equity rally lost steam over the past two weeks in the absence of any 0.05 significant news. The MSCI AC World index is slightly down, but still up 0 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 • .0.05 uptrend since June has never been a straight line, but it has rather followed an 2008 2009 20t0 2011 2012 oscillating pattern with occasional pullbacks (see chart). Sane: J.P. Mogan • 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 MSCI AC World from a technical point of view and our technical strategists are warning us that Total return index 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 400 1350, if not 1325. 390 • Two weeks ago, we closed ow global Cyclical sector underweight. Our 380 colleagues in Europe, Mislay Matejka and team, did the same this week for 370 European equities (see European Equity Strategy, Aug 28). The stabilization in economic data induced us to make this change. Indeed, our US Economic 360 Activity Surprise Index (EASI) has risen to positive territory this week, for the 350 first time in 6 months. 340 • The recovery in US housing indicators has been partly behind the rise in the 330 EASI. We believe this recovery is on a solid footing and recommend an OW Dec-11 Feb -12 Apr-12 Jun-12 in 5 US industry groups for this US sectoral play: Home Furnishing & Retail, Seam: P. lAagan 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. More details in ... • Additional monetary stimulus from the Fed remains the focus of markets, but US Credit Markets Outlook and Strategy. Enc Beinslein el al. September is littered with potential pitfalls in Europe, including German legal High Yield Credit Markets Weeldy. Peter Acciavaui et at. review of the ESM, clarity on the size of bond purchases by the ECB, and a European Credit Outlook & Strategy. Steven Oulake et Spanish downgrade among others. Ow main call is that the FOMC will extend al. its rates guidance into 2015 and initiate a smaller scale round of purchases of Emerging Markers Cross Product Strategy Weekly, Eric Treasuries and mortgages, perhaps to the tune of $150bn over two months and Bernstein err at 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 3 EFTA01146790  Jan Loeys (1-212)834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan lanioeysiggimorgan.com 31 August 2012 candidate, but ow colleagues in the US also make a case for CMBS based FX weekly change in USD the relative sensitivity of the asset class to past Fed duration purchases and its 1.0% 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 0.0% II 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 .1.014 actions rather than an explicit press conference, in our view; China's putative USD JPY EUR GBP CHF CAD AUD upturn may need yet another month to materialise; and Fed easing is of T Vet questionable value ahead of the fiscal cliff. We therefore keep a portfolio of Scuts JP Magan 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 More details in Commodity Mementos Video: Do Isaac and refinery cuts lift odds Israel FX Markets Weekly. John Normand et al. attacks in September?, Aug 30). We are by no means military experts and we Commodity Markets Outlooks Strategy, Cohn are not forecasting such an event. However, negotiations with Iran have Fenton et al. broken down and the IAEA's latest report out yesterday showed further Oil Markets Monthly. Fenton et al. development ofuranium enrichment capabilities. As such, it does appear Daily Metals Note. Fenton et al. prudent to have some hedges against such a scenario in one's portfolio. We Agriculture Weekly. Dietz et al. 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. 4 EFTA01146791 Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan janioeysgsmorganoorn 31 August 2012 Interest rates Current 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 • 10-year yields 1.58 1.75 2.00 2.00 2.25 2.3% Euro area Ref rate 0.75 0.75 0.50 030 0.50 10-year yields 1.33 1.00 0.90 1.00 1.20 4.0% United Kingdom Repo rate 0.50 0.50 0.50 030 0.50 10-year yields 1.46 1.35 1.50 1.70 1.80 4.0% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10-year yields 0.80 0.85 0.95 0.95 0.95 1.6% 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) 188 JPMorgan JUU Porta° Spread to Treasury 7.6% Euro high grade (bp over Euro gov) 221 iBoxx Euro Corporate Index 7.2% USD high yveld (bp vs. USTI 602 JPMorgan Global High Yield Index 5TW 10.6% Euro high yield (bp over Euro gov) 878 iBoxx Euro HY Index 15.3% EMBIG (bp vs. USTI 0 EMBI Global 13.0% EM Corporates (bp vs. UST) 381 JPM EM Corporates (CEMBI) 11.4% Cwarterty Averages Commodities Current 1203 1204 1301 1302 GSCI Index YTD Return' Brent (Slbbl) 114 95 100 105 95 Energy 1.2% Gotd (Sibz) 1681 1655 1725 1750 1775 Precious Metals 5.0% Copper (S/metric tan) 7557 8000 8300 8500 8700 Industrial Metals -5.6% Corn (Sa3u) 7.97 8.25 8.25 8.00 7.75 Agricultre 23.5% 3m cash YID Return' Foreign Exchange Current Sep•12 Dec-12 Mar-13 Jun-13 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 US Europe Japan EM Equities Current (local ccy) Sector Allocation * YID YTD YTD 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 -6.9% Vlilities 12% 4.1% -19.9% 5.1% 'Levels/returns as of Aug 30 2012 Overall 12.9% 8.8% 3A% 5.6% Local currency except MSCI EM S Scam: J.P. Unger 5 EFTA01146792 Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan View .1.13.Morgan jan.loeys@prnorgan.com 31 August 2012 Global Economic Outlook Summary Real GDP Real GDP Consumer prices ti ow a year ago 40w* crevws pencd. saar 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 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 AsialPaelfic 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 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 AfrIcattalddle East 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 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 Europe 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 Global Asset Allocation The J.P. Morgan View J.P.Morgan janioeysigomorgan.corn 31 August 2012 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. 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 J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of1PMorgan 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 option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options. please contact your J.P. Morgan Representative or visit the OCC's website at Minthvww.ontionsclearinc.comfoublicationsfrisksiriskstocalf Legal Entities Disclosures US.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. iPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. 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, E14 MP. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ32 I ) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch. is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 2344AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited, having its registered office at J.P. Morgan Tower, Off C.S.T. Road. Kalina, Santacruz East. Mumbai - 400098. is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/DIE 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 J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa. S.A. dc C.V., l.P. Morgan Grupo Financiero 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 J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 088104,2012 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 Bank, N.A., 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 Bcrhad and a holder ofCapital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. 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: J.P. 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. Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., 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 are 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 other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients' only. JPMSAL does not issue or distribute this material to "retail clients". The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms "wholesale client' and "retail client" have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc. Frankfurt Branch and J.P.Morgan Chase Bank. N.A., Frankfurt Branch which are regulated by the Bundcsanstalt fiir Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may b