EFTA01177347.pdf

J.PMorgan Global Asset Allocation Morgan Chase Bank NA, Morgan Securities Lid. Jun 1, 2012 The J.P. Morgan View Economy now adding insult to euro injury Jan Loeysm • Asset Allocation — We are net short risk through UWs of the euro and (1-212) 834-5874 Cyclicals. Retain OW of US and EM Asia stocks. Fund risk assets in euros. jan.loeys@jomorgan.com Prefer credit over equities and commodities. Retain longs in gold. John Normand • Economics —Growth momentum has turned negative. Both EM Asia and US (44-20) 7325-5222 forecasts have been cut after disappointing PMIs and jobs data. john.normand@jpmorgan.com • Fixed Income — Path of least resistance is still to wider intra-EMU spreads. Nikolaos Panigirtzoglou (44-20) 7777-0386 • Equities — Stay long US vs euro equities, despite weak US jobs, as we have nikolaos.panigidzoglou@jpmorgan.com not yet seen the full impact of the escalating euro crisis on economic data. Seamus Mac Gorain • Credit — We move to OW EM $ Sovereigns vs. EM Corporates and Neutral (44-20) 7777-2906 European Senior Financials. seamus.macgorain@jiamorgan.com • Foreign exchange —Stay short EUR/USD,GBP/USD and EUR/CHE Matthew Lehmann • Commodities — We remain neutral and prefer spread trades. Our highest (44-20) 7777-1830 malthew.m.lehmann@jramorgan.com conviction of these are short corn vs. natural gas and long corn vs. live cattle. Leo Evans (44.20) 7742.2537 • As if Euro turmoil and indecision were not enough to push down risk assets, leonard.a.evansgipmorgan.com now comes renewed doubt about world growth. Our Global Manufacturing PMI today fell back to a just above December, which was the lowest point since the recession. Our economists have cut their 2012 and 2013 global YTD returns through May 31 growth projections to 2.1% and 2.4% this week, due to downgrades in the 14. equities are in lighter colour. US, Brazil. and EM Asia, following cuts in the Euro area last week (charts p. 2 and table p. 6). Both are down 0.2% from 2 weeks ago, and are below potential. US High Yield EM S Corp. Much as we would like to see the double-digit fall in stocks from the March SW500 O YTD peak as the bottom in the correction, the near-tent[ driven still appear US High Grade O to be pointing downwards for risk assets. Value and risk premia have gone EMBIG O from cheap to very cheap, but have not been not good timing signals. Both price and economic momentum are now negative. We do not see evidence of MSCI EM' O capitulation, with most tactical investors having moved to neutral on equities Global Gov Bonds- O and credit, but not yet to short. And the policy cavalry does not seem in a MSCI AC World' O hurry to ride to the rescue, in our opinion, assuming they have not run out of US Fixed Income ammunition. EM Local Bonds- O Is the economicslowdown temporary,or the beginning of a downward slide? Europe Fixed Income' The lack of a single smoking gun for recent weakness argues for temporary, in US cash particular as it has come with a dramatic fall in oil prices that will support Topix* consumption. We are thus taking a middle road that sees higher growth rates EM FX in coming quarters, from the low in Q2, but that only returns to the 2.5% pace of Q I by Q3 of next year. This spells another year of below potential growth Gold that should depress inflation and induce renewed monetary easing. We pencil MSCI Er:0e in a QE/Twist extension in the UK and the US. GSCI TR IC= • 5 10 • Our impression from position data and investor discussions is that tactical Soiree votgal.8bottxrg r 1.009 investors have been switching from long to neutral on equities and commodi- cumxry. •*iicoges 43 USD E" Rod Irccrne N Itom 0.eral Irdco. US MG HY.MG aldEMS Cap am JPM Scat EM ties, while retaining some credit longs. Corporate bonds have outperformed FX NEW. in (chart p. 1) as the impact of wider spreads has been offset by lower underlying www.morganmarkets.com The certifying analyst is indicated by an AC. See page 7 for analyst certification and important legal and regulatory disclosures. EFTA01177347 Global Asset Allocation The J.P. Morgan View J.P,Morgan gov't yields. Investors have so far not gone massively underweight — hedge 2012 global GDP growth forecasts: JPMorgan funds probably only have some shallow shorts — as policy risk is seen to be and Consensus two-sided. 4.0 • Our expectation is that policy makers will not sit still in the face of economic 3.5 weakness. The question, though, is how fast they will act, how much they will do, and whether their bullets might not have become duds. Euro policy makers 3.0 seem to feel they can't give the game away before the June 17 Greek elections. 2.5 Meaningful decisions on turning the ESM into a bank or the issuer of common bonds will not be decided until the June 26-26 Euro Summit, and more likely 2.0 can take another year of a worsening crisis. The Fed and BoE seem set for another bout of QE, but with yields at historic lows, it is unclear how much 1.5 more this can achieve. Chinese policy makers are set to provide more fiscal Jan-11 Apr-11 Jul-11 Oct-It Jan-12 Apr-12 stimulus, but this will likely far well short of what they did in 2008-10. Saute Megan Consensus Ecornnuz Cancan Eccnancs tnicas ere roe ..)001$ BM COATI* NS at awap, uwg to sa-e 5.yer ming USD GDP *ars cal .e use lx o.r onn gtbS • How does one invest in this environment, where all risk assets seem to trade as Fang, Ismail. one? In a global portfolio, we are net short risk, but being long the dollar and 2013 global GDP growth forecasts: JPMorgan UW Cyclical sectors. An investor who wants to retain some long risk exposure and Consensus should do it in credit, and not in commodities or equities. The latter are more sensitive to growth, while credit is more a carry game and provides diversifica- 3.5 tion from the negative correlation between the spread and the underlying gov't yield. We retain an OW US vs Europe as the latter has more downside, Consensus 3.0 - in our view. And we keep an equity OW Asia in EM portfolios as Chinese policy makers have a lot of bullets left. Long risk positions should be funded in euros, or combined with a short EUR vs USD. Retain longs in gold may 2S - have acted like just another equity over the past few months, but today's 4% JPM spike shows it provides some hedge against extreme market moves and expectations of more QE. 2.0 Jan-12 Apr-12 Fixed income Soca govn, G:nsensta foxo-,x Calbrniui Ee010- .3 • A perfect storm of weakening data and escalating EMU crisis brought new lamas!' re b regorn and coy-Ines tat .e awmged unr9 re wile Sim rake USD GDP %vet lets ‘se use 17 Cu' oral rar yield lows across the board. In a week of eye-popping numbers, two-year groan Forecast German yields hovering either side of zero hardly stood out. The slowing data lead us to pencil in a further Twist from the Fed. and a QE extension from the BoE as soon as July (previously August), even as the marginal benefit appears limited at these yield levels. • Markets surely need decisive policy action in Europe to reverse course. Yet the ECB, if anything, appears to be becoming more, rather than less, protective of its balance sheet, as evidenced by the temporary closure of regular ECB operations to Greek banks, pending this week's recapitalisation. Meanwhile. More details in ... EMU governments look far from agreeing further fiscal support from the core Global Data Watch. Bruce 'Gasman and David Hensley to the periphery, and will in any case be reluctant to take action before the Global Markets Outlook and Strategy. Jan Loeys. Bruce Greek election. That means the path of least resistance is biased towards still Kaman, et al. lower yields, flatter curves, and wider intra-EMU spreads. US Fixed Income Markets. Terry Belton and Srini Ramaswamy • EM local yields are only slightly higher on the month, even as EM currencies Global Fixed Income Markets. Pavan Wadhwa and Fabio have lost significant ground, with expectations of policy easing helping rates Bassi in places (e.g. Brazil cut again this week). The experience of past derisking episodes suggests that the modest outflows from EM bond funds seen in Emerging Markets Outlook and Strategy. Joyce Chang recent weeks could escalate. Yet we think several factors reduce the likelihood Key trades and risk: Emerging Market Equity Strategy. of heavy outflows this time: for one, EM bond managers are more FX-hedged Adrian blowat el al. than during last year's correction, cushioning them from currency losses (see 7 Nikes Raw* and r inoirliew `I M Paninirl7nnkui at a Jun 1,2012 2 EFTA01177348 Global Asset Allocation J.P,Morgan The J.P. Morgan View Mike Trounce, EMEA EM Local Markers View, 31 May). Equities • It is true that today's US payroll report shifts the focus of economic weakness to the US, which up until recently appeared to be immune to the weakness in Europe and China. While we recognize that US economic data are weakening, we still detect more downside in Europe, especially as we have not yet seen the full impact of the still escalating euro debt crisis on euro area economic data. Stay long S&P500 vs MSCI EMU$. • Last week we opened an underweight in Cyclical vs Defensive equity sectors in response to weak flash PMIs. This week's final PMIs confirmed this broad based decline in global economic activity. This means that there is more downside for Cylical sectors over the coming weeks, in our view. • Across regions we still like OW EM Asia equities. This trade is predicated on an expectation that Chinese policy makers will announce more stimulus via a FAI program in the summer, ahead of autumn's leadership change. Recent disappointing data in China have raised the probability of that happening. Credit • With Treasury yields moving ever lower, spreads continue to widen and today's jobs number will likely fan the recent dynamic. EM sovereigns (EMBIG) widened 21bp this week while EM $ corporates (CEMBI) are only 12bp wider. This is likely as the former is more liquid than the latter. CEMBI is by now only some 10bp above EMBIG, while it was a few 100bp higher during the financial crisis. We thus advise a long EMBIG vs CEMBI as a hedge against further financial turmoil that is relatively cheap to hold (see Jonny Goulden, Tracking Signs of Stress in EM Sovereigns). Similar concerns led our European credit team to move to Neutral from Overweight Senior Unsecured financials this week also (Roberto Henriques, How is One Left?). • In yield terms, credit, particularly $ denominated, has been pretty resilient, following months of strong inflows, which might suggest vulnerability if positioning deteriorates. Yet our May surveys suggests recent adjustments in line with broader market moves: Our US team reports roughly neutral posi- tions and above average cash holdings. Our European team suggests a similar theme. Our EM team report investors moved further underweight sovereigns, but that corporates are the only EM asset class where investors are OW. They see a sharp slowdown and potential reversal of inflows as a significant risk for this sector, which adds support for the above trade recommendation. Foreign Exchange • The dollar enters June with its fifth-best monthly performance in a decade, More details in ... compliments of crisis or mediocrity in every major region. China and Brazil are delivering their weakest growth since Lehman; India's expansion is the poorest EM Corporate Outlook and Strategy, Warren Mar et al. in a decade; the US is underwhelming on almost every indicator but housing; US Credit Markets Outlook and Strategy. Enc Beinstein et al. and Europe is delivering its third annual summer sovereign crisis through Spain's banking sector and Greece's possible EMU exit. It is unsurprising that High Yield Credit Markets Weekly. Peter Acciavatti et al. the dollar would rally in such an environment; the anomalies are that the yen European Credit Outlook B Strategy. Steven Dulake et al. isn't up year-to-date; that five currencies have outperformed the dollar; and Emerging Markets Cross Product Strategy Weekly. Eric that FX volatility is barely above its long-term average (12% on VXY Global Beinsten et al. versus an average of 10.5%). Jun1,2012 3 EFTA01177349 Global Asset Allocation J.P.Morgan The J.P. Morgan View FX weekly change vs USD • Each troubled region is troubled in its own way, but Europe should be the 2.0% focus this summer since it requires more inventiveness than does the US or China. Compared to fixing a dysfunctional currency union in the world's 1.0% second largest economic area, US and Chinese challenges seem ordinary and familiar. The Fed will need to decide on June 22 and July 31 whether QE3 is worth the political bother when government and corporate bond yields are on already at historic lows. China will need to judge what combination of reserve cuts and fixed asset spending will deliver its minimum growth goal of 7.5%, a floor it now looks to be slipping through. Meanwhile Europe is mulling -1.0% everything from conventional stimulus (rate cuts) to emergency liquidity (LTRO, IMF/EFSF lending) to quantum-leap integration (banking and fiscal .2.0% unions), the first two of which are highly probable and the last of which seems USD JPY EUR GBP CHF CAD AUD like a pipe dream. Currencies have moved even closer to pricing a Lehman-like TWI outcome, but since Europe is unlikely to take a quantum leap this year, the Sara. J P Ikegan current USD rally can extend. • Keep EMU hedges such as short EURJUSD, GBP/USD and EUR/CHF to hedge another policy mistake by Spain or an election surprise in Greece. Also re-enter anti-cyclical trades which we took profits on prematurely last Friday, thinking currencies had already moved halfway towards pricing in a Lehman event. Our crisis dashboard has yet to issue the one hallmark of oversold markets— a significant overshoot on valuation models. Given how much US and Chinese activity data have worsened this week, commodity currencies and the yen crosses can decline further. Buy USD/CAD and sell CAD/JPY in cash. Commodities • Commodities fen sharply this week, down over 4% with all commodity sectors experiencing losses. The uncertainty around Greece and the Euro area crisis and its ramifications for growth are hurting all risk asscts including commodities. Particularly relevant to commodities is the impact a European recession would have on the Chinese economy. Our China economist estimates that a 1%-pt decline in Euro area GDP growth would push Chinese exports to the Euro area down by 7% and would Dim China's GDP growth by 0.3% (see China: NBS May manufacturing PM1fell to 50.4; Zhu et al., Jun I). • Recent weakness in the Chinese PMI suggests these effects are already being felt. Chinese physical metals prices are also in a downtrend which is likely to continue over the coming month. We remain neutral commodities overall and prefer spread trades. Our highest conviction spread trades are short corn vs. US natural gas and long corn vs. Live Cattle (see Commodity Monzentos, Colin Fenton, May 31). • In energy markets, Asian LNG prices have been in an upward trend since the More details in ... Japanese earthquake disrupted nuclear power supplies and led to higher natural gas demand for power generation. Additionally, there has been FX Markets Weekly. John Normand et at increased demand for Asian LNG elsewhere as a substitute for higher priced Commodity Markets Outlook & Strategy. Cohn oiL This coupled with the recent fall in oil prices has led Asian LNG for Fenton et al. summer delivery to be priced above oil. While natural gas may be run more Oil Markets Monthly. Lawrence Eagles et al. efficiently than oil in power, clearly the cost advantage has diminished, and given oil is easier to store and is a more liquid market, users may turn back to Metals Review and Outlook, Michael Jansen oil. The impact on oil markets may not be sustained but it would come at a time Global Metals Ouarfeny. Michael Jansen when the oil market is at its tightest over the summer, thus likely pushing up oil prices (see Daily Oil Note, Fenton et al., May 31). An 1,2012 4 EFTA01177350 Global Asset Allocation The J.P. Morgan View J.P.Morgan Interest rates Current Jun.12 Se p.12 Dec-12 Ma r.13 YTD Return* United States Fed kinds rate 0.125 0.125 0.125 0.125 0.125 10-year yields 1.45 1.70 2.25 2.50 2.50 2.0% Euro area Refi rate 1.00 1.00 0.75 015 0.75 10-year yields 1.17 1.40 1.25 1.50 1.70 4.7% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 1.53 1.80 1.80 1.95 2.10 2.9% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10-year yields 0.81 0.80 0.85 0.95 0.95 1.4% GB i.Ehl hedged in S Yield • Global Diversified 6.45 6.30 2.1% Credit Markets Current Index YTD Return' US Nigh grade (bp over USTt 228 JPMorgan JULI Podolia Spread to Treasury 4.0% Euro h h grade (bp over Euro gov) 295 i8ou Euro Corporate It 5.1% USD high yield (lop vs. UST) 696 JP1horgan Global High Yield Index STW 52% Euro h h yield (bp over Euro gov) 967 16o1a Euro HY Index 92% EMBIG (bp vs. UST) 420 EMBI Global 3.7% EM Corporates (bp vs. UST) 454 JPM EM Corporates (CEMBI) 52% Quarterly Averages Commodities Current 1202 1203 1204 1301 GSCI Index YTD Return' Brent (Sten 104 112 120 125 125 Energy -8.0% Gold (Sroz) 1567 1750 1850 1875 Precious Metals -0.5% Copper (Sminic ton) 7483 8150 8575 9000 Industrial Metals -3.1% Corn (SMau) 5.60 6.35 5.85 5.65 Agncdture -7.7% 3m cash YTD Return' Foreign Exchange Current Jun-12 Sep-12 Dee-12 Mar-13 Index In USD EUR/USO 1.24 1.22 1.22 1.24 1.25 EUR -4.0% USDIJPY 78.2 78 80 78 80 JPY 1.8% GBP/USD 1.54 1.56 1.56 1.57 1.57 GBP -0.3% USD/BRL 2.04 2.05 1.98 1.95 1.90 BRL -4.2% USD/CNY 6.37 6.32 6.25 6.15 6.10 CNY -0.1% USD/KRW 1178 1200 1150 1140 1090 KRW .13% USD/TRY 1.86 1.88 1.85 1.80 1.70 TRY 43% YTD Return US Europe Japan EM Equities Current (local ccy) Sector Allocation • YID YTD YTD YTD S&P 1281 5.2% Energy -7.6% -10.1% -10.0% -7.0% Nasdaq 2750 5.3% Materials 1.6% .2.1% -6.1% .5.0% Tcpix 709 -0.2% IndusMals 3.5% 2.1% -0.6% 34% FTSE 100 5260 -3.8% Discretionary 10.8% 9.7% 5.9% 0.0% MSCI Eurozone' 124 -2.5% Staples 4.7% 3.5% 63% 2.8% MSCI Europe 985 -1.4% Healthcare 4.9% 1.9% .1.2% 7.6% MSCI EMS' 906 02% Finandals 83% -4.0% 64% 1.5% Brazil Bovespa 53496 -5.7% Information Tech 10.1% 1.6% -4.2% 8.9% Hang Seng 18558 L9% Telecommunications 10.4% -9.0% -6.0% -1.6% Shanghai SE 2373 7.9% UMW's 0.756 -6.4% -4.7% -1.4% 'Uwe/strews as of May 31, 2012 Overall 52% -1.4% -0.2% 02% Local currency except MSCI EM SOurOF 810:crtgrD, win:ream SES, Slaidied x Ptreel. Situ**. J P %ins.) 'greys Jun 1.2012 EFTA01177351  Global Asset Allocation The J.P. Morgan View J. P Morgan Global Economic Outlook Summary Real GDP Real GDP Consumer prices %o'er a )ear aip %owe proicts palm. sear ow OW ago 2011 2012 2013 4011 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 4Q11 2Q12 4Q12 2013 The Americas United States 1.7 221 2.1 1 3.0 191 2.5 2.01 2.0 1.5 2.3 3.3 2.0 111 1.5 Canada 2.41 221 2.5 1.91 191 2.6 2.3 24 2.7 2.4 2.7 1.7 13 2.0 Latin America 4.2 3.4 1 3.9 2.61 _381 3.71 3.81 3.71 4.21 3.8 72 6.4 62 6.9 Argentina 8.9 4.0 3.9 3.2 4.8 -2.0 8.0 8.0 3.0 4.0 9.6 10.0 10.0 11.0 Brad 2.7 2.1 1 4.5 0.61 0.81 41 1 4.44 4.81 4.5 4.5 6.7 5.0 5.0 5.3 Chile 6.0 5.0 4.5 8.2 5.7 45 4.6 4.7 4.5 4.4 4.0 42 3.9 3.4 Colombia 5.9 4.01 4.51 5.4 _261 2.81 2.81 3.0 5.01 6.0 3.9 3.6 3.3 3.0 Ecuador 7.8 4.0 4.0 4.1 2.0 3.5 4.0 4.0 4.0 4.0 5.5 5.3 4.7 4.7 Met 3.9 3.8 3.5 2.9 5.3 3.9 2.0 3.2 4.9 2.8 35 42 4.0 3.8 Peru 6.9 6.0 7.0 2.8 8.7 5.5 5.5 6.0 8.0 8.0 4.5 3.9 3.1 3.0 Venezuela 4.2 5.5 0.0 5.2 10.9 65 3.0 .6.0 -1.0 0.0 28.5 23.9 23.4 31.7 AslatPacifIc jaw -0.7 2.5 1.3 0.1 4.1 2.0 1.4 12 1.0 1.2 -0.3 0.1 0.1 -0.1 Australia 2.0 231 3.0 1.7 1.3 3.4 3.2 3.2 3.5 2.9 3.1 1.31 1.81 2.21 New Zealand 1.4 2.9 2.7 1.4 5.1 2.1 3.7 3.0 0.9 3.4 1.8 12 2.5 2/ Asa ex Japan 6.91 5.81 6.41 5.2t j31 5.31 5.81 6.01 6.41 6.61 4.9 3.8 4.01 4.71 China 9.2 711 8.4 1 8.8 6.8 _661 8.01 8.21 831 8.7 4.6 3.1 1 3.51 4.4 1 Hong Kong 5.0 1.91 3.61 1.6 1.6 3.0 3.51 3.51 3.0 3.5 t 5.7 4.31 3.81 331 India 6.51 6.0 4 6.51 8.31 5.81 6.3 7 5.81 5.61 6.21 6.51 8.4 7.8 81 1 8.4 Indonesia 6.5 5.01 331 8.8 4.8 4,Q1 3.01 3.01 3.51 4.51 4.1 4A? 4.61 7.3 Korea 3.6 2.91 3.51 1.3 31 _251 3.51 3.5 1 3.51 3.51 4.0 2.6 2.9 3.5 Malaysia 5.1 3.01 2.51 53 5.1 LQ 1 0.01 1.01 2.01 4.01 32 2.6 22 1.8 Philippines 3.8 1 5.6 t 4.1 1 6.9 1 102 1 4.9 5.7 4.9 4.5 4.5 4.7 3.9 4.0 4.0 Singapore 4.9 2.81 3.7 1 -2.5 10.0 3.61 -2.01 6.1 1 4.5 ? 4.5 5.5 521 3.41 231 Taiwan 4.0 1.51 421 -2.1 2.8 2.81 3.61 4.01 4.5 4.6 1.4 1.3 1.8 1 1.6 Thailand 0.1 3.51 2.31 -36.7 52.1 4.01 1.01 0.01 2.01 3.01 4.0 2.51 2.31 3.11 AhicalMiddle East Israel 4.8 2.9 4.4 3.2 3.0 3.2 6.1 7.4 4.5 2.8 2.5 2.3 2.5 2.1 South Afdca 3.1 2.5 3.6 3.2 23 1 2.4 3.5 4.5 3.7 3.2 6.1 6.1 6.0 5.8 Europe Euro area 1.5 -0.4 02 -1.2 0.1 -1.2 -1.0 0.0 0.5 0.5 2.9 2.5 2.3 1.7 Germany 3.1 0.9 12 -01 2.1 Q,.3 0.3 1.0 1.5 1.5 2.6 22 1.9 1.6 France 1.7 0.0 0.6 0.3 0.2 -1.0 4.3 0.5 0.8 1.0 2.6 2.4 2.1 1.7 Italy 0.5 -22 -1.0 -2.6 -3.2 •2.5 -2.5 -1.3 -0.8 -0.5 3.7 3.6 4.0 3.6 Spain 0.7 -1.4 4.8 -1.2 -1.2 -2.8 -2.8 -1.5 -0.5 0.5 2.7 2.0 1.8 1.1 United Kingdom 0.7 -02 1.8 -1.2 -1.3 •1 2.3 1.0 2.0 2.0 4.6 291 2.51 2.21 Emerging Europe 4.8 2.6 3.4 4.2 2.61 -1.0 2.6 3.3 3.6 3.1 6.4 4.9 5.5 6.0 Bulgaria 1.7 1.0 2.5 Czech Republic 1.7 -1.1 0.9 -0.5 -3.9 -1.0 1.0 2.2 1.1 -1.7 2.4 2.7 2.9 2.5 Hungary 1.7 -12 1.0 0.0 -5.1 -0.5 0.0 0.8 1.0 1.5 4.1 5.8 5.9 3.8 Poland 4.3 3.0 3.0 4.1 1 3.2 1 2.0 2.3 3.0 3.0 3.0 4.6 3.9 3.5 2.8 Romania 2.5 0.8 2.7 -0.8 -0.4 -1.5 0.8 2.4 2.5 3.0 3.4 3.3 4.4 4.0 Russia 4.3 3.7 3.7 5.9 4.6 -2.0 3.5 4.0 4.5 4.0 6.8 3.7 6.0 6.6 Turkey 8.5 2.5 4.5 92 9.0 6.8 8.8 Global 2.6 2.11 241 1.81 2.51 1.71 2.01 2.21 2.31 2.51 3.6 231 2.61 2.6 Developed markets 1.3 1.2 / 1.4 0.8 1.31 0.9 1.01 1.2 1.2 1.5 2.8 191 13 1 1.5 Emerging markets 5.8 4.51 511 4.31 5.5 1 3.81 4.71 5.01 5.41 5.31 5.7 4.7 4.91 5.5 Scrim: J,P Vocgs Jun 1.2012 6 EFTA01177352 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 individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) 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 ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS- ) and its affiliates worldwide. J.P. 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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 JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPNISL'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 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 clienti'. 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 Corpora- tions Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd.. Frankfurt Branch and J.P.Morgan Chase Bank. N.A.. Frankfurt Branch which are regulated by the Bundesanstalt fiir Finanzdienstleistungsaufsicht. Hong Kong: The 1% EFTA01177353 Global Asset Allocation The J.P. Morgan View J.P.Morgan 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 be based on the month end data from two months prior.) J.P. Morgan Braking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading. and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading..112Morgan Securities Japan Co.. Ltd.. will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co.. Ltd.. and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co.. Ltd.. Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association. The Financial Futures Association of Japan. Type II Financial Instruments Finns Association and Japan Securities Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd. Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report: for securities where the holding is 1% or greater. the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only. not for sale. Pakistan: For private circulation only. not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who. in the course of and for the purposes of their business. habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not. and under no circumstances is to be construed as. a prospectus. an advertisement, a public offering, an offer to sell securities described herein. or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or. alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorpo- rated. formed or created under the laws of Canada or a province or territory of Canada. any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein. and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All p