EFTA01146946.pdf

Global Asset Allocation J.P.Morgan 03 August 2012 The J.P. Morgan View Stay in mid-risk assets • Asset Allocation — Investors flows and the environment of low growth, super Global Asset Allocation easy money and no fiscal blowups yet continue to support the strategy of mid- Jan Loeys AC risk assets, EM and corporate bonds and defensive stocks. (1-212)834-5874 jan.lcieysigrpmorgan.corn • Economics — Weak PM1s and demand indicators are pointing to a risk JPMorgan Chase Sank NA scenario of an extended bottom in growth and a delay in our expected lift in growth, but not to an acceleration in the downshift in growth. John Normand (44-20) 7134-1816 • Fixed Income — Weakening growth and scramble for yield support duration john.normandgpmorgan corn ovcrwcights. J.P. hlorgan Secunties plc Nikolaos Panigirtzoglou Equities — An underweight in Cyclical vs. Defensives is not necessarily (44-20) 7134-7815 inconsistent with a long equity directional stance. nikolaos.panicortzoglouftmorgan.com J.P. Morgan Securities plc • Credit — Carry is king in a weak growth, cheap money, low-volatility world. OW EM credit and US high-yield. Seamus Mac Gorain (44-20) 7134-7761 Foreign exchange — We add two mean reversion trades, short GBP/NOK and seamus.macgorain@rpenorgan corn AUD/NZD. J.P. Morgan Secunties plc Matthew Lehmann Commodities — We maintain our OW in energy vs. base metals and our long (44-20) 7134-7813 in gold. We also open a small OW in agriculture. mathew.m.lehmannajpmorgan.com J.P. Morgan Securities plc Equities are again net up on the week, and fixed income overall is slightly up, both beating zero-yielding cash and commodities, and continuing to play by Leo Evans (44-20) 7702-2537 the asset reflation tune we have been harking on for some time. Cash and leortarcl.a.evans@jpmorgan.com commodities remain at the bottom of the YTD return parade (chart on right). J.P. Morgan Securities plc Investor flows, and our strategy continue to focus on what we call mid-risk YTD returns through Jul 26 assets — better-yielding corporate and EM bonds as well as defensive % equities are in tighter color. equities — which sit in between aggressive asset classes, such as higher-beta cyclical and EM stocks on one side, and safer cash and government bonds. The EMBIG combination of low, below-trend economic growth, super-easy monetary policy, EMSCorp. and a postponing of fiscal blowups in the US and Europe remains positive for S8P500 the mid-risk strategy, in our view. US high Yield US High Grade On the growth side, this week's Global Manufacturing PMI was even weaker than feared, and is near recession levels. To offset the dangerous signal of this MSCI AC Wald' production indicator, we need to get better news from services, demand, and EM Local Bonds" jobs. Much of what we have received recently is quite mixed. June retail sales Europe Fixed Inc' min were poor and G3 shipments likely fell. But July car sales and US jobs data were MSCI Europe' OK, but not great. The July Global All-Industry PMI, which includes services, US Fixed Income td did move up 1.4%, but still only to a level consistent with no change in growth MSCI EM from Q2. As a result, we believe the risk is that global growth will not rise much Global Gov Bards" from the estimated 1.7% pace in Q2, which is so far the lowest in the expansion. BA FX But there is little in the data that suggests a further lurching down in growth. We view a more extended bottoming in growth and later modest rebound as the Gold more likely scenario (more details in GDW). US cash Topie I GSCI TR a 0 4 8 12 See page 7 for analyst certification and important disclosures. Source: J.P. Morgan. Bbomberg See Ms taxon page 2 for clasaiplion. www.morganmarkets.com EFTA01146946  Jan Loeys (1-212)834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan iantoeys@opmorgan.com 03 August 2012 • On the policy side, there is no real news on the Western front. The US FOMC 2012 global GDP growth forecasts: JPMorgan and is in wait-and-see mode and announced no new policy measures. Congress Consensus could only agree to extend government funding for 6 months in the new fiscal 4.5 year (from October) but remains in gridlock on everything else. The tone of 4.0 the Presidential campaign does not suggest any move to compromise either. 3.5 • But it was surely the ECB that created all the fireworks this week. ECB President Draghi had raised hopes ofnovel actions. His announcement of 3.0 plans to provide guidance to ECB committees on possible support, conditional on applications to the EFSF and more fiscal conditionality, however, sounded 2.5 so feeble as to force risk markets badly down yesterday. But 24 hours of more 2.0 careful consideration of the ECB's new approach have since led to a Jan-11 May-11 Sep-11 Jan-12 May-12 realization it could strengthen the ECB's hand in addressing the debt crisis. Sane: J.P. meager). Consensus Economics, Consensus Economics • Importantly, Mr Draghi stated that higher sovereign yields affect the forecasts ere lot regal and countries that weaveraged usng the same 5-year roan] USO GDP we4ls Mat we use for our own global transmission of monetary policy and are thus within the mandate of the central growth forecast bank. But unlike the somewhat random and ineffective SNIP bond buying program under his predecessor, Mr. Draghi's plan is to link ECB buying to EFSF lending and conditionality. This should buy him much needed political legitimacy and backing. Mr Draghi statement to reconsider ECB seniority 2013 global GDP growth forecasts: JPMorgan and relative to private sector bond holders also could be a potential game changer. Consensus 3.5 - • If ECB committees in coming weeks were to decide that they are accepting being on par with the market (pari-passu) and that they are willing to buy Consensus enough of the debt (1.3 year) of a country that asks funding support from the EFSF to bring yields that are affordable and sustainable, then it will have 3.0 likely taken a large step towards the eventual resolution of the EMU crisis. JPM • But these are big ifs, and these steps will need to be complemented over time with many other measures, such as not forcing countries in recession to pursue 2.5 greater austerity, enlarging the EFSF/ESM, creating democratic legitimacy to Ja -12 Apr-12 Jul-12 central fiscal control and funding, to start with the most obvious. Most importantly, if the ECB and governments cannot pull the euro economy Source: J.P. Morgan. Consensus Economics. Consensus Economics out of recession, then voters could ultimately demand regime change. forecasts we for regan and countries that we averaged using Me same 5-year rolls') USO GDP we trine use for our own global groetri forecast Fixed income • Bonds arc little changed after an up and down week. Just as further disappointing activity data were tempered by better US Payrolls , so interpretations of ECB policy have waxed and waned in the day since More details in... President Draghi's press conference. Our view is that substantial measures Global Data Watch. Bruce Kasman and David Heasley are in train from the ECB, likely including a revised collateral framework. Global Markets Outlook and Strategy, Jan Loeys. Bruce further LTROs, and significant support for short-dated peripheral bonds. Kasman. et al. US Fixed Income Markers. Terry Belton and Srini • The first catch is the timing of Spain's anticipated request for EFSF assistance, Ramaswamy which would open the door to ECB bond buying. The second is that in Global Fixed Income Markets. Pavan Wadhwa and Fado announcing that any purchases will be focused on the short end, the ECB has Bassi somewhat orphaned the long end of the Spanish curve, which is left Emerging Markets Outlook and Strategy. Joyce Chang without an obvious buyer. Key trades and risk: Emerging Marker Equity Strategy, • We remain positive on duration, on the weakening economy and ever-easier Adnan Mowat et al. monetary policy. We favour German Bunds, with DM economic risks most Flows and Liquidity. Nikos PanIgirtzoglou et al. pronounced in the Euro area, and EM local bonds, whose real yield pickup is more attractive in a world of meager returns on the safest government bonds. Description of YTD Chart on front page: Within EM, we are most bullish on Asian local markets, which are less Returns in USD. 'Local Currency. t•Hedged into USD. susceptible to Euro area flare-ups, and where domestic investors are Euro Fixed Income is iBoxx Overall Index. US HG. HY, EMBIG and EM S Corp are JPM indices. EM FX is ELMI. underweight. In S. 2 EFTA01146947  Jan Loeys Global Asset Allocation J.P.Morgan (1-212) 834-5874 The J.P. Morgan View lanioeys@jpm.organ.com 03 August 2012 Equities Hedge fund equity exposure Rolling 21-day beta. • Global equities (MSCI AC World) are up on the week. They gained 2% in 0.8 July, following a 5% rise in June. Despite still elevated uncertainty and xro HF: beta to SiSP5C0 weekly oscillations, the trend in equity markets since June is positive. 0.6 • This uptrend is likely driven by short covering, despite weak macro data. 0.4 Widespread skepticism and fear suggest this has further to go. Our Macro HF beta, shown in the chart at the top, suggests that Macro HFs, which were 0.2 caught up with short positions in both June and July, have started covering their shorts. 0.0 • Europe has most upside across regions due to heavier shorts there, and signals -0.2 from policy makers in Europe that a loss of market access for Spain is both -0.4 preventable and undesirable. Indeed the Eurostoxx50 index has Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 outperformed the S& P500 index in both June and July. Same: J.P. Mogan • The global manufacturing PMI fell by 0.7 points in July. This represents an improvement from last month's sharp decline, but is not enough for us to change the UW in Cyclical vs. Defensive equity sectors. The two-month change, our preferred lookback period based on historical back testing, remains heavily negative. The PMI rarely falls below the breakeven 50 mark outside ofrecessions, underscoring the weakness of this expansion. Equally concerning is the absence of any sign of stabilization in the PMI, based on the further deterioration in the forward-looking indexes of new orders and finished goods inventory. • An underweight in Cyclical vs. Defensive sectors is not necessarily inconsistent with a long equity stance. Around 70% of the time (based on monthly data), being long equities and OW Cyclical sectors coincide in terms of sign. But 30% of the time they differ, as it happened over the past month: Indeed, equities are up but cyclical sectors underperformed in July. Credit • New yield lows in high-quality issues in global credit markets this week, but the highest yielding sectors also came in nicely. A straight credit rally was noticeable as treasuries finished roughly flat. Carry strategies are king in a weak growth, cheap money, low-volatility world. • In GMOS this week, we expanded the rationale behind our down in quality, up in yield mentality. Mid -risk assets, EM credit and US HY, are our preferred sectors, which we see as the most likely beneficiaries from asset reflation given their solid credit fundamentals and distance from the problems in Europe. We also introduced a new long-only portfolio that incorporates these tactical views. It is designed to be easily replicable for the long-only investor. OW dollar credit vs. Europe, and trade down in quality are the key takeaways. Foreign Exchange More details in ... • Numerous non-dollar currencies are entering August through a stealth rally, US Credit Markets Outlook and Strategy. Eric Bernstein such that the trade-weighted greenback has broken through a two-month floor el at. (82.50 on JPMQUSD), FX volatility is approaching its year-to-date low of High Yield Credit Markets Weeldy. Peter Acciavalli al al. 8.6% (basis VXY) and even EUFt/USD is rebounding after a disastrous July. European Credit Outlook & Strategy. Steven &Oka or Some of this move lower in the dollar and higher in most other currencies al. could be catch-up since the FX carry trade has lagged the credit carry trade all Emerging Markets Cross Product Strategy Weekly. Eric year. Related, manager returns for global macro, emerging markets and some Beinstein or al. currency overlay composites am well behind their usual pace for this time of 3 EFTA01146948  Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan pan.boysigopmorgan torn 03 August 2012 the year. The thinness of Mr Draghi's plan and the absence of decent data FX weekly change in USD anywhere but US payrolls make this USD sell-off unattractive to sell into. We 1.0% - confine trades instead to the sovereign stress hedges and a clutch of relative value positions. • The portfolio was poorly positioned for July. Our thinking entering last month was that the Chinese economy was stabilising, so commodity currencies should enter a range; that European sovereign stress would persist 0.0% J because Europe could not approve banking union until later this fall; and that the decline in the euro crosses would begin to reverse either due to Fed QE3 (supporting EUR/USD, EUR/GBP and EUR/JPY) or global deleveraging around sovereign stress and the US fiscal cliff. -1.0% - • Certainly a grab-bag of themes, and one which motivated several adjustments USD JPY EUR GBP CHF CAD AUD when we last rebalanced on July 20. We took profits then on short EUR/JPY TWI and USD/JPY, but kept a core short in EUR/USD, a long in USD/SEK (as a Source: J.P. Masan. leveraged trade on euro weakness before Fed QE began) and a range binary in a commodity currency such as EUR/NOK. Exiting EUR/JPY and USD/JPY was well-timed, but we grossly underestimated the demand for AAA currencies like SEK and NOK as risky markets rallied in July: short USD/SEK was stopped out and the EUR/NOK barriers triggered. • The highest-conviction directional view for August is that EUR/USD should retrace lower by a few cents as the ECB moves to negative deposit rates and that EUR/JPY resume its decline, particularly since the Bank of Japan is unlikely to announce further assert purchases next week nor intervene at this level. Complement these with two relative value trades such as short GBP/NOK and AUD/NZD to position for mean reversion in currencies which have diverged from shifts in rate spreads over the past several weeks. Commodities • Commodities are down slightly this week, led lower by base metals. Economic data came in worse than expected and ow global PMI fell further with no sign of improvement even in the more forward looking components. We do expect stimulus from policy makers to combat the worsening economic picture, but this is likely to be limited and not enough to bring economic growth back to trend. This is clearly not a supportive environment for commodities, which are very closely linked to economic growth. However, some commodity markets are still likely to outperform due to supply problems which can push up prices in spite of the weaker demand. • In our monthly GMOS published yesterday, we maintained our OW in energy vs. base metals as well as our long gold position. We also opened a small OW in agriculture. In energy, North Sea maintenance coupled with reduced Iranian exports due to sanctions as well as a reduction in production by the gulf trio has left oil markets tight. In stark contrast, base metals face no such supply concerns and are suffering from weakening demand as the economy More details in... slows. Although we don't think further monetary stimulus will be enough to FX Markets Weekly. John Normand et al. bring the economy back to trend growth, it will likely help gold and we Commodity Markets Outlook 8 Strategy, Colin expect demand to pick up as the economy weakens further and the Fenton et al. likelihood of QE3 rises. Agriculture prices arc supported by the worst US Oil Markets Monthly, Fenton et al. drought in 50 years with little respite forecast currently. Our agriculture Daily Metals Note. Fenton et al. analysts see further upside in corn and soybean prices from here, as the Agriculture Weekly, Dietz et al. extent of the crop damage is revealed. 4 EFTA01146949 Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan ranioeysgjomorgan.com 03 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 2.00 2.5% Euro area Ref rate 1.00 0.75 0.50 0.50 0.50 10-year yields 1.42 1.00 0.90 1.00 1.20 3.5% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 1.56 1.35 1.50 1.70 1.80 3.6% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10-year yields 0.73 0.85 0.95 0.95 0.95 1.9% GBI-EM hedged in S Yield • Global Diversified 5/7 6.00 5.9% Credit Markets Current Index YID Return' US high grade (bp over UST) 192 JPMorgan JUU Poriceo Spread to Treasury 7.4% Euro high grade (bp over Euro gov) 243 Bon Euro Corporate Index 62% USD high yield (bp vs. USTI 627 JPMorgan Global High Yield Index STW 9.5% Euro high yield (bp over Euro gov) 910 Bon Euro HY Index 13.2% EMBIG (bp vs. USTI 323 EMBI Global 12.1% EM Corporates (bp vs. UST) 392 JPM EM Corporates (CEMBI) 10.5% Quarterty Averages Commodities Current 1203 1204 1301 1302 GSCI Index YID Return' Brent ($ibbI) 109 95 100 105 95 Energy -2.5% Gold (Soz) 1604 1655 1725 1750 1775 Precious Metals 0.4% Copper (S/metric ten) 7322 8000 8300 8500 8700 Industrial Metals -2.7% Corn (ttdBu) 8.11 8.25 8.25 8.00 7.75 Agriculture 26.3% 3m cash YTD Return' Foreign Exchange Current Sep-12 Dec-12 Mar-13 Jun.13 Index In USD EUR/USD 1.24 1.22 1.24 1.25 1.25 EUR -4.3% USD/JPY 78.6 78 78 80 80 JPY 1.5% GBP/USD 1.57 1.56 1.58 1.58 1.58 GBP 1.3% USDBRL 2.01 2.00 1.98 1.95 1.95 BRL -4.4% USD/CNY 6.38 6.33 6.30 6.30 6.25 CRY -0.2% USDARW 1138 1150 1150 1090 1090 KRW 3.9% USD/TRY 1.81 1.82 1.80 1.75 1.75 TRY 10.6% YTD Return US Europe Japan EM Equities Current (local ccy) Sector Allocation • no YTD YID YTD (5) S&P 1393 10.7% Energy 22% -2.1% .15.8% -2.5% Nasdaq 2945 13.4% Materials 5.2% 3.6% -13 7% -1.5% Topix 724 1.4% a Industrials 72% 8.9% -1.2% 7.615 FTSE 100 5787 6.3% Discretionary 12.0% 17.5% 4.3% 5.1% MSCI Eurozone' 132 4.3% I Staples 11.0% 13.7% 12.6% 10.9% MSCI Europe 1053 5.9% Healthcare 12.2% 14.8% 9.3% 18.8% MSCI EM 5' 945 5.4% 1 Financials 13.4% 5.7% 17.1% 9.8% Brad Bovespa 55072 -2.6% Information Tech. 14.1% 10.8% -5.2% 11.3% Hang Seng 19275 7.514 Telecommtricalions 23.9% 0.2% 7.0% 11.3% Shanghai SE 2129 .3.2% Utilities 6.5% .0.1% -24 2% 6.0% 'Levels/returns as of Aug 02, 2012 Overall 10.7% 5.9% 1.4% 5.4% Local currency except h1SCI EM S Sotrce: J.P. klorgan 5 EFTA01146950 Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan View .1.13.Morgan jan.loeys@ornorgan.com 03 August 2012 Global Economic Outlook Summary Real GDP Real GDP Consumer prices Deer a year ago 40wx orevws pencd. saar crier 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 1.5 1.5 2.0 1.5 2.3 2.5 3.3 1.9 1.5 1.3 Canada 2.4 2.1 2.2 1.9 2.1 2.0 2.2 2.2 2.4 2.7 1.9 2.1 2.2 Latin America 4.2 2.9 3.7 3.2 2.1 4.0 3.8 3.8 3.9 3.9 7.2 6.1 6.0 6.6 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 0.8 N 4.5 4.6 4.3 4.3 4.3 6.7 5.0 4.9 5.0 Chile 6.0 5.0 4.5 5.7 3.5 3.8 5.0 4.6 4.7 4.4 4.0 3.2 3.1 3.0 Colombo 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 2.9 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 4.0 Mexico 3.9 3.6 3.5 5.3 2.1 1.7 3.4 4.4 3.7 3.3 3.5 3.8 4.0 3.9 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 3.0 Venezuela 4.2 5.5 0.0 10.9 ILO 3.0 -6.0 -1.0 0.0 3.0 28.5 23.9 23.4 31.7 Asia/Pacific Japan -0.7 2.6 1.2 4.7 2.0 1.0 0.8 1.0 1.2 1.3 -0.3 0.1 1 0.1 -0.3 Australia 2.1 3.2 2.8 5.3 1.3 1.6 2.4 4.4 3.3 1.8 3.1 1.0 1.5 2.2 New Zealand 1.3 2.5 2.8 4.7 0.4 3.3 3.0 2.3 3.4 3.2 1.8 1.1 2.5 2.7 Asia ex Japan 7.4 6.1 1 6.7 7.2 1 Si 5.9 1 6.4 1 6.8 7.0 7.2 4.9 3.9 3.4 1 3.9 China 9.2 7.7 8.5 6.8 6.9 1,D 8.5 8.7 8.7 8.7 4.6 2.9 2.4 3.3 Hong Kong 5.0 1.9 3.6 1.6 la 3.5 3.5 3.0 3.5 5.0 5.7 4.2 2.5 2.4 India 6.5 6.0 6.5 5.8 5.8 5.6 6.2 6.5 6.8 8.4 10.2 9.8 9.3 Indonesia 6.5 5.0 3.7 4.8 4.0 3.0 3.0 3.5 4.5 5.0 4.1 4.5 3.9 3.4 Korea 3.6 2.5 1 3.3 1 3.5 1.5 2.01 3.5 1 3.5 3.5 4.0 4.0 2.4 2.21 2.8 Malaysia 5.1 3.0 2.5 5.1 1.0 0.0 1.0 2.0 4.0 4.5 3.2 1.7 1.1 1.1 PhiippMes 3.8 5.3 3.5 10.2 3.6 1.2 1.2 4.5 4.5 4.5 4.7 2.9 2.3 2.4 Singapore 4.9 2.2 3.5 10.0 -0.8 1 gal 1 4.1 4.1 4.1 4.1 5.5 5.2 3.1 2.4 Taiwan 4.0 1.11 3.91 1.31 3.21 1.81 3.81 4.5 4.6 4.8 1.4 1.7 2.1 1.9 Thailand 0.1 3.5 2.3 52.1 4.0 1.0 0.0 2.0 3.0 4.0 4.0 2.5 1.3 1.9 AfrIcattAlddle East Israel 4.8 2.9 4.4 3.0 3.2 6.1 7.4 4.5 2.8 2.4 2.5 2.3 2.5 2.1 South Nrica 3.1 2.5 3.6 2.7 2.4 3.5 4.5 3.7 3.2 3.4 6.1 5.8 5.6 5.7 Europe Euro area 1.5 -0.5 0.1 0.1 -1.0 -1.0 -0.5 0.5 0.5 1.0 2.9 2.5 2.1 1.6 Germany 3.1 0.9 1.1 2.1 0.5 0.3 0.5 1.5 1.5 1.8 2.6 2.1 1.7 1.4 France 1.7 0.1 0.6 0.1 -0.5 .0.3 0.0 0.8 1.0 1.3 2.6 2.3 2.2 1.8 Italy 0.5 -2.2 -1.0 -3.2 -2.5 -2.5 -1.5 -0.8 -0.5 0.0 3.7 3.6 3.41 2.91 Spain 0.7 -1.3 .0.9 .1.3 L11 .2.8 .2.0 M.5 0.5 0.5 2.7 1.9 2.91 2.4 United Kingdom 0.8 -0.6 1.4 -1.3 -2.8 2.0 0.5 1.5 2.0 2.5 4.6 2.8 2.1 1.8 Emerging Europe 4.8 2.7 3.2 3.0 all 2.1 2.9 3.3 3.0 3.2 6.4 4.9 5.5 5.4 Bulgaria 1.7 1.0 2.5 Czech Ramble 1.7 -1.1 0.9 -3.1 J..3 0.2 0.9 1.5 -0.6 2.5 2.4 2.7 2.9 2.5 Hungary 1.6 -1.2 1.0 -4.1 j..3 -0.5 0.5 1.0 1.5 2.0 4.1 5.4 5.3 3.3 Poland 4.3 2.8 2.6 3.2 1.5 1.5 2.0 3.0 3.0 3.5 4.6 3.9 3.4 2.8 Romania 2.5 0.8 1.0 -0.5 13 -0.4 2.8 1.6 -1.2 1.2 3.4 2.2 4.4 4.0 Russia 4.3 3.6 3.4 4.6 .15 3.0 3.5 4.0 4.0 3.5 6.8 3.7 6.1 6.7 Turkey 8.5 2.8 4.5 9.2 9.4 6.5 5.8 Global 3.0 2.5 2.7 3.01 171 2.2 2.5 2.8 3.0 3.2 3.8 2.8 2.6 2.5 Developed markets 1.3 1.2 1.3 1.7 0.5 0.7 0.9 1.2 1.5 1.8 2.7 1.8 1 1.6 1.3 Emerging markets 6.1 4.7 5.3 5.6 3.8 T 4.9 1 5.3 5.5 5.6 5.7 5.7 4.6 4.4 4.8 Source: J.P. Morgan 6 EFTA01146951 Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan jan.toeys@ipmorgan.corn 03 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. Other Disclosures J.P. Morgan ("JPat) is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazcnove 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 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 http://www.optionsc learing.comtpublicationstriskshiskstoc.ndf Legal Entities Disclosures US.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan 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, E 14 5.IP. 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 AAJ32I ) 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 23-VAFS 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, Ott 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/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 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 dc Valores Mobiliarios (CVhf) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Boise. S.A. de C.V., J.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 Berhad and a holder ofCapital 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: 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 Bundesanstalt fir Finanzdicnstleistungsaufsicht. Hong Kong: The I% 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. (Fix 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 providerlmaricet 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, JPMorgan Securities Japan Co.. Ltd., will be receiving a brokerage fee and 7 EFTA01146952 Jan Loeys (1-212) 834-5874 Global Asset Allocation The J.P. Morgan View J.P.Morgan jan.toeys@jpmorgan.corn 03 August 2012 consumption tax (shouhizci) 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 Japa