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Global Asset Allocation 28 March 2013 Click play to view the video The J.P. Morgan View Local forces are dominating � Asset allocation –– Local risks and opportunities trump global forces in driving investment opportunities. Cross-market correlations to remain much lower than in recent years. � Economics –– US activity data are coming in better than hoped, but we need another 1-2 months to see how consumers are responding to higher taxes. � Fixed Income –– Search for carry to trump Euro area jitters over time. � Equities –– Japan remains our main country overweight. � Credit –– We OW covered bonds in the Euro periphery over senior bank bonds and subordinated vs senior bank bonds in the core. � Currencies –– Cyprus to have minimal further impact on EUR, but a ECB rate cut would push it a few cents lower versus the dollar. � Commodities –– Stay long Brent and short gasoline. � US stocks continue to gain, with the benchmark S&P500 breaching its all time high level today in a gentle fashion. Bonds are generally up this week on dovish comments from both the Fed and the BoJ. Commodities have gained also, but credit remains the troubled asset class with spreads wider in most markets, especially in EM external debt. � Our overall investment theme remains that there is no overarching global investment theme anymore this year but instead a number of unrelated local forces that have largely local impact. The generalized asset reflation we saw last year, with risk premia coming down consistently across the globe and asset classes, was due to a gradual fading of tail risks that has since been largely completed. “Risk-on, risk- off is so last year”. � In addition, we are seeing no momentum either way in global growth, price or earnings expectations that could put us into a bullish or bearish growth story. Our 2.4% projection for 2013 world economic growth is unchanged since November. YTD activity data for the world are tracking our 2.6% forecast for Q1, comfortably up from the dismal 1.6% in Q4 of last year. Amidst offsetting up- and downside surprises in the US and Japan versus Europe, there has been no reason yet to raise the growth profile for the year as a whole. We hope, but need evidence first. � Without a global growth or fading-of-tail-risks force, we are left with a set of local issues and opportunities that are having a local impact, at the regional, asset class and company level, that should leave the rest of the world largely unmoved. In this environment, correlations across regions and risk markets should remain significantly lower than in past years. Various markets may seem to behave “inconsistently” with others, but we caution against expecting simple mean reversion, given our view of the reduced impact of global factors. Active investors should pay more attention to local fundamentals while long-term investors can expect to achieve greater gains from cross-market and international diversification. Global Asset Allocation Jan Loeys AC (1-212) 834-5874 jan.loeys@jpmorgan.com JPMorgan Chase Bank NA John Normand (44-20) 7134-1816 john.normand@jpmorgan.com J.P. Morgan Securities plc Nikolaos Panigirtzoglou (44-20) 7134-7815 nikolaos.panigirtzoglou@jpmorgan.com J.P. Morgan Securities plc Seamus Mac Gorain (44-20) 7134-7761 seamus.macgorain@jpmorgan.com J.P. Morgan Securities plc Matthew Lehmann (44-20) 7134-7813 matthew.m.lehmann@jpmorgan.com J.P. Morgan Securities plc Leo Evans (44-20) 7742-2537 leonard.a.evans@jpmorgan.com J.P. Morgan Securities plc YTD returns through Mar 27 %, equities are in lighter color. Topix* S&P500 MSCI AC World* MSCI Europe* US High Yield GSCI TR Global Gov Bonds** Europe Fixed Inc* EM $ Corp. US High Grade EM Local Bonds** US cash US Fixed Income EM FX MSCI EM* EMBIG Gold -10 0 10 20 30 See page 7 for analyst certification and important disclosures. Source: J.P. Morgan, Bloomberg. See blue box on page 2 for description. www.jpmorganmarkets.com Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com Global Asset Allocation The J.P. Morgan View 28 March 2013 � � � � Local issues must be monitored and understood, though, to decide how to allocate capital and risk. Just to review a few, Japanese policy makers continue to present a concerted plan to reflate their economy through monetary, fiscal and structural measures. The strong control of the government and its high approval rating are steadily raising the chance of success. We stay overweight Japanese equities and grow wary of the short yen trade, as capital inflows and rising growth expectations (chart of right) are ultimately bullish for the currency. Watch next week’s BoJ meeting, led by newly appointed Governor Kuroda, for new reflationary measures. The Euro area economy remains in recession, while policy makers are making little effort to reverse the contraction. We monitor signs of any large deposit flight post Cyprus over coming weeks and months to judge whether the bailout may actually be worsening conditions in the Euro. Economic forecast momentum remains negative (chart of right). These are good reasons to underweight the Euro area, if not all of Europe, across asset classes, against the rest of the world. The US, in contrast, is seeing better spending from both corporates and consumers than we could have expected post Fiscal Cliff and sequestration. But given the huge amount of fiscal drag, which is a fact, we want to see another 1-2 months of data before extrapolating the good news. It did support US equities in recent weeks, which continue to benefit from US corporates issuing debt to buy their own shares and others', through M&A. This corporate rotation from debt to equities is almost exclusively a US flow, which helps explain US equity outperformance. Across risk assets, we are similarly seeing huge delinking, with equities rallying greatly and commodities and credit seeing no gains (chart p. 1), very much unlike last year. Commodities are delinking as there are no growth upgrades in EM, and inflation concerns are concentrated on two countries, UK and Japan. Credit is delinking as most investors are massively overweight credit versus equities, as evidenced by the disparity in buying flows in 2011- 12. Relevering by US corporate and the Fed debating the end of QE are signaling that the 3-decade long rally in bonds is likely over. Investors are starting to dollar-average away from bonds to equities. Fixed Income � � � Bonds rallied again, except for Euro area peripherals, the source of this week’s market concerns. The imposition of capital controls on Cypriot deposits is to be sure a watershed moment, but for now not one we expect to spark significant deposit withdrawals elsewhere. Meanwhile, the most likely outcome to the Italian impasse appears to be new elections in the autumn. With seemingly little prospect of a material rise in yields on the safest assets, we think the search for carry evident across the full gamut of asset markets will see peripheral spreads narrow over time. Ten-year JGB yields have rallied to within a few bps of their all-time low, ahead of next week’s inaugural meeting for the new BoJ leadership. We do indeed expect aggressive easing, with JGB purchases out to 30 years, but think this will be trumped by profit taking in JGBs after the fiscal year end. Our latest Inflation Expectations Survey (F. Diamond, K. Gupta) was out yesterday. One interesting result is that almost 90% of respondents believe the BoJ has less than a 50/50 shot of hitting its 2% inflation target in two years, a reflection of the formidable challenge of sparking inflation expectations after two decades of falling prices. 2013 Japan GDP growth forecasts: JPMorgan and Consensus 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Source: J.P. Morgan, Consensus Economics. Consensus Economics forecasts are for regions and countries that we averaged using the same 5-year rolling USD GDP weights that we use for our own global growth forecast. 2013 Euro area GDP growth forecasts: JPMorgan and Consensus 1.0 0.5 -0.5 -1.0 JPM Source: J.P. Morgan, Consensus Economics. Consensus Economics forecasts are for regions and countries that we averaged using the same 5-year rolling USD GDP weights that we use for our own global growth forecast. More details in ... Global Data Watch, Bruce Kasman and David Hensley Global Markets Outlook and Strategy, Jan Loeys et al. US Fixed Income Markets, Pavan Wadhwa, Matthew Jozoff, and Srini Ramaswamy Global Fixed Income Markets, Fabio Bassi Consensus Consensus 0.0 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 JPM Emerging Markets Outlook and Strategy, Joyce Chang Key trades and risk: Emerging Market Equity Strategy, Adrian Mowat et al. Flows and Liquidity, Nikos Panigirtzoglou et al. Description of YTD Chart on p. 1: Returns in USD. *Local currency. **Hedged into USD. Euro Fixed Income is iBoxx Overall Index. US HG, HY, EMBIG and EM $ Corp are JPM indices. EM FX is ELMI+ in $. 2 Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com Global Asset Allocation The J.P. Morgan View 28 March 2013 Equities � � � � The global rally in equity markets slowed this week, but did not reverse, on continued concerns about the fallout from a poorly executed Cyprus solution. The Euro area underperformed again, for a second week in a row. As discussed last week, we view Cyprus as a local problem that we address by underweighting Euro area equities in a global portfolio. A potential negative feedback loop from markets to the economy poses a serious downside risk for Euro area growth over coming months prolonging the current run of negative economic surprises from the region. Japan is the region we like the most. In our mind the Japanese equity trade has further legs not only due to prospective BoJ balance sheet expansion but more importantly due to a reform agenda to be unveiled into the summer. EM equities are suffering from renewed policy tightening in major EM economies such as Brazil and China. Investors have bitter memories of previous property tightening measures in China. As within DM, we see a lot of divergences within EM and prefer to focus on under-owned markets with good domestic demand story such as Mexico and Malaysia. See “Consensus Asset Allocation”, Adrian Mowat and team, Mar 26th. Open overweights in Mexican and Malaysia equities vs MSCI EM. For long-term investors we just released our quarterly publication "Trade opportunities for long term investors" Mar 27. We monetize risk premia in Value stocks via a long in S&P500 Value vs S&P500 ETFs. It appears that a five year long underperformance of Value stocks has come to an end. We take profit on trades that monetize skew risk premia in S&P500 due to sharp contraction over the past quarter. We continue to monetize equity risk premia via buying high dividend yield equity ETFs against USTs. Our preference is to buy ETFs which track the S&P US Preferred stock due to its high yield, around 6%, and its high weight on Financials. Credit � � � The news flow from the Cypriot bailout continued to push spreads wider and vol higher this week, with European Financials underperforming as creditor bail-in risks returned to the forefront. iTraxx senior and subordinated financials indices widened 20bp as investors sought to hedge via CDS rather than sell bonds. European credit continued to underperformed US credit. The fact that Cypriot banks debt is only 1.3% of total liabilities was a key factor in the decision to bail-in depositors. Yet events surrounding the banking sector restructuring also suggest that keeping senior unsecured bondholders immune from costly bail-outs is politically untenable. This removes the implicit ‘cover’ that senior bonds holders have enjoyed and has increased speculation that implementation of the bail-in proposals under the EU’s Resolution & Recovery Directive (RRD) will be brought forward to 2015 from the current 2018 time-frame. As such, our colleagues in European Credit have examined the implications of changing recovery rate expectations across the bank capital structure. Assuming that covered bonds remain outside the scope of the proposals, we expect senior bank bond spreads to widen relative to covered bonds and prefer being OW covered bonds vs senior bonds in the periphery, particularly in Spain where covered bonds have first claim over the entire mortgage book of the bank. From a relative value point of view, we also suggest owning subordinated bank bonds vs senior bank bonds in the core as, under the new RRD regime, there is a higher probability than before that More details in ... US Credit Markets Outlook and Strategy, Eric Beinstein et al. High Yield Credit Markets Weekly, Peter Acciavatti et al. European Credit Outlook & Strategy, Steven Dulake et al. Emerging Markets Cross Product Strategy Weekly, Eric Beinstein et al. 3 Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com Global Asset Allocation The J.P. Morgan View 28 March 2013 senior bank bond holders will lose money and this risk is, in our mind, not yet in the price (Rethinking the capital structure, R. Henriques et al., Mar 27). Foreign Exchange � � � Today’s research note, Sacrificing Cyprus, examines several presumptions which have arisen over the past two weeks due to the Cyprus crisis, and scores them on a scale of truths, half-truths and falsehoods. There are indeed some right conclusions to draw from this experience, but also some wrong ones. As examples, it is true that capital controls have created a two-tier euro, but very unlikely that Cyprus is exiting EMU. And while it is true that markets deserve a risk premium for policy uncertainty, the size of the premium should be much lower than in previous crises due to backstops like the OMT. For example, during the first Greek crisis in May 2010 EUR undershot by 10% relative to cyclical conditions at that time, and during Greek elections in May 2012 the currency undershot by 5%. The combination of Italian and Cypriot events have eliminated the euro’s overvaluation from early 2013, when the currency spiked to the high $1.30s on a presumption that LTRO funds would be repaid rapidly, driving European rates higher. The currency is now close to fair value, so carries no risk premium for contagion. The message is similar in vol markets: the 1% premium for 3-mo implied versus realized vol is far less than the 5% premium witnessed during previous crises. While there is no evidence that the EUR/USD cash or options market carries a risk premium, it is also true that the required premium should probably be far less than in previous crises given that a sovereign funding backstop like the OMT is in place. We are thus reluctant to extrapolate this mini-crisis into a systemic event which triggers broad deleveraging, or to forecast trend euro weakness. The currency could trade down a couple of cents around an ECB rate cut, but assuming that fears around Cyprus contagion pass in a month or two, the currency should reverse its recent decline by the summertime. Commodities � � Commodities rallied this week, up almost 2%, led by energy. We went tactically long Brent in last week’s J.P. Morgan View as we believed that the correction in oil markets had brought prices too far below our price forecast of $112/bbl. Since then Brent is up around 1.5%. We stay long and expect further price appreciation over coming months. We are also short gasoline vs. Brent. Gasoline cracks (the premium for gasoline over crude prices) spiked over the first three months of the year due to a combination of low inventories and refinery closures that came during refinery maintenance season. As refinery maintenance comes to a close and demand falls seasonally, gasoline prices should fall relative to Brent. We went long Soybean time spreads late last year (GMOS, Dec 5) on a view that much higher Brazilian supplies would find it difficult to leave the country due to logistical constraints. Since then we have seen a record number of ships planning to load soybeans in Brazilian ports and this number is still rising. The average waiting time before loading is also rising, now 38 days compared to 26 days a month ago. This has caused the front Soybean contract to rally while longer maturity contracts have been depressed by the much higher than normal supply inside the country. The spread between the May-13 and Jul-13 contracts has doubled since we put the trade on in December. We stay long as we think these logistical issues are unlikely to be resolved anytime soon. FX weekly change in USD 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% -0.4% -0.6% -0.8% -1.0% USD TWI Source: J.P. Morgan More details in ... FX Markets Weekly, John Normand et al. Commodity Markets Outlook & Strategy, Colin Fenton et al. Oil Markets Monthly, Colin Fenton et al. Daily Metals Note, Colin Fenton et al. Agriculture Weekly, Dietz et al. JPY EUR GBP CHF CAD AUD 4 Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com Global Asset Allocation The J.P. Morgan View 28 March 2013 Interest rates Current Jun-13 Sep-13 Dec-13 Mar-14 YTD Return* United States Fed funds rate 0.125 0.125 0.125 0.125 0.125 10-year yields 1.85 2.00 2.10 2.25 2.35 -0.5% Euro area Refi rate 0.75 0.75 0.75 0.75 0.75 10-year yields 1.29 1.55 1.70 1.80 1.90 0.0% United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 10-year yields 1.77 2.40 2.50 2.55 2.60 -0.1% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10-year yields 0.51 0.65 0.65 0.70 0.80 2.0% GBI-EM hedged in $ Yield - Global Diversified 5.59 5.70 0.1% Credit Markets Current Index YTD Return* US high grade (bp over UST) 159 JPMorgan JULI Porfolio Spread to Treasury -0.1% Euro high grade (bp over Euro gov) 165 iBoxx Euro Corporate Index 0.6% USD high yield (bp vs. UST) 496 JPMorgan Global High Yield Index STW 2.9% Euro high yield (bp over Euro gov) 633 iBoxx Euro HY Index 1.6% EMBIG (bp vs. UST) 305 EMBI Global -2.3% EM Corporates (bp vs. UST) 322 JPM EM Corporates (CEMBI) 0.5% Quarterly Averages Commodities Current 13Q2 13Q3 13Q4 14Q1 GSCI Index YTD Return* Brent ($/bbl) 110 108 120 120 122 Energy -0.1% Gold ($/oz) 1595 1775 1800 1775 1800 Precious Metals -3.8% Copper ($/metric ton) 7577 8700 9000 9200 9400 Industrial Metals -6.1% Corn ($/Bu) 6.95 8.00 6.50 6.00 Agriculture 0.0% Local currency except MSCI EM $ Source: J.P. Morgan 3m YTD Return* Foreign Exchange Current Mar-13 Jun-13 Sep-13 Dec-13 Cash CCY vs. USD EUR/USD 1.28 1.32 1.32 1.34 1.34 EUR -1.9% USD/JPY 94.1 94 97 97 96 JPY -9.0% GBP/USD 1.52 1.50 1.47 1.51 1.51 GBP -6.5% AUD/USD 1.05 1.04 1.05 1.06 1.07 AUD 1.3% USD/BRL 2.02 1.92 1.90 1.92 1.95 BRL 3.7% USD/CNY 6.2 6.28 6.25 6.2 6.15 CNY 0.7% USD/KRW 1113 1070 1060 1040 1020 KRW -3.6% USD/TRY 1.8 1.8 1.8 1.75 1.75 TRY -0.5% YTD Return US Europe Japan EM Equities Current (local ccy) Sector Performance * YTD YTD YTD YTD ($) S&P 1563 10.2% Energy 10.5% 3.0% 14.8% -5.5% Nasdaq 3261 8.6% Materials 4.3% -2.1% 17.2% -10.0% Topix 1037 22.8% Industrials 10.0% 8.3% 17.4% -1.3% FTSE 100 6388 9.4% Discretionary 11.7% 5.9% 24.6% -2.2% MSCI Eurozone* 154 1.9% Staples 14.0% 13.8% 26.7% 1.2% MSCI Europe* 1214 6.6% Healthcare 14.7% 14.7% 32.6% 1.9% MSCI EM $* 1032 -1.8% Financials 11.2% 3.5% 26.3% 1.5% Brazil Bovespa 56028 -7.5% Information Tech. 4.3% 7.5% 16.4% 0.8% Hang Seng 22300 -0.5% Telecommunications 9.1% 7.2% 24.6% -5.1% Shanghai SE 2236 -2.4% Utilities 11.6% -0.3% 12.3% 1.0% *Levels/returns as of Mar 27, 2013 Overall 10.2% 6.6% 22.8% -1.8% 5 Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com Global Asset Allocation The J.P. Morgan View 28 March 2013 Global Economic Outlook Summary 2011 2012 2013 2014 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 3Q12 4Q12 2Q13 4Q13 The Americas United States 1.8 2.2 1.8 � 2.3 3.1 0.1 � 2.3 � 1.5 2.0 2.5 2.0 1.7 1.9 1.9 1.7 Canada 2.6 1.8 1.4 2.1 0.7 0.6 1.6 1.6 2.0 2.1 1.9 1.2 0.9 1.4 2.0 Latin America 4.2 2.6 3.4 3.8 2.0 3.4 3.0 4.0 4.2 3.7 3.9 4.7 4.7 5.0 4.7 Argentina 8.9 1.9 3.0 1.5 3.2 5.2 3.5 3.0 1.6 1.5 1.5 10.0 10.6 10.0 11.0 Brazil 2.7 0.9 3.0 4.0 1.5 2.2 2.7 3.7 4.4 3.9 4.2 5.2 5.6 6.4 5.9 Chile 5.9 5.6 5.5 4.5 5.0 6.1 6.0 5.1 4.8 4.5 4.5 2.6 2.2 2.2 3.1 Colombia 6.6 4.0 4.5 5.0 -2.9 7.4 4.2 5.5 5.5 5.1 4.5 3.1 2.8 2.0 2.4 Ecuador 8.0 5.0 4.0 4.5 6.3 5.5 5.0 3.0 3.0 4.0 5.0 5.1 4.6 5.4 4.7 Mexico 3.9 3.9 3.6 3.6 1.5 3.1 3.9 4.5 4.6 4.0 3.5 4.6 4.1 4.0 3.4 Peru 6.9 6.3 6.0 6.5 6.9 2.5 5.0 7.0 7.5 6.0 6.5 3.5 2.9 2.3 2.5 Uruguay 5.7 3.5 3.7 4.0 7.8 2.3 4.0 3.0 5.0 5.0 4.0 8.0 8.9 8.4 7.7 Venezuela 4.2 5.6 2.0 3.0 5.2 5.7 -4.0 2.0 2.0 2.0 4.0 19.0 18.7 31.0 35.7 Source: J.P. Morgan Real GDP % over a year ago Real GDP % over previous period, saar Consumer prices % over a year ago Asia/Pacific 4.7 4.8 4.8 4.8 � 2.9 5.1 5.3 � 5.5 � 5.3 5.4 5.4 2.1 2.2 2.6 3.0 Japan -0.5 2.0 1.3 1.2 -3.7 0.2 3.0 3.2 2.5 2.9 3.4 -0.4 -0.2 0.0 0.5 Australia 2.4 3.6 2.7 3.2 2.6 2.4 2.4 2.7 3.7 2.6 4.3 2.0 2.2 2.8 2.7 New Zealand 1.4 2.5 2.5 2.9 0.7 6.1 2.1 3.5 -2.0 4.4 4.3 0.8 0.9 1.1 2.2 Asia ex Japan 7.4 6.2 6.7 6.7 5.9 7.7 6.7 � 6.9 � 6.9 6.9 7.0 3.2 3.4 3.7 4.2 China 9.3 7.8 8.2 8.0 8.0 9.4 8.0 8.2 8.2 8.2 8.0 1.9 2.1 3.0 3.6 Hong Kong 4.9 1.4 3.8 3.6 3.2 4.9 3.5 3.5 5.0 5.0 2.0 3.1 3.8 3.5 3.7 India 6.2 5.0 5.8 6.5 3.5 4.7 6.4 6.5 5.3 5.6 7.6 9.8 10.1 9.0 8.5 Indonesia 6.5 6.2 5.7 5.3 5.3 6.9 5.0 6.0 6.0 5.5 5.5 4.5 4.4 3.9 4.6 Korea 3.6 � 2.0 2.8 3.9 0.2 1.5 � 3.1 4.0 4.5 4.5 4.0 1.6 1.7 1.8 2.6 Malaysia 5.1 5.6 5.1 � 5.4 5.2 7.9 5.0 � 4.5 4.5 � 5.0 � 6.3 1.4 1.3 2.3 2.6 Philippines 3.9 6.6 5.3 5.3 7.0 6.1 4.5 4.9 5.3 5.3 5.3 3.5 3.0 3.1 3.4 Singapore 5.2 1.3 2.2 � 3.6 � -4.6 3.3 4.5 � 2.0 � 3.6 � 4.1 6.1 4.2 4.0 3.5 � 3.8 Taiwan 4.1 1.3 4.2 3.9 3.9 7.3 4.0 4.0 4.2 4.3 3.4 2.9 1.8 1.3 2.3 Thailand 0.1 6.4 5.4 4.5 6.1 15.0 4.5 4.5 5.0 5.0 4.5 2.9 3.2 4.2 4.0 Africa/Middle East Israel 4.6 3.1 3.1 3.3 2.7 2.4 3.2 2.8 3.6 3.6 3.2 1.8 1.6 1.9 2.2 South Africa 3.5 2.5 2.6 3.6 1.2 2.1 2.7 2.8 3.4 3.6 3.8 5.1 5.6 6.2 5.7 Europe 2.0 � 0.1 � 0.1 1.7 0.5 -1.6 -0.3 0.3 1.2 1.5 1.8 3.2 3.0 2.5 2.4 Euro area 1.5 -0.5 -0.6 1.2 -0.3 -2.3 -0.5 -0.5 0.5 1.0 1.5 2.5 2.3 1.6 1.5 Germany 3.1 0.9 0.6 2.1 0.9 -2.3 1.5 1.0 1.8 2.0 2.5 2.1 2.0 1.6 1.6 France 1.7 0.0 -0.7 1.0 0.6 � -1.1 � -1.3 -1.3 0.0 0.5 1.5 2.3 1.7 1.1 1.2 Italy 0.5 -2.4 -1.6 0.7 -0.8 -3.7 -1.5 -1.5 0.0 0.5 1.0 3.4 2.6 1.7 1.8 Spain 0.4 -1.4 -1.7 0.5 -1.3 -3.1 -1.8 -1.8 -0.8 -0.8 0.0 1.9 3.2 2.6 2.6 United Kingdom 0.9 � 0.2 � 0.8 1.9 3.9 � -1.0 � 0.5 1.0 1.5 2.0 2.0 2.4 2.7 2.8 2.9 Emerging Europe 4.8 2.4 2.3 3.4 1.3 1.5 0.2 3.1 3.9 3.1 3.0 6.1 5.7 5.5 4.8 Bulgaria 1.8 0.8 1.2 1.7 … … … … … … … … … … … Czech Republic 1.9 -1.3 -0.2 1.9 -1.8 -0.7 -0.1 0.5 1.0 1.0 2.0 3.3 2.8 2.2 2.4 Hungary 1.6 -1.7 -0.7 1.4 -1.4 -3.4 -0.3 0.3 1.2 1.5 1.5 6.1 5.4 2.9 2.8 Poland 4.3 2.0 1.3 2.6 1.2 0.8 1.1 1.6 2.3 2.8 2.8 3.9 2.9 1.0 1.8 Romania 2.2 0.3 1.9 2.3 -1.0 0.3 0.8 3.9 5.9 2.8 1.6 4.1 4.8 6.3 5.1 Russia 4.3 3.4 2.5 3.6 2.2 2.5 0.0 4.0 4.8 3.5 3.5 6.0 6.5 6.8 5.5 Turkey 8.5 2.6 3.7 4.5 … … … … … … … 9.0 6.8 6.7 6.3 Global 3.1 2.4 2.4 3.1 2.1 1.6 2.6 2.7 3.0 � 3.3 3.3 2.5 2.5 2.6 2.6 Developed markets 1.4 1.2 0.9 1.8 0.9 -0.6 � 1.4 � 1.1 1.6 2.0 2.1 1.7 1.7 1.6 1.6 Emerging markets 6.1 4.7 5.1 5.4 4.2 5.7 4.8 � 5.5 � 5.7 5.5 5.6 4.0 4.1 4.3 4.4 6 Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com Global Asset Allocation The J.P. Morgan View 28 March 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: (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. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. 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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 7 Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com Global Asset Allocation The J.P. Morgan View 28 March 2013 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. 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