EFTA01172027.pdf

J.P. Morgan Global Asset Allocation J.P.AAorgan Chase Bank NA, J.P. Morgan Securities Ltd. Dec 2, 2011 he J.P. Morgan View Is this it in Europe? Jan Loe sAc Economics —US growth upside due to ISM and a likely extension of the payroll tax cut is offset by greater weakenss in Asia. We downgrade China and Japan growth. John Normand • Portfolio strategy — The runup to the Dec 9 Sumnmit will likely push risk assets up, and, as before, could then easily lead to some disappointment, as details will be lacking. Nikolaos Pani irtzo lou • Fixed Income — The repeated pattern of high pm•summit hopes followed by disappointment argues for some caution on itra•EMU spreads. Equities — EPS growth outperformance has supported US equities this year. Seamus Mac Gorain This theme of US equities outperforming is likely to continue into 2012. Credit —A spike in default rates suggests to maintain a low risk profile heading into YE. Matthew Lehmann • Foreign exchange— Stay short EURLIPY and USD/JPY as hedges. • Commodities — Iran tensions creates the risk of an oil supply shock. Buy Leo Evans brent calls and be long brent vs. base metals. • After a week of bad economic and policy news, we got a big reversal this YTD returns through Dec 1 week, with better US activity data and signs of impending compromises on %. acuities are in lighter GOIOUl. fiscal policy on both sides of the Atlantic. Equities, credit, commodities, EM Gold FX, and euro area bonds all jumped back up, fully undoing the damage of the previous week. The dollar and major bond markets went down. EMBIG O US Feed Income O • Notice how the German bond market has joined the risky assets family in US High Grade O recent weeks. Bunds now rally when stocks go up. US Treasuries and the US Gbbal Gov Bonds" O dollar, as the real safe assets left, sell off when stocks rally. This will remain the EM Local Bonds" case as long as Euro policy makers insist that any government in the Euro area can default, and that quantitative easing by the ECB raises the risk of inflation, US High Yield even in an economy that is in recession. EMS Cora SAP500 • How good was this week's news, and will it last? Starting with the US, the GSCI TR failure of last week's Super Committee, despite strong signals that this was a low•probability risk, had made us quite pessimistic about the massive fiscal US cash tightening coming in January. But now Congressional leadership is signalling Europe Fixed Income' they will likely extend the payroll tax cut for another year. If they do, then we EM FX ■ will have to raise our 2012 US growth forecast from 1.7% to 2.5%, above MSCI AC Woad' O current consensus. But given how fast the Super Committee blew up, we want MSCI EM' l=i to see the law signed before changing forecasts. And even then, postponing fiscal tightening does not eliminate the need for it. Under current tax law, and MSCI Europe' O assuming the payroll tax cut is extended one year, total fiscal drag for the Tope O following year, 2013, would exceed 3% of GDP.It would thus likely push the .20 .10 0 10 20 30 economy into recession. This could in turn lead to more extensions of tax cuts, Scum: AP. Mown Ettriberst. Pans n USD. 'Las but this can surely not continue forever. earercy. - 14,:ked MO USD ELM Fixed burns is lbw Cuerzil Index. US HG. NY. DASIG rd EM On are AV Sec, EM a is ELIA. in S. • Stronger US data this week — especially ISM — create more confidence that www.morganmarkets.com The certifying analyst is indicated by an AC. See page 7 for analyst certification and important legal and regulatory disclosures. EFTA01172027 Global Asset Allocation The J.P. Morgan View J.P.Morgan imminent recession risks are fading. The same cannot be said, though, for the 2011 global GDP growth forecasts: JPMorgan and rest of the world. Upside surprises on ISM were more than offset by downside Consensus one in Europe and Asian, with our Global Manufacturing PMI falling (049.6, 4.0 a new low for the recovery (if we can call it that). Both the US and Asian PMIs tend to lead the rest of the world, raising the question on which will be right. 3.6 We are not sure, but need to recognise that Asia is weakening while the US is picking up. Some of the Asian weakness is due to the Thai flood, whose impact should be temporary. However, part is surely due to the sharp reversal 3.2 in Chinese housing. We have lowered Chinese growth to 7.2% qoq for Q I. We raised H2 on an expectation of policy easing, but near-term risk remains clearly 2.8 on the downside. Concerns about a Chinese hard landing are not going away and keep us from ovenveighting EM equities at the moment. 2.4 Jan-10 May.10 Sep.10 Jand 1 May-11 Sep-11 • In Europe, all eyes are on the Dec 9 Summit of EU Heads of State. Hopes are Saute. J.P Mogan. Ccnse-ox Eccturncs. Gcnseroz Eccnancs rising that EU policy makers arc finally getting ahead of the market with the laccats art br regicts and mutes did sie meerged uskg same Spar rcli-g USD GDP taut eel sie use Ice as can gkbd creation of a fiscal union that will allow the ECB to become the lender of last govell Iceccast resort. But as with US policy makers, we have been burned before in expecting the final solution to emerge and want to see both words and actions, before 2012 global GDP growth forecasts: JPMorgan and joining the rally. At this point, our best guess is that policy makers will Consensus announce that the IMF will lend to Italy, using own funds, the ECB, EFSF, and possibly others. The total amount could be as big as €500bn. 4.0 • A big number would impress investors, until they start asking how this solves 3.5 the structural problem in EMU, which is that there is no fiscal solidarity, no 3.0 fiscal discipline, and no lender of last resort to sovereigns. It is quite possible the Summit throws terms around like a fiscal union, or a fiscal compact (the 2.5 Draghi term), but by now, the market will want to know what this means concretely before buying bonds on it. We do not think the Summit will promise 2.0 a Eurobond. Call us more than twice bitten, and thus more than a bit shy. 1.5 Fixed income Jan-11 Apr-11 Jul-11 Oct-11 Sarce.J.P Mogan. Cancans Ecen:mcs. CCOSCIDJ3 &comics • Hopes are again building ahead of next week's EU summit, and intra-EMU laccasts are ice rep= arid cealries the/ se metre, tail" Pe spreads have ratcheted tighter. A modest move towards fiscal union appears same Syms rcii-g UM GDP mops RA se use Iv as can gl:bal Tooth Incest set to provide a sufficient quid pro quo for increased ECB liquidity assistance for sovereigns, most likely in tandem with the IMF. But the repeated pattern of high pre-summit hopes followed by disappointment argues for caution. • This week's coordinated reduction in the pricing of central bank dollar swap facilities brought down the cost of sourcing dollars from outside the US. Nonetheless, USD basis swaps are still sufficiently elevated to create opportu- More details in ... nities: for example, 2-year Japanese government bonds, swapped into USD, Global Data Watch. Bruce Kasman and David Hensley yield a percentage point more than the equivalent US Treasuries. Global Markets Outlook and Strategy. Jan Loeys. Bruce • Further liquidity support for Euro area banks is on the cards next week. With Kasman. el al. the ECB's policy rate likely to be cut Thursday to 1%, the crisis low, Presi- US Fixed Income Markets. Terry Belton and Srini dent's Draghi's guidance on whether it can go lower will be keenly watched. Ramaswamy Our call is for a rate of 50bp by mid-2012, supporting a bullish euro money Global Fixed Income Markets. Pavan Wadhwa and Fabio market view. Bassi Emerging Markets Outlook and Strategy. Joyce Chang • Euro area breakevens rebounded this week, having fallen sharply both on an outright and a cross-market basis in recent months, partly reflecting the lower Hey trades and tisk: Emerging Market Equity Strategy. Adrian Mowat et al. liquidity that can see linkers underperform in period of market stress. We think Rows and Liquidity. Nikos PaNgidzoglou et al. Dec 2,2011 2 EFTA01172028 Global Asset Allocation The J.P. Morgan View J.P.Morgan EA breakevens offer value vs US TIPS breakevens, not least because inflation YTD change in 2011 IBES EPS forecasts is set to fall sharply in the US in HI, and by more than in the Euro area. in % 5% Equities 0% • We moved to a neutral stance last week as we saw equity markets being M —r-r U) caught up between opposing forces. On the positive side there is more opti- Co 0 .5% CO m a mism about policy makers' actions in both the US (extension of payroll tax) and 0 0 0 o Europe (a fiscal pact and more ECB buying). In addition, seasonals have been •10% positive for December over the past few years. On the negative side, the macro drop has deteriorated, as signalled by the drop in our Global PMI to a new year •15% low for November. In addition, we see a high risk of disappointment after the .20% Dec 9 EU summit, as happened after each of the critical EU summits over the past two years. •25% Scow Cabana. IP. Morgan • US equities are the clear winner this year among regions, outperforming MSCI AC World by more than 7%. This was mostly built in July/August due Industrial production growth to the slump in European equities and in September to the slump in EM. To a EM IP oya minus DM IP oya. large extent this outperformance is a reflection of growth and earnings 25 % outperformance in the US. The global manufacturing PMI has dropped to below 50, but the US ISM is holding up well. Bottom analysts have raised 20 EMIR vs DM IP oya their 2011S&P500 EPS forecast by 2.5% YTD, but have lowered their forecast for other major indices (Chart p. 3). 15 • US equities will likely continue to outperform in 2012.11e Euro debt crisis will likely linger creating more downside for European economies and equities. EM economies are also facing growth headwinds into 2012 and they have failed so far meaningfully to outperform their DM counterparts. EM growth has not been able to decouple with the gap in EM vs DM IP oya growth still 0 • below the 5% threshold, which we identified in our previous research as a 01 03 05 07 09 11 useful signal for trading EM vs DM equities. The chart at the bottom of p. 3 Seuxe: JA. Wigan shows that, while EM IP growth has meaningfully exceeded that 5% threshold for most of the past 10 years, this has not been the case since Oct 2010. Credit • The Fed's actions to support global financial markets helped US HG snap a sixteen-day decline on Wednesday, a run which saw spreads widen to our YE target of 250bp. Better US economic activity data should keep downward pressure on spreads near term. However, we remain cautious as sovereign stress and bank funding challenges in Europe continue to grow. The coordi- nated steps taken by central banks this week are far from a panacea. • According to our US HY strategists, six issuers and $9.6bn in bonds and loans defaulting last month was the eighth largest monthly volume on record and the highest since November 2009 (Acciavatti et al., High-Yield Market More details in ... Monitor). The 12-month HY bond default rate now stands at 1.7%, still well below its long-term average of4.2%, but a telling sign of the times. EM Corporate Outlook and Strategy. Warren Mar et al. US Creotit Markets Outlook and Strategy. Eric Beinstein et al. • In their 2012 outlook this week (Eric Beinstein et al., High Grade bond and CDS 2012 Outlook) our US HG strategists expect spreads to narrow next year MO Vitt, Credit Markets Weekly. Peter Acciavaili et al. to 175bp, down from 242bp today, on strong credit fundamentals, but remain European Credit Outlook & Strategy. Steven Dulake et al. underweight for now as the global outlook is more uncertain than at any lime Emerging Markets Cross Product Strategy Weekly. Eric since 2008. Their report also highlights impending changes to the structure of Beinstein el al. the CDS market over the next year under the Dodd-Frank requirements. Dec 2, 2011 3 EFTA01172029 Global Asset Allocation J.P.Morgan The J.P. Morgan View Foreign Exchange FX weekly change vs USD 5% • The dollar is falling across the board this week on suspicion of a global, II coordinated policy response to prevent a replay of 2008. Suspicion is the 4% operative word, as developments over the past week have been halfhearted 3% by the standards of post-Lehman policy initiatives: China cut its required reserve ratio by 50bp; G-7 central banks cut the cost of USD swaps; and 2% France and Germany have floated proposals for European fiscal union. Still, 1% given the defensive positioning in currencies — USD longs are near all-time highs — this week's move is unsurprising. Note that currencies have lost any 0% link to country-specific events; systemic issues such as Europe drive all moves, as evidenced by the near all-time highs on correlations across pairs. •2% • The next focus is the Dec 9 EU summit at which fiscal union will be the focus. USD EUR GBP JPY CHF CAD AUD Germany should be careful what it asks for. Full fiscal union would probably TWI drive EURIUSD to 1.50, as it would eliminate fiscal imbalances in a currency Setrat:J.P. Wpm zone which already lacks external imbalance. Reserve demand for such a currency, particularly if the US lacks a long-term deficit reduction plan, would be massive. But that is an issue for later this decade. At most, the Summit should announce agreement on the precursors to a eurobond, such as debt brakes, EU budget oversight and penalties, along with a timeline (perhaps mid- year for debt brakes and fall 2012 for the first budget surveillance). We continue to expect the reform and financing components to dovetail by the spring, which is why the forecasts show EURIUSD in a I.30s range and also modest broad USD weakness in 2012. But given the slow progress on reform, the Q1 refinancing calendar and the funding questions, almost all trade recommendation are defensive. Stay short EURIJPY and USD/JPY as hedges. Commodities • Commodities rallied 4% this week with all major commodity sectors posting strong gains. In our monthly GMOS published Wednesday, we opened a long Brent vs. Base metals position which we believe will perform well in the current environment. Oil markets appear much tighter than metals markets and we continue to expect OPEC to react to any material fall in oil prices, while metals have no such backstop. Any supply shock in oil markets due to political tensions in the Middle East, such as those discussed below, would also likely see oil rally while base metals sell oft • With all the focus on developments in the Euro area, little notice has been paid to the rise in tensions betweenIran and the international community over the past week. Sanctions are being discussed which could seriously limit Iran's ability to export its oil. Given how tight the market has been this year, these kind of measures could have resulted in a significant rise in oil prices had they been enacted earlier. However, with oil demand growth expected to slow in HI More details in ... 2012 and supply returning in Libya, the oil market should have enough spare capacity to offset most of Iran's supply if necessary. FX Markets Weekly. John Newland et al. • There is a risk, though, that if Iran starts to see sanctions as inevitable, it Commodity Markets Outlook & Strategy. Cohn could pre-emptively ban exports. If this were to take place before arrangements Fenton et al. can be made to adjust supply elsewhere, we could see a considerable supply Oil Markets Monthly. Lawrence Eagles et al. shock. For some time now, we have recommended investors buy Dec-13 Brent $125 calls to hedge this kind of risk, and these latest developments in the Metals Review and Outlook. Michael Jansen Middle East make us reaffirm this view (see Trade opportunitiesfor long-term Global Metals Ouatteny. Michael Jansen investors, Panigirtzoglou et al, Sep 27 for details). Dec 2, 2011 4 EFTA01172030 Global Asset Allocation J.1? Morgan The J.P. Morgan View Interest rates Current Mar-12 Jun-12 Sep.12 Dec-12 YTD Return' tinned Slates Fed funds rate 0.125 0.125 0.125 0.125 0.125 10-year ykelds 2.06 1.70 2.50 2.50 2.50 8.6% Euro area Ref rate 1.25 0.75 0.50 0.50 0.50 10-year ykelds 2.14 1.55 125 1.50 1.75 7.2% Uniled Kingdom Repo rate 030 0.50 0.50 0.50 0.50 10-year yields 2.29 1.80 1.50 1.75 1.95 14.4% Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05 10-year ykelds 1.08 0.90 0.95 1.10 1.15 1.6% GBI-EM hedged n S Yield • Global Diversified 6.52 6.70 4.6% Credit Markets Current Index YTD Return' US high grade ttp Over UST) 250 JPMorgan JULI Porfoko Spread to Treasury 5.9% Euro high grade (bp over Euro gov) 297 iBoxx Euro Corporate Index 0.9% USD high yield (bp vs. UST) 747 JPMorgan Global High Yield Index STW 4.4% Euro high yield (bp over Euro gov) 1081 iBoxx Euro HY Index .5.5% EMBIG (bp vs. UST) 405 EMBI Global 7.4% EM Corporates (bp vs. UST) 457 JPM EM Corporates (CEMBI) 2.6% Ouarterly Averages Commodities Current 1201 1202 1203 1204 GSCI Index YTD Return' Brent (Mt) 109.4 105.0 110.0 115.0 120.0 Energy 4.2% Gold 15oz) 1744 1925 1875 1850 1825 Precous Metals 18.9% Copper (Wet& ton) 7763 8250 8850 9250 9000 Industrial Metals .24.2% Com (5Bu) 6.01 6.70 7.00 6.80 6.30 Agriculture .20.4% 3m cash YTD Return' Foreign Exchange Current Mar-12 Jun.12 Sep-12 Dec-12 Index In USD EURJUSD 124 1.30 124 1.36 1.38 EUR 1.9% USIXIPY 77.9 76 76 74 72 JPY 4.7% GBP/USD 1.56 1.54 1.56 1.57 1.58 GBP 1.3% USUBRL 1.80 1.80 1.80 1.80 1.80 BRL 12% USDCNY 6.36 6.20 6.10 6.00 6.05 CNY 2.3% USI:EKRW 1131 1120 1080 1060 1040 KRVI 2.8% USCUTRY 1.83 1.80 1.80 1.82 1.80 TRY -11.3% YTD Return US Europe Japan EM Equities Current (local ccy) Sector Allocation ' YTD YID YTD YTD (S) S&P 1251 44% Energy 4.9% 4.2% 4.5% 47.9% Nasdaq 2638 -6.2% Materials -15.8% -28.3% -27.0% -27.0% Topix 744 .192% Industrials .9.4% -24.6% -17.3% -31.3% FTSE 100 5552 -9.0% Discretionary 1.4% -17.7% -25.7% -10.2% MSCI Eurozone' 131 .22.3% Slaples 5.3% -1.7% 0.8% -5.1% MSCI Europe' 1012 -17.0% Healthcare 2.7% -0.6% -13.6% -25.2% MSCI EM 5' 959 -20.8% Financials -25.6% -32.2% -28.9% -27.4% Brazil Bovespa 58107 -20.3% Information Tech. -2.7% .12.7% -28.5% .20.0% Hang Sang 19040 -15.0% Telecommunications 4.5% .7.1% 4.1% 4.8% Shanghai SE 2361 -15.3% llolibes 9.6% -17.7% -47.9% -17.4% tevelskelums as of Dec 01.2011 Overall -5.4% 47.0% -192% 40.8% Local currency except MSCI EM Sorts. BI:orrixr; Dulastewn Wt STantrel a Pock Seniors. J.P 14tecpn Smiles Dec 2,2011 5 EFTA01172031  Global Asset Allocation The J.P. Morgan View .1.i? Morgan Global Economic Outlook Summary Real GDP Real GDP Consumer prices `!curer attar ago %ow pev}o.is peood. sae “: crier a year ago 2010 2011 2012 1011 2011 3011 4011 1012 2Q12 3012 2011 4011 2012 4Q12 The Americas Uniied States 3.0 1.8 1.8 0.4 1.3 2.0 a•D 0.5 1.5 2.5 3.3 3.3 1.5 1.6 12 1.7 Canada 3.2 2.3 2.2 1 3.5 1 25 1 3.5 1 1.7 2.1 2.6 2.3 3.4 2.6 Latin America 6.0 4.1 3.0 5.7 4.3 _3 21 2.0 1.6 4.8 4.9 6.7 1.2 6.4 62 Argentina 9.2 7.0 1.0 13.1 102 4.0 2.0 0.0 6.0 4.0 9.7 11.0 10.0 9.0 Brazil 1.5 3.0 3.1 5.0 3.1 OA 1.3 2.9 5.0 5.3 6.6 6.7 5.2 52 CInte 5.2 6.5 4.0 5.8 5.3 2.6 24 3.5 4.5 5.0 3.3 3.6 3.6 3.4 Colombia 4.3 5.3 3.7 2.9 85 3.5 1.5 3.0 4.0 5.0 3.0 3.9 3.0 2.9 Ecuador 3.6 6.5 3.0 7.1 9.1 3.0 1.0 2.0 3.0 3.0 4.1 5.5 5.3 4.6 Mexico 5.4 4.0 2.5 2.3 5.2 5.5 2.6 -1.7 4.1 4.8 3.3 3.2 3.5 3.5 Peru 8.8 6.7 4S 7.3 4.6 6.5 1 2.7 4.5 5.0 6.2 3.1 4.0 3.6 2.7 Venezuela -1.5 3.8 4.0 16.0 4.1 6.8 6.0 6.0 4.0 24.6 28.6 26.7 25.3 AskePacIlic Japan 4.1 -021 2.0 1 -21 -13 62 OS 1 221 15 13 -0.4 -0.1 -OS -0.5 Austraka 2.7 1.7 3.0 -3.4 4.8 52 0.9 2.5 2.7 3.8 3.6 3.8 3.2 32 New Zealand 1.7 2.3 2.8 3.5 0.4 2 2.4 -0.2 6.5 3.1 5.3 2.9 2.2 2.5 Asia ex Japan 9.1 7.1 6.4 8.8 58 5.9 1 5.0 1 6.1 1 7.1 T 7.4 T 5.7 4.9 3.9 1 3.9 1 Ch nor 10.4 9.0 821 9.0 7.9 1.9 7_41 7.21 2.7 1 931 5.7 4.8 3.6 3.4 Hong Kong 7.0 5.0 3.0 13.0 -1.6 0.4 15 3.5 4.0 5.5 5.2 5.7 4.4 42 kick 8.5 7.4 7.7 8.3 72 7.3 7.0 6.9 7.3 8.5 8.9 8.6 7.6 7.8 kidonesia 6.1 6.3 52 6.8 5.4 6.2 22 5.0 4.5 5.0 5.9 3.2 3.6 4.0 Korea 6.2 3.8 3.8 5.4 3.6 3.0 4.2 3.0 4.0 4.0 4.2 3.7 3.1 3.5 Malaysia 7.2 4.0 1.5 6.7 2.1 5.8 0.0 1.0 1.0 2.0 3.3 2.4 1.5 12 Philippines 1.6 3.7 1 3.8 1 8.01 2.0 1 1.31 4.5 t 2.8 t 491 5.71 5.0 4.9 3.9 4.0 Singapore 14.5 5.6 12 27.9 -6.4 1.9 41 -5.9 8.2 4.1 4.7 5.6 4.0 2.8 Taiwan 10.7 4.7 2.9 9.8 2.4 -0.6 22 3.5 4.3 4.6 1.6 0.9 0.4 1.8 Thailand 7.8 1.0 1.5 7.5 02 2.1 :212 20.0 12.0 1 0.5 4.1 3.5 2.81 1.4 1 Afdcallilddle East Israel 4.8 4.3 2.9 4.7 35 3.4 La 0.8 32 6.1 4.1 2.8 2.3 2.5 South Africa 2.91 3.1 2.7 4.6 T 13 1.4 1 3.9 23 2.6 2.8 4.6 62 6.4 61 Europe Euro area 1.8 1.6 -0.7 3.1 0.7 OS jQ -1.5 -1.5 -0.3 2.8 2.9 1.9 15 Germany 3.6 3.0 02 5.5 1.1 2.0 -0.5 -0.3 -0.3 0.5 2.5 2.8 7 1.7 12 France 1A 1.6 -0.2 3.8 -02 1.6 -1.0 -0.8 -0.8 0.5 2.2 2.5 1.7 12 halt' 1.2 0.5 -1.6 0.5 12 -05 -2.0 -2.5 -2.5 -1.0 2.9 3.61 2.41 1S 1 Norway 1.8 2.5 1.1 1.5 5.4 3.4 12 0.0 0.0 1.0 1.4 1.1 1.2 12 Sweden 5.3 1 4.7 1 1.1 1 2.71 42 T 6.6 1 LO 1 -0.5 -03 0.5 2.9 2.5 1.1 1.1 United Kingdom 1.8 0.9 OS 1.6 0.4 2.0 0.0 -1.5 23 4.4 4.6 2.6 1.9 Emerging Europe 4.5 4.2 2.4 3.5 1 15 T 3.6 1 2.8 2.0 1.6 2.6 7.1 6.2 5.6 5.7 Bulgaria 0.2 2.2 2.5 Czech Republic 2.3 2.0 0.6 3.5 0.3 0.0 -0.3 0.0 0.8 2.0 1.8 1.8 2.5 2.8 Hungary 1.2 1.5 OS 2.0 0.8 2.0 Ala -0.3 0.3 1.0 4.0 3.7 4.4 5.1 Poland 3.9 1 4.0 2.7 4.1 1 4.9 T 4.1 I 24 2.0 2.5 3.0 4.6 3.9 2.5 2.7 Romania -1.3 2.7 0.8 2.8 0.8 1.8 2.2 -1.2 -1.5 0.8 8.2 3.5 3.3 4.4 Russia 4.0 3.8 3.0 3.5 0.7 3.5 4.2 3.0 2.0 3.0 9.6 7.1 6.3 72 Turkey 9.0 7.0 22 5.9 8.3 7.8 6.0 Global 4.0 2.6 2.0 2.61 1.8 3.01 1.8 1 1.3 1.7 2.6 3.7 3.6 2.4 22 Developed markets 2.7 1A 0.9 1.0 1 02 23 1.0 1 0.2 7 0.3 1.4 2.7 2.8 1.5 12 Emerging markets 7.3 5.7 4.7 7.01 41 4.8 1 3.8 1 4.2 1 5.5 T 5.9 T 6.1 5.7 4.9 42 1 Sparce. JP. 1.1:tgan Dec2.2011 6 EFTA01172032 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 indi- vidually 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 (- 112M") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. 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Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: 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 Markel 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 JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL'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 76IG of the Corpora- tions Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd.. Frankfun Branch and J.P.Morgan Chase Bank. N.A.. Frankfurt Branch which are regulated by the Bundesanstalt fur Finanzdienstleistungsaufsicht. Hong Kong: The 1% EFTA01172033 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 websitc: 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 cast 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 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 lime by affiliates of J.P. Morgan Securities (Far