EFTA00598496.pdf

J.P.Morgan ▪ em . Morgan View Game changers or new games in town? • Asset allocation — We stay with significant overweights of equities and credit over cash and bonds. We prefer the bond UW over the short duration trade as we do not see an early Fed QE exit. • Economics — Better activity data and PMIs are comforting, but they still only support the expected grinding up in growth rates towards trend by midyear, and are not enough to upgrade growth prospects, in our view. We do raise Japan by a notch to 0.5% given a weaker yen. • Fixed Income — We are fading the early QE exit trade and go flat duration, even as we remain UW bonds vs credit and equities. • Equities — EM equities continue to outperform their DM counterparts for four straight months helped by strong flows. • Credit — Stay long but hedge duration risk. • Currencies — Remain short JPY. • Commodities — We close our long gold position. We would look to reopen the position around $1,550/oz Risk markets started the new year in a strong fashion, and bonds fell badly, as US Congress clinched a last-minute deal to avoid much of the fiscal cliff tax hikes, and the FOMC minutes showed the committee discussed an early exit from QE. • At issue for investors are now whether the new-found compromise in Congress and hawkishness at the Fed are true game changers, or only short-term tactical market games that will soon fade. The same can be asked about the Japanese reflation and the EMU yield convergence trades that were put in the later months of last year. To this analyst, the Japanese reflation trade — or `Abenomics' — has the highest chance of becoming a game changer, followed by EMU, with the new Washington compromise or Fed hawkishness more in the camp of shorter-term tactical games. • Starting in Japan, new PM Abe has strong convictions, incentives, and we believe the ability to push true fiscal stimulus financed by massive QE. Expectations of Japanese reflation have driven down the yen 10% vs the dollar since mid November and pushed up the Nikkei 23%, three times the gain in the S&P500. For Japanese reflation to become a true game changer, though, we believe the policy needs to be implemented and needs to produce results. There seems little doubt about implementation, with Abe co-opting the BoJ to raise its inflation target to 2%, and then replacing the top 3 people at the BoJ at the end of the quarter. Expect rapid action on fiscal policy also. Results will likely be harder to come by. The 10% drop in the yen vs the dollar will only have a small impact on domestic inflation. But it is helping us to raise growth expectations with calendar year growth raised from 0.4% to 0.5% (see discussions by Kanno and Adachi in today's GDW). See page 7 for analyst certification and important disclosures. Global Asset Allocation 04 January 2013 Global Asset Allocation Jan Loeys AC (1-212)834-5874 JPMorgan Chase Bank NA John Normand (44-20) 7134-1816 M. Morgan Securities plc Nikolaos Panigirtzoglou (44-20) 7134-7815 Morgan Secunties plc Seamus Mac Gorain (44-20)7134-7761 Morgan Securities plc Matthew Lehmann (44-20) 7134-7813 M. Morgan Securities plc Leo Evans (44-20) 7742-2537 M. Morgan Securities plc 2012 returns %, equities are in tighter color. Toplx EMBIG MSCI EM* EM S Corp. MSCI AC Work! MSCI Europe US Hip Yield SIP500 Europe Faced Inc US Hip Grade EM Local Bonds EM FX Gold Global Gov Bonds— U S Fixed Income US cash GSCI TR ■ .6 0 5 10 15 20 2S Source: lAcigark Bbornberg. See bbe tox on page 2 fat clesoiptico. EFTA00598496 Jan Loays 1-21218345874 Global Asset Allocation The S Morgan View 04 January 2013 • In the Euro area, we continue to see the beneficial impact of the ECB's promised OMT, even as no cent has been spent yet, with liquidity for sovereigns and bonds continuing to improve. But so far, there have been little of these gains showing up in overall credit supply or the economy. And EMU policy makers are not exactly using the relative quiet productively at the moment, in ow view. Euro equities have been outperforming the US for the past 6 months, and we keep the Euro OW, but this is one trade we are eyeing nervously for the right time to take profit. • In the US, the December 31budget deal came in largely as expected and thus does not require any change in economic forecasts. But this was likely the easy part. Now Congress has to work on deciding what to do with the debt ceiling that will effectively be breached within 2 months, the automatic spending cuts in entitlements and the military coming from sequestration that now start on March I, and the expiring of the continuing resolution that expires on March 27. It would indeed be a game changer if both sides of the aisle recognize that governing is all about the art of compromise and that both the health of the economy and the country's finances require a combination of still higher revenues and lower spending. The body language and new composition of Congress give us no such confidence. Expect thus an ugly 2 months of difficult negotiations even, as we expect an ultimately last minute deal to prevent default and shutting down of the government. • A last and most tantalizing potential game changer was raised by yesterday's FMOC Minutes from its Dec 11-12 meeting. The minutes were quite surprising as they showed members again discussing the timing of an eventual exit from QE large-scale asset purchases in terms of calendar guidance, instead of the economic objectives that they told us they were moving to. The range of likely QE exit timings was shown to be mid-to-late this year and thus well before the early 2014 that we have assumed. The bond markets reacted badly to this, but equities have been largely ignoring it. We retain a best guess that the Fed will keep buying until early next year, as our 2% Q4/Q4 GDP growth projection is well below the FOMC's forecast of 2.7%. That is, we think the FOMC will see a weaker economy than it currently expects and thus be induced to extend its purchases. That said, the Minutes probably also show that the FOMC is a bit more hawkish than we or the market had assumed. • How do we position on these new games in town? Our overall strategy remains long equities and credit against cash and bonds on the argument that equity and credit risk premia provide greater compensation for risk than are likely to be realized. Low delivered risk and continued asset reflation from QE were also ow major themes for 2012. We accept that these drivers are getting spent and are thus not as powerful anymore this year. The major tail risks a year ago — China hard landing, EMU exits, Middle East war, and US fiscal crush — did not get realized. From here, investors probably do not have as many fears and have thus likely reduced a decent part of their safe asset allocations. We do not go as far as to say that the market has become complacent, but it is surely not as driven by fear anymore. Our long in risk assets is more a broad value and momentum consideration rather than outright bullishness on the world economy, earnings, or event risk. • The four mini game changers, and more likely new tactical games in town, keep us overweight Japanese and euro equities against the US, and short the yen. We fade the "Feds are coming" short-duration trade by taking profit on our shorts in the euro area, and staying neutral in the US. At the same time, J.P.Morgan 2013 global GOP growth forecasts: JPMorgan and Consensus 3.6 3.4 3.2 - 3.0 2.8 - 2.6 - JPM 2.4 2.2 Jan-12 Apr-12 Jul-12 Oct-12 Source:. Morgan. Consensus Econorncs. Consensus ECODNIIICS krecasts are for repos and canines awl •e averaged using the same S-year rolling USD GOP weights harm use kir our cmngbbal growth forecast. Consensus YTD 2012 and expected 2013 returns by asset class %. U Is unItedged into USD. H means hedged 2013E 2012 MSCI EM 15.0 17.4 EM Local Fl (U) 10.0 8.9 EMFX 10.0 7.5 GSCI 10.0 0.1 MSCI World 10.0 16.0 US HY 7.5 16.2 CEMBI 7.0 16.7 EMBIG 7.0 18.5 JACI 6.5 14.3 EU HY 6.0 25.0 US HY Loans 5.5 9.7 US KG 5.4 9.9 Gold 5.0 6.1 EU KG ■ 1.5 11.2 EM Local Fl (H) 0.0 9.0 DM GovLs (H) -0.3 4.2 DXY -3.0 0.0 -5 0 5 10 15 20 Source:. Morgan. i8ozx. Barclays More details in ... Global Data Watch. Bruce Kasman and David Hensley Global Markets Outlook and Strategy. Jan Loeys el al. US Fixed Income Markets. Pavan Wadhwa. Matthew Jozolf, and Srini Ramaswamy Global Fixed Income Markets. Pam Bassi Emerging Markets Outlook and Strategy. Joyce Chang Key trades and risk: Emerging Marker Equity Strategy. Adrian Mowat el al. Flows and Liquidity. Nikes Panigirtzoglou et al. Description of YTD Chart on p. 1: Returns in USD. 'Local currency. "Hedged Into USD. Euro Fixed Income Is illoxx Overall Index. US HG, HY, EhIBIG and EMS Corp are JPM Indices. EM FX Is ELMI+ in S. 2 EFTA00598497 Jan Loeys (1-2121834-5874 Global Asset Allocation The Morgan View 04 January 2013 given we are only in the first week of the year, the early QE exit trade probably has a bit further to go, as managers do not yet have a lot of profit to show. We thus tactically exit our long gold, and wait for a lower re-entry point. Our overall long equities to bonds should also benefit from any further backup in bonds yields, as we do not see yields going up to a level that threatens the economy and equities. (If they did, the Fed would likely send a quick message it has been misunderstood). And finally, we continue to hedge the duration of our longs in credit (except HY) by selling government debt against them. Fixed Income • Bonds backed violently this week, both due to the US Fiscal Cliff deal and the hawkish FOMC minutes. Technically, and because most traders only went short over the past 24 hours, yields will likely rise further near term. We are not changing yield forecasts, as we need to see significant growth upgrades for us to become confident of an early Fed QE exit. In the meanwhile, we cover shorts that we still had on in thc Europe. Be short duration, here. Equities • Equity markets rose sharply over thc past month with the MSCI AC World index making a new high for the past year to a level that is only 3% below its May 2011 peak. The rally in equities over the past month may seem excessive given the lack of upgrades of earnings or growth expectations. But the rally is consistent with the steady fading of tail risk fears that kept some investors on the sidelines. In our GMOS model equity portfolio, we continue to focus on regional and sector allocations: UW US equities, OW home builders and banks within the US, and OW commodity equity sectors. • EM equities have been outperforming their DM counterparts for four straight months. The improvement in EM equities is reflected in flows. Over these four months close to $40bn was injected into EM equity funds. For the year as a whole, we estimate that flows into EM equities improved by almost $90bn in 2012 relative to 2011 (see today's Flows & Liquidity). • And that flow improvement is providing strong support to EM equities. Indeed, the chart at the top shows that the relative performance of EM vs. DM equities, i.e. between MSCI EM and MSCI World, correlates well with EM equity flows. The flow trend should remain positive into 2013 helped by stabilization in Chinese growth following two years of downshifting and by a steady improvement in overall bank lending conditions in EM. We capture the EM theme via a long in MSCI EM Asia vs. S&P500. Credit • Spreads have come in significantly this week, both on the US budget deal and the backup in government yields. We stay long, focused on crossover, EM and HY, but hedge duration risks. We do not expect an imminent rotation from credit to equities until investors start upgrading significantly their growth and earnings projections. Foreign Exchange • The dollar is starting 2013 quite mixed — higher vs EUR, JPY and GBP but lower versus AUD, CAD and most of Latin America and Asia. Thus, there has been little trend in the broad dollar, despite the 18bp backup in US Treasury yields this week. There may be some optimism towards the US economy and J.P.Morgan EM equity portfolio inflows Left axis shows EM equity portfolio flows in Sbn. 200 150 100 0 -50 -10a 05 06 07 08 09 10 It Source: IF. Blomberg. EM equity nortfolioflows $bn 60% 50% 40% 30% 20% 10% 0% -10% MSCI Skin ISCI Wald -20% 12 More details in ... US Credit Markets Outlook and Strategy. Eric Beinstein el al. High Yield Credit Markets Weekly, Peter Acciavatu er European Credit Outlook & Strategy, Steven &dab et Emerging Markets Cross Product Strategy Weekly. Eric 8einsrein et al. 3 EFTA00598498 Jan Loeys (1-2121834-5874 Global Asset Allocation The. Morgan View 04 January 2013 the dollar given how little fiscal tightening Congress has delivered and how recent Fed minutes suggest less commitment to unlimited asset purchases, but we do not think the first week of trading is indicative of much. All of our short-term fair-value models and position indicators were suggesting that the dollar was entering 2013 slightly cheap/oversold versus all currencies but the yen, so it is natural that this week's Treasury sell-off has prompted some short-covering. Note, however, that the sell-off in US bonds is no more extreme than that of several other government bond markets (Germany +22bp, UK +29bp, Australia +17bp). When government bond sell-offs reflect a global rather than a solely US phenomenon, USD rallies tend to represent corrections rather than trend shifts. • Last week, we raised our USD/JPY forecasts from a 2013 range of 75.85 to a range of 80-90. We have always been sceptical that the Bank of Japan would be able to drive up Japanese inflation and drive down real yields versus the US to power USD/JPY higher throughout 2013, but there is no denying the pair's momentum. There is also no denying that USD/JPY continues to rally well beyond what shifts in US versus Japan interest rate spreads would imply, such that the yen is about 7% weaker than Fed versus Bank of Japan policy implies. This is a massive disconnect relative to the occasional overshoots of FX relative to rates, and would appear to reflect a growing consensus that this time is different. We suspect the consensus will be disappointed but not until later this spring when Boil policies likely prove ineffective. In the interim, we remain short the yen versus a basket of USD, EUR, CHF, NOK and KRW, which was one of the top trades from the 2013 Global FX Strategy Outlook. Commodities • Gold sold off sharply yesterday following the release of the FOMC minutes, which suggested that the Fed's open-ended asset purchase program could end as early as June. Many investors had put on long gold positions based on a view of unlimited QE for the foreseeable future and we think the FOMC minutes mean gold will fall further as more of these trades are unwound. We still like gold as a hedge against future inflation once global growth returns to trend, but we do not expect this anytime soon and so we tactically take profit on our gold position and wait for a better entry point. We would look to reopen a long in gold at around $1,550/oz. • Our commodity strategists have published their 2013 outlook and expect a 10% total return for the GSCI index for the coming year. Energy is forecast to make the largest gain with close to 14%, closely followed by base metals and precious metals with 12% and 9% respectively. Our oil strategists see Brent at $120/bbl by year end, driven by higher demand as the global economy should improve sequentially towards the end of 2013. Agriculture prices are expected to continue to fall, losing another 5% in total return terms by year end (see Commodity Markets Outlook and Strategy, Colin Fenton et al., Dec 18, 2012). FX weekly change in USD 2.5% - 2.0% - 1.5% 1.0% - 0.5% 0.0% 45% -1.0% 1 J.P.Morgan I ' -1.5% - USD JPY EUR GBP CHF CAD AUD TWI Source:. Morgan More details in ... FX Markets Weekly, John Normand et al. Commodity Markets Outlook 8 Strategy. Cohn Fenton et al. Oil Markets Monthly. Cohn Fenton et al. Daily Metals Note. Cohn Femme et al. Agriculture Weekly. Dietz et al. 4 EFTA00598499 Jan Loeys 1-212)834-5874 Interest rates Global Asset Allocation The M. Morgan View 04 January 2013 Current Mar-13 Jun-13 Sep-13 Dec-13 JP Morgan linked States Fed funds rate 0.125 0125 0.125 0.125 0125 10-year yields 1.93 0.75 0.75 0.75 0.75 0.75 1.54 1.80 1.80 1.80 2.00 Euro area Roll rate 10-year yields 1.55 1.75 1.85 2.00 United Kingdom Repo rate 0.50 0.50 0.50 0.50 0.50 2.12 2.00 2.25 2.35 2.40 0.05 0.05 0.05 0.05 0.05 10-year yields Japen Overnight call rate 10-year yields 0.84 0.75 0.75 0.85 0.90 2012 Return' 2.2% 4.5% 2.6% 1.8% GBI£M hedged h $ Yield - Global Diversified 5.45 5.90 8.9% Credit Markets US high grade (bp over UST) Euro high grade (bp over Euro gov) USO high yield (bp vs. UST) Euro high yield (bp over Euro goy) EAIBIG (bp vs. UST) EM Corporates (bp vs. UST) Current 160 Index JPMorgan JULI Podolio Spread to Treasury 2012 Return' 9.9% 11.2% 161 i8oxx Euro Corporate Index 548 JPMorgan Global High Yield Index STW 649 Eloxx Euro HY Index 244 15.4% 24.9% 18.5% BIB! Global 319 JPM EM Corporates (CEMBI) 16.1% Commodities Current Quarterly Averages 1301 1302 1303 1304 GSCI Index 2012 Return' BreM(S/R4) Gold (Sfoz) Copper (StmetrIc ton) CC411(S/BU) 111 112 105 120 120 Energy 1645 1750 1775 1800 1775 Precious Metals 6.1% 8137 8500 8700 9000 9200 Industrial Metals 1.4% 6.85 8.50 8.25 7.00 6.50 Agriculture -1.4% Foreign Exchange EURILISD USOMPY GBPMSD Current Mar-13 Jun-13 Sep-13 Dec-13 3m Cash 6.5% 2012 Return' In USD 1.30 882 1.60 1.28 1.30 88 90 88 87 1.58 1.60 1.61 1.63 1.32 1.34 EUR 2.8% JPY 10.7% GBP 6.0% AUD 6.2% BRL -2.1% CNY 2.4% AUDUSD USD/BRL USO/CNY 1.05 2.03 6.2 6.28 6.25 6.2 6.15 1.04 1.05 2.10 2.08 2.07 2.05 1.06 1.07 USDMRW USD/TRY 1063.68 1070 1060 1040 1020 KRW 10.3% TRY 14.0% 2012 Return Equities Current (local ccy) • Nasdaq Topix FTSE 100 MSCI Eurozone• 155 20.6% MSCI Europe' 1176 16.4% MSCI EM 5' Brazil Bovespa 62632 7.5% Hang Sang Shanghai SE 2277 52% 'Levels as of Dec 31. 2012/returns as of Jan 3.2012 Local twenty except MSCI EM S &vice: M. Morgan 1459 16.0% 3105 16.6% 889 20.9% 6047 10.0% 1083 18.6% 23331 27.6% 1.8 1.8 1.8 1.75 1.75 US Europe Sector Allocation 2012 2012 Energy Materials Industrials Discretionary Staples Healthcare Rnandals Information Tech. Telenommmications Mines Japan 2012 EM 2012 (s) 4.6% -3.0% 0.2% 6.4% 15.0% 15.8% 15.3% 21.4% 23.9% 32.1% 10.8% 15.8% 17.9% 17.6% 28.8% 30.0% 14.8% 25.4% 18.3% -5.8% 1.3% 5.1% 14.6% 16.8% 30.0% 17.9% 14.9% 58.7% 11.0% 7.0% -4.5% 10.4% 172% 16.5% 25.6% 33.5% 25.9% 29.0% 14.5% 6.8% Overall 16.0% 16.4% 20.9% %ft 5 EFTA00598500 Jan Leap f1-2121834-5874 Global Asset Allocation The M. Morgan View 04 January 2013 Global Economic Outlook Summary J.P.Morgan Real GDP oar a year ago Real GDP 'A, ova. prenous prod. say Consumer prices N wet a )ea• ago 2011 2012 2013 2012 3012 4012 1013 2013 3Q13 4013 2012 4012 2013 4013 The Americas United States 1.8 2.3 1.8 1.3 3.1 1.5 1.0 1.5 2.5 3.0 1.9 1.9 1.6 1.4 Canada 2.6 2.0 1.7 1.7 0.6 1.5 1.7 2.0 2.2 2.5 1.6 1.6 1.4 2.0 Lath America 4.2 2.4 1 3.7 2.0 2,2 4 3.7 3.9 4.1 4.0 t 3.9 4.9 5.3 5.3 5.1 Argentina 8.9 2.7 3.6 .3.7 1 2.51 lag 2.0 2.5 2.0 2.0 9.9 10.0 10.0 11.0 Brawl 2.7 1.0 3.4 1.0 2.4 31 3.9 3.8 3.6 3.8 5.0 5.6 6.0 5.5 Chile 6.0 5.5 4.6 8.3 5.7 2.2 4.0 5.0 5.0 4.6 3.1 2.7 2.2 3.1 Colom0ia 5.9 3.2 1 4.0 1 5.3 -2.6 3.7 1 42 6.1 t 6.1 t 5.3 t 3.4 2.8 2.1 2.4 Ecuador 8.0 5.0 4.0 4.8 3.0 5.5 5.0 3.0 3.0 4.0 5.1 5.1 5.4 4.7 Mexico 3.9 3.9 3.6 3.3 1.8 2.3 3.9 4.5 4.6 4.0 3.9 4.4 4.1 3.5 Peru Uruguay Venezuela Asia/Pacific 6.9 5.7 4.2 6.2 3.5 5.0 6.0 4.0 0.0 6.0 2.2 t -0.5 5.5 7.8 t 42 6.0 a 0.0 6.5 6.0 .4.0 6.0 4.3 0.0 5.0 4.0 3.0 5.0 4.0 4.0 4.1 8.0 22.3 2.8 8.9 18.6 2.1 8.1 30.2 2.5 7.6 35.0 Japan 1.5 2.0 0.5 t -0.1 3.5 415 1.0 2.0 t 1.7 t 2.7 t 0.2 0.1 0.1 t 0.3 t Australia 2.4 3.5 2.5 2.3 1.9 11 3.7 2.8 2.4 2.4 1.2 2.6 3.2 2.7 New Zealand 1.4 2.3 1 2.8 t 1.0 0.8 2.5 1 3.8 4 4.3 t 1.6 t 3.1 t 1.0 1.4 1.5 2.3 Asia ex Japan China Hong Kong 7.5 9.3 4.9 6.1 7.6 1.2 6.5 8.0 3.2 5.8 7.1 -0.4 5.7 7.7 24 6.5 82 j 6.5 1 8.0 3.5 6.6 82 3.5 6.8 8.2 5.0 7.0 t 8.2 5.0 3.9 2.9 4.2 3.2 2.0 3.5 3.8 3.0 3.5 4.1 3.5 3.3 India 6.5 5.2 5.8 5.3 4.1 5.1 62 5.7 5.8 6.0 10.1 9.8 9.0 8.5 Indonesia 6.5 5.7 4.5 6.0 4.9 j 4.5 4.5 5.0 5.5 4.5 4.3 3.9 4.6 Korea 3.6 2.2 3.01 1.1 02 15 2.51 4.0 4.5 4.5t 2.4 1.74 2.44 3.0 4 Malaysia 5.1 5.3 5.1 6.3 3.6 6,5 5.0 4.5 4.5 5.0 1.7 1.2 2.3 2.6 Philippines 3.8 6.4 4.8 5.0 52 43 t 4.5 4.9 t 5.3 t 5.3 t 2.9 2.3 2.3 2.9 Singapore 4.9 1.2 1 2.3 0.5 -5.9 1.8 1 6.1 t 1.6 4.1 6.1 5.3 3.9 3.8 4.0 Taiwan 4.1 1.2 3.4 -0.4 3.9 3.8 3.5 3.5 3.8 4.0 1.7 1.6 1.3 2.3 Thailand Africa/Middle East 0.1 5.7 4.5 11.7 5.0 2.5 3.5 3.5 4.5 4.5 2.5 3.0 3.6 3.0 Israel 4.6 3.0 3.1 3.4 2.9 a 32 2.8 3.6 3.6 1.6 1.9 1.9 2.2 South Mica Europe 3.5 2.3 2.7 3A 12 dig 4.4 4.0 4.1 3.8 5.7 5.6 5.9 5.4 Euro area 1.5 -0.4 0.0 -0.7 -02 -1.5 0.0 0.8 1.3 1.5 2.5 2.3 1.8 1.7 Germany 3.1 0.9 1.1 1.1 0.9 .1.0 1.0 2.0 2.5 2.5 2.1 2.1 1.9 1.8 France 1.7 0.1 0.0 -0.2 0.9 -1.5 -0.5 0.5 1.0 1.0 2.3 1.8 1.5 1.7 Italy Spain United Kingdom 0.6 OA 0.9 -2.1 -1.4 0.0 M.5 -1.6 1.2 .2.9 -1.7 .1.5 -0.8 -1.1 3.8 -2.0 :15 Q,Q M.5 -2.5 0.8 0.5 -1.5 1.5 1.0 0.0 2.0 1.0 0.0 2.0 3.6 1.9 2.8 2.6 3.2 2.7 1.6 2.5 2.7 2.3 2.5 24 Emerging Europe 4.8 2.5 2.5 0.6 14 1,8 2.4 2.6 3.6 3.0 5.0 5.8 5.8 5.1 Bulgaria 1.7 0.7 1.5 Czech Republic 1.9 -1.1 0.0 -1.6 -1.3 -1.6 0.0 0.8 2.4 1.4 3.4 2.7 2.2 2.4 Hungary 1.6 -1.4 0.0 .1A -0.7 •1.0 0.0 0.5 1.8 2.0 5.5 5.5 3.7 3.9 Poland 4.3 2.1 1.6 0.8 1.6 0.5 1.3 2.3 3.0 2.3 4.0 2.9 1.9 2.4 Romano 2.5 0.0 0.8 0.5 -2.0 .12 .0.4 3.2 4.1 2.4 1.9 5.4 6.3 5.1 Russia 4.3 3.6 3.0 1.0 22 a 3.5 3.0 4.0 3.5 3.8 6.6 7.0 5.7 Turkey 8.5 2.6 3.7 9.4 6.8 6.7 6.3 Glo0al 3.1 2.4 2.5 1.6 21 1.8 2.4 2.8 3.2 3.5 2.7 2.7 2.6 2.5 Developed markets 1.4 1.2 1.0 0.3 0.9 0.1 0.8 1.4 1.9 2A t 1.8 1.8 1.6 t 1.5 t Emerging markets 6.2 4.6 5.1 4.1 4.2 5.0 5.3 5.4 5.6 5.6 4.3 4.1 4.5 4.5 Source: t Morgan 6 EFTA00598501 Jan Loeys 1-212)834-5874 Disclosures Global Asset Allocation The is Morgan View 04 January 2013 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 (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. Company-Specific Disclosures: IraImportant disclosures, includin rice charts, are available for compendium reports and all Morgan- covered corn ies b visitin calling 1-800-477-0406, or c-mailing with your request. Morgan's Strategy, Technical, and Quantitative Research teams may screen companies not covered by Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Other Disclosures E. Morgan ("JPM") is the global brand name for Morgan Securities LLC ("JPMS") and its affiliates worldwide... Morgan Cazenove 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 mien risk disclosure documents. Fora copy of the Option Clcarin Co ration's Characteristics and Risks of Standardized Options. please contact your M. Morgan Representative or visit the OCC's website at Legal Entitles Disclosures US.: JPMS is a member of NYSE, F1NRA. SIPC and the NFA. JPMorgan Chase Bank, M . is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: E. 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, El 4 5JP. South Africa: E. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities Exchange and is regulated by the Financial Services Board. Hong Kong:. Morgan Securities (Asia Pacific) Limited (CE number AAJ32 ) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: • Morgan Securities (Far East) Ltd, Seoul Branch. is regulated by the Korea Financial Supervisory Service. Australia: s Morgan Australia Limited (JPMAL) (ABN 52 002 888 01 I/AFS Licence No: 238188) is regulated by ASIC and Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: Securities Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: Morgan India Private Limited, having its registered office at Morgan Tower, Oft. 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 E. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: M. Morgan Securities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities ClearingSorporation of the Philippines and the Securities Investor Protection Fund. It is regulated by thc Securities and Exchange Commission. Brazil: Banco M. Morgan S.A. is regulated by the Comissao de Valera Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: • Morgan Casa de Bolus. S.A. de C.V.... Morgan Grupo Financier° 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 E. Morgan Securities Singapore Private Limited (JPMSS) Nick (P) 088/04/2012 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 I3ank. S. 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 of Capital 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: M. 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. AI-Faisaliyah Tower, King Fahad Road. M. Box 51907. Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, •., 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 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 7 EFTA00598502 Jan Lows (1-2121834-5870 Global Asset Allocation The a Morgan View 04 January 2013 J.P.Morgan 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". Thc 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 C ations Act 2001. Germany: This material is distributed in Germany by. Morgan Securities plc. Frankfurt Branch and Chase Bank. Frankfurt Branch which are regulated by the Bundcsanstalt fir Finanzdienstleistungsau rsicht. 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. (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.). Morgan Braking (Hong Kong) Limited is the liquidity provider/Market maker for derivative warrants. callable bull bear contracts and Mock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: 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 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. Thc Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of. 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 proposes 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. Thc information contained herein is undcr 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 incorporated, 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 ender's. subsidiaries (collectively a Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS andtor its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and arc not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companiesrindustries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a M. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised January I, 2013. Copyright 2013 JPMorgan Chase & Co. All Eights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of M. Morgan. a EFTA00598503