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J.P Morgan The J.P. Morgan View Local forces are dominating e Asset allocation — Local risks and opportunities trump global forces in driving investment opportunities. Cross-market correlations to remain much lower than in recent years. e 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. e Fixed Income — Search for carry to trump Euro area jitters over time e Equities — Japan remains our main country overweight. e Credit — We OW covered bonds in the Euro periphery over senior bank bonds and subordinated vs senior bank bonds in the core. e Currencies — Cyprus to have minimal further impact on EUR, but a ECB rate cut would push it a few cents lower versus the dollar. e Commodities — Stay long Brent and short gasoline. e 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. e 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”. e 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 QI, 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. e 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. See page 7 for analyst certification and important disclosures. Global Asset Allocation 28 March 2013 Click play to view the video 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 Source: J.P. Morgan, Bloomberg. See blue box on page 2 for description. www.jpmorganmarkets.com HOUSE_OVERSIGHT_030848