3 14 31 51 59

Global Market Strategy Team

Dan Morris Paola Toschi Tom Elliott Kerry Craig Andrew Goldberg daniel.m.morris@jpmorgan.com maria.p.toschi@jpmorgan.com tom.cb.elliott@jpmorgan.com kerry.craig@jpmorgan.com andrew.d.goldberg@jpmorgan.com

www.jpmorganassetmanagement.com/insight

Europe Economy
3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Eurozone GDP and Inflation European Manufacturing PMIs European Unemployment European Structural Imbalances European Bank Lending and Credit Growth European Government Interest Rates European Bank Exposure Euro Exchange Rate Cash Accounts Sentiment Indicators European Economic Indicators

Global Economy
14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. Global Debt and Deficits Central Bank Monetary Stimulus and Inflation Expectations Global Trade: The Importance of Exports US GDP and Inflation US Cyclical Indicators US Consumer Finances US Housing and Labour Markets Federal Finances Japan GDP and Inflation Japan Indicators Emerging Market GDP Growth and Inflation China Economic Growth China Cyclical and Monetary Indicators Emerging Markets: China Auto Consumption Global Monetary Policy World Consumption and Growth Oil and the Economy

35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50.

Earnings and Valuations by Style Emerging Market Returns Income: Equities, REITS, and Fixed Income World Sector Returns Equity Dividends and Valuation Equity Correlations and Volatility Earnings Revisions Developed Market Equity Valuations by Country Emerging Market Equity Valuations by Country Europe Equity Valuations Sources of Earnings per Share Growth US Equity Valuations Japan TOPIX and Exchange Rate Emerging Market Equity Performance Emerging Market Dividends, Earnings Growth and Volatility Emerging Market Equity and Debt Composition

Fixed Income
51. 52. 53. 54. 55. 56. 57. 58. Fixed Income Returns Fixed Income Yields Investment Grade and High Yield Bond Spreads Convertible Bonds and Leveraged Loans Fixed Income Market Data Government Bond Yields Yield Curves and Real Interest Rates Credit and Money Supply Growth

Other Assets and Investor Behaviour

59. 60. 61. 62. 63. 64. 65. 66. 67. 68. Asset Class Returns Correlation of Returns Global Commodities Commodities and Inflation Property Consumer Confidence and the Stock Market Industry Fund Flows Asset Returns by Holding Period Returns in Different Inflation Environments GDP Growth and Equity Returns

Equities
31. 32. 33. 34. World Stock Market Returns MSCI Europe Index at Inflection Points European Indices US S&P 500 at Inflection Points

Europe Economy

Eurozone real GDP

Change year on year
6

Avg since 1999 Real GDP 1,4%

3Q 2012 -0,6%

Eurozone inflation
Change year on year
5

Avg since 1999 Nov 2012

Headline CPI
Core CPI

2,2%
1,6%

2,2%
1,4%

-2

-4

Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

Source: Eurostat, FactSet, J.P. Morgan Asset Management.

Europe Economy

2010 May Nov Mar Feb Dec Jan Apr

2011 May Aug Nov Dec Sep Mar Feb Jun Jan Apr Oct Jul

2012 Aug Jun Sep Jul Oct Nov

Switzerland Sweden Germany Austria France UK Denmark Netherlands Italy Spain Ireland Norway Greece

61,9 60,6 59,9 62,2 59,5 58,5 58,1 54,2 53,8 52,0 49,3 47,7 45,6 49,1 47,3 49,0 51,1 46,9 45,4 48,1 48,6 46,7 43,6 46,1 48,5 61,3 60,2 61,5 60,9 58,6 59,8 56,1 52,9 50,1 48,7 48,1 49,8 47,6 48,9 51,4 50,3 50,2 50,2 49,0 48,4 50,6 45,1 44,7 43,1 43,2 58,1 60,7 60,5 62,7 60,9 62,0 57,7 54,6 52,0 50,9 50,3 49,1 47,9 48,4 51,0 50,2 48,4 46,2 45,2 45,0 43,0 44,7 47,4 46,0 46,8 55,2 57,7 60,3 61,9 60,6 57,0 55,6 53,0 50,8 50,1 48,7 48,0 47,6 49,0 51,8 52,0 51,5 51,2 50,2 50,1 47,4 46,7 45,1 44,8 49,3 57,9 57,2 54,9 55,7 55,4 57,5 54,9 52,5 50,5 49,1 48,2 48,5 47,3 48,9 48,5 50,0 46,7 46,9 44,7 45,2 43,4 46,0 42,7 43,7 44,5 59,4 58,2 59,1 58,8 55,1 54,0 52,5 51,7 49,9 49,7 51,1 48,6 48,1 49,9 51,6 50,8 51,5 50,0 46,1 48,4 45,1 49,6 48,8 47,3 49,1 55,5 63,1 58,0 61,2 62,4 62,8 59,0 58,2 58,2 54,6 63,0 42,9 47,5 59,3 53,1 54,8 51,0 63,4 52,4 52,1 47,0 50,6 50,0 55,6 56,7 56,5 57,5 57,5 60,7 58,1 59,2 55,1 52,1 51,4 50,7 48,9 48,0 46,0 46,2 49,0 50,3 49,6 49,0 47,6 48,9 48,9 49,7 50,7 48,9 48,2 51,2 52,2 55,8 56,7 55,7 56,0 51,8 49,8 48,2 49,7 47,3 50,1 48,5 48,6 48,3 49,7 51,5 50,1 51,2 53,1 53,9 50,9 51,8 52,1 52,4 50,0 51,5 52,0 52,1 51,6 50,6 48,2 47,3 45,6 45,3 43,7 43,9 43,8 43,7 45,1 45,0 44,5 43,5 42,0 41,1 42,3 44,0 44,5 43,5 45,3 51,2 52,2 55,8 56,7 55,7 56,0 51,8 49,8 48,2 49,7 47,3 50,1 48,5 48,6 48,3 49,7 51,5 50,1 51,2 53,1 53,9 50,9 51,8 52,1 52,4 55,7 54,4 55,2 57,9 57,2 55,6 56,9 56,1 56,5 54,9 53,8 50,2 49,1 46,8 54,6 56,1 59,1 52,8 54,0 46,3 50,0 48,8 49,2 49,0 50,1 43,9 43,1 42,8 42,8 45,4 46,8 44,5 45,5 45,2 43,3 43,2 40,5 40,9 42,0 41,0 37,7 41,3 40,7 43,1 40,1 41,9 42,1 42,2 41,0 41,8

Lowest relative to 50 PMI

Highest relative to 50 PMI

Note: Heatmap colours are based on PMI relative to the 50 level, which indicates expansion or contraction of the sector, for the time period shown. Source: Markit, J.P. Morgan Asset Management.

Europe Economy

Unemployment rate
22
%

European labour market inclusion rates

Country Austria Denmark France Germany Effective retirement age 60 years 64 59 62 Employment rate of 55-64 42%* 60 41 60 Female employment rate 67% 70 60 68 Youth unemployment rate 8% 14 22 9

Greece, Ireland, Spain

Euro area US

20

18

Italy Germany

16

14

Greece
Ireland

62
63 61 69 64 66 62 66 64

39
50 38 65 56 48 45 72 57

45
55 47 60 70 60 52 72 65

44
29 29 8 8 30 46 23 21

12

Italy
10

Japan Netherlands

International

Portugal
6

Spain Sweden

UK
2 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

US

65

60*

62

17

(Left) Note: Greece, Ireland, and Spain unemployment rate is average of each countrys harmonised unemployment rate. Source: Eurostat, FactSet, J.P. Morgan Asset Management. (Right) Note: *2010 figure. Effective retirement age is the male average retirement age over the period 2006 2011. Official retirement age listed in parenthesis, subject to variations between public and private sectors, length of service etc. Youth unemployment is those aged less than 25 years. Source: OECD, Eurostat J.P. Morgan Asset Management.

Europe Economy

Trade balances with the eurozone

Six month moving average, USD Billion 12 Germany Italy 9 Greece Spain 6 Euro launch

Unit labour costs

Relative to Germany 140 Ireland 135 130 125 120 115 Italy Greece Spain Euro launch

3 110 105 0 100 95 90 -6 Dec 90 85 Dec 90

-3

Dec 00

Dec 10

Dec 95

Dec 00

Dec 05

Dec 10

(Left) Note: Latest data August 2012. Source: IMF, J.P. Morgan Asset Management. (Right) Note: Latest data 3Q 2012. Data rebased to 100 at 4Q 1998. Unit labour cost measures the average cost of labour per unit of output and is calculated as the ratio of total labour cost to real output. Source: ECB, J.P. Morgan Asset Management.

Europe Economy

Bank reserves
Trillions 1,0 EUR ECB current account (lhs) ECB deposit facility (lhs) 0,8 US bank excess reserves (rhs) 1,2 1,6 USD

ECB lending to domestic banks

EUR Billions 400

Spain

300 Italy

0,6

0,8 0,4

200

0,4 0,2

100

0,0 Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

0,0 Dec 12

0 Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

Source: ECB, Federal Reserve, J.P. Morgan Asset Management.

Europe Economy

European sovereign funding costs

Ten-year benchmark bond yield
35

%
30

Euro launch

25

Greece Portugal Spain Ireland Italy Germany

31 Dec 2012 10,2% 6,9% 5,2% 5,2% 4,4% 1,3%

20

15

LTRO

International

10

OMT

0 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

Note: The ECB announced the second round of Long Term Refinancing Operations (LTRO) in February 2012. The Outright Monetary Transaction (OMT) programme was announced in September 2012. Source: Tullett Prebon, FactSet, J.P. Morgan Asset Management.

Europe Economy

Bank exposure to European debt

USD Billions Location of banks France 2QFr oya 2008 2QFr now 2012

European bank credit default swaps

Five-year iTraxx Europe Index, basis points 250 bps

200

Germany

2Q 2008 Ge oya 2Q 2012 Ge now 150

UK

2Q 2008 UK oya Country of issuance 2Q 2012 UK now Italy Spain Portugal US oya 2Q 2008 Ireland Greece

100

31 Dec 2012: 117

50

US

2Q 2012 US now
0

100 200 300 400 500 600 700 800 900 1000

0 Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

(Left) Source: BIS, J.P. Morgan Asset Management. (Right) Note: The price of a credit default swap (CDS) measures the cost of insuring a bond against default. For example, for a five year CDS a price of 100 basis points means it costs the insurer of the bond EUR 10.000 per year to insure EUR 1.000.000 for five years. Source: Markit, Bloomberg, J.P. Morgan Asset Management.

Europe Economy

Euro exchange rate

1,7

EUR Trade Weighted Index

130 EUR REER

1,6

Swiss Franc per Euro 31 Dec 2012: USD 1,32

10 year moving average Euro launch

1,5

120

+1,5 std dev

1,4

1,3

110

1,2

1,1

US Dollar per Euro 31 Dec 2012: CHF 1,21

100

1,0

0,9

90

0,8

-1,5 std dev

Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

80 Dec 80 Dec 84 Dec 88 Dec 92 Dec 96 Dec 00 Dec 04 Dec 08 Dec 12

Source: FactSet, J.P. Morgan Asset Management.

10

Europe Economy

Cash on the sidelines

Percent of nominal eurozone GDP
62

Income generated by EUR 100,000 investment in a one-year bank deposit

5.000

%
60

EUR

Income

2007: EUR 4.580

Inflation (y/y)

58 56

4.000

54 52

3Q 2012: 49,0%

3.000 Dec 2012: EUR 425 2.000

50

48 46

EUR 262 billion excess euro on the sidelines 1.000 1

44 42 Dec 01

0
Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

0 2000 2002 2004 2006 2008 2010 2012

11

(Left) Note: Excess means the amount above the December 2006 value. Source: European Central Bank, Eurostat, J.P. Morgan Asset Management. (Right) *Blue marker points represent year on year inflation for that year and illustrates how the value of income that would have been eroded due to inflation in that year. Inflation is realised inflation from 2000-2006, expected annual inflation thereafter. Source: Bloomberg, Eurostat, J.P. Morgan Asset Management.

Europe Economy

German business climate indices

Survey of ca. 7.000 companies 125 Current situation
120

European confidence indicators

40

Industrial confidence
30

Business climate Business expectations

Service sector confidence Consumer confidence

115
20

110
10

105 100
0

95

-10

90
-20

85
-30

80 75 Dec 91 Dec 95 Dec 99 Dec 03 Dec 07 Dec 11

-40 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

(Left) Note: Exponential moving average. Source: CESIfo Group, FactSet, J.P. Morgan Asset Management. (Right) Last data November 2012. Source: Eurostat, FactSet, J.P. Morgan Asset Management.

12

Europe Economy

GDP (y/y) Country Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland 3Q 2012 0,7% -0,3 -0,3 -1,1 0,0 0,4 -6,9 0,8 -2,4 -1,5 1,2 -3,5 -1,6 0,7 1,4 3Q 2011 1,8% 1,4 -0,1 3,1 1,5 2,6 -4,0 1,0 0,4 0,9 4,2 -1,8 0,6 4,2 1,5

Inflation (y/y) Nov 2012 2,8% 2,3 2,3 2,2 1,4 1,9 1,0 0,8 2,5 2,8 1,1 1,9 2,9 -0,1 -0,3 Nov 2011 3,6% 3,8 2,6 3,4 2,5 2,4 2,9 2,9 3,3 2,3 1,2 3,9 2,9 2,5 -0,6

Unemployment rate Nov 2012* 4,3% 7,5 7,7 7,9 10,7 5,4 24,4 14,7 11,1 5,6 3,0 16,3 26,2 8,1 3,1 Nov 2011 4,3% 7,2 7,9 7,6 9,8 5,6 20,7 15,0 9,4 4,9 3,4 14,1 23,0 7,4 2,8

*Unemployment rate is November 2012 or latest available. Source: Eurostat, ONS, FactSet, J.P. Morgan Asset Management.

13

Government deficit and debt by country

% of GDP 10 US UK 8 Spain Deficit (% of GDP) Japan

GDP growth, debt to GDP and borrowing costs

10 China Indonesia Average real GDP growth (2011 2013) Greece 6 Philippines 4 Korea 2 India = 5% Bubble size = Ten-year government bond yield = 10%

Global Economy

8 Ireland

India (2006)
Mexico (2009)

Malaysia Thailand Taiwan US

France EU

Singapore Ireland Japan

Germany

France Brazil (2009)

Ice.

Portugal

0 Italy -2 Spain Portugal -4 Greece

Maastricht Treaty criteria

Italy

2
China (2010)

Peak gross debt Germany

2015 (estimated) -6

-8

20

40

60

80 100 120 140 160 Gross debt (% of GDP)

180 220

200 240

220 260

20

40

60

80 100 120 Net debt (% GDP)

140

160

180

14

Note: The chart on the left uses gross debt (% of GDP) as this is one of the three criteria stipulated in the Maastrict Treaty. The chart on the right uses the 2012 estimate of net debt (% GDP). Net debt is calculated as gross debt minus financial assets corresponding to debt instruments. The peak is taken as the highest gross debt as % of GDP in the period 2006 to 2012 with the corresponding deficit (% of GDP) figure for that year. Peak is 2012 unless otherwise stated. Ice. is Iceland with peak debt to GDP ratio in 2011. Source: IMF WEO October 2012 edition, Tullet Prebon, FactSet, J.P. Morgan Asset Management.

Monetary base (M0)*

Indexed 5 UK USA Eurozone 4 Japan JPY 37 trillion

Expected average inflation rates over next ten years

Increase since Dec 2007
GBP 260 billion USD 1,8 trillion EUR 830 billion 3,5 4,0

Global Economy

3,0

UK US

2,5

Eurozone 2,0 2 1,5

1 Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

1,0 May 07

May 08

May 09

May 10

May 11

May 12

15

(Left) *This is M0, or the total amount of a currency that is either circulated in the hands of the public or in commercial bank deposits held in the central bank's reserves. Source: US Federal Reserve, Bank of England, ECB, J.P. Morgan Asset Management. (Right) Note: Ten-year zero-coupon inflation swaps. Source: Bloomberg, J.P. Morgan Asset Management.

Exports as % of GDP
Latest 12 months, goods and services exports
9,8%

World trade value

USD trillions, log scale Eurozone BRIC Other 48

Brazil 1,11,7 2,0 Brazil

5,0

US
13,7%
18,1

Global Economy

India 1,4 1,71,2 India China China Russia Russia

4,8 3,2

9,5

1,7

27,8%

12

2,4

7,1

1,0

20,2

30,6%

3 1984

1989

1994

1999

2004

2009

Japan Japan 2,4 1,0 3,0

US USA
3,4 1,6

7,3

13,7%

Baltic Dry Index

Log scale

9,4

14,4%

8.000 France France 2,1 Italy Italy 1,6 UK UK Germa Germany ny

5,3 10,2 1,2 8,6

22,2% 24,7%

12,9

1,7

8,5

2.000
12,9 2,1 12,2

32,5%
18,3

3,3

16,0

4,9

42,6%

10

20

30

40

500 Dec 84

Dec 89

Dec 94

Dec 99

Dec 04

Dec 09

16

(Left) Source: IMF, MDIC, Indian Ministry of Commerce & Industry, China Customs, Bank of Russia, BEA, Japan Customs, ONS, French Ministry of Economy, Finance & Industry, ISTAT, German Federal Statistics Office, FactSet, J.P. Morgan Asset Management. (Top Right): Source: WTO, J.P. Morgan Asset Management. (Bottom Right) Note: The Baltic Dry Index measures changes in the cost of transporting raw materials by sea for different geographical routes and ship sizes. The index may be used as an indicator of demand for raw materials and leading indictor of economic growth. Source: Bloomberg, J.P. Morgan Asset Management.

Real GDP
Change quarter on quarter, SAAR
10

20-yr avg Real GDP 2,5%

Q3 2012 3,1%

Inflation
Change year on year
15

50-yr avg Headline CPI Core CPI 4,3% 4,2%

Nov 2012 1,8% 1,9%

Global Economy

8
12

6 4
9

2 0 -2 -4 -6
0 6

USD 951 bn of output recovered

-8

USD 625 bn of output lost

-10 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

-3 1964

1969

1974

1979

1984

1989

1994

1999

2004

2009

Note: SAAR is seasonally adjusted annual rate. Source: BEA, J.P. Morgan Asset Management.

17

Light vehicle sales

Millions, seasonally adjusted annualised rate
24 22 20

Manufacturing and trade inventories

Days of sales, seasonally adjusted
48 46

Global Economy

18 16 14 12 10 8 Dec 94 Dec 99 Dec 04

Nov 2012: 15,5 Average: 15,1

44 42 40 38 36 Dec 93 Dec 97 Dec 01 Dec 05

Oct 2012: 39,2

Dec 09

Dec 09

Housing starts
Thousands, seasonally adjusted annualised rate
2.400 2.000 1.600 1.200 800

Real capital goods orders

Non-defensive capital goods orders ex. aircraft, USD bn, seasonally adjusted
75 70 65

Average: 1.433

60 55 50

Average: 57,3

400 0 Dec 74 Dec 79

Nov 2012: 861

Dec 84 Dec 89 Dec 94 Dec 99 Dec 04 Dec 09

45 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07

Nov 2012: 55,8

Dec 09 Dec 11

18

(Top left) Source: BEA, J.P. Morgan Asset Management. (Top right) Source: Census Bureau, J.P. Morgan Asset Management. (Bottom left) Source: Census Bureau, J.P. Morgan Asset Management. (Bottom right) Note: Capital goods orders deflated using the producer price index for capital goods. Source: Census Bureau, J.P. Morgan Asset Management.

Household Debt Service Ratio

Debt payments as % of disposable personal income, seasonally adjusted 15 x Household DSR Consumer real credit growth Oct 2012: 1,8% 10 % 5

Personal Savings Rate

Annual, % of disposable income
12 10 8 6

Global Economy

14

3Q07: 14,1%

Nov 2012: 3,6%

4 2

13 -5

0 Dec 59

Dec 69

Dec 79

Dec 89

Dec 99

Dec 09

Household Assets
-10 12 USD trillions 90 Total assets: 4% below 2007 peak

75

-15 11 3Q12: 10,7% 10 Dec 79 -20

45 60

Total assets excluding housing: 3% above 2007 peak

Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

-25 Dec 89 Dec 99 Dec 09

30 Dec 99

19

(Left) Note: Latest DSR data September 2012 Source: US Federal Reserve, J.P. Morgan Asset Management. (Top right) Note: Personal savings rate is calculated as personal savings (after tax income personal outlays) divided by after tax income. Employer and employee contributions to retirement funds as included in after tax income but not in personal outlays, and thus are implicitly included in personal savings. Source: BEA, J.P. Morgan Asset Management. (Bottom Right) Source: FRB, FactSet, J.P. Morgan Asset Management.

US home sales and prices

7,5

Indexed US employment levels* from beginning of recession

Dates refer to different recession periods Case-Shiller home price index
160

Existing home sales, millions

100

1957

1999

2001

Global Economy

7,0 150 6,5

98
140 6,0 130

5,5

Employment level

2008 96

5,0

120

4,5 110 4,0 100 3,5

94

92
3,0 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 90

12

24

36

48

60

Months into recession

20

(Left) Note: Latest data October 2012 for Case-Shiller price index and November 2012 for existing home sales. Case-Shiller price index and median sales price rebased to 100 at December 1999. Source: Robert Shiller, J.P. Morgan Asset Management. (Right) Note: *US Non-Farm Private Payrolls. Latest data November 2012. Source: BEA, J.P. Morgan Asset Management.

Federal budget surplus/deficit

% of GDP, 1990 - 2022 4 % Forecast

Federal expenditure and receipts

% of GDP, 1960 - 2012 26 Expenditure Receipts 24

Global Economy

0 22 -2

2012: 22,8%

-4

20

Average: 20,5%

-6 Fiscal cliff scenario -8 New Years compromise 16 -10 18 Average: 17,9% 2012: 15,8%

-12 1990 1994 1998 2002 2006 2010 2014 2018 2022

14 1960 1970 1980 1990 2000 2010

(Left) Note: 2012 numbers are actuals. Years shown are fiscal years (1 October through 30 September). Source: CBO, J.P. Morgan Asset Management. (Right) Source: US Treasury, CBO, J.P. Morgan Asset Management.

21

Real GDP
Change year on year
6

Avg since 1999 Real GDP 0,9%

Q3 2012 0,5%

Inflation
Change year on year
3

Avg since 1999 Headline CPI Core CPI -0,1% -0,6%

Nov 2012 -0,2% -0,5%

Global Economy

4
2

2
1

-2

-4
-1

-6
-2

-8

Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

Source: Ministry of Internal Affairs and Communications, Economic & Social Research Institute, FactSet, J.P. Morgan Asset Management.

22

Current account balance

% of GDP 5 Forecast

Reuters Tankan Business Confidence Survey

Index 30 Manufacturing Index

Global Economy

2012*: 1,6%

15 0 -15

Sep 2012: 8

3 2

Non-manufacturing index

Sep 2012: -3

-30
1 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

-45 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

Japanese currency and stock performance

15 14 13 12 11 10 9 8 7
Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11

Japan nominal and real effective exchange rate (REER)

2,000 1,800 1,600 1,400 1,200 1,000 800 600
Dec 12

Yen per Won

TOPIX Index

Yen per USD Yen REER 150 Average REER 125

Weaker Yen Stronger Yen

100

75 Dec 87

Dec 92

Dec 97

Dec 02

Dec 07

Dec 12

(Top Left) Note: *IMF estimate. Source: IMF WEO October 2012 edition, FactSet, J.P. Morgan Asset Management. (Bottom Left) Source: TOPIX, FactSet, J.P. Morgan Asset Management. (Bottom Right): Note: REER is the real effective exchange rate of a currency against a basket of its main trading partners currencies. Source: FactSet, J.P. Morgan Asset Management.

23

Brazil
15 18

Russia
15 18

GDP %
12 9

Inflation %

15 12 9 6 3 0 -3

GDP %
12 9 6

Inflation %

15 12 9 6

Global Economy

Average: 3,5%

Average: 5,4%

6 3 0 -3 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

3 0 -3 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

3 0 -3

India
18 15

China
15 12 9 6 18

GDP %
15 12 9 6 3 0 -3 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07

Inflation %
12

Average: 7,2%

GDP % Average: 9,5%

Inflation %

15 12 9 6

9 6

3
0

3 0 -3

0
-3

-3 Dec 09 Dec 11
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
Note: Real GDP growth and inflation are year on year change. Source: IBGE, India Central Statistics Organisation, Press Information Bureau of India, National Bureau of Statistics, Federal Service of State Statistics, FacSet, J.P. Morgan Asset Management.

24

Real GDP
Change year on year
15

Avg since 1999 Real GDP 9,6%

Q3 2012 7,4%

China GDP contribution

14 % 12 10 8 6 4 2 0 -2 -3,6% 2009 2010 -0,4% 4,4% 4,5% 4,7% 8,4% 5,5% 4,9% 9,2% 10,4%

Gross capital formation Consumption Net exports 9,2% 7,7% 3,9%

0,4%

Global Economy

12

4,2% -0,4%

-4 2011 2012*

China Real GDP growth

Change quarter on quarter, seasonally adjusted annualised rate
6

11 % 10 9 8

10,0%
9,1%

10,4%

10,0%
9,1% 8,2% 7,0%

7 6

6,1%

5
4
Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

4q10

2q11

4q11

2q12

Note: Latest data September 2012. *2012 is year to date GDP through Q3 2012. Source: National Bureau of Statistics of China, J.P. Morgan Asset Management.

25

Manufacturing PMIs
Index level, level above 50 indicates expansion 60

Merchandise trade growth

Year on year % change of three-month sum 90 % 60 Exports Nov 2012: 50,6 30 0 Markit Mfg PMI Dec 2012: 51,5 -30 Nov 2012: 1,5% Imports

NBS Mfg PMI

Global Economy

55

Nov 2012: 8,0%

50

45 Dec 09

Jun 10

Dec 10

Jun 11

Dec 11

Jun 12

Dec 12

-60 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

Monetary policy rates

25

Chinese inflation indices

1-year working capital rate
8,0

Avg since 1999 Nov 2012 Headline CPI Ex Food CPI 2,3% 0,8% 2,0% 1,6%

Change year on year

10

%
20

Reserve requirement ratio

%
7,5 7,0

%
8 6 4 2 0

15

6,5 6,0

10 5,5

-2

Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

26

Note: NBS Mfg PMI covers approximately 800 companies with a bias toward state-owned and large enterprises, while the Markit Mfg PMI includes 400 companies with a bias toward small and medium-sized companies. Source: National Bureau of Statistics of China, Markit, The Peoples Bank of China, China Economic Information Network, FactSet, J.P. Morgan Asset Management.

Auto Sales
Millions of units, seasonally adjusted annualised rate 25 20 United States China

Global Economy

15

10
5 0 Dec 00

Dec 02

Dec 04

Dec 06

Dec 08

Dec 10

Passenger Cars per 1.000 People

In 2010 500 400 300 200 100 0 China 34 Brazil South Korea US Japan France Germany 178 267 496 439 454 510

Source: BEA, China Automotive Information Net, World Bank, J.P. Morgan Asset Management.

27

Monetary policy and inflation

Selected countries 9,0 Target Policy Rate

Emerging market inflation

8 % Inflation rate Policy rate 7

Global Economy

7,5

Inflation Rate Real Policy Rate

6,0

4,5

3,0

5
1,5

4
0,0

-1,5 Eurozone S. Korea S. Africa Mexico Russia Japan

3
China Brazil

India

UK

US

-3,0

Developed

Emerging

2 Dec 00

Dec 02

Dec 04

Dec 06

Dec 08

Dec 10

Dec 12

28

(Left) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shown year on year change in CPI inflation for latest month. Real policy rates are short-term target interest rates less the year on year change in inflation. Source: BOE, Federal Reserve, ECB, BOJ, Central Bank of Mexico, Banco Central do Brasil, South African Reserve Bank, Reserve Bank of India, Bank of Korea, Bank of Russia, Peoples Bank of China, FactSet, J.P. Morgan Asset Management. (Right) Source: FactSet, J.P. Morgan Asset Management.

Contribution to global GDP growth

Emerging 100
%

Developed

Emerging markets share of global consumption and investment

50
%

EM Investment % of Global EM Consumption % of Global US Consumption % of Global

Global Economy

90
80 52% 70 68% 60 64%

45 45%
40

35
50 40 30 48% 20 32% 36% 20 30

55%

25

10
0 1980's 1990's 2000's 2010-2017 15 1990

1994

1998

2002

2006

2010

(Left) Source: IMF, United Nations, J.P. Morgan Asset Management. (Right) Note: Share of global consumption based on household consumption and does not include government consumption. Source: IMF, United Nations, Factset, J.P. Morgan Asset Management.

29

Energy efficiency improvement by country

How many kilos of oil to produce USD 1.000 of output

Middle East energy production & chokepoints

% of global liquid fuel production, 2011
Syria 0,5% Suez Canal 2,2% Iraq 3,0% Iran 4,9% Kuwait 3,1%

China
Canada

Global Economy

India US Japan Germany UK 0 100 200 kg of oil/GDP 300 1980 Latest

Libya 0,6%

Egypt 0,8%

Saudi Arabia 12,8% Strait of Hormuz 17,0% UAE 3,6% Bab el-Mandeb 3,4%

Crude oil and Henry Hub natural gas prices

USD/bbl USD/MMBtu Brent Natural gas

Sudan 0,5%

160 140 120 100 80 60 40 20 0 Dec 05

14 12 10

8 31 Dec 2012: USD 111 6 4

31 Dec 2012: USD 3.4

Selected producers
% of global total, 2011

Selected consumers % of global total, 2011 5% US 5% China 22% India 10% Russia 5% Saudi Arabia 4% 3% 3%

Saudi Arabia 13% China Russia US 12% Iran

2 0 Dec 12

12% Canada 4% Japan

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

30

(Top Left) Source: World Bank, J.P. Morgan Asset Management. (Bottom Left) Note: Brent is the European crude oil benchmark. Henry Hub is the standard US domestic benchmark, measured in millions of British thermal units. (Right) Note: Forecast from the September EIA Short-Term Energy Outlook. Source: EIA, IMF, J.P. Morgan Asset Management.

2003
EUR Local
30,0% MSCI EM 46,7% 22,3% MSCI Asia ex Japan 45,0%

2004
16,9% MSCI EM 16,4% 12,6% MSCI Europe 12,7% 9,2% MSCI Asia ex Japan 11,9% 8,1% Japan TOPIX 11,3% 2,9% US S&P 500 10,9%

2005
55,0% MSCI EM 35,8% 45,3% Japan TOPIX 45,2% 41,9% MSCI Asia ex Japan 24,1% 26,7% MSCI Europe 25,5% 20,9% US S&P 500 4,9%

2006
20,2% MSCI Europe 19,6% 19,6% MSCI Asia ex Japan 28,6% 18,6% MSCI EM 28,9% 3,6% US S&P 500 15,8% -8,7% Japan TOPIX 3,0%

2007
26,7% MSCI Asia ex Japan 38,0% 26,1% MSCI EM 33,5% 3,2% MSCI Europe 6,5% -4,9% US S&P 500 5,5% -14,5% Japan TOPIX -11,1%

2008
-23,0% Japan TOPIX -40,6% -33,7% US S&P 500 -37,0% -43,3% MSCI Europe -38,5% -49,8% MSCI Asia ex Japan -47,7% -50,8% MSCI EM -45,7%

2009
73,4% MSCI EM 62,8% 67,2% MSCI Asia ex Japan 67,2% 32,5% MSCI Europe 28,6% 22,5% US S&P 500 26,5% 1,5% Japan TOPIX 7,6%

2010
28,3% MSCI Asia ex Japan 15,6% 27,5% MSCI EM 14,4% 23,9% Japan TOPIX 1,0% 23,1% US S&P 500 15,1% 11,7% MSCI Europe 7,5%

2011
5,5% US S&P 500 2,1% -7,5% MSCI Europe -8,8% -9,6% Japan TOPIX -17,0% -14,3% MSCI Asia ex Japan -14,6% -15,4% MSCI EM -12,5%

2012
20,8% MSCI Asia ex Japan 19,7% 18,1% MSCI Europe 16,4% 16,8% MSCI EM 17,4% 14,2% US S&P 500 16,0% 5,9% Japan TOPIX 20,9%

4Q 2012
4,5% MSCI Europe 5,2% 3,1% MSCI Asia ex Japan 5,1% 3,1% MSCI EM 5,4% 2,5% Japan TOPIX 16,7% -2,8% US S&P 500 -0,4%

Ten-yr Ann.
14,2% MSCI EM 15,3% 12,4% MSCI Asia ex Japan 14,0% 6,5% MSCI Europe 6,9% 4,7% US S&P 500 7,1% 2,7% Japan TOPIX 1,8%

Equities

15,8% MSCI Europe 20,3% 15,3% Japan TOPIX 25,2% 7,1% US S&P 500 28,7%

Note: Annualised return covers the period 2003 to 2012. Total return indices. Source: MSCI, TOPIX, Standard & Poors, FactSet, J.P. Morgan Asset Management.

31

MSCI Europe Index

1.800

4 Sep 2000: P/E = 21,8x 1.623

Characteristic Index level P/E ratio (fwd) Dividend yield Ten-year treasury

Sep 2000 1.623 21,8x 1,9% 5,4%

Jul 2007 1.641 13,4x 2,9% 4,5%

Dec 2012 1.147 11,4x 3,7% 2,5%

16 Jul 2007: P/E = 13,3x 1.641

1.600

1.400

Equities

1.200

31 Dec 2012: P/E = 11,4x 1.147 -58% +143% -56%

1.000

+61%

800

600

12 Mar 2003: P/E = 14,2x 676

9 Mar 2009: P/E = 9,0x 714

Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

32

Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by I/B/E/S. Ten-year treasury is the BoA/Merrill Lynch Euro Government (7-10Y) Index. Source: BoA/Merrill Lynch, I/B/E/S, FactSet, J.P. Morgan Asset Management.

Austria and Norway

400

Finland, France and Germany

140 120

Norway: OBX
300

German: DAX

100

France: CAC
200

80 60

100

Austria: ATX
40

Finland: OMX

Equities

0 Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

20 Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

Belgium, Netherlands, and Italy

140 120 100 80 60 40 20 Dec 99

Spain, Sweden and Switzerland

160 140

Italy: FTSE MIB Belgium: BEL 20

120 100 80 60

Switzerland: Market Index

Spain: IBEX 35

Netherlands: AEX

40
Dec 09 Dec 11

Sweden: OMX Stockholm 30

Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

Dec 01

Dec 03

Dec 05

Dec 07

20 Dec 99

Note: All indices rebased to 100 at 31 December 1999. Source: FactSet, J.P. Morgan Asset Management.

33

S&P 500 Index

1.600

24 Mar 2000: Characteristic P/E = 22,7x Index level 1.527 P/E ratio (fwd)
Dividend yield
10-year Treasury

Mar 2000 1.527 25,6x

Oct 2007 1.565 15,2x

Dec 2012 1.426 12,8x

9 Oct 2007: P/E = 14,9x 1.565

1,1%
6,2%

1,8%
4,7%

2,2%
1,8%

31 Dec 2012: P/E = 12,8x 1.426

1.400

1.200

-49%

+101%

-57%

+111%

Equities
1.000 800

9 Oct 2002: P/E = 15.6x 777

600

9 Mar 2009: P/E = 12,2x 677

Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

Dec 99

Dec 00

Dec 01

Dec 02

Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by I/B/E/S. Source: Standard & Poors, I/B/E/S, FactSet, J.P. Morgan Asset Management.

34

Euro Stoxx 600 earnings per share

Operating basis, quarterly 8 EUR 7 6 5 4 3 2 1 2Q07: EUR 7,70 3Q12: EUR 5,37

Current P/E vs 20-year average P/E

Value Large
11,8 14,0 12,7 14,4 14,0 13,2 14,2 14,6 17,1 16,3 16,3 21,3

Blend
12,5 16,2

Growth
15,2 20,9 16,7 21,8

Equities

0 2001 2003 2005 2007 2009 2011 3Q12: USD 25,64

Small

Mid

S&P 500 earnings per share

Operating basis, quarterly 25 USD 20 15 3Q07: USD 24,26

Current P/E as % of 20-year average

Value Large
84,8%

Blend
76,9%

Eg: Large cap blend stocks are 23,1% P/E cheaper than their Growth historical average.
72,7%

Mid

91,0%

88,3%

76,6%

10 5 0 2001 2003 2005 2007 2009 2011

Small

92,9%

85,7%

76,6%

(Left) Note: EPS levels are based on operating earnings per share. Most recently available data is 3Q 2012. Source: Standard & Poors, FactSet, J.P. Morgan Asset Management. (Right) Source: Standard & Poors, Russell Investment Group, I/B/E/S, FactSet, J.P Morgan Asset Management.

35

2003
EUR
44,5% EM Latin America 60,8% 41,5% EM Europe 62,1%

2004
29,6% EM Latin America 32,2% 29,3% EM EMEA 24,5%

2005
74,2% EM Europe 59,2% 73,3% EM Latin America 38,0% 59,9% EM EMEA 50,4% 55,0% Emerging Markets 35,8% 46,9% EM Asia 28,5%

2006
28,3% EM Latin America 37,6% 22,2% EM Europe 32,8%

2007
35,9% EM Latin America 35,6% 27,7% EM Asia 39,1% 26,1% Emerging Markets 33,5% 17,6% EM Europe 22,3%

2008
-37,2% World -38,3% -48,8% EM Latin America -37,7% -50,3% EM Asia -47,1% -50,8% Emerging Markets -45,7% -53,3% EM EMEA -48,6%

2009
97,8% EM Latin America 63,2% 80,4% EM Europe 73,6% 73,4% Emerging Markets 62,8% 68,8% EM Asia 68,1%

2010
32,4% EM EMEA 19,2%

2011
-1,8% World -5,0%

2012
23,2% EM Europe 18,6%

4Q 2012
3,9% EM Europe 4,5%

Ten-yr Ann.
20,2% EM Latin America 20,0% 14,2% Emerging Markets 15,3% 13,3% EM EMEA 14,7%

Local

27,6% EM Asia 14,9% 27,5% Emerging Markets 14,4% 25,2% EM Europe 18,9% 22,9% EM Latin America 9,2% 20,1% World 10,6%

-14,4% EM Asia -14,2% -15,4% Emerging Markets -12,5% -16,4% EM Latin America -9,8% -17,5% EM EMEA -9,1%

20,6% EM EMEA 21,5%

3,4% EM EMEA 6,2%

Equities

30,0% EM EMEA 34,5% 30,0% Emerging Markets 46,7% 25,6% EM Asia 48,8%

26,6% EM Europe 25,8% 16,9% Emerging Markets 16,4% 7,0% EM Asia 8,0%

19,2% EM Asia 27,7% 18,6% Emerging Markets 28,9% 11,1% EM EMEA 25,8%

19,4% EM Asia 18,2% 16,8% Emerging Markets 17,4% 14,7% World 16,4% 7,2% EM Latin America 12,5%

3,4% EM Asia 5,2% 3,1% Emerging Markets 5,4% 1,8% EM Latin America 5,1% 0,1% World 3,1%

12,8% EM Europe 14,5%

16,1% EM EMEA 21,9%

62,9% EM EMEA 50,3%

12,6% EM Asia 14,3%

11,3% World 25,5%

6,9% World 11,8%

26,8% World 16,3%

7,9% World 16,1%

-1,2% World 5,2%

-66,3% EM Europe -64,0%

26,7% World 26,5%

-20,8% EM Europe -16,4%

5,6% World 6,7%

Note: Total return MSCI indices. EM EMEA is EM Europe plus Egypt, Morocco and South Africa. World is MSCI The World Index covering developed markets. Annualised return covers the period 2003 to 2012. Source: MSCI, FactSet, J.P. Morgan Asset Management.

36

Total returns: Dividends and capital appreciation

Average annualised returns 25
%

Capital appreciation Dividends

20 15 10 5
4,7% 5,4% -5,3% 13,9% 3,0% 6,0% 5,1% 13,6% 16,0% 0,2% 4,8% 12,9% 0,7% 5,6% 4,1%

4,4%
3,3%

0 -5

4,2%

2,6%

3,0% -2,9%

3,8%

Equities

-10 1926 - 1929 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010 - 12 1926 - 2012

REIT and equity dividend yields

6
% 5,4 5,1 4,6 5,0 4,5

REIT yield Equity yield Ten-year bond yield

4,2
3,8 3,7 2,7 3,7

Sources of income
8
%

6,7%

5 4 3 2 1

6 Eurozone CPI inflation (Nov 2012) 1,3% 0,75% 0 Euro corp MSCI Europe Global REITS EM debt High yield 4,2% 3,7% 2,0% 4,5%

3,7
2,9 2,2

4
2,2

Cash Austlia Canada France Japan Global UK US

Bunds

37

(Top chart) Note: Total return index is S&P 500 until 1960s then the MSCI Europe Index. Source: Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left) Note: Government bond is benchmark government bond yield. Yields shown are that of the appropriate FTSE NARIET REIT index, which excludes property development companies. Source: Tullett Prebon, NARIET, J.P. Morgan Asset Management. (Bottom right) Note: European corporate is BarCap European Aggregate Credit Corporate Index, emerging market debt is the EMBI+, high yield is the BofA/Merrill Lynch High Yield Master II, MSCI Europe is the dividend yield. Inflation is year on year change in the eurozone CPI. Source: Eurostat, Tullett Prebon, Merrill Lynch, FactSet, J.P. Morgan Asset Management.

MSCI AC World Index

Financials ACWI Weight 4Q 2012
21,1% 9,1 28,9 -37,8 129,4 10,8x 12,8x 12,1x 13,9x 3,0% 3,4%

Tech.
12,1% -1,7 15,8 0,5 116,1 12,4x 22,5x 14,3x 18,9x 1,6% 0,8%

Health care
9,3% 0,8 18,3 21,9 87,4 13,1x 18,3x 13,4x 15,1x 2,6% 1,8%

Industrials
10,4% 7,1 17,4 -15,4 118,1 12,8x 15,9x 14,3x 15,7x 2,5% 2,2%

Energy
10,6% -1,8 2,0 -3,3 64,3 10,1x 13,4x 10,5x 11,7x 3,1% 2,6%

Cons. Desc.
10,7% 7,3 25,0 7,8 148,8 13,5x 17,9x 15,8x 18,5x 1,9% 1,8%

Cons. Staples
10,4% 1,3 14,7 41,8 105,7 15,6x 17,1x 17,0x 17,0x 2,7% 2,4%

Telecom
4,3% -3,1 8,4 0,0 67,8 12,0x 20,5x 13,0x 13,8x 5,3% 3,5%

Utilities
3,5% -0,2 3,2 -17,8 35,6 14,1x 14,1x 15,6x 16,3x 4,8% 4,2%

Materials
7,6% 5,5 10,8 -16,0 86,2 12,3x 13,3x 15,7x 14,4x 2,6% 8,2%

ACWI
100,0% 3,4
Return Div P/E

2012
Since market peak Since market low Forward P/E ratio 15-year avg Trailing P/E ratio 15-year avg Dividend yield 15-year avg

16,5 -8,4 98,9 12,2x 15,8x 13,6x 16,0x 2,7% 2,7%

Equities

Note: All calculations are cumulative total return in local currency, not annualised, including dividends for the stated period. Since market peak represents period 9 October 2007 to end of latest quarter. Since market low represents period 9 March 2009 to end of latest quarter. Source: I/B/E/S, FactSet, MSCI J.P Morgan Asset Management.

38

S&P 500 valuations by dividend quartile

Valuation based on forward P/E 26
x

MSCI indices dividend growth

Local currency 270 No-low dividend yield Average dividend yield High dividend yield 250 Asia ex Japan Japan US 230 Europe ex UK

24

22

20

210

Equities

18

190

16

170

14

150

12

130

10

110

8 Dec 94

Dec 97

Dec 00

Dec 03

Dec 06

Dec 09

Dec 12

90 Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

(Left) Source: I/B/E/S, Compustat, FactSet, J.P. Morgan Asset Management. (Right) Regular dividends only. Source: MSCI, FactSet, J.P. Morgan Asset Management.

39

Large cap stocks

Correlations Among Stocks 70
Great Depression / World War II Cuban Missile Crisis OPEC Oil Crisis

Sovereign Debt Crisis Lehman Bankruptcy Tech Bust & 9/11

60
50 40 30 20 10

1987 Crash

Dec 2012: 34.4%

Equities

0 1926

1932

1938

1944

1950

1956

1962

1968

1974

1980

1986 2008 peak 3,30% 80,9

1992 Average 0,72% 20,4

1998

2004 Latest 0,52% 18,0

2010

Stock market volatility

3,5 % 3,0 2,5 2,0
DJIA volatility shown in three-month moving average

Volatility Measures DJIA (left) VIX (right)

90 75 60 45

1,5 1,0 0,5 0,0 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 30 15 0

40

(Top) Note: Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 2012. Source: Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. (Bottom) Note: DJIA volatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average. Source: CBOE, Dow Jones, FactSet, J.P. Morgan Asset Management..

Earnings revisions
108

Europe
105 100 Netherlands

Germany
France

106

S&P 500

95 90

104

Japan

85 80

Italy

Equities

102

75 70 Dec 11 Mar 12 Jun 12 Sep 12

Spain

Dec 12 Latin America ex Brazil

100

Emerging markets
105

98

96

MSCI EMU FTSE 100

100

EM Asia EMEA

94

95

92 Dec 11

Mar 12

Jun 12

Sep 12

Dec 12

90 Dec 11

Brazil Mar 12 Jun 12 Sep 12 Dec 12

Note: Revisions for next 12 month earnings estimates. Source: MSCI, I/B/E/S, J.P. Morgan Asset Management.

41

Developed markets
+4 Std Dev

Example Expensive relative to world

Std dev from global average

+3 Std Dev +2 Std Dev +1 Std Dev

Average
-1 Std Dev -2 Std Dev -3 Std Dev -4 Std Dev

Expensive relative to own history Cheap relative to own history

Current

Average Cheap relative to world

Equities

France

Germany

UK

Japan

Australia Current

World

Canada

US

Switzerland

Current composite index

10 year average P/CF Dividend yield Forward P/E P/B P/CF Dividend yield

Forward P/E

P/B

France Germany UK Japan Australia

-1,95 -1,60 -1,45 -1,28 -1,03

11,0x 11,0 10,9 12,8 13,2

1,2x 1,4 1,7 1,1 1,8

5,5x 5,7 6,4 4,1 6,9

3,8% 3,4 3,9 2,3 4,7

11,8x 11,9 12,5 16,5 13,3

1,6x 1,5 2,0 1,4 2,2

5,8x 4,6 7,0 6,2 8,2

3,8% 3,3 3,9 1,9 4,5

World (Avg)
Canada US Switzerland

-0,66
-0,56 0,37 0,54

12,5
12,8 13,0 13,5

1,7
1,8 2,1 2,1

6,7
5,7 8,2 11,4

2,7
2,9 2,1 3,4

13,7
13,7 14,3 13,5

2,0
2,1 2,4 2,4

7,2
7,3 8,4 9,8

2,7
2,4 2,1 2,9

42

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd P/E), price to current book (P/B), price to last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last ten years. The grey bars represent valuation index variability relative to that of the MSCI World Index of developed markets. Source: MSCI, I/B/E/S, FactSet, J.P. Morgan Asset Management.

Emerging markets
+6 Std Dev

Example Expensive relative to world Expensive relative to own history Cheap relative to own history Russia Brazil China EM Index ACWI Current Forward P/E P/B P/CF Dividend yield Forward P/E Taiwan S. Africa Korea Mexico India 10 year average P/B P/CF Dividend yield

Std dev from global average

+5 Std Dev +4 Std Dev +3 Std Dev +2 Std Dev +1 Std Dev Average -1 Std Dev -2 Std Dev -3 Std Dev

Current Average Cheap relative to world

Equities

-4 Std Dev
-5 Std Dev

Current composite index

Russia Brazil China EM Index ACWI (Avg) Taiwan S. Africa Korea Mexico India

-3,68 -1,87 -1,59 -1,09 -0,67 -0,59 0,42 0,69 2,39 3,31

5,0x 10,7 9,9 10,5 12,2 14,3 12,0 8,7 17,5 14,2

0,8x 1,4 1,6 1,6 1,7 1,8 2,4 1,2 3,0 2,6

3,3x 5,2 5,0 6,2 6,8 6,3 10,4 5,8 7,4 13,6

3,8% 3,6 2,9 2,7 2,7 3,0 3,2 1,1 1,5 1,5

7,9x 8,6 12,0 10,7 13,4 13,9 10,4 9,4 13,1 14,6

1,3x 1,9 2,1 1,9 2,1 1,9 2,3 1,5 2,6 3,3

4,8x 5,6 4,2 5,7 7,0 6,4 7,6 4,9 5,7 12,2

2,2% 3,4 2,8 2,7 2,5 3,6 3,3 1,8 2,0 1,5

43

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd P/E), price to current book (P/B), price to last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last ten years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Source: MSCI, FactSet, J.P. Morgan Asset Management.

MSCI Europe Index dividend yield and Ten-Year EMU bond

7
%

Eurozone and US relative valuations

1,4
x

Eurozone/US forward P/E

Eurozone relatively more expensive

1,3 Euro launch 1,2

31 Dec 2012: Ten-year EMU bond yield 1,1

Equities

1,0 Eurozone relatively cheaper

3,7%
0,9
3

Dividend yield
2

0,8 31 Dec 2012: 2,5% 0,7 Since euro launch (since Jan 1999)

Dec 99

Dec 01

Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

0,6 Dec 87

Dec 92

Dec 97

Dec 02

Dec 07

Dec 12

Note: The ten-year EMU bond yield is represented by the BofA Merrill Lynch Euro Government (7-10Y) index. 75% of the value of the index is comprised of bonds from France, Germany, Italy, Spain, Netherlands, and Belgium, Source: BofA Merrill Lynch, I/B/E/S, J.P. Morgan Asset Management.

44

S&P 500 year over year EPS growth

Growth broken into revenue and margin expansion, quarterly 40 Margins Revenue 30 Forecast 30 40

20

20

Equities

10

10

-10

-10

-20

-20

-30

-30

-40 Dec 93 Dec 97 Dec 01 Dec 05 Dec 09 Dec 13

Note: Grey shaded areas represent recession periods. EPS levels are based on operating earnings per share. Most recently available data is 2Q 2012. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 91%, and 51% growth in operating earnings, and are adjusted on the chart. Source: Standard & Poors, Bloomberg, J.P. Morgan Asset Management.

-40

45

Forward P/E ratio, S&P 500 Index

26

Dividend yield and ten-year US Treasury yield

10

x
24

31 Jan 2000: 24,4x

22

Ten-year US Treasury yield

20

Equities

18

31 Dec 2012: 12,8x

16
4

31 Dec 2012: Average since 1989: 15,7x

14

12
2

Dividend yield

2,2%

10

31 Dec 2012: 1,8%

8 Dec 89

Dec 94

Dec 99

Dec 04

Dec 09

Dec 89

Dec 94

Dec 99

Dec 04

Dec 09

Source: I/B/E/S, Tullett Prebon, FactSet, J.P. Morgan Asset Management.

46

TOPIX
Log scale 2.000
1.800

TOPIX and the JPY per USD Exchange Rate

26 Feb 2007: P/E = 18,0x 1.817

2.000

TOPIX

140
JPY per USD

1.800
1.600

130

Weaker Yen

1.400

1.600
+135% -60%

120

Equities

Stronger Yen

1.200

1.400
31 Dec 2012: P/E = 12,6x 860

110

1.000

1.200

100

1.000
800

90

28 Apr 2003: P/E = 16,4x 773

13 Mar 2009: P/E = 23,7x 724

Dec 05 Dec 07

+19%

800

80

Dec 99

Dec 01

Dec 03

Dec 09

Dec 11

600 Dec 99

70 Dec 03 Dec 07 Dec 11

Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by I/B/E/S. Source: I/B/E/S, FactSet, J.P. Morgan Asset Management.

47

MSCI EM Index
Log scale
60.000

29 Oct 2007: P/E = 13,1x 54.872

31 Dec 2012: P/E = 10,5 46,731

MSCI Emerging Markets Index: Price to book

3,0

50.000

2,5
40.000

+1,5 St dev Dec 2012: 1,65

Equities

30.000

+340%

-59%

+107%

2,0

20.000

27 Oct 2008: P/E = 7,5x 22.525

1,5 Average: 1,81 1,0 -1,5 St dev

29 Sep 2001: P/E = 9,3x 12.460

Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

0,5 Dec 85

Dec 90

Dec 95

Dec 00

Dec 05

Dec 10

Note: The P/E ratios are forward P/E ratios. Forward P/E ratio is a bottom up calculation base on the most recent price data divided by consensus estimates for earnings in the next 12 months and is provided by I/B/E/S. Source: MSCI, FactSet, J.P. Morgan Asset Management.

48

MSCI EM Index: Long term growth in DPS and EPS

Index, 100 = December 1995 500 EM EPS (fwd) EM DPS DM EPS (fwd) 400 DM DPS

Annualised equity market volatility

% per year 20 % Developed markets Emerging markets

15

Equities

300 10

200

5 100

0 Dec 95

0
Dec 99 Dec 03 Dec 07 Dec 11

Late 70s

80s

90s

00s

01 - 03

04 - 09

10 - 12

(Left) Note: Regular dividends only in local currency. Source: MSCI, I/B/E/S, FactSet, J.P. Morgan Asset Management. (Right) Note: Monthly frequency in USD terms until 1987, daily frequency in local currency terms subsequently. Source: IFC, MSCI, J.P. Morgan Asset Management.

49

MSCI Emerging Markets Index by region

MSCI Emerging Markets Index by sector

10% 21% Africa / Middle East Asia 8% 61% Europe Latin America 14%

17%

19%

Other Energy & Materials Financials Tech

24%

26%

Consumer

Equities

MSCI emerging market indices: country index by sector

100 % 80
20%
37% 22% 21% 15% 14% 17% 22% 15% 29% 13% 13%

Emerging market debt by region and sector

USD denominated debt Africa / Middle East 7% 100 Other 18%

Other Energy & Materials Financials

% 80 60 40

60
81%
31% 39% 14%

Latin America 43%

Consumer 7% Financial 36%

40 20 0

12%

37%

27% 2% 20% 5%

Tech Consumer

Europe 33% 20

38% 6% 18% 11% 22%

Energy & Materials 29% Tech 10% CEMBI

0 Mexico S. Korea

Asia 17% EMBIG

Brazil

Russia

India

China

50

Note: Other is comprised of healthcare, industrials, telecom and utility sectors. Values may not sum to 100 due to rounding. Source: MSCI, J.P. Morgan Asset Management. Source: MSCI, FactSet, J.P. Morgan Asset Management. (Bottom Right) note: The EMBIG is the J.P. Morgan EMBI Global Index, a USD-dominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The CEMBI is the J.P. Morgan Corporate Emerging Bond Index is a USD-denominated external debt index tracking bonds issued by corporations. Source: J.P. Morgan Asset Management.

2003
US HY 28,2% EM debt 26,9% Global agg 12,5% Portfolio 12,3% Infl. Link 8,3% Euro corp 6,8%

2004
EM debt 11,9% US HY 11,4% Infl. Link 11,0% Global agg 9,3% Portfolio 8,6% Italy 8,6%

2005
EM debt 12,3% Infl. Link 6,0% Italy 5,8% Germ any 5,2% Portfolio 4,5% Euro corp 4,0%

2006
US HY 10,6% EM debt 10,0% Global agg 6,6% Portfolio 4,1% US 3,1% Euro corp 0,5%

2007
Global agg 9,5% US 9,2% EM debt 5,2% Portfolio 3,9% Germ any 2,0% US HY 1,9%

2008
US 14,3% Germ any 12,4% Italy 5,8% Global agg 4,8% Infl. Link 3,8% Portfolio -1,5%

2009
US HY 60,9% EM debt 34,2% Portfolio 18,3% Euro corp 15,7% Italy 8,3% Infl. Link 8,1%

2010
US HY 14,9% EM debt 12,8% Portfolio 7,2% Germ any 6,4% US 6,1% Global agg 5,5%

2011
US 9,9% Germ any 9,8% EM debt 7,0% Global agg 5,6% Portfolio 4,7% US HY 3,8%

2012
Italy 21,3% US HY 18,0% EM debt 17,9% Infl. Link 17,1% Euro corp 13,6% Portfolio 11,8%

4Q 2012
Italy 5,2% US HY 3,9% Infl. Link 3,5% EM debt 3,3% Euro corp 3,0% Portfolio 2,3%

Ten-yr Ann.
EM debt 11,6% US HY 10,7% Portfolio 7,3% Global agg 6,0% Germ any 5,3% Infl. Link 5,0%

Fixed Income

Italy 3,9%

Euro corp 7,5%

US 2,9%

Germ any -0,2%

Infl. Link 1,9%

Euro corp -3,8%

Global agg 6,9%

Euro corp 4,7%

Euro corp 1,5%

Germ any 4,5%

Germ any 1,1%

Euro corp 4,9%

Germ any 3,9%

Germ any 7,4%

US HY 2,9%

Italy -0,5%

Italy 1,5%

EM debt -14,7%

Germ any 1,8%

Infl. Link -0,4%

Infl. Link -2,3%

Global agg 4,3%

US -0,1%

US 4,9%

US 2,4%

US 3,7%

Global agg -4,5%

Infl. Link -1,7%

Euro corp 0,0%

US HY -26,4%

US -3,8%

Italy -0,6%

Italy -5,9%

US 2,2%

Global agg -0,5%

Italy 4,6%

51

(Left) Note: Annualised return covers the period from 2002 to 2011. Infl. Link is Barclays Euro Govt All Markets Inflation-linked Index, EM debt is the Barclays Emerging Markets (USD) Index, US HY is the BoA/ML Developed Market High Yield Constrained Index, Euro corp is the Barclays Euro Aggregate Credit Corporate Index, Global agg is the Barclays Global Aggregate Index, US, Italy and Germany are JPM government bond indices. The FI allocation assumes the following weights; 15% in US, 15% in Germany, 10% in Italy, 5% in index linked, 15% in EM debt, 15% in high yield, 15% in euro corporates, and 10% in global bonds. Source: Barclays Capital, Bank of America Merrill Lynch, J.P. Morgan Asset Management.

Fixed income yields

20 % 20 %

Emerging market debt spreads and ratings

1.700
Bps over Treasuries Credit rating (inverted) B+ 14

High yield EM local currency sovereign EM USD sovereign

1.500 BB13 16 1.300

16

1.100

BB 12

12

12

900 BB+ 11

Fixed Income

700

500 BBB10 300

4 Dec 99

4 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

100 Dec 93

BBB 9 Dec 96 Dec 99 Dec 02 Dec 05 Dec 08 Dec 11

(Left) Source: J.P. Morgan Asset Management. (Right) Source: Moodys, Standard & Poors, J.P. Morgan Asset Management.

52

Investment grade bond spreads

USD debt 700 bps 600 EM investment grade corporate debt DM investment grade corporate debt EM investment grade sovereign debt 500

High yield bond spreads

Data

truncated 30 %

bps

US corporate high yield debt (lhs) EM sovereign high yield debt (lhs) High yield default rate (rhs)

1200

25

900 400

20

15

Fixed Income

300

600 10

200 300 100 5

0 Dec 99

Dec 02

Dec 05

Dec 08

Dec 11

0 Dec 99

0 Dec 02 Dec 05 Dec 08 Dec 11

(Left) Source: Barclays, J.P. Morgan Asset Management. (Right) Note: US corporate high yield debt peaks at 1.978 bps in October 2008, but is not shown in the chart. Source: Merrill Lynch, J.P. Morgan Asset Management.

53

Mechanics of a convertible bond

Behaves like a bond Convertible price
The protection that buying a convertible bond gives as the underlying stock price falls

Balanced

The potential upside that the convertible bond gives when the underlying stock price rises

Loan and fixed income spreads and yields

1900 bps
Annual*

High yield OAS

Behaves like a stock Parity

1600

Asset class High yield Leverage loans

Return 8,8% 6,0%

Volatility 6,5% 3,4%

1300

Stock price

Fixed Income

Index returns
350 300 250 200 150 100 Dec 93
Asset class Convertibles Equities Fixed Income Return 7,0% 6,6% 6,1% Vol. 11,9% 15,8% 5,5%

1000

700

400

Leverage Loan DMM

Dec 96

Dec 99

Dec 02

Dec 05

Dec 08

Dec 11

100 Dec 85

Dec 90

Dec 95

Dec 00

Dec 05

Dec 10

54

(Upper Left) Source: J.P. Morgan Asset Management. (Lower Left) Total return indices in US dollars. All figures in table annualised. Convertible bonds represented by UBS Global Convertible Bond Index, equities by MSCI World Index, and fixed income by Barclays Global Aggregate Index. Source: UBS, Barclays, J.P. Morgan Asset Management. (Right) Note: *Global high yield from 1994, US prior. DMM = discount margin to maturity. Source: Barclays, Credit Suisse, J.P. Morgan Asset Management.

Yield

Return

Euro Treasuries
2 Year 5 Year 10 Year Long Term Sector

Num. of issues Market value

Num. of issues: 205 Total value: USD 3.433 tn

Avg maturity
2 years 5 10 +15

31 Dec 2012
0,94% 1,94 2,46 3,25

31 Dec 2011
2,01% 3,14 3,83 4,18

2012
4,07% 11,66 14,20 17,30

Q4 2012
0,80% 2,91 3,62 5,89

Global Agg
Euro Agg Corporates Euro Treasuries Emerging Debt High Yield

14.449
3.030 1.316 289 137 2.112

EUR 32.787
8268,2 1309,9 4731,2 258,5 1164,0

7,7 years
7,1 4,9 8,5 13,3 6,5

1,70%
1,91 2,00 2,01 4,45 6,08

2,33%
3,44 4,61 3,17 5,72 8,36

2,72%
11,19 13,59 11,00 16,22 13,81

-2,89%
2,82 3,02 2,98 0,74 0,73 +1% -1%
8,4%

Note: Fixed income sectors shown are provided by Barclays Capital and are represented by Global Agg: Barclays Global Aggregate; Euro Agg: Barclays Euro Agg; Corporate: Euro Corporates; Treasuries: Euro Treasuries; Emerging Debt: JPM EMBI+; High Yield: ML HY Master II. Government treasuries securities data for number of issues and market value based on EuroAggregate Treasury benchmarks from Barclays Capital. Change in bond price is calculated using both duration and convexity according to the following formula. New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0,5 * Price * Convexity * (Change in Interest Rates)^2). Source: Barclays, BoA/Merrill Lynch, J.P. Morgan Asset Management.

Fixed Income

Estimated price impact of a 1% rise/fall in interest rates on selected indices

20 % 10
1,9% 5,3% 7,1% 4,1% 14,4% 6,0% 6,4%

5,0%

5.5%

0
-1,9% -5,2%

-4,1%
-7,1%

-10

-5,0%

-5,5%

-6,0%

-6,3%

-8,4%

-14,3%

-20
2 year 5 year 10 year Long Term Euro Corp High Yield Euro Agg Global Agg Euro Treas EM Debt

55

Ten-year bond yields

6,0
% UK US

US government bond yields

15

5,5 5,0

12

Germany

4,5 4,0 3,5

9

Fixed Income

3,0 2,5 2,0 1,5

US high quality bond yields*

60 years

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

0 1800

1850

1900

1950

2000

56

(Left) Note: Weekly frequency. Source: Tullett Prebon, J.P. Morgan Asset Management. (Right) Latest data December 2011. *High-grade municipal bond yields used for certain years between 1800 and 1920. Source: Jeremy Siegel, The real rate of interest from 1800-1990, Homer & Sylla, A History of Interest Rates, Ibbotson SIBI, Federal Reserve, J.P. Morgan Asset Management.

Yield curves
6,50 % 5,50 Spain France 4,50 US Germany 3,50 Japan 3,50 4,50 6,50 % 5,50

ECB refinancing rate and real interest rates

5

%
4

Main refinancing rate

Fixed Income

2,50

2,50
1

1,50

1,50

0,50

0,50

Real interest rate -0,50 0 Years 5 10 15 20 25 30 -0,50

-1 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

(Left) Source: Bloomberg, J.P. Morgan Asset Management. (Right) Note: Real interest rate is calculated using core CPI. Source: Eurostat, ECB, J.P. Morgan Asset Management.

57

Broad money supply growth

Change year on year 12 % 8 4 US (M2)

Eurozone bank lending

Change year on year

Germany

Eurozone
24 0 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Spain

14 % 10

16

Fixed Income

6 2 -2 Dec 05 18 % 14 10 6 2 -2 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10

Eurozone (M3) 8 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

0 UK (M4 adjusted)

Dec 11

Dec 12

-8 Dec 03

Dec 05

Dec 07

Dec 09

Dec 11

58

(Left) Latest data is November 2012 for the US, and October 2012 for the UK and eurozone. Note: UK broad money supply is M4 until July 2010 then M4 adjusted (M4 excluding other intermediate financial corporations) onwards. Source: Federal Reserve, OECD, Bank of England, J.P. Morgan Asset Management. (Right) Note: Eurozone bank lending to households for consumption excluding mortgages. Latest data October 2012. Source: ECB, FactSet, J.P. Morgan Asset Management.

2003
EME 30,0% REITS 17,1% Europe 15,8% Portfolio 10,5% HY bonds 10,2% World ex EU 9,5% EMD 5,6%

2004
REITS 28,0% EME 16,9% Europe 12,6% Portfolio 8,3% HY bonds 5,0% World ex EU 4,6% EMD 3,8% Govt bonds 2,4% Cash 2,2% IG bonds 1,6% Cm dty 1,3%

2005
EME 55,0% Cm dty 39,9% REITS 32,9% EMD 29,4% World ex EU 26,8% Europe 26,7% Portfolio 25,9% HY bonds 19,4% IG bonds 11,1% Govt bonds 7,6% Cash 2,2%

2006
REITS 27,3% Europe 20,2% EME 18,6% Portfolio 7,2% Cash 3,0% World ex EU 2,7% HY bonds 1,7% EMD -1,6% IG bonds -4,1% Govt bonds -4,8% Cm dty -8,7%

2007
EME 26,1% Cm dty 4,8% Cash 4,4% Europe 3,2% Portfolio 2,3% Govt bonds -0,3% World ex EU -3,3% IG bonds -3,7% EMD -5,2% HY bonds -6,9% REITS -16,1%

2008
Govt bonds 15,9% Cash 5,7% IG bonds -3,9% EMD -10,3% HY bonds -23,1% Portfolio -25,1% Cm dty -32,3% World ex EU -34,2% Europe -43,3% REITS -45,0% EME -50,8%

2009
EME 73,4% HY bonds 54,4% REITS 34,0% Europe 32,5% Portfolio 31,7% EMD 30,0% World ex EU 24,2% IG bonds 15,5% Cm dty 15,2% Cash 2,3% Govt bonds -0,6%

2010
REITS 28,8% EME 27,5% Cm dty 24,9% World ex EU 24,0% HY bonds 22,8% EMD 20,7% Portfolio 17,2% Govt bonds 13,3% Europe 11,7% IG bonds 6,3% Cash 1,1%

2011
EMD 10,5% Govt bonds 9,9% IG bonds 7,8% HY bonds 6,6% Cash 1,7% World ex EU 0,4% Portfolio -1,0% REITS -2,7% Europe -7,5% Cm dty -10,4% EME -15,4%

2012
REITS 26,7% Europe 18,1% HY bonds 17,8% EME 16,8% EMD 16,1% World ex EU 13,5% Portfolio 12,8% IG bonds 9,5% Cash 1,2% Govt bonds 0,3% Cm dty -2,6%

4Q 2012
Europe 4,5% REITS 3,2% EME 3,1% HY bonds 2,1% EMD 0,8% Portfolio 0,7% Cash 0,1% IG bonds -0,6% World ex EU -1,4% Govt bonds -4,2% Cm dty -8,6%

Ten-yr Ann.
EME 14,2% REITS 9,5% HY bonds 9,1% EMD 9,1% Portfolio 7,9% Europe 6,5% World ex EU 5,2% Govt bonds 4,4% IG bonds 3,3% Cash 2,6% Cm dty 1,7%

Other Assets and Investor Behaviour

Cm dty 3,1% Cash 2,5% Govt bonds 2,4% IG bonds -4,9%

59

Note: EME is the MSCI EM Emerging Market Index, Europe is the MSCI Europe Index. Govt bonds is Barclays Global Aggregate Government Treasuries, HY bonds is Barclays Global High Yield Index, EMD is Barclays Emerging Markets (USD) Index, IG bonds is Barclays Global Aggregate Corporates, Cmdty is the DJ UBS Commodity Index, REITS is FTSE EPRA/NAREIT Developed Index (comprised of both investment trusts and operating companies), World ex EU is the MSCI World ex Europe Index, and cash is the JP Morgan Cash Index ECU (3M). The asset allocation portfolio assumes the following weights; 10% in government bonds, 10% in HY bonds, 15% in IG bonds, 5% in EMD, 5% commodities, 5% in cash, 5% in REITS, 15% in EM equities, 10% in World ex Europe, 20% in the MSCI Europe. Source: FTSE, Barclays Capital, Dow Jones/UBS, J.P. Morgan Asset Management.

MSCI Europe MSCI Europe S&P 500 MSCI EM MSCI Asia ex Japan Pan Europe Bonds EM Debt High Yield Bonds Global Bonds Cmdty 1,00

S&P 500

MSCI EM 0,82 0,69 1,00

MSCI Asia ex Japan 0,77 0,69 0,96 1,00

Pan Europe Bonds -0,23 -0,16 -0,16 -0,11 1,00

EM Debt

High Yield Bonds 0,66 0,47 0,63 0,58 -0,15 0,74 1,00

Global Bonds -0,25 0,15 -0,16 -0,07 0,52 -0,28 -0,34 1,00

Cmdty

Hedge Funds 0,64 0,39 0,66 0,59 -0,27 0,54 0,79 -0,44 0,46

Lev. Loans -0,06 0,49 0,58 0,53 -0,21 0,52 0,87 -0,26 0,37

0,80 1,00

0,44 0,21 0,49 0,41 0,18 1,00

0,33 0,32 0,48 0,42 -0,12 0,18 0,28 0,00 1,00

Other Assets and Investor Behaviour

Correlation of monthly returns over previous ten years

Hedge Funds
Lev. Loans
Note: Pan Europe bonds is the Citigroup Europe Government Bond Index (WGBI). Emerging market debt is the JPMorgan EMBI Global. High yield bonds is the JPMorgan Domestic High Yield. Global bonds is the Barclays Global Aggregate. Lev. Loans is the Credit Suisse Leveraged Loans Index. Cmdty is the DJ/UBS Commodity Index. Hedge Funds is the CS/Tremont Multi-Strategy Index. Ten year correlation values are calculated for period December 2002 to November 2012. Correlation measures the direction and degree of linear association between two variables. All indices are total return based on weekly return data in euros. Source: Citigroup, Barclays, Credit Suisse, J.P. Morgan Asset Management.

1,00

0,81
1,00

60

Commodity prices
Weekly index prices rebased to 100
500 450

China and industrial metal prices

Rebased Precious metals 125 S&P GSCI Industrial Materials

120
400 350

115
300 250

MSCI China

110 Industrial metals

200

Other Assets and Investor Behaviour

Grains
150 100

105

Livestock
50

100

Energy
0 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11

95 Dec 01

Dec 04

Dec 07

Dec 10

(Left) Note: Commodity prices represented by the appropriate DJ/UBS Commodity sub-index. Source: Dow Jones/UBS, J.P. Morgan Asset Management. (Right) Note: data rebased to 100 at December 1992. Source: MSCI, Standard & Poors, MSCI, FactSet, J.P. Morgan Asset Management.

61

Gold price
Log scale Inflation adjusted gold price (lhs) US monetary base (indexed) USD/oz. Inflation (rhs) 31 Dec 2012: USD 1.675 1.600 10 16 % 14

Commodity prices and US inflation

Change year on year
6 60

Headline CPI (%)

Dow Jones/UBS Commodity Index

40

12

20

8 800 6 4
0 0

Other Assets and Investor Behaviour

-2

-20

2 400 0
-4 -40

-2 200 Jun 68 -4 Jun 78 Jun 88 Jun 98 Jun 08

-6 Dec 93 Dec 97 Dec 01 Dec 05 Dec 09

-60

(Left) Note: CPI adjusted gold values are calculated using average monthly price of gold divided by the CPI value for that month. Source: Bloomberg, BLS, J.P. Morgan Asset Management. (Right) BLS, Dow Jones/UBS, J.P. Morgan Asset Management.

62

Residential property values to GDP

Ratio 6 Spain

US mortgages in negative equity and delinquency rates

12 % Seriously delinquent loans Homeowners in negative equity 30 % 25 9 20

x
5

Japan UK Ireland US

15

Other Assets and Investor Behaviour

10 3 1 5

0 1977 -30

1987 -20

2007 2017 10 0 Years relative to peak in ratio

1997 -10

2027 20

0 Jun 98

0
Jun 02 Jun 06 Jun 10

63

(Left) Note: Japan: Land Underlying Buildings and Structures; US: Household Real Estate Assets; UK: Residential Buildings; Spain: Residential Household Wealth; Ireland: Dwellings. Source: OECD, Japan Land and Water Bureau, Ministry of Land, Infrastructure and Transport, Cabinet Office (Government of Japan), US Federal Reserve, S&P/Case-Shiller, OFHEO, UK Office for National Statistics, Bank of Spain, Ireland Central Statistics Office, Permanent TSB/ESRI, J.P. Morgan Asset Management. (Right) Latest negative equity data Q2 2012. Latest delinquency data September 2012. Source: Mark Zandi and Robert Shiller, Mortgage Bankers Association, CoreLogic, J.P. Morgan Asset Management.

Eurozone consumer confidence

5
Average 12 month MSCI Europe Index return: After a peak: -3,4% After a trough: +29,3% Total period: 7,8%

Aug 2000: -23,8% Jun 2007: -22,5%

May 1986: +12,1%

-5

Jul 1989: +4,4%

Jun 1995: +17,7%

Nov 2010: -8,3%

-10

-15

Average: -12,5 Feb 1988: +19,6%

-20

Nov 1996: +30,1%

Other Assets and Investor Behaviour

-25

Mar 2003: +32,5%

-30

Mar 1993: +19,4%

-35

Mar 2009: +44,7%

-40 Dec 85 Dec 87 Dec 89 Dec 91 Dec 93 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11
Note: Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs. Subsequent 12-month MSCI Europe Index returns are price returns only, which excludes dividends. Total period return is the average 12-month rolling return. Source: European Commission, FactSet, J.P. Morgan Asset Management.

64

Cumulative mutual fund flows

US domiciled funds excluding ETFs, USD billions 1.200 Equity funds 1.000 Bond funds

Mutual fund flows

All domiciles, excluding ETFs, USD billions

80

800

30

600

-20

400 -70 200

Other Assets and Investor Behaviour

-120 0 EMD and high yield debt EM equity -200 Tech bubble -400 1997-2000 Credit crisis -220 2009-2012 2009 2010 2011 2012 -170 DM equity Government bonds*

(Left) Source: ICI, FactSet, J.P. Morgan Asset Management. (Right) Note: *Intermediate and long term government bonds. Monthly data, latest available November 2012. Source: EPFR, J.P. Morgan Asset Management.

65

Range of equity, bond and blended total returns

Annual total returns, 1950 - 2012 60
%

Equities Bonds 51% 43% 32% 28% 23% 21% 50/50 Portfolio Equities Bonds 50/50 Portfolio

Annual Avg total return 10,8% 6,2% 8,9%

Growth of USD 100,000 over 20 years 782.751 335.627 554.754

50 40 30 20 10

18% 19% 16% 17% 6% 12% 5% 1% 14%

1% 0 -8% -2% -15% -2% -1%

1%

2%

Other Assets and Investor Behaviour

-10 -20 -30 -37% -40 1 year

5 yr rolling

10 yr rolling

20 yr rolling

Note: Returns shown are based on calendar year returns from 1950 to 2012. Source: Barclays Capital, Shiller, Strategas/Ibbotson, US Federal Reserve, J.P. Morgan Asset Management.

66

High and rising inflation

Occurred 14 times since 1972 40 30 20 10
2% 7% 13% 7%

High and falling inflation

Occurred 6 times since 1972 40 30 20 10 0
-1% 8% 23% 16% 36%

0 -10 -20
Equities Cash Commodities Govt Bonds High Yield*

-10 -20
Equities Cash
-15%

Commodities

Govt Bonds

High Yield*

Low and rising inflation

Occurred 7 times since 1972 40

Low and falling inflation

Occurred 13 times since 1972

40
30

Other Assets and Investor Behaviour

30 20 10 0 -10 -20
Equities Cash Commodities Govt Bonds High Yield*
20% 17% 13% 6%

20
12%

13% 4% 6% 7%

3%

10 0 -10 -20
Equities

Cash

Commodities

Govt Bonds

High Yield*

67

Note: High or low inflation distinction is relative to median CPI inflation for the period s1971-2011. * High yield returns based on the period 1984 2011. Rising of falling inflation distinction is relative to the previous year CPI inflation rate. Commodities returns are based on GSCI, equities on the S&P 500 total return index, govt bonds are the Barclays Aggregate US Treasury Index, and high yield is the Barclays US Corporate High Yield Index. Source: BLS, Barclays Capital, Robert Shiller, Federal Reserve, Strategas/Ibbotson, J.P. Morgan Asset Management.

Real GDP growth versus real equity returns (1970 2011)

10 Sweden

8 Real equity return (annual, %) Denmark Netherlands 6 Germany Switzerland 4 Finland UK Belgium France Norway

Other Assets and Investor Behaviour

Spain 2 Austria

Italy 0 1,4 1,6 1,8 2,0

Portugal 2,2 2,4 2,6 2,8 3,0

Real GDP growth (annual, %)

Source: MSCI, United Nations, J.P. Morgan Asset Management.

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Dan Morris. executive director, is a global market strategist responsible for delivering market analysis and insight to clients in Europe, the Middle East, and Africa. He is a frequent guest on CNBC, Bloomberg, and other TV channels and is widely quoted in the press. Prior to joining J.P. Morgan Asset Management, Dan was the Senior Equity Strategist at Lombard Street Research and before that part of the Institutional Investor-ranked portfolio strategy team at Banc of America Securities in New York. Dan began his career covering Latin American equity markets at BT Alex. Brown and Dresdner Kleinwort Benson. He holds an MBA from the Wharton School and a Masters in International Relations from Johns Hopkins' School of Advanced International Studies. His undergraduate degree is in Mathematics from Pomona College and he is a CFA charterholder. daniel.m.morris@jpmorgan.com

Maria Paola Toschi. executive director, is a global market strategist at J.P. Morgan Asset Management in the Milan Office, in charge of communications to domestic retail and institutional clients. She worked from 1986 to 2003 as a sellside equity analyst in different Italian Banking Institutions and has spent the last eight years in Banca IMI, Intesa Sanpaolo Banking Group, mainly covering small-mid Industrial companies and following several IPOs. In 2003 she became responsible for the retail investment communications team dedicated to the Sanpaolo Retail and Private Banking network. She graduated in Economics at the Milan L. Bocconi University and has been a Member of the Italian Financial Analysts Association since 1989. She joined J.P. Morgan Asset Management Milan in November 2008. maria.p.toschi@jpmorgan.com

Tom Elliott. executive director, is a global strategist within the Market Insights Team at J.P. Morgan Asset Management. He is frequently to be seen on television and in the press, and is a well regarded blogger and speaker on economics and capital markets. An employee since 1995, he worked in the Global Multi-Asset Group (GMAG) until 2006 and before that he was head of the Investment Writing Team. Previously. he worked at Euromoney Publications as a feature writer for a year and prior to that he spent four years at Greig Middleton & Co. as a graduate trainee and securities analyst. Tom obtained a BA in History from Sussex University and an MSc in Economic History from the London School of Economics. tom.cb.elliott@jpmorgan.com

Andrew Goldberg. executive director, is a global market strategist and Head of the Market Insights Strategy Team in Europe. Andrew is responsible for delivering timely market and economic insight to clients across the UK and Europe. A member of the strategy team since its inception, Andrew is one of the co-creators of the Market Insights programme, J.P. Morgans industry leading value-add offering to clients in 25 countries across 10 languages. He is consistently a top-rated speaker at industry events, and a frequent guest of CNBC, Bloomberg, and other major financial news outlets. Andrew joined J.P. Morgan in 2002, and prior to forming the strategy team, was an investment analyst for the firms US Equity group. He obtained a B.S. in Business Administration from Bryant University in 2002. andrew.d.goldberg@jpmorgan.com

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This document has been produced for information purposes only and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Managements own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. Both past performance and yield may not be a reliable guide to future performance and you should be aware that the value of securities and any income arising from them may fluctuate in accordance with market conditions. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website http://www.jpmorgan.com/pages/privacy. Issued in Continental Europe by JPMorgan Asset Management (Europe) Socit responsabilit limite, European Bank & Business Centre, 6 route de Trves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. Issued in the UK by JPMorgan Asset Management (UK) Limited which is authorised and regulated by the Financial Services Authority. Registered in England No. 01161446. Registered address: 25 Bank St, Canary Wharf, London E14 5JP, United Kingdom.

Unless otherwise stated, all data as at 31 December 2012. Prepared by: Kerry Craig, Tom Elliott, Dan Morris, Paola Toschi and Andrew Goldberg.

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