J.P.Morgan . Morgan View Lower fiscal uncertainty needed to unleash capital • Asset allocation — Value dictates that long-term investors start switching from credit to equities, but low growth, fiscal uncertainties, still attractive credit spreads, and little sign of worsening credit fundamentals keep us overweight both equity and credit vs government debt, especially in higher-yield. • Economics - Bottom in global growth is now 3-quarters wide. Rebound in Q1 requires lifting of fiscal risks in the US, in our view. • Fixed Income — Favor EM local bonds over DM. Global Asset Allocation 26 October 2012 Global Asset Allocation Jan Loeys AC (1-212) 834-5874 JPMorgan Mass Bank NA John Normand (44-20) 7134-1816 Equities — UW US equities against Europe and EM Asia. lam. Morgan Securities plc Credit — EMBIG year-end spread target is lowered to 250bp, from 275bp, and CEMB1 to 300bp, from 325bp. Currencies - We are long the yen, as the sell off appears overdone. Curt modities — Low oil inventories and high uncertainty in the Middle East keep us long Brent time spreads. • Risk markets continue to yo-yo, with this week being down, while last week was up. Bond markets are sitting out the last wiggle, with government yields barely changed an the week, and corporate bonds only a few bips wider. Most assets remain in their 2-month trading range. • Range trading is hiding a lot of anxiety in markets and economies, recently focused on the US. We have argued that world growth is in a bottom formation, but the low part of this pattern keeps getting longer and is up to 3 quarters now (Q2-to Q4). The expected rebound has been pushed out now to Q1, and is softer than we originally thought. There are a whole host of forces holding back growth, but one negative that we believe explains both weaker corporate spending and still massive capital flows into fixed income must be fundamental uncertainty about gov't policies. The consumer has not been affected mu