Power of 3 JPMAM

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The Power of 3

For independent financial adviser use only not for use by or distribution to retail investors

September 2011


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Is Emerging Markets the safe haven?

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The Auto Theory of Everything

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Economic decoupling possible

Monthly motor vehicle sales, million units, 3mma sa

Source: CEIC, Haver, UBS estimates. * Top 25 Emerging Markets. Data as at August 2011


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But financial market decoupling is clearly not

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But financial market decoupling is clearly not

Market performance

Source: MSCI Barra. Factset. Data as at 6th September 2011


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Strong fundamentals+

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Price correction=

Buying opportunity


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Emerging Markets look attractively priced

GEM Price to Book: 1993 6th September 2011

Euphoric

Source: Bloomberg. Data as at 6th September 2011

Cheap

Crisis

Fair

Expensive


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Government debt as % of GDPEmer in markets 36.9%

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Developed markets 95.9%

Source: IMF, CIA Factbook, The World Bank, ECB, World Economic Outlook Database, J.P. Morgan Asset Management . * Data as of 2002, +2010 figures are estimates.


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FX reserves as % of GDPEmer in markets 31.8%

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Developed markets 4.3%

Source: IMF, CIA Factbook, The World Bank, ECB, World Economic Outlook Database, J.P. Morgan Asset Management . * Data as of 2002, +2010 figures are estimates.


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Monetary: Emerging Markets retain considerable policy flexibility

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Monetary: Emerging Markets retain considerable policy flexibility

Source: JPMorgan. Data as at August 2011.


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Financial System: Its all about balance sheets

Source: Credit Suisse. Data as at August 2011.


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Profitability: The profitability of EM corporates has improved

EM Return on Equity (RoE) first converged and then overtook European and US levels

Return on equity

Percent

Source: Thomson Datastream, J.P. Morgan Asset Management as of June 2011. Past performance is not a guide for the future. Shown for illustrative purposes only


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What does this all mean for future returns?

Prospective EM USD Returns

13.3%

Source: J.P. Morgan estimates. Data as at 29 th August 2011.

Illustrates the contribution to total index return of earnings growth (EPS), dividends and changes in local currencies and valuation multiples (forward looking price/earnings ratio)


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So what do you want to buy?

Buy cheap markets with improving trends

Brazil is now top 20 in our tactical GEM screens

We like China where global worries may hasten theend of tightening

0.8

1 ID

MX

MY

RUSSIA

TH

ZA

IGHMOMENTUM

COUNTRY VALUE MOMENTUM: 08/22/2011

face of global growth fears India has significantlyunderperformed Indonesia and now looks the moreattractive market

Russia remains a cheap market with positivemomentum

Source: J.P. Morgan estimates. Data as at 22nd August 2011.

Countries ranked on last 12 months price movement on the y-axis and a composite of valuation metrics on the x-axis.

Units are percentile ranks which go from 0 to 1.

-0.2 0 0.2 0.4 0.6 0.8 1 1.2-0.2

0

0.2

0.4

0.6

AR

BRAZIL

CL

CHINA

CZ

EG

HU

INDIA

KR

PL

TR

TW

EXPENSIVE CHEAP

LOWM

OMENTUM


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Domestic consumption - a self sustaining economic force

Household disposable income over USD 10,000No. of households in millions

Source: Euromonitor, Morgan Stanley Research, May 2010. Shown for illustrative purposes only.


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Small caps offer diversified exposure to the real consumption story in EM

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Less natural resources and double the exposure to consumer stocks


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The wrong number

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JPMorgan Emerging Markets Small Cap Fund

Cumulative performance to 31 August 2011 (%)

Source: J.P. Morgan. PAG London. Net of fees, NAV to NAV gross income reinvested , USDExcess return is calculated geometrically. Inception: November 2007. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditionsand taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Changes in exchange ratemay have an adverse effect on the value price or income of the product. Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to marketmovements.


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JPMorgan Emerging Markets Value Fund

Cumulative performance to 31 August 2011 (%)

Source: J.P. Morgan, PAG-London. Net of fees, NAV to NAV gross income reinvested , USDPerformance history since Richard Titherington took over as lead PM in early 2009Excess returns are geometric. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements andinvestors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Changes in exchange rate may have an adverse effecton the value price or income of the product. Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to market movements.


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Research team: Stability, experience, local knowledge


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Conclusion

The global environment remains challenging for emerging markets

Emerging countries retain greater flexibility to react to a slowdown

Stubbornly high correlation of emerging market equities with global financial markets - creating interestingopportunities in BRIC markets


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Strong fundamentals+

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Price correction=

Buying opportunity


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Power of 3 JPMAM

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