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

The Power of 3
September 2011

Is Emerging Markets the safe haven?

The Auto Theory of Everything

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

But financial market decoupling is clearly not

But financial market decoupling is clearly not

Market performance

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

Strong fundamentals + Price correction = Buying opportunity

Emerging Markets look attractively priced

GEM Price to Book: 1993 6th September 2011

Euphoric Expensive Fair Cheap Crisis

Source: Bloomberg. Data as at 6th September 2011

Government debt as % of GDP Emerging markets 36.9% 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.

FX reserves as % of GDP Emerging markets 31.8% 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.

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.

Its all about balance sheets

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Financial System: Its all about balance sheets

Source: Credit Suisse. Data as at August 2011.

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

What does this all mean for future returns?

Prospective EM USD Returns

13.3%

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

So what do you want to buy?

Buy cheap markets with improving trends

Brazil is now top 20 in our tactical GEM screens

COUNTRY VALUE MOMENTUM: 08/22/2011 HIGH MOMENTUM TH ID MY ZA 0.8 MX PL 0.6 TW CL 0.4 LOW MOMENTUM AR HU CZ KR

We like China where global worries may hasten the end of tightening
RUSSIA

Among markets that are typically defensive in the face of global growth fears India has significantly underperformed Indonesia and now looks the more attractive market Russia remains a cheap market with positive momentum

CHINA
0.2

INDIA
TR EG

BRAZIL

-0.2 -0.2

0.2 EXPENSIVE

0.4

0.6

0.8 CHEAP

1.2

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.

Domestic consumption - a self sustaining economic force

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Domestic consumption - a self sustaining economic force

Household disposable income over USD 10,000

No. of households in millions

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

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

Less natural resources and double the exposure to consumer stocks

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The wrong number

20

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 , USD Excess 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 conditions and 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 rate may 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 market movements.

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 , USD Performance history since Richard Titherington took over as lead PM in early 2009 Excess 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 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 rate may 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 market movements.

Research team: Stability, experience, local knowledge

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 interesting opportunities in BRIC markets

Strong fundamentals + Price correction = Buying opportunity

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J.P. Morgan Asset Management

IMPORTANT INFORMATION
FOR PROFESSIONAL INVESTORS ONLY. NOT FOR RETAIL USE OR DISTRIBUTION.
Any forecasts, figures, opinions or investment techniques and strategies set out, unless otherwise states, are J.P. Morgan Asset Managements own at the date of publication. They are considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. They may be subject to change without reference or notification to you. The views contained herein are not to be taken as an advice or recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support an investment decision. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and 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 rate may 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 market movements. Investments in emerging markets may be more volatile and therefore the risk to your capital could be greater. Further, the economic and political situations in emerging markets may be more volatile than in established economies and these may adversely influence the value of investments made. You should also note that if you contact J.P. Morgan Asset Management by telephone those lines could be recorded and may be monitored for security and training purposes. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co and its affiliates worldwide. The Fund may not be authorised or its offering may be restricted in your jurisdiction. Prior to any application investors should inform themselves as to the requirements within their own country for transactions in the Fund. Shares may not be offered to or purchased directly or indirectly by U.S. persons. All transactions should be based on the latest available simplified and full prospectuses and any local offering document. These documents together with the annual report, semi-annual report and the articles of incorporation for the Luxembourg domiciled SICAV Funds are available free of charge upon request from the issuer of your J.P. Morgan Asset Management regional contact. Issued by JPMorgan Asset Management (Europe) Socit responsabilit limite,

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