equity strategy - · pdf file(44-20) 7134-9741 mislav.matejka@ ... european equity strategy...

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Europe Equity Research27 January 2014

Equity StrategyNo need to bottom fish in EM just yet; We find Eurozone recovery theme still to be more interesting

European Equity Strategy

Mislav Matejka, CFA AC

(44-20) 7134-9741

[email protected]

Bloomberg JPMA MATEJKA <GO>

Emmanuel Cau, CFA AC

(44-20) 7134-9742

[email protected]

Bloomberg JPMA CAU <GO>

Prabhav Bhadani

(44-20) 7742-4404

[email protected]

J.P. Morgan Securities plc

See page 28 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

For the past two years, maintaining UW EM exposure has proved to be the right strategy, and to fade any tactical bounces in the group. With the latest selloff in the EM, what is changing, if anything?

On the positive side: 1) EM exposure has underperformed the DM by as much as 40% since '11. It appears that UW EM is a widely held view nowadays. 2) Relative valuations have improved. EM P/E is trading at a 30% discount to DM. The P/E relative of the EM exposed stocks basket within Europe has also de-rated, but is still above historical averages. 3) The start of tapering is behind us, without EM fixed-income markets repeating last May's selloff. 4) C/A deficits of EM countries that were most at risk appear to be stabilizing – Indonesia, Brazil, South Africa, India and Turkey. EM currencies have fallen by 15% on average over the last year, making them more competitive. 5) DM activity has picked up – historically EM was a beta to the DM growth.

What is not changing? 1) Growth differential is not yet turning in favor of EM. EM CESIs appear to have bottomed out, but are not gaining ground relative to the DM. JPM expects lower delta in EM GDP growth this year (+0.1%) than for DM (+1.0%). 2) Outflows remain a problem for EM equities and EM FX keeps falling. We think EM weakness over the past 2 years should be put in the context of the greatprior 10-year run. 3) Structural concerns are alive and kicking. The likelihood of smooth rebalancing of Chinese growth is pressured by significant credit overhang and an ever-increasing FAI share of GDP. 4) The potential for the USD to reenact the experience of the 2nd half of 90s, when EM were persistently weak, should not be dismissed.

Putting the above together, we advise against rotation out of the DM and into EM exposure. We keep our structural Mining short – Chinese activity dataflow remains mixed, iron ore price is falling and speculative copper longs are elevated. Many indirect EM plays remain uncomfortably expensive – Chemicals, Luxury, Capital Goods and Staples are at peak margins. We remain short baskets of EM consumer and FAI plays (JPDEEM14 and JPDECI14). The one area that appears attractive to us is Construction Materials, which we upgrade to OW due to the depressed earnings base of cement stocks, no sole dependence on China and significant leverage to a rebound in DM activity.

Eurozone recovery remains our preferred theme, we think the latest EM volatility will not derail the positive developments there. Consumer sentiment is at a 3-year high. PMI uptrend is continuing, calling for10%+ EPS growth. Banks and Discretionary are our top sector picks. We see further upside to our domestic recovery basket – ticker JPDEER14.

EM underperformed hugely over the last 2 years and have derated, but…

Source: IBES

EM vs DM GDP growth differential –the gap is not closing

Source: J.P. Morgan

Eurozone recovery theme stays on track – consumer confidence is the highest in 3 years

Source: EC

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Mislav Matejka, CFA(44-20) [email protected]

Table of ContentsNo need to bottom fish in EM yet; We find Eurozone recovery theme still to be far more interesting......................3

Appendix – Most EM exposed stocks in MSCI Europe .......18

European Equity Strategy Key Calls and Drivers ................19

Top Picks ................................................................................20

Technical Indicators...............................................................21

Performance ...........................................................................22

Earnings ..................................................................................23

Valuations ...............................................................................24

Economic, Interest Rate and Exchange Rate Outlook ........26

Sector, Regional and Asset Class Allocations ....................27

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No need to bottom fish in EM yet; We find Eurozone recovery theme still to be far more interesting

We have held a bearish stance on EM exposure for the last two years, advising to fade any short-term bounces.

We accept that this view now appears to be largely a consensus one. In some respects, the current pessimism on EM reminds us of the sentiment regarding Europe that was prevalent 18-24 months ago. We see the following positives emerging in EM:

1 – EM have already underperformed sharply

Figure 1: MSCI EM vs DM ($) since 2010

Source: Datastream

MSCI EM has underperformed DM by almost 40% since its relative peak in October ’10. Last year, MSCI EM fell 5%, in contrast to MSCI DM, which rose by 25%. Ytd, MSCI EM is down another 4% vs a flat MSCI DM.

Table 1: Move in the key EM indices since the relative peak in October ‘10 (in US$)

Perf. since October ‘10DM 42.7%EM 0.5% Brazil -22.1% China -7.7% Turkey -0.9% India 0.6% Russia 2.2% Korea 8.5% Indonesia 11.7% Mexico 26.1% South Africa 47.1%

Source: Bloomberg

It has been the BRICs and Turkey that have dragged the overall EM index down the most since the relative peak of ’10.

Figure 2: Relative performance of EM exposed stocks in MSCI Europe

Source: Bloomberg, J.P. Morgan

Within a European portfolio, indirect EM exposure was also under pressure over the last 2 years. The above chart shows the relative performance of the MSCI Europe constituents with more than 40% sales exposure to EM (see Appendix for the full list). As a group, they have underperformed the overall market by 10% since their relative peak.

2 – Relative valuations have improved

Figure 3: MSCI EM 12m Fwd P/E relative to DM

Source: IBES

EM relative valuations have materially improved over the past 2 years.. MSCI EM is currently trading on 10x Fwd P/E vs MSCI DM on 14.7x. The discount is 14% greater than the historical median.

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Figure 4: MSCI EM P/Book relative to DM

Source: Datastream

On P/Book metric, EM is also trading at the cheapest levels since ’04 relative to DM, at an 8% discount vs historical.

Figure 5: 12m Fwd P/E of EM exposed stocks relative to MSCI Europe

Source: Datastream, J.P. Morgan.

EM exposed stocks within MSCI Europe have also de-rated and are now trading at the lowest multiple relative to the market since ’09. However, they are still trading above their long-term median relative valuations.

3 – Start of tapering is finally behind us, EMBI is holding up

Figure 6: US 10Y Bond Yields

Source: Datastream

Last year uncertainty regarding the timing and the size of Fed tapering acted as a significant drag on EM sentiment, in particular initially, during May-June. We note that the actual start of tapering did not lead to a renewed spike in bond market volatility this time around.

Figure 7: J.P. Morgan EMBI Total return index


EMBI index is relatively stable ytd. Our fixed-income strategists expect EM fixed-income inflows to rebound back to normalized levels of around $30-40bn in ‘14, in line with average levels seen over the past decade. They find EM debt to be attractive relative to DM, offering a higher spread for comparable credit risk.

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4 – Current account balances are stabilizing

Figure 8: Trade balances of Indonesia, Brazil and Turkey ($mn)

Source: J.P. Morgan

Several EM countries experienced a sharp deterioration in their current account balances last year. However, these are starting to stabilize, most recently in key at-risk countries such as Indonesia, Brazil, India, South Africa and Turkey.

Table 2: Current account balances of key EM countries at risk

Current Account % of GDP

2012 2013e 2014e

India -4.8 -2.7 -3.0

Indonesia -2.6 -3.7 -3.0

Brazil -2.4 -3.6 -3.1

South Africa -5.2 -5.9 -5.1

Turkey -5.8 -7.1 -5.5

Source: J.P. Morgan

Our economists expect current account deficits to narrow this year in most EMs as their exchange rates have become more competitive and given the rebound in DM growth.

5 – Stronger DM activity is a positive for EM

Table 3: Regional GDP growth forecasts

Real GDP %yoy 2013e 2014e 2015e

DM 1.2% 2.1% 2.3%

US 1.9% 2.9% 2.9%

Japan 1.7% 1.6% 1.2%

Euro area -0.4% 1.0% 1.7%

UK 1.9% 3.0% 3.1%

EM 4.5% 4.7% 5.0%

EM Asia 6.1% 6.2% 6.4%

China 7.6% 7.4% 7.2%

India 4.6% 5.0% 6.5%

EM Asia ex China/India 3.7% 4.2% 4.5%

Indonesia 5.5% 4.9% 5.7%

Korea 2.8% 3.8% 3.9%

Singapore 3.7% 4.1% 4.4%

Taiwan 1.9% 3.1% 3.8%

Thailand 2.6% 3.0% 4.2%

EMEA EM 1.9% 2.3% 3.0%

Russia 1.5% 1.8% 2.5%

South Africa 1.9% 3.0% 3.2%

Turkey 3.8% 2.5% 4.0%

LATAM 2.6% 2.6% 3.0%

Argentina 4.9% 1.5% 2.0%

Brazil 2.3% 2.1% 2.2%

Chile 4.1% 3.7% 4.2%

Mexico 1.2% 3.4% 3.8%

Source: J.P. Morgan

DM activity has accelerated recently, driven by the US and Europe. We think that stronger demand in DM will benefit EM through increased exports.

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Figure 9: EM exports vs DM GDP growth

Source: J.P. Morgan

EM exports have typically been leveraged to DM activity and are expected to grow at an increased pace in 2014.

Table 4: EM countries export share of GDP and share of exports to US and Europe

Share of Exports

Exports % of GDP EU US

Hungary 94% 72% 3%

Czech Republic 78% 81% 2%

Taiwan 62% 11% 9%

Korea 57% 8% 10%

Poland 46% 77% 2%

Mexico 33% 6% 76%

Russia 29% 52% 7%

South Africa 28% 29% 10%

China 27% 21% 22%

Turkey 26% 49% 4%

Indonesia 24% 11% 10%

India 24% 18% 12%

Egypt 17% 43% 7%

Brazil 13% 20% 13%

Source: IMF, World Bank, Bloomberg

Here, some Asian countries (Taiwan, Korea), CEEMEA countries (Poland, Hungary, Czech Republic) and Mexico are likely to be the biggest beneficiaries of an increase in DM activity, in our view.

On the other side, the following headwinds remain:

1 - EM growth differential with DM set to narrow further

Figure 10: EM vs DM GDP growth differential

Source: J.P. Morgan

While EM growth is expected to improve marginally this year on the back of stronger DM demand, our economists forecast the growth differential between the two regions to narrow further in ‘14.

Figure 11: DM vs EM CESI

Source: Bloomberg

EM CESI appears to have bottomed out recently, but it is still lagging DM CESIs.

Table 5: EM countries with negative GDP growth momentum in ‘14

GDP Growth, %y/y2013e 2014e 2015e

China 7.7% 7.4% 7.2%

Indonesia 5.5% 4.9% 5.7%Philippines 6.9% 6.5% 6.7%Turkey 3.8% 2.5% 4.0%

Brazil 2.3% 2.1% 2.2%Chile 4.1% 3.7% 4.2%

Venezuela 1.5% -1.0% 2.5%Argentina 4.9% 1.5% 2.0%

Source: J.P. Morgan

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Our economists see weaker activity y/y in China, Brazil, Turkey and Argentina due to a softening in domestic demand.

Figure 12: China manufacturing PMI and new orders-to-inventories ratio

Source: Markit

Chinese dataflow in particular remains mixed, with flash manufacturing PMI in December falling below 50 for the first time since August. The forward-looking components appear weak, given lower new orders and new export orders. This points to further deceleration in activity ahead.

Figure 13: China Inter-bank 7-day Repo rate

Source: Bloomberg

Also, the recent newsflow regarding wealth management trust defaults and an increase in interbank rates adds to the concerns for Chinese growth outlook.

2 – EM capital flows remain negative

Figure 14: Cumulative flows into EM equity ETFs

Source: Bloomberg

As noted earlier, EM bond markets stabilized in Q4. However, outflows from EM equities have not stopped. Ytd, the cumulative outflows from EM equity ETFs amount to $4bn. This compares to $15bn for the whole of last year.

Figure 15: MSCI EM vs DM ($) since 2000

Source: Datastream

EM equities underperformance over the past 2 years should be put in the context of dramatic prior 10-year run. The unwinding of the past carry trades could last much longer, in our view.

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Figure 16: J.P. Morgan EM Currency Index


EM currencies remain under pressure. JPM EM FX index is down 3.4% ytd, standing at the lowest level since '09.

Table 6: Ytd move in selected EM currencies vs USD

Ytd move vs USDCountry Currency

Argentina ARS -23%

Turkey TRY -8%

South Africa ZAR -6%

Russia RUB -5%

Hungary HUF -3%

Mexico MXN -4%

Korea KRW -3%

Source: Bloomberg

Last week saw a sharp fall in many EM currencies, exacerbating fears of increased capital outflows.

Figure 17: Argentina Peso

Source: Bloomberg

The Argentinean peso in particular traded poorly, leading to fears of further devaluation.

Table 7: European listed stocks with revenues exposure to Argentina

Name Ticker

% Sales from

ArgentinaMarket Cap

(€mn)

ANDES ENERGIA PL AEN LN 100.0% 310

RURELEC PLC RUR LN 99.1% 92

CODERE SA CDR SM 39.3% 50

GRUPO EZENTIS SA EZE SM 36.3% 212

CEMENTOS MOLINS CMO SM 28.0% 493

PROSEGUR PSG SM 12.2% 2,925

BBVA BBVA SM 11.0% 53,983

SANTANDER SAN SM 10.0% 74,449

DISTRIBUIDORA IN DIA SM 9.4% 4,216

TELEFONICA TEF SM 6.2% 55,067

ETEX GROUP ETEVP BB 4.7% 767

CARREFOUR SA CA FP 3.8% 18,950

MAPFRE SA MAP SM 2.0% 10,150

FIAT F IM 2.0% 9,530

APERAM APAM NA 2.0% 1,003

GRUPO EMPRESARIA GSJ SM 1.5% 95

ARCELORMITTAL MT NA 1.5% 20,926

AGROGENERATION ALAGR FP 1.3% 45

ZURICH INSURANCE ZURN VX 0.8% 32,355

EXOR EXO IM 0.5% 7,473

DELFINGEN INDUST ALDEL FP 0.3% 50

CNP ASSURANCES CNP FP 0.2% 10,172


We list in the above table the European stocks that disclose revenues exposure to Argentina. They could be hurt by both negative sentiment and negative translation effects.

3 – Structural outlook for China remains a concern

Figure 18: China FAI % of GDP

Source: CEIC

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Our long-standing concerns regarding the structural growth outlook for China are not going away. FAI share of GDP is still moving higher, toward the record 50% mark.

Figure 19: China stock of total social financing % of GDP

Source: PBOC, J.P. Morgan

Chinese credit dynamics are increasingly worrying. The stock of total social financing amounts to 180% of GDPas of 2013, a sharp increase since ‘09. Our economists forecast the growth rate of total social financing to slow in 2014. This would likely add to the downward pressures on economic activity.

Figure 20: China household disposable income growth

Source: NBS

Against the backdrop of tightening credit conditions, weaker-than-normal wage growth and lower disposable income growth will likely exacerbate the pressure on the consumer.

4 – Potentially structurally strong USD could be a problem for EM

Figure 21: DXY Index

Source: Bloomberg

Another risk for EM is a potentially stronger dollar. As the Fed tapers and the US economy remains resilient, JPM forecasts a stronger dollar over the medium term.

Figure 22: DXY and EM performance in the 90s

Source: Datastream

We note that in the 2nd half of the ‘90s, the strong dollar was a significant headwind for EM equities. From '95 to '01, when DXY rose nearly 50%, MSCI EM underperformed DM by 90% in USD terms.

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Table 8: External debt of EM countries

Source: J.P. Morgan

A stronger dollar over time would penalize countries with particularly high foreign denominated debt stock.

EM exposure still unattractive – opportunities are few

Putting together the above, we advise against wholesale rotation out of the DM and into EM exposure. BRICs are the key end markets for many European stocks with high EM exposure, and we remain particularly cautious on prospects of China and Brazil.

Moving Construction Materials to OW

Table 9: Construction Materials revenues exposure

Geographical Exposure, % of sales from

CompanyW.

EuropeN.

America EM

Rest of

WorldKey

EM Regions

CRH 45% 44% 11% Poland

HEIDELBERGCEMENT 35% 25% 31% 10% Indonesia

HOLCIM 'R' 25% 18% 48% 10% India

IMERYS 52% 23% 17% 8% Asia

LAFARGE 20% 21% 59% Middle East

Source: Worldscope, Bloomberg, J.P. Morgan

We think Construction Materials are one of the few “EM” sectors that offers an attractive risk-reward at present. We upgrade the sector to OW from N. In addition, many stocks in the sector have diversified geographical revenue exposure, with relatively little dependence on China.

Figure 23: Construction Materials price relative to Europe

Source: Datastream

The sector has underperformed the MSCI Europe market by 34% since its peak in ‘07.

Figure 24: Construction Materials 12m Fwd EPS relative

Source: IBES

Construction Materials earnings have collapsed in recent years and are currently 60% below the last cycle peak.

Figure 25: YoY growth in EM cement volumes

Source: J.P. Morgan

Total

External Debt

(USD bn)

Total

External Debt

(% GDP)

Sovereign

External Debt

(% of total)

Private Sector

External Debt

(% of total)

Hungary 168 128% 42% 58%Bulgaria 50 90% 10% 90%

Poland 379 74% 43% 57%Ukraine 136 73% 22% 78%Czech Republic 105 52% 28% 72%

Chile 139 46% 4% 96%Uruguay 23 44% 78% 22%Turkey 348 39% 32% 68%

South Africa 152 39% 43% 57%Thailand 146 35% 20% 80%Korea 425 34% 30% 70%Argentina 139 31% 50% 50%

Russia 661 31% 8% 90%Venezuela 107 28% 87% 13%Indonesia 265 27% 49% 51%

India 437 21% 20% 80%Brazil 477 19% 13% 87%Mexico 224 17% 59% 41%

China 782 8% 5% 95%

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Our sector analysts believe that the sector should benefit from easier comps ahead, as cement volumes collapsedlast year in most regions.

Figure 26: US construction spending and Construction Materials relative performance

Source: Datastream, MSCI, Census

The sector is also dependent on construction spending in DM. We found that historically, Construction Materials tended to outperform during times of increasing construction spending in the US, which is happening now.

Figure 27: Construction Materials P/Book relative

Source: Datastream

Construction Materials are trading inexpensively on a P/Book metric, at a 34% discount to MSCI Europe.

Stay UW Miners…

Figure 28: Iron ore vs Rio Tinto share price performance

Source: Bloomberg

We continue with our two-year-long UW Mining call. We note a sharp fall in iron ore price most recently, down 8% ytd. This should weigh on many Miners.

Figure 29: Cement consumption per capita and GDP per capita in China

Source: J.P. Morgan

The commodity overhang following the ’02–’11 “supercycle” is far from being unwound, in our view. The outlook for cement demand looks particularly precarious in China given the extreme level of consumption per capita. We do not see it as a negativefor European Construction Materials, as they have relatively low exposure to China. However, this is a significant headwind for iron ore demand, in our view.

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Figure 30: Non-commercial net long positions in copper contracts

Source: Bloomberg

Bearishness on commodity space does not appear to be the mainstream view at present. Non-commercial net long positions in copper are not as depressed as they were last June, when we tactically closed our Mining UW for 3 months.

Figure 31: JPM EM FX vs CRB commodity Index

Source: Bloomberg

The recent fall in EM FX and a move up in USD are also headwinds for commodities, in our view.

…and cautious on expensive EM plays

Table 10: European sector EBIT/sales, EPS and P/E relative in the historical context and EM revenue exposure

14e EBIT/Sales

vs past peak

14e EPSvs past

peak

current P/E relativevs LT

medianEM Sales Exposure

Energy -483 -26% -15% 20%Chemicals 0 27% 9% 20%Cons Mat -391 -54% 33% 25%Met&Min -1063 -52% 10% 18%Capital Goods 17 19% 8% 20%Transport -145 -11% 10% 12%Automobile -19 94% -6% 21%Cons Durables 321 57% 5% 25%Media 190 8% -4% 27%Retailing -54 26% 28% 6%Hotels,Rest -83 1% 26% 28%Food Drug Ret -19 9% -15% 9%Food Bev&Tob 282 63% 20% 22%HPC 380 61% -17% 20%Healthcare -9 51% -12% 34%Banks - -61% 4% 9%Div Fin - -63% 5% 27%Insurance - -21% -6% 11%Real Estate - -41% -12% 0%Software 372 82% -46% 21%Tech Hardware -591 -65% 6% 22%Semicon 760 67% 0% 16%Telecoms -482 -26% 9% 5%Utilities -554 -36% 1% 7%

Source: IBES, Bloomberg, Worldscope

As discussed earlier, direct EM plays have suffered and have de-rated significantly already. In contrast, apart from Miners, many indirect EM plays based in Europe –Chemicals, Capital Goods, Luxury Goods and Food, Beverages and Tobacco are still trading on peak earnings and/or elevated valuations (relative to historical averages).

In our view, investors might be better off selectively looking to add directly to EM exposure as a preferred way to reduce short positions, rather than buying indirect plays on EM that are based in Europe.

Figure 32: Luxury Goods 12m Fwd P/E relative

Source: IBES

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For example, at face value, Luxury Goods valuations are starting to look attractive. P/E relative has already fallen sharply and is almost back to '09 levels.

Figure 33: Luxury Goods price relative

Source: Datastream

However, the sector has been a significant outperformer since '09 in Europe and is looking stretched in the historical context.

Figure 34: Luxury Goods 12m Fwd EPS relative to Europe

Source: IBES

Luxury Goods relative earnings delivery has been impressive so far, but we do not think that it should be extrapolated going forward.

Table 11: Luxury Goods companies’ geographical sales breakdown

% Sales from

Europe AmericasAsia Pac (ex-

Japan) China

Adidas 40% 34% 26% 10%

LVMH Group 31% 23% 28% 15%

Burberry (R&W) 30% 25% 39% 14%

Hugo Boss 59% 24% 12% 9%

Swatch 37% 8% 53% 24%

Richemont 36% 15% 41% 21%

Christian Dior 30% 22% 29% 15%

Kering 30% 26% 25% 15%

Luxottica 19% 58% 13% 2%

Average 40% 19% 28% 16%

Source: J.P. Morgan

The group derives around 16% of their revenues in China and almost all of the incremental growth, according toour analysts. However, we think that the era of exponential growth in China for the sector may be coming to an end. Gifting is likely to slow structurally and consumer disposable income is increasingly coming under pressure.

Figure 35: Hong Kong jewelry & watches sales vs Luxury Goods EPS growth

Source: IBES, Bloomberg

The recent sharp fall in Hong Kong luxury retail sales points to earnings downside for the sector.

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Stay short EM stock baskets

Table 12: Basket of EM consumer plays - JPDEEM14 <index>

Source: Datastream, IBES, Bloomberg, J.P Morgan

Our EM consumer plays basket is down 2% ytd, and we see more potential downside given our cautious view on EM.

Figure 36: P/Book relative of the EM consumer plays basket

Source: Datastream

The basket is still trading at a significant valuation premium to the market.

Table 13: Basket of Chinese FAI plays - JPDECI14 <index>

Source: Datastream, IBES, Bloomberg, J.P. Morgan

Chinese FAI plays are also at risk of further downside, in our view.

Figure 37: Earnings of EM FAI basket relative to MSCI Europe

Source: J.P. Morgan, Datastream

The relative EPS momentum of EM FAI basket does not show signs of stabilization.

Company Ticker Sector

Market

Cap (€ bn)

EM

Exposure,

%

Basket

Wgt, %

SABMILLER SAB LN STAPLES 58.1 81% 4.0%

JERONIMO MARTINS JMT PL STAPLES 8.1 65% 4.0%

CASINO GUICHARD-P CO FP STAPLES 9.3 60% 4.0%

INFINEON TECHNOLOGIES IFX GR IT 8.5 60% 4.0%

ASML HOLDING ASML NA IT 28.8 58% 4.0%

THE SWATCH GROUP 'B' UHR VX DISCRETIONARY 13.7 55% 4.0%

BRITISH AMERICAN TOBACCO BATS LN STAPLES 71.7 55% 4.0%

ADIDAS ADS GR DISCRETIONARY 19.1 50% 4.0%

PIRELLI PC IM DISCRETIONARY 5.9 50% 4.0%

BEIERSDORF BEI GR STAPLES 19.3 48% 4.0%

DIAGEO DGE LN STAPLES 60.2 48% 4.0%

CARLSBERG 'B' CARLB DC STAPLES 9.4 44% 4.0%

ARM HOLDINGS ARM LN IT 16.6 43% 4.0%

HENKEL PREF. HEN3 GR STAPLES 14.9 43% 4.0%

RECKITT BENCKISER GROUP RB/ LN STAPLES 42.3 42% 4.0%

STMICROELECTRONICS (PAR) STM IM IT 5.3 42% 4.0%

RICHEMONT N CFR VX DISCRETIONARY 37.0 41% 4.0%

PERNOD-RICARD RI FP STAPLES 22.4 40% 4.0%

KERING KER FP DISCRETIONARY 19.1 40% 4.0%

BURBERRY GROUP BRBY LN DISCRETIONARY 8.0 40% 4.0%

REMY COINTREAU RCO FP STAPLES 3.0 40% 4.0%

UNILEVER (UK) ULVR LN STAPLES 38.9 40% 4.0%

GEMALTO GTO NA IT 8.0 38% 4.0%

NOKIAN RENKAAT NRE1V FH DISCRETIONARY 4.5 37% 4.0%

DISTRIBUIDORA INTNAC.DE ALIMENTACION DIA SM STAPLES 4.2 27% 4.0%

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Eurozone domestic recovery theme has more to go

Figure 38: Eurozone composite PMI and consumer confidence

Source: Markit, European Commission

The Eurozone recovery theme remains our preferred regional exposure. The improvement in activity momentum is continuing. The latest consumer sentiment and composite PMI readings are both at three-year highs.

Figure 39: Eurozone composite PMI vs real GDP growth

Source: Markit, J.P. Morgan

At 53.2, Eurozone composite PMI is fully consistent with our economists’ forecast of 1% real GDP growth in the region this year.

Figure 40: MSCI Eurozone EPS and Eurozone composite PMI

Source: IBES, Markit

It is also consistent with double-digit EPS growth in Eurozone. Through our marketing, we find that many market participants remain skeptical about the ability of Eurozone earnings to rebound

Figure 41: Italian and Spanish spreads to Bunds

Source: Datastream, J.P. Morgan forecasts

Peripheral spreads keep tightening. We think that this will contribute to further improvement in financing conditions across the region, as well as to a reduced cost of equity for the market.

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Figure 42: Banks performance vs Senior Financial CDS spreads

Source: Bloomberg

Banks remain the main beneficiaries of the improving Eurozone activity backdrop and of the tightening in credit spreads, in our view.

Figure 43: EMU consumer sentiment vs consumer spending

Source: EC, Eurostat

In addition, we are OW Discretionary sectors, Autos, Media, Leisure and Retail, which should benefit the most from increased consumer spending, as per the above chart.

Figure 44: Eurozone recovery basket price relative


Our Eurozone recovery basket is resuming its strong performance from the last year, already in ’14 up 4% ytd.

Figure 45: Eurozone recovery basket Price to Book relative to Market

Source: Datastream, J.P. Morgan

However, it still offers further upside, in our view, and its relative valuations are not looking stretched.

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Table 14: Basket of Eurozone domestic recovery plays -JPDEER14 <index>

Source: Datastream, IBES, Bloomberg, Worldscope

The table above lists our Eurozone domestic recovery basket constituents.

Company Ticker Sector

Market

Cap (€ bn)

W.Europe

Exposure,

%

Basket

Wgt, %

ASSICURAZIONI GENERALI G IM FINANCIALS 26.1 100% 2.6%

CAIXABANK CABK SM FINANCIALS 21.4 100% 2.6%

ATLANTIA ATL IM INDUSTRIALS 14.5 100% 2.6%

RYANAIR HOLDINGS RYA ID INDUSTRIALS 9.6 100% 2.6%

MEDIASET MS IM DISCRETIONARY 4.3 100% 2.6%

ATRESMEDIA CORP A3M SM DISCRETIONARY 3.1 100% 2.6%

UNICREDIT UCG IM FINANCIALS 34.0 99% 2.6%

MSET.ESP.COMUNICACION TL5 SM DISCRETIONARY 3.7 98% 2.6%

PROSIEBENSAT 1 MEDIA PSM GR DISCRETIONARY 7.6 97% 2.6%

TUI TRAVEL TT/ LN DISCRETIONARY 5.8 95% 2.6%

KINGFISHER KGF LN DISCRETIONARY 11.2 83% 2.6%

SOCIETE GENERALE GLE FP FINANCIALS 35.6 81% 2.6%

VINCI DG FP INDUSTRIALS 29.3 81% 2.6%

ACCOR AC FP DISCRETIONARY 8.2 76% 2.6%

CARREFOUR CA FP STAPLES 19.4 68% 2.6%

METRO MEO GR STAPLES 11.1 68% 2.6%

ATOS ATO FP IT 6.5 68% 2.6%

SAINT GOBAIN SGO FP INDUSTRIALS 22.5 67% 2.6%

VEOLIA ENVIRONNEMENT VIE FP UTILITIES 6.8 66% 2.6%

CAP GEMINI CAP FP IT 8.4 66% 2.6%

ALLIANZ ALV GR FINANCIALS 59.8 66% 2.6%

AUTOGRILL AGL IM DISCRETIONARY 1.8 63% 2.6%

DEUTSCHE POST DPW GR INDUSTRIALS 32.4 62% 2.6%

DAVIDE CAMPARI MILANO CPR IM STAPLES 3.6 62% 2.6%

TOD'S TOD IM DISCRETIONARY 3.4 61% 2.6%

RENAULT RNO FP DISCRETIONARY 20.2 60% 2.6%

REXEL RXL FP INDUSTRIALS 5.7 55% 2.6%

SCANIA 'B' SCVB SS INDUSTRIALS 5.9 52% 2.6%

AXA CS FP FINANCIALS 48.1 51% 2.6%

THALES HO FP INDUSTRIALS 9.9 48% 2.6%

TNT EXPRESS TNTE NA INDUSTRIALS 3.7 47% 2.6%

PEUGEOT UG FP DISCRETIONARY 3.9 47% 2.6%

PRYSMIAN PRY IM INDUSTRIALS 4.0 45% 2.6%

AKZO NOBEL AKZA NA MATERIALS 13.7 43% 2.6%

LEGRAND LR FP INDUSTRIALS 10.6 37% 2.6%

DEUTSCHE BANK DBK GR FINANCIALS 38.1 36% 2.6%

ASSA ABLOY 'B' ASSAB SS INDUSTRIALS 13.6 31% 2.6%

COCA-COLA HBC (CDI) CCH LN STAPLES 7.9 28% 2.6%

18



Appendix – Most EM exposed stocks in MSCI EuropeTable 15: Stocks in MSCI Europe with more than 40% of revenues coming from EM as of 2012

Source: Bloomberg, Worldscope

Name Sector BBG Ticker Total EM Asia

Eastern

Europe

Latin

Am erica Africa Uncategorized

ANGLO AMERICAN MATERIALS AAL LN 91% 14% 0% 23% 54% 0%

STANDARD CHARTERED FINANCIALS STAN LN 88% 60% 0% 0% 8% 20%

TULLOW OIL ENERGY TLW LN 85% 1% 0% 0% 84% 0%

SABMILLER STAPLES SAB LN 81% 16% 0% 34% 31% 0%

OLD MUTUAL FINANCIALS OML LN 69% 0% 0% 0% 69% 0%

ASML HOLDING IT ASML NA 65% 65% 0% 0% 0% 0%

SAIPEM ENERGY SPM IM 64% 24% 10% 0% 30% 0%

COCA-COLA HBC (CDI) STAPLES CCH LN 62% 0% 21% 0% 0% 41%

JERONIMO MARTINS STAPLES JMT PL 60% 0% 60% 0% 0% 0%

HOLCIM 'R' MATERIALS HOLN VX 60% 40% 0% 16% 0% 4%

UNILEVER CERTS. STAPLES UNA NA 56% 0% 0% 16% 0% 40%

THE SWATCH GROUP 'B' DISCRETIONARY UHR VX 55% 18% 0% 0% 1% 37%

TELEFONICA TELECOMS TEF SM 55% 0% 3% 52% 0% 0%

HSBC HDG. FINANCIALS HSBA LN 55% 40% 0% 15% 0% 0%

SUBSEA 7 ENERGY SUBC NO 55% 0% 0% 16% 35% 4%

BRITISH AMERICAN TOBACCO STAPLES BATS LN 55% 28% 0% 0% 0% 27%

CASINO GUICHARD-P STAPLES CO FP 54% 8% 0% 46% 0% 0%

BANCO SANTANDER FINANCIALS SAN SM 53% 0% 0% 53% 0% 0%

TELENOR TELECOMS TEL NO 51% 40% 7% 0% 0% 4%

ADIDAS DISCRETIONARY ADS GR 50% 16% 13% 10% 0% 10%

PIRELLI DISCRETIONARY PC IM 50% 9% 0% 34% 0% 7%

ANTOFAGASTA MATERIALS ANTO LN 50% 18% 0% 9% 0% 22%

ATLAS COPCO 'A' INDUSTRIALS ATCOA SS 49% 27% 0% 10% 11% 0%

EDENRED INDUSTRIALS EDEN FP 49% 0% 0% 49% 0% 0%

METSO INDUSTRIALS MEO1V FH 48% 22% 0% 20% 0% 6%

LAFARGE MATERIALS LG FP 48% 15% 6% 5% 0% 22%

GIVAUDAN 'N' MATERIALS GIVN VX 48% 27% 0% 13% 0% 7%

RIO TINTO MATERIALS RIO LN 48% 15% 0% 0% 0% 32%

ANHEUSER-BUSCH INBEV STAPLES ABI BB 47% 7% 4% 36% 0% 0%

ERICSSON 'B' IT ERICB SS 47% 24% 0% 10% 0% 13%

SIKA 'B' MATERIALS SIK VX 47% 18% 17% 12% 0% 0%

HENKEL STAPLES HEN3 GR 47% 16% 18% 6% 7% 0%

WEIR GROUP INDUSTRIALS WEIR LN 47% 34% 0% 12% 0% 0%

SCANIA 'B' INDUSTRIALS SCVB SS 46% 10% 7% 22% 0% 7%

IMMOFINANZ FINANCIALS IIA AV 46% 0% 46% 0% 0% 0%

PORTUGAL TELECOM SGPS TELECOMS PTC PL 46% 0% 0% 46% 0% 0%

ANDRITZ INDUSTRIALS ANDR AV 45% 13% 0% 23% 0% 9%

ALSTOM INDUSTRIALS ALO FP 45% 22% 0% 8% 0% 15%

CARLSBERG 'B' STAPLES CARLB DC 44% 14% 30% 0% 0% 0%

ALFA LAVAL INDUSTRIALS ALFA SS 44% 25% 0% 7% 1% 11%

ARM HOLDINGS IT ARM LN 43% 31% 0% 0% 0% 12%

WARTSILA INDUSTRIALS WRT1V FH 43% 43% 0% 0% 0% 0%

CIE.GL.DE GPHYQ.-VERT. ENERGY CGG FP 42% 27% 0% 15% 0% 0%

TELE2 'B' TELECOMS TEL2B SS 42% 2% 40% 0% 0% 0%

STMICROELECTRONICS (PAR) IT STM IM 42% 42% 0% 0% 0% 0%

TENARIS ENERGY TEN IM 41% 4% 0% 25% 0% 12%

ACS ACTIV.CONSTR.Y SERV. INDUSTRIALS ACS SM 41% 41% 0% 0% 1% 0%

RICHEMONT N DISCRETIONARY CFR VX 41% 41% 0% 0% 0% 0%

LINDE MATERIALS LIN GR 41% 31% 0% 6% 5% 0%

BOSKALIS WESTMINSTER INDUSTRIALS BOKA NA 41% 27% 0% 0% 14% 0%

GEA GROUP INDUSTRIALS G1A GR 40% 28% 0% 7% 5% 0%

VALLOUREC INDUSTRIALS VK FP 40% 18% 0% 22% 0% 0%

ARCELORMITTAL MATERIALS MT NA 40% 0% 9% 12% 4% 15%

PERNOD-RICARD STAPLES RI FP 40% 40% 0% 0% 0% 0%

Revenues % of Total

19



European Equity Strategy Key Calls and Drivers

We are constructive on equities given robust activity backdrop, in particular in the US and a potential for earnings rebound.Eurozone recovery remains the base case given improving financing conditions (see peripheral spread tightening), and depressed levels of both private consumer and corporate demand. Equities remain attractively valued vs other asset classes and the inflows are steadily coming through. Corporate activity is likely to pick up. We advise continued rotation, with OW positions in Value, Banks, Cyclicals, and within Europe we prefer periphery. We are UW Defensives and Growth. EM remains the main source of downside risk, in our view. We are cautious on both “cheap” EM plays – Commodities –, as well as the expensive ones – Staples, Chemicals.

Table 16: J.P. Morgan Equity Strategy — Factors driving our medium-term views

Driver Impact Our Core Working Assumptions Recent DevelopmentsGlobal Growth Positive Global growth improving, driven by DM Global manufacturing PMI rose to 55.3 in DecEuropean Growth Positive Eurozone real GDP to grow 1.0% in ‘14 Dec composite PMI strengthened to 53.2Inflation Neutral DM and EM inflation to be range-bound Chinese CPI slowed to 2.5% in Dec; weak inflation in EuropeMonetary Policy Neutral Fed tapering should be completed by year end No further action expected by ECBCurrency Neutral Looking for stable EUR/USD Euro strengthened most recently

Earnings Positive 12% Eurozone EPS growth in ‘14 EPS revisions still negative

Valuations Positive Equities attractively valued vs bonds MSCI Europe on 13.7 Fwd P/E Technicals Neutral HF beta positive, Bull/Bear positive.

Source: J.P. Morgan estimates.

Table 17: J.P. Morgan Equity Strategy — Scenarios: Base Case and Risks

Scenario AssumptionUpside scenario Euro growth surprises on the upside.

Multiples rerate significantly.EPS upgrades.Global growth accelerates.

Base-case scenario Eurozone GDP to grow 1% in ‘14.US growth close to trend.Earnings forecasts are not cut meaningfully.Modest multiple expansion.

Downside scenario Renewed Euro crisis.US enters a recession.Multiple compression.Earnings fall.

Source: J.P. Morgan estimates

Table 18: J.P. Morgan Equity Strategy — Key sector calls*

Sector Recommendations Key DriversBanks Overweight Benefits from lower funding costs and cheap valuations. Asset quality and earnings to improve. Media/Autos Overweight Beneficiary of consumer rebound and exposed to domestic recovery in Europe, attractive valuationsMining Underweight The sector is exposed to structural headwinds in China/EM and from a rising dollarUtilities Underweight Lack of earnings upside and difficult regulatory backdrop are headwindsChemicals Underweight Expensive EM plays, on stretched margins and earnings expectations

Source: J.P. Morgan estimates. * Please see the last page for the full list of our calls and sector allocation.

Table 19: J.P. Morgan Equity Strategy — Key regional calls

Region Recommendations J.P. Morgan ViewsEM Underweight EM has underperformed and is cheap but structural headwinds remainDM Overweight Relative more supportive macro momentum in DM than in EM, relative valuations not expensiveUS Neutral Consensus long, narrowing relative growth momentum with EuropeEurope Neutral Improving activity momentum, but no further ECB action, P/E relative to US not cheapEMU Overweight OW periphery vs core, key beneficiary of the rotation into valueUK Underweight Heavy weighted in defensives and commodities, at risk of further underperformance as value style is back in favourOthers Underweight At risk of further underperformance as value style is back in favour

Source: J.P. Morgan estimates

20



Top PicksTable 20: J.P. Morgan European Strategy: Top European picks

Name Price TickerJPM

RatingAnalystName Sector

IBES consensus estimates Performance

14e EPS Gr 14e P/E 14e DY 14 ytd -3m -12mTOTAL 43.9 E FP FP OW Nitin Sharma Energy 2.8% 8.8 5.5% -1.4% 0.3% 11.4%Akzo Nobel 56.0 E AKZA NA OW Martin Evans Materials 16.6% 17.1 2.7% -0.7% 9.4% 8.8%ArcelorMittal 12.6 E MT NA OW Alessandro Abate Materials - 20.4 1.4% -3.1% 8.6% -6.3%Airbus Group 54.9 E AIR FP OW David H Perry Industrials 27.1% 16.5 2.1% -1.6% 16.1% 58.0%Deutsche Post 26.5 E DPW GY OW Christopher G Combe Industrials 9.0% 16.0 3.1% -0.5% 6.9% 54.8%Vinci 48.4 E DG FP OW Elodie Rall Industrials 7.1% 13.4 3.8% 1.4% 2.4% 28.1%IAG 427.4 £ IAG LN OW Jamie N Baker Industrials 134.4% 14.1 0.5% 6.5% 17.2% 105.2%Rexel 20.1 E RXL FP OW Andreas Willi Industrials 19.9% 14.1 3.8% 5.4% 8.1% 23.6%Prysmian 18.4 E PRY IM OW Andreas Willi Industrials 26.0% 12.8 2.6% -1.4% 0.1% 14.7%Carrefour 26.2 E CA FP OW Jaime Vazquez Staples 18.0% 16.4 2.7% -9.1% -4.7% 25.1%L’Oréal 127.1 E OR FP OW Celine Pannuti Staples 6.6% 23.4 2.1% -0.5% -1.4% 15.9%British American Tobacco 3126.5 £ BATS LN OW Rae Maile Staples 3.5% 13.9 4.7% -3.4% -7.7% -2.3%Volkswagen 198.5 E VOW3 GY OW Jose Asumendi Discretionary 14.3% 8.5 2.6% -2.9% 12.8% 8.5%Renault 67.1 E RNO FP OW Jose Asumendi Discretionary 53.6% 8.1 2.8% 14.7% -0.6% 57.8%Pandora 321.7 DK PNDORA DC OW Chiara Battistini Discretionary 27.6% 15.1 2.7% 9.4% 23.7% 138.5%Tod's 109.9 E TOD IM N Melanie A Flouquet Discretionary 9.3% 20.3 2.9% -9.5% -13.6% 6.5%Whitbread 3910.0 £ WTB LN OW Komal Dhillon Discretionary 12.8% 23.2 1.6% 4.2% 16.9% 53.9%Publicis 66.1 E PUB FP OW Filippo Pietro Lo Franco Discretionary 9.1% 16.9 1.8% -0.6% 10.1% 36.3%Bayer 102.4 E BAYN GY OW Richard Vosser Health Care 12.9% 15.8 2.3% 0.2% 12.2% 40.4%Roche 248.2 SF ROG VX OW Richard Vosser Health Care 7.5% 15.6 3.5% -0.4% 0.2% 23.3%Stada 37.5 E SAZ GY OW David J Adlington Health Care 28.1% 11.2 2.4% 4.5% -9.1% 35.9%Societe Generale 44.5 E GLE FP OW Delphine Lee Financials 36.1% 10.2 3.6% 5.4% 9.3% 37.5%BNP Paribas 58.5 E BNP FP OW Delphine Lee Financials 16.7% 11.0 3.5% 3.2% 10.3% 29.6%UniCredit 5.7 E UCG IM OW Marta Bastoni Financials 89.0% 16.6 2.2% 6.3% 6.1% 28.1%CaixaBank 4.4 E CABK SM OW Jaime Becerril Financials 132.6% 19.7 3.8% 15.0% 17.7% 53.2%Generali 16.7 E G IM OW Andreas Van Embden Financials 2.7% 11.5 3.1% -2.3% -1.9% 19.4%ING 10.3 E INGA NA OW Ashik Musaddi Financials 20.4% 9.5 0.7% 2.1% 11.1% 42.2%Infineon 7.6 E IFX GY OW Sandeep S Deshpande IT 49.2% 19.7 1.8% -1.9% 8.1% 12.9%Ericsson 76.0 SK ERICB SS OW Sandeep S Deshpande IT 24.1% 14.7 4.0% -3.2% -9.9% 10.6%United Internet 32.4 E UTDI GY OW Hannes C Wittig Telecoms 33.1% 23.8 1.4% 4.8% 8.4% 93.1%Iliad 176.0 E ILD FP OW Hannes C Wittig Telecoms 28.4% 26.6 0.3% 18.2% 3.3% 28.9%Snam 4.1 E SRG IM OW Sarah L Laitung Utilities 6.2% 14.1 6.1% 0.7% 9.3% 10.5%Pennon 684.0 £ PNN LN OW Edmund Reid Utilities -6.8% 17.4 4.4% 3.9% -2.1% 1.3%

Source: Datastream, MSCI, IBES, J.P. Morgan, Prices and Valuations as of COB 23rd January, 2014

Please see the most recent company-specific research published by J.P. Morgan for an analysis of valuation methodology and risks on companies recommended in this report. Research is available at http://www.morganmarkets.com, or you can contact the covering analyst or your J.P. Morgan representative.

21



Technical Indicators

Figure 46: AAII Bulls vs. Bears

Source: Datastream, Bloomberg, J.P. Morgan

Figure 47: Put Call ratios


Figure 48: Skew


22



PerformanceTable 21: Sector Index Performances — MSCI Europe

(%change) Local currency

Industry Group 4week 12m 14YTDEurope 2.1 14.0 1.0Energy 0.9 0.4 (0.1)Materials 1.5 (2.7) (0.2)

Chemicals 0.1 4.5 (1.1)Construction Materials 7.1 18.1 5.4Metals & Mining 1.2 (15.5) (1.2)

Industrials 2.0 19.5 0.9Capital Goods 1.4 18.7 0.3Transport 6.1 37.8 5.2

Business Svs 2.5 9.3 0.7Consumer Discretionary 1.2 23.4 0.2

Automobile 3.7 33.0 2.8Consumer Durables (1.4) 7.1 (3.1)Media (0.6) 31.6 (1.4)Retailing 2.1 25.8 1.9Hotels, Restaurants & Leisure 2.1 21.3 0.3

Consumer Staples 1.3 6.8 0.1Food & Drug Retailing (3.3) 7.2 (3.1)Food Beverage & Tobacco 1.9 4.3 0.6Household Products 1.4 23.4 0.5

Healthcare 3.8 20.2 2.6Financials 3.4 18.7 2.4

Banks 4.7 15.9 3.7Diversified Financials 4.4 20.9 3.4Insurance 0.1 24.9 (0.7)Real Estate 4.0 9.5 2.6

Information Technology (3.5) 16.4 (4.4)Software and Services (1.3) 13.0 (2.2)Technology Hardware (4.9) 23.3 (6.2)Semicon & Semicon Equip (6.1) 16.1 (6.6)

Telecommunications Services 2.1 29.7 1.6Utilities 2.5 10.6 1.6

Source: MSCI, Datastream, as at COB 23rd January, 2014

Table 22: Country and Region Index Performances

(%change) Local Currency US$

Country Index 4week 12m YTD 4week 12m YTDAustria ATX 6.0 9.9 5.3 5.9 13.2 4.5Belgium BEL 20 1.8 16.4 1.0 1.7 19.9 0.2Denmark KFX 6.8 20.5 5.3 6.7 24.1 4.5Finland HEX 20 1.2 18.7 0.0 1.1 22.3 (0.7)France CAC 40 1.5 14.9 (0.3) 1.4 18.3 (1.1)Germany DAX 1.5 25.0 0.8 1.4 28.7 0.1Greece ASE General 10.0 20.0 5.2 9.9 23.6 4.5Ireland ISEQ 7.6 38.4 6.1 7.5 42.6 5.3Italy FTSE MIB 6.0 12.7 4.5 5.9 16.1 3.7Japan Topix 0.6 45.0 (1.1) 1.6 23.8 0.2Netherlands AEX 1.8 14.4 0.5 1.7 17.9 (0.2)Norway OBX 2.1 13.3 1.3 2.7 3.2 0.5Portugal BVL GEN 3.8 4.2 4.0 3.7 7.3 3.3Spain IBEX 35 4.3 18.9 3.3 4.2 22.5 2.5Sweden OMX 1.5 17.4 0.5 3.3 19.6 0.4Switzerland SMI 3.7 13.7 2.5 3.2 17.3 1.3United States S&P 500 (0.7) 22.3 (1.1) (0.7) 22.3 (1.1)United States NASDAQ 1.2 33.8 1.0 1.2 33.8 1.0United Kingdom FTSE 100 1.2 9.3 0.4 2.4 14.7 0.8EMU MSCI EMU 2.2 17.8 1.0 2.1 21.4 0.3Europe MSCI Europe 2.1 14.0 1.0 2.5 18.0 0.6Global MSCI AC World 0.3 20.4 (0.4) 0.3 18.5 (0.6)

Source: MSCI, Datastream, as at COB 23rd January, 2014.

23



EarningsTable 23: IBES Consensus EPS Sector Forecasts — MSCI Europe

EPS Growth (%)2012E 2013E 2014E 2015E

Europe (1.1) (3.9) 12.8 11.6 Energy (7.2) (15.8) 12.7 6.9 Materials (25.2) (15.0) 20.3 16.7 Chemicals (1.4) (7.9) 11.8 12.0 Construction Materials 12.6 (1.1) 32.4 28.8 Metals & Mining (40.6) (24.5) 28.1 19.6 Industrials (0.2) 1.4 17.7 14.3 Capital Goods (0.2) (0.9) 17.9 13.7 Transport (4.2) 21.5 24.2 20.3 Business Svs 3.5 2.2 10.3 12.1 Discretionary 33.3 (13.4) 14.2 12.8 Automobile 53.9 (29.2) 17.8 13.9 Consumer Durables 24.1 4.4 14.8 13.5 Media 11.1 5.6 8.3 10.2 Retailing 5.8 5.7 12.5 11.4 Hotels, Restaurants & Leisure 12.2 5.2 7.4 10.7 Staples 8.8 1.0 6.9 9.0 Food & Drug Retailing 0.4 (7.3) 10.2 7.9 Food Beverage & Tobacco 10.3 2.7 6.2 9.3 Household Products 12.4 1.7 7.4 8.2 Healthcare 0.2 (2.1) 7.6 9.0 Financials 1.9 12.8 18.0 14.7 Banks (24.8) 11.5 27.5 18.5 Diversified Financials 16.2 0.8 19.0 18.4 Insurance 104.3 22.9 5.0 6.8 Real Estate 1.7 10.5 6.0 5.7 IT (42.7) 27.5 44.0 20.5 Software and Services 7.9 7.0 11.1 11.6 Technology Hardware (103.6) - 152.4 29.5 Semicon & Semicon Equip (49.4) (5.0) 67.7 30.7 Telecoms (6.0) (19.7) (2.7) 4.7 Utilities 5.1 (11.8) (4.8) 5.2

Source: IBES, MSCI, Datastream. As at COB 23rd January, 2014.

Table 24: IBES Consensus EPS Country Forecasts

EPS Growth (%)

Country Index 2012 2013E 2014E 2015E

Austria ATX 7.2 0.1 28.7 16.6Belgium BEL 20 9.7 (1.2) 10.7 10.2Denmark Denmark KFX 26.5 22.8 19.6 14.5Finland MSCI Finland (30.9) 26.8 22.7 9.0France CAC 40 (3.3) (8.0) 14.5 12.2Germany DAX 13.3 (11.3) 11.8 12.9Greece MSCI Greece - - (63.1) 116.5Ireland MSCI Ireland - - 217.8 42.7Italy MSCI Italy 53.4 7.2 30.6 19.8Netherlands AEX (12.5) (6.7) 23.9 10.8Norway MSCI Norway 7.6 (7.2) 13.1 9.7Portugal MSCI Portugal (13.5) (19.0) 15.2 31.9Spain IBEX 35 (1,969.5) - 25.3 19.7Sweden OMX 6.9 (9.8) 13.3 12.8Switzerland SMI 7.3 4.8 9.1 11.1United Kingdom FTSE 100 (9.2) (6.5) 11.5 9.3EMU MSCI EMU (0.1) (4.2) 16.4 13.8Europe ex UK MSCI Europe ex UK 2.9 (2.5) 14.6 13.2Europe MSCI Europe (1.1) (3.9) 12.8 11.6United States S&P 500 6.7 5.8 9.8 10.8Japan Topix 29.7 69.0 10.3 10.0Emerging Market MSCI EM (2.7) 9.6 9.4 7.0Global MSCI AC World 3.5 3.1 10.4 10.6

Source: IBES, MSCI, Datastream. As at COB 23rd January, 2014** Japan refers to the period from March in the year stated to March in the following year – EPS post-goodwill.

24



Valuations

Table 25: IBES Consensus European Sector Valuations

P/E Dividend Yields EV/EBITDA Price to Book

2013e 2014e 2015e 2013e 2014e 2015e 2013e 2014e 2015e 2013e 2014e 2015eEurope 15.6 13.8 12.4 3.2% 3.5% 3.8% 7.5 7.1 6.6 1.7 1.7 1.5Energy 11.6 10.3 9.6 4.5% 4.7% 4.9% 4.4 4.2 4.0 1.3 1.2 1.2Materials 16.9 14.1 12.1 2.8% 3.0% 3.3% 7.9 7.2 6.4 1.6 1.5 1.4Chemicals 16.9 15.1 13.5 2.8% 3.0% 3.2% 9.1 8.3 7.6 2.4 2.3 2.1Construction Materials 22.2 16.8 13.0 2.1% 2.4% 2.9% 8.9 8.0 7.0 1.1 1.1 1.0Metals & Mining 16.1 12.6 10.5 2.9% 3.0% 3.4% 7.2 6.4 5.7 1.3 1.3 1.2Industrials 18.4 15.7 13.7 2.7% 2.9% 3.2% 8.8 8.0 7.2 2.7 2.5 2.3Capital Goods 18.1 15.3 13.5 2.8% 3.0% 3.3% 8.9 8.1 7.3 2.6 2.4 2.2Transport 19.9 16.1 13.4 2.7% 2.7% 3.2% 7.5 6.8 6.0 2.4 2.2 2.0Business Svs 19.7 17.9 16.0 2.4% 2.7% 3.0% 11.6 10.9 9.8 4.7 4.3 3.8Discretionary 15.9 13.9 12.3 2.5% 2.8% 3.1% 7.0 6.6 5.9 2.3 2.1 1.9Automobile 11.7 10.0 8.7 2.5% 2.9% 3.3% 4.6 4.2 3.7 1.4 1.2 1.1Consumer Durables 18.2 15.9 14.0 2.1% 2.4% 2.8% 10.2 9.3 8.1 2.8 2.5 2.1Media 17.5 16.2 14.7 3.2% 3.3% 3.6% 10.2 9.6 8.8 4.0 3.8 3.5Retailing 22.7 20.2 18.1 2.5% 2.7% 3.0% 12.4 13.4 11.9 6.4 5.9 5.4Hotels, Restaurants & Leisure 20.8 19.4 17.5 2.3% 2.5% 2.7% 9.9 10.2 9.2 3.7 3.6 3.3Staples 18.4 17.2 15.8 2.8% 3.0% 3.2% 11.1 10.5 9.6 3.1 2.9 2.6Food & Drug Retailing 13.8 12.5 11.6 3.2% 3.7% 3.9% 7.0 6.6 6.2 1.6 1.6 1.5Food Beverage & Tobacco 18.9 17.7 16.2 2.9% 3.1% 3.3% 11.8 11.3 10.3 3.5 3.2 2.9Household Products 21.5 20.0 18.5 2.0% 2.2% 2.3% 13.2 12.1 11.0 3.7 3.3 3.1Healthcare 16.9 15.8 14.4 2.9% 3.1% 3.3% 10.8 10.3 9.4 3.8 3.5 3.3Financials 13.9 11.8 10.2 3.3% 3.8% 4.5% - - - 1.0 1.0 0.9Banks 15.2 11.9 10.1 3.2% 3.8% 4.6% - - - 0.9 0.9 0.9Diversified Financials 14.6 12.2 10.3 1.9% 2.6% 3.8% - - - 1.1 1.0 1.0Insurance 11.0 10.5 9.8 4.4% 4.5% 4.8% - - - 1.2 1.2 1.1Real Estate 19.1 18.0 17.0 4.5% 4.7% 4.9% - - - 1.1 1.0 1.0IT 27.2 18.9 15.7 1.6% 1.9% 2.1% 12.3 10.1 8.5 3.3 3.0 2.7Software and Services 19.3 17.4 15.6 1.5% 1.7% 1.9% 11.5 10.4 9.2 4.0 3.6 3.2Technology Hardware 46.5 18.4 14.2 2.1% 2.7% 2.9% 10.6 8.4 6.8 2.3 2.1 2.0Semicon & Semicon Equip 39.4 23.5 18.0 1.3% 1.4% 1.8% 18.6 12.3 9.9 3.7 3.3 3.0Telecoms 15.1 15.5 14.8 4.6% 4.7% 4.8% 5.6 6.0 5.8 1.9 1.7 1.5Utilities 12.5 13.1 12.5 5.4% 5.3% 5.4% 6.8 6.8 6.7 1.2 1.2 1.1

Source: IBES, MSCI, Datastream. As at COB 23rd January, 2014

25



Table 26: IBES Consensus P/E and 12-Month Forward Dividend Yields — Country Forecasts

P/E Dividend YieldCountry Index 12-Mth Fwd 2013E 2014E 2015E 12-Month Forward Austria ATX 12.5 16.2 12.6 10.8 2.6%Belgium BEL 20 15.7 17.5 15.8 14.3 4.5%Denmark Denmark KFX 16.7 20.3 17.0 14.8 2.0%Finland MSCI Finland 15.7 19.4 15.8 14.5 3.6%France CAC 40 12.8 14.8 12.9 11.5 4.8%Germany DAX 13.0 14.8 13.2 11.7 2.8%Greece MSCI Greece 27.8 11.4 30.9 14.3 1.8%Ireland MSCI Ireland 21.8 71.6 22.5 15.8 2.3%Italy MSCI Italy 12.3 16.3 12.5 10.4 3.4%Netherlands AEX 12.8 16.0 12.9 11.6 3.2%Norway MSCI Norway 11.2 12.8 11.3 10.3 4.9%Portugal MSCI Portugal 17.1 20.3 17.6 13.3 5.2%Spain IBEX 35 15.2 19.3 15.4 12.9 4.1%Sweden OMX 14.9 17.1 15.1 13.4 3.6%Switzerland SMI 15.1 16.6 15.2 13.7 2.8%United Kingdom FTSE 100 13.0 14.7 13.2 12.1 4.0%EMU MSCI EMU 13.5 15.9 13.7 12.0 3.8%Europe ex UK MSCI Europe ex UK 14.0 16.2 14.2 12.5 3.5%Europe MSCI Europe 13.7 15.6 13.8 12.4 3.7%United States S&P 500 15.2 16.9 15.4 13.9 2.3%Japan Topix 14.5 15.8 14.3 13.0 1.7%Emerging Market MSCI EM 10.1 11.4 10.2 9.3 2.7%Global MSCI AC World 14.1 15.8 14.2 12.8 2.7%

Source: IBES, MSCI, Datastream. As at COB 23rd January, 2014; ** Japan refers to the period from March in the year stated to March in the following year – P/E post goodwill

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Economic, Interest Rate and Exchange Rate Outlook

Table 27: Economic Outlook in Summary

Real GDP Real GDP Consumer prices

% oya % oqa, saar % oya

2013E 2014E 2015E 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E 4Q13E 2Q14E 4Q14E 4Q15E

United States 1.9 2.9 2.9 4.1 3.1 2.5 2.5 3.0 3.0 1.2 1.5 1.5 1.9

Eurozone -0.4 1.0 1.7 0.3 0.8 1.0 1.0 1.5 1.5 0.8 0.9 1.0 1.0

United Kingdom 1.9 3.0 3.1 3.1 3.5 3.0 2.5 2.5 3.5 2.2 2.3 2.3 2.2

Japan 1.7 1.6 1.2 1.1 3.8 4.5 -4.5 1.2 1.7 1.4 3.7 3.4 2.9

Emerging markets 4.5 4.7 5.0 4.9 4.8 4.4 4.4 4.8 5.0 4.2 4.3 4.3 3.9

Global 2.4 3.0 3.3 3.2 3.3 3.1 2.3 3.2 3.4 2.3 2.6 2.6 2.6

Source: J.P. Morgan economic research, J.P. Morgan estimates, as of COB 23rd January, 2014.

Table 28: Official Rates Outlook%

Official interest rate Current Last change (bp)Forecastnext change (bp)

Forecast forMar 14 Jun 14 Sep 14 Dec 14

United States Federal funds rate 0.125 16 Dec 08 (-87.5bp) 4Q 15 (+25bp) 0.125 0.125 0.125 0.125Eurozone Refi rate 0.25 7 Nov 13 (-25bp) 4Q 16 (+25bp) 0.25 0.25 0.25 0.25United Kingdom Repo rate 0.50 5 Mar 09 (-50bp) 1Q 15 (+25bp) 0.50 0.50 0.50 0.50Japan Overnight call rate 0.05 5 Oct 10(-5bp) On Hold 0.05 0.05 0.05 0.05

Source: J.P. Morgan estimates, Datastream, as of COB 23rd January, 2014

Table 29: 10-Year Government Bond Yield Forecasts

% Forecast for end of

23-Jan-14 Mar 14 Jun 14 Sep 14 Dec 14

United States 2.77 3.10 3.25 3.50 3.65Eurozone 1.71 1.85 2.00 2.15 2.25United Kingdom 2.82 3.15 3.35 3.55 3.70Japan 0.66 0.60 0.60 0.70 0.80

Source: J.P. Morgan estimates, Datastream, as of COB 23rd January, 2014.

Table 30: Exchange Rate Forecasts vs. US Dollar

Forecast for end of

23-Jan-14 Mar 14 Jun 14 Sep 14 Dec 14

EUR 1.37 1.33 1.32 1.32 1.30GBP 1.66 1.63 1.61 1.61 1.60CHF 0.90 0.92 0.93 0.92 0.94JPY 103 104 100 102 106

Source: J.P. Morgan estimates, Datastream, forecasts as of COB 23rd January, 2014

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Sector, Regional and Asset Class Allocations

Table 31: J.P. Morgan Equity Strategy — European Sector Allocations

MSCI Europe WeightsJ.P. Morgan

Allocation Deviation From MSCIJ.P. Morgan

RecommendationEnergy 9.2% 8.0% -1.2% UnderweightMaterials 7.8% 5.0% -2.8% Underweight

Chemicals UWConstruction Materials OWMetals & Mining UW

Industrials 11.7% 12.0% 0.3% NeutralCapital Goods NTransport OWBusiness Svs N

Consumer Discretionary 10.0% 13.0% 3.0% OverweightAutomobile OWConsumer Durables NMedia OWRetailing OWHotels, Restaurants & Leisure OW

Consumer Staples 13.2% 12.0% -1.2% UnderweightFood & Drug Retailing UWFood Beverage & Tobacco UWHousehold Products N

Healthcare 12.4% 14.0% 1.6% OverweightFinancials 22.5% 25.0% 2.5% Overweight

Banks OWDiversified Financials OWInsurance OWReal Estate N

Information Technology 3.3% 3.0% -0.3% NeutralSoftware and Services NTechnology Hardware OWSemicon & Semicon Equip N

Telecoms 6.1% 6.0% -0.1% NeutralUtilities 3.8% 2.0% -1.8% Underweight

100.0% 100.0% 0.0% Balanced

Source: MSCI, Datastream, J.P. Morgan

Table 32: J.P. Morgan Equity Strategy — European Regional Allocations

MSCI Europe Weights Allocation Deviation RecommendationUS NeutralEurope NeutralJapan OverweightEM UnderweightEurozone 46% 49% 3% OverweightUnited Kingdom 33% 30% -3% UnderweightOthers* 21% 21% 0% Underweight

100% 100% 0% Balanced

Source: MSCI, J.P. Morgan estimates * Switzerland, Sweden, Norway and Denmark.

Table 33: J.P. Morgan Equity Strategy — Asset Class Allocation

Benchmark Weighting Allocation Deviation RecommendationEquities 60% 70% 10% OverweightBonds 30% 25% -5% UnderweightCash 10% 5% -5% Underweight

100% 100% 0% Balanced

Source: MSCI, J.P. Morgan estimates * Switzerland, Sweden, Norway and Denmark

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Important Disclosures

Market Maker: JPMS makes a market in the stock of Ericsson, TOTAL, Arm Holdings Plc, ASML, Ryanair, STMicroelectronics.

Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in Airbus Group, Akzo Nobel, ArcelorMittal, BNP Paribas, British American Tobacco, CaixaBank, Carrefour, Ericsson, Generali, Iliad, ING, L'Oréal, PANDORA, Pennon, Prysmian, Publicis Groupe, Renault, Rexel, Roche, Snam, Société Générale, STADA Arzneimittel, Tod's, TOTAL, UniCredit, Vinci, Whitbread, Deutsche Post DHL, IAG, Volkswagen Prefs., Bayer, Infineon Technologies, United Internet AG, ABB, Accor, adidas Group, Alfa Laval, Allianz, Anglo American, Antofagasta, Arm Holdings Plc, ASML, Assa Abloy, Atlantia, Atlas Copco, Atos, Atresmedia, Autogrill, AXA, Beiersdorf, BHP Billiton, Burberry, Capgemini, Carlsberg, Casino, CCH, Deutsche Bank, DIA, Diageo, DSM, Gemalto NV, Henkel, Jeronimo Martins, Johnson Matthey, Kering, Kingfisher Plc, Kone Corporation, Lanxess, Legrand, Mediaset, Mediaset España, Metro, Nokian Renkaat, Pernod-Ricard SA, Peugeot, Pirelli & C. SpA, ProSiebenSat.1, Reckitt Benckiser, Remy Cointreau SA, Richemont, Rio Tinto plc, Ryanair, SABMiller, Saint-Gobain, Scania, SKF, Sovcomflot, STMicroelectronics, Swatch Group, Thales, TNT Express, TUI Travel, Unilever plc, Vedanta Resources, Veolia.

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Airbus Group, ArcelorMittal, CaixaBank, Ericsson, ING, PANDORA, Prysmian, Rexel, Snam, Société Générale, TOTAL, UniCredit, Volkswagen Prefs., Bayer, Anglo American, ASML, Atlas Copco, Autogrill, BHP Billiton, Capgemini, Carlsberg, Casino, CCH, Deutsche Bank, DIA, Diageo, DSM, Henkel, Metro, Pernod-Ricard SA, ProSiebenSat.1, Reckitt Benckiser, Rio Tinto plc, SABMiller, Saint-Gobain, Unilever plc, Vedanta Resources within the past 12 months.

Director: A senior employee, executive officer or director of JPMorgan Chase & Co. and/or J.P. Morgan is a director and/or officer of Allianz, BHP Billiton, Richemont.

Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of Generali, UniCredit, Volkswagen Prefs., Scania.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Airbus Group, Akzo Nobel, ArcelorMittal, BNP Paribas, British American Tobacco, CaixaBank, Carrefour, Ericsson, Generali, Iliad, ING, L'Oréal,PANDORA, Pennon, Prysmian, Publicis Groupe, Renault, Rexel, Roche, Snam, Société Générale, STADA Arzneimittel, Tod's, TOTAL, UniCredit, Vinci, Whitbread, Deutsche Post DHL, IAG, Volkswagen Prefs., Bayer, Infineon Technologies, United Internet AG, ABB, Accor, adidas Group, Akzo Nobel India, Alfa Laval, Allianz, Anglo American, Antofagasta, Arm Holdings Plc, ASML, Assa Abloy, Atlantia, Atlas Copco, Atos, Atresmedia, Autogrill, AXA, Beiersdorf, BHP Billiton, Burberry, Capgemini, Carlsberg, Casino, CCH, Deutsche Bank, DIA, Diageo, DSM, Henkel, Jeronimo Martins, Johnson Matthey, Kering, Kingfisher Plc, Kone Corporation, Lanxess, Legrand, Mediaset, Mediaset España, Metro, Pernod-Ricard SA, Peugeot, Pirelli & C. SpA, ProSiebenSat.1, Reckitt Benckiser, Remy Cointreau SA, Richemont, Rio Tinto plc, Ryanair, SABMiller, Saint-Gobain, Scania, SKF, Sovcomflot, STMicroelectronics, Swatch Group, Thales, TUI Travel, Unilever plc, Vedanta Resources, Veolia.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Airbus Group, Akzo Nobel, ArcelorMittal, BNP Paribas, British American Tobacco, CaixaBank, Ericsson, Generali, ING, L'Oréal, PANDORA, Prysmian, Rexel, Roche, Snam, Société Générale, TOTAL, UniCredit, Deutsche Post DHL, Volkswagen Prefs., Bayer, ABB, Akzo Nobel India, Anglo American, ASML, Atlantia, Atlas Copco, Autogrill, AXA, BHP Billiton, Capgemini, Carlsberg, Casino, CCH, Deutsche Bank, DIA, Diageo, DSM, Henkel, Johnson Matthey, Lanxess, Metro, Pernod-Ricard SA, Peugeot, Pirelli & C. SpA, ProSiebenSat.1, Reckitt Benckiser, Rio Tinto plc, SABMiller, Saint-Gobain, Sovcomflot, STMicroelectronics, Unilever plc, Vedanta Resources.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Airbus Group, Akzo Nobel, ArcelorMittal, BNP Paribas, British American Tobacco, CaixaBank, Carrefour, Ericsson, Generali, ING, L'Oréal, PANDORA, Pennon, Prysmian, Publicis Groupe, Renault, Rexel, Roche, Snam, Société Générale, TOTAL, UniCredit, Vinci, Deutsche Post DHL, IAG, Volkswagen Prefs., Bayer, Infineon Technologies, ABB, adidas Group, Akzo Nobel India, Alfa Laval, Allianz, Anglo American, Antofagasta, ASML, Atlas Copco, Atos, Autogrill, AXA, Beiersdorf, BHP Billiton, Burberry, Capgemini, Carlsberg, Casino, CCH, Deutsche Bank, DIA, Diageo, DSM, Henkel, Jeronimo Martins, Johnson Matthey, Kering, Kone Corporation, Lanxess, Legrand,

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Mediaset, Mediaset España, Metro, Pernod-Ricard SA, Peugeot, Pirelli & C. SpA, ProSiebenSat.1, Reckitt Benckiser, Richemont, Rio Tinto plc, Ryanair, SABMiller, Saint-Gobain, Scania, STMicroelectronics, Thales, Unilever plc, Vedanta Resources, Veolia.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Airbus Group, Akzo Nobel, ArcelorMittal, BNP Paribas, British American Tobacco, CaixaBank, Carrefour, Ericsson, ING, L'Oréal, Prysmian, Publicis Groupe, Renault, Rexel, Roche, Snam, Société Générale, TOTAL, UniCredit, Vinci, Deutsche Post DHL, Volkswagen Prefs., Bayer, ABB, adidas Group, Akzo Nobel India, Allianz, Anglo American, ASML, Atlas Copco, Atos, AXA, BHP Billiton, Burberry, Capgemini, Carlsberg, Casino, Deutsche Bank, DIA, Diageo, DSM, Henkel, Johnson Matthey, Kering, Lanxess, Metro, Pernod-Ricard SA, Peugeot, ProSiebenSat.1, Reckitt Benckiser, Rio Tinto plc, SABMiller, Saint-Gobain, STMicroelectronics, TUI Travel, Unilever plc, Vedanta Resources, Veolia.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Airbus Group, Akzo Nobel, ArcelorMittal, BNP Paribas, British American Tobacco, CaixaBank, Ericsson, Generali, ING, L'Oréal, PANDORA, Prysmian, Rexel, Roche, Snam, Société Générale, TOTAL, UniCredit, Deutsche Post DHL, Volkswagen Prefs., Bayer, ABB, Akzo Nobel India, Anglo American, ASML, Atlantia, Atlas Copco, Autogrill, AXA, BHP Billiton, Capgemini, Carlsberg, Casino, CCH, DeutscheBank, DIA, Diageo, DSM, Henkel, Johnson Matthey, Lanxess, Metro, Pernod-Ricard SA, Peugeot, Pirelli & C. SpA, ProSiebenSat.1, Reckitt Benckiser, Rio Tinto plc, SABMiller, Saint-Gobain, Sovcomflot, STMicroelectronics, Unilever plc, Vedanta Resources.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Airbus Group, Akzo Nobel, ArcelorMittal, BNP Paribas, British American Tobacco, CaixaBank, Carrefour, Ericsson, Generali, ING, L'Oréal, PANDORA, Prysmian, Renault, Rexel, Roche, Snam, Société Générale, TOTAL, UniCredit, Deutsche Post DHL, IAG, Volkswagen Prefs., Bayer, Infineon Technologies, United Internet AG, ABB, adidas Group, Akzo Nobel India, Allianz, Anglo American, ASML, Atlantia, Atlas Copco, Autogrill, AXA, BHP Billiton, Capgemini, Carlsberg, Casino, CCH, Deutsche Bank, DIA, Diageo, DSM, Henkel, Johnson Matthey, Kering, Lanxess, Metro, Pernod-Ricard SA, Peugeot, Pirelli & C. SpA, ProSiebenSat.1, Reckitt Benckiser, Rio Tinto plc, SABMiller, Saint-Gobain, Scania, Sovcomflot, STMicroelectronics, Unilever plc, Vedanta Resources, Veolia.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Airbus Group, Akzo Nobel, ArcelorMittal, BNP Paribas, British American Tobacco, CaixaBank, Carrefour, Ericsson, Generali, ING, L'Oréal, PANDORA, Pennon, Prysmian, Publicis Groupe, Renault, Rexel, Roche, Snam, SociétéGénérale, TOTAL, UniCredit, Vinci, Deutsche Post DHL, IAG, Volkswagen Prefs., Bayer, Infineon Technologies, ABB, adidas Group, Akzo Nobel India, Alfa Laval, Allianz, Anglo American, Antofagasta, ASML, Atlas Copco, Atos, Autogrill, AXA, Beiersdorf, BHP Billiton, Burberry, Capgemini, Carlsberg, Casino, CCH, Deutsche Bank, DIA, Diageo, DSM, Henkel, Jeronimo Martins, Johnson Matthey, Kering, Kone Corporation, Lanxess, Legrand, Mediaset, Mediaset España, Metro, Pernod-Ricard SA, Peugeot, Pirelli & C. SpA, ProSiebenSat.1, Reckitt Benckiser, Richemont, Rio Tinto plc, Ryanair, SABMiller, Saint-Gobain, Scania, STMicroelectronics, Thales, Unilever plc, Vedanta Resources, Veolia.

Broker: J.P. Morgan Securities plc acts as Corporate Broker to British American Tobacco, Antofagasta, CCH, Johnson Matthey, Rio Tinto plc, SABMiller, Vedanta Resources.

J.P. Morgan is acting as adviser to PPF Group NV on the termination of the partnership in Central and Eastern Europe with Generali Group. J.P. Morgan does not currently have recommendation for Generali Group. This report is not intended to serve as an endorsement of the proposed transaction [or to provide voting advice] or to result in or recommend any course of action by a security holder.

“J.P. Morgan Securities (Asia Pacific) Limited and/or its affiliates (J.P. Morgan) is acting as financial advisor to ING Groep NV (“ING”) on the sale of ING Life Korea, its wholly owned life insurance business in South Korea, to MBK Partners as announced on 26 Aug 2013. J.P. Morgan will be receiving fees for so acting. J.P. Morgan may perform, or may seek to perform, other financial or advisory services for ING and/or its affiliates and may have other interests in or relationships with ING and/or its affiliates, and receive fees, commissions or other compensation in such capacities. This research report and the information herein is not intended to serve as an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder. This report is based solely on publicly available information. No representation is made that it is accurate or complete.”

J.P. Morgan is financial advisor to KONINKLIJKE DSM NV in the announced creation of a new company with JLL Partners. J.P. Morgan does not currently have a recommendation for KONINKLIJKE DSM NV. This report is not intended to serve as an endorsement of the proposed transaction or to result in or recommend any course of action by a security holder.

'J.P. Morgan acted as adviser to Metro AG on the sale of Real Eastern Europe. The transaction was announced on 30th November 2012. J.P. Morgan does not currently have a recommendation for Metro AG. This report is not intended to serve as an endorsement of the transaction or to result in or recommend any course of action by a security holder.'

J.P. Morgan is acting as financial advisor to AB SKF on their acquisition of Kaydon Corporation as announced on 5th September 2013. J.P. Morgan currently does not have a recommendation for SKF AB. This report is not intended to serve as an endorsement of the proposed transaction or to result in or recommend any course of action by a security holder.

J.P. Morgan is acting as a financial advisor to STMicroelectronics NV on strategic options on ST-Ericsson as announced. J.P. Morgan does not currently have a recommendation for STMicroelectronics NV.

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J.P. Morgan Limited is acting as corporate broker and financial advisor to Vedanta Resources on its corporate reorganisation as announced on 25 February 2012. "J.P. Morgan Cazenove is acting as sponsor and financial adviser to Vedanta Resources Plc and has provided a fairness opinion in relation to the potential purchase of the Government of India's stake in Hindustan Zinc Limited and Bharat Aluminium Company Ltd. This research report is not intended to provide voting advice, to serve as an endorsement of the proposed transaction, or result in procurement, withholding or revocation of a proxy or any other action by a security holder."

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Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.

J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2014

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 43% 45% 12%IB clients* 57% 49% 36%

JPMS Equity Research Coverage 43% 50% 7%IB clients* 75% 66% 59%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

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"Other Disclosures" last revised December 7, 2013.

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