JPM Equity Strategy 2015

8/9/2019 JPM Equity Strategy 2015

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Global Equity Research01 December 2014

Equity StrategyYear Ahead 2015 - Upside is not exhausted yet; Lookfor a rotation in regional drivers

Equity Strategy

Mislav Matejka, CFA AC

(44-20) [email protected]

Bloomberg JPMA MATEJKA <GO>

Emmanuel Cau, CFA AC

(44-20) [email protected]

Bloomberg JPMA CAU <GO>

Prabhav Bhadani(44-20) [email protected]

J.P. Morgan Securities plc

See page 62 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 awfirm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only making their investment decision.

Equities are managing to beat bonds yet again in 2014, for the 3rd year in arow. Even in Europe, SXXP is posting a respectable 9% TR so far ytd. Westay constructive into the next year as:

1. Liquidity is not going away . G4 central bank balance sheet as a share ofGDP is likely to continue expanding. US credit growth is running at ahealthy 6%yoy pace. Money supply is accelerating in Eurozone and theregion’s credit cycle appears to be bottoming out.

2. Global real GDP growth is expected by JPM to deliver 3.0% in 2015, vs2.5% in 2014. In particular, we look for the turn in Eurozone’s fortunesafter a disappointing ‘14. The bottoming out in the region’s credit cyclewill matter , in our view, as will the lower Euro.

3. Relative valuations continue to favour equities vs other asset classes.4. JPM is more hawkish on the Fed vs the street, but we believe thepotential start of Fed tightening is not likely to derail equities . Rate hikeswill commence only if the economy allows it, in our view, calling for achange in leadership within equities. DXY is projected to strengthen further,which is likely to keep commodity prices under pressure.

Regionally, we believe Eurozone will outperform the US – as per our callinitiated two weeks ago. Earnings between the two regions should startconverging. We remain UW the UK due to the high commodity weight,Defensive sector composition and the political uncertainty. We are OWJapan on asset reflation. After entering 2014 with an UW EM stance, forthe 3rd year in a row, we see a more balanced EM performance in 2015. The

region is getting cheaper and policy flexibility will be greater, but lowercommodity prices, stronger USD, Fed rate hikes and structural concerns inmany EM countries are the headwinds, in our view.

We highlight the following themes:

1) Revisit the Eurozone recovery basket - OW JPDEER15. It is tradingagain at P/E relative lows seen at the height of the Eurozone crisis, in thesummer of 2012.

2) Beneficiaries of low for longer oil price - OW JPDECW15, includingConsumer Cyclicals – Transport, Airlines, Autos, Retail, Travel and Leisure .Stocks hurt by low oil - UW JPDECL15, comprising of Energy, Oil capex,selected Chemicals, Utilities and Capital Goods stocks.

3) UK stocks at risk of increased political uncertainty - UW JPDEUKPU.4) Bond proxies which have rerated a lot and are sensitive to the rise in

bond yields - UW JPDERL15. We entered 2014 OW Pharma and Utilities vsCyclicals, but recommend the opposite stance into 2015. On the flipside, werecommend a positive stance on Buybacks basket – OW JPDEBB15.

5) Exporters basket in Eurozone – OW JPDEEX15.

End ‘15 index target forecastsTarget Current* %

MSCI Europe 1,550 1,407 10MSCI Eurozone 215 190 13FTSE 100 7,200 6,731 7%

Source: Datastream, J.P. Morgan, Equity targetsbased on 2015E EPS integer and forecast end 212m Fwd P/E multiple. *as at CoB 25thNov

Sector recommendationsOW N UWFinancials Energy StaplesDiscretionary Materials UtilitiesIndustrials Technology Healthca

TelecomsSource: J.P. Morgan

Liquidity is not going away - G4 centbank balance sheet to keep expanding

Source: J.P. Morgan

Eurozone vs US earnings – the gap tostart closing

Source: IBES

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07 08 09 10 11 12 13 14 15 16

G-4 Central Bank Balance sheet % of GDP, USD

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97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

MSCI Eurozone 12m Fwd EPS (€) MSCI US 12m Fwd E


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

Table of ContentsEquity Strategy: Year Ahead 2015 – Upside is notexhausted yet; Look for a rotation in regional drivers..........3

Energy - Neutral ......................................................................26

Materials - Neutral ..................................................................28

Industrials - Overweight.........................................................32

Consumer Discretionary - Overweight .................................35

Consumer Staples -Underweight ..........................................40

Healthcare - Underweight ......................................................43

Financials - Overweight .........................................................45

IT - Neutral...............................................................................48

Telecoms – Neutral.................................................................50

Utilities - Underweight............................................................52

Top picks.................................................................................54

Least preferred .......................................................................55

Earnings ..................................................................................57

Valuations ...............................................................................58

Economic, Interest Rate and Exchange Rate Outlook ........60

Sector, Regional and Asset Class Allocations ....................61



3



Equity Strategy: Year Ahead

2015 – Upside is notexhausted yet; Look for arotation in regional driversFigure 1: Ytd total return of the key asset classes (in $ terms)

Source: Datastream, J.P. Morgan, as of 25th Nov ‘14

Despite a wobble late in the year, equities are managingto deliver another robust set of returns, outperformingfixed income for the 3rd year in a row.

Figure 2: Ytd total returns of key regional equity markets

Source: Datastream, as of 25th Nov ‘14

All the key markets advanced, in local currency terms, but some of these performances were hurt by the

appreciating USD.Should one stay bullish for another year?

Figure 3: MSCI World

Source: Datastream

Big picture, global equities have been rallying for sixyears now, to be hovering at all time highs. It is clearlytempting to project more muted market returns fromhere. However, we believe that on balance the equity

backdrop will remain constructive, at least in the early part of 2015.

1) Liquidity conditions to stay supportive

Figure 4: Size of the Fed's balance sheet vs S&P500 performance

Source: Bloomberg

One of the main pushbacks to the continued constructiveview on the equity markets is the notion that the liquidityregime is starting to deteriorate. Many see the end ofQE3 as a trigger to turn more cautious.

7.4% 7.3% 7.1%

4.0%

0.3%

-20.1%-22%

-17%

-12%

-7%

-2%

3%

8%

Equities (MSCIWorld)

High GradeCredit

JPM Global GvtBond

JPM Global HY Cash (3m) S&P GSCI Index

2014 YTD

3%

3%

3%

5%

7%

7%

8%

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13%

14%

0% 2% 4% 6% 8% 10% 12% 14% 16%

FTSE100

DAX

MSCI EM

CAC

MSCI World

Eurostoxx50

FTSEMIB

TOPIX

IBEX

S&P500

YTD Total Return, %

0

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70 73 76 79 82 85 88 91 94 97 00 03 06 09 12

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Size of the Fed's balance sheet ($Bn) S&P500 (rhs)



4



Figure 5: Aggregate G-4 central bank balance sheet as % of GDP

Source: J.P. Morgan

We don’t subscribe to this. We note that the G4 central bank balance sheet, as a share of GDP, is likely tocontinue expanding at a similar pace to what was the case

prior to the end of Fed's purchases.

Figure 6: G-4 central banks’ balance sheet as % of GDP – countrybreakdown

Source: J.P. Morgan

The regional drivers of liquidity are shifting though. TheBOJ and the ECB will likely be leading this processgoing forward, taking over from the Fed and BoE.

Figure 7: Money supply growth in G-4

Source: Bloomberg

G-4 money supply is expanding at a stable 4% pace.Within this, Eurozone is seeing some acceleration, while

the UK is the only region seeing an outright contraction.Figure 8: US loan growth

Source: FRB

Importantly, US credit growth appears to haveaccelerated most recently.

Figure 9: US household leverage

Source: FRB

US consumer deleveraging is largely behind us. Courtesyof the positive wealth effect, US household balancesheets appear to be in good shape now, with theliabilities/wealth ratio near lows relative to the trend.They can easily absorb some increased leverage.

10

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07 08 09 10 11 12 13 14 15 16 17

G-4 Central Bank Balance sheet % of GDP, USD

0

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07 08 09 10 11 12 13 14 15 16 17

Fed - Balance Sheet % of GDP ECB BoE BoJ

-8%

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10 11 12 13 14

Japan M2, %y/y US M2 UK M4 Eurozone M3 G4

-15%

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51 56 61 66 71 76 81 86 91 96 01 06 11

Recessions Loans & Leases in Bank Credit (%yoy)

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60 65 70 75 80 85 90 95 00 05 10

US Household Leverage, Ratio of liabilities to net wealth



5



Figure 10: Eurozone private loan growth

Source: ECB

Even in Eurozone, the credit growth appears to have bottomed out, although it is still in negative territory.

Figure 11: Eurozone M3

Source: ECB, Bloomberg

The pace of growth in Eurozone’s money supply has been picking up since April. We think that this is animportant positive development.

2) Global growth to post gains near 3% pace

Table 1: JPM real GDP growth forecasts

2014e 2015eGlobal 2.5 3.0%US 2.2% 3.0%Eurozone 0.9% 1.6% Germany 1.5 1.7% France 0.4 1.4% Italy -0.3 0.8% Spain 1.3 2.2%UK 3.0% 2.8%Japan 0.3% 1.1%EM 4.1% 4.2% Brazil 0.2 0.6% Russia 0.6 -0.8% India 5.1 6.0% China 7.4 7.2%Source: J.P. Morgan

Our economists believe the global growth will firm upsomewhat, from a 2.5% pace in 2014 towards a 3.0% run

rate next year.Figure 12: Oil price and retail sales volume, Global ex-Japan

Source: J.P. Morgan

One of the important supports for this view is the boostto global retail sales coming from lower energy prices.

Figure 13: Net oil imports % of GDP for the main regions

Source: EIA, J.P. Morgan

Only a few countries will be at a disadvantage from the potentially lower for longer oil price, but the vastmajority should stand to benefit.

-4%

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04 05 06 07 08 09 10 11 12 13 14

Euro area Private Loan Growth (%yoy)

0.5%

1.0%

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Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14

Euro Area M3, %y/y

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Crude Oil Price, %3m/m (rs) Global (ex-Japan) Real Retail Sales, %3m/m, saar (rhs)

-10.4%

-9.4%

-4.6%

-2.3%

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-15% -10% -5% 0% 5% 10%

Norway

Russia

Mexico

Canada

Brazil

Switzerland

United Kingdom

New Zealand

Turkey

United States

Japan

Philippines

Eurozone

South Africa

Sweden

India

Net Crude imports % of GDP



6



Figure 14: Net oil imports % of GDP for Eurozone countries

Source: J.P. Morgan

Within Eurozone, the periphery is likely to benefitrelatively more from cheaper oil prices than the core.

Deflation scare to intensify in the near term, butshould be faded

Figure 15: US headline CPI vs oil price

Source: Bloomberg

The selloff in oil could potentially lead to an outrightnegative inflation prints for a few months, but we wouldfade the resulting deflationary scare.

Figure 16: G4 growth in money supply, house prices, wages andcredit, latest yoy%

Source: Bloomberg, J.P. Morgan

The deflation risk is clearly not insignificant as there area number of deflationary forces at work presently, Japanand China included, but we believe the market should not

be assigning ever increasing probability to this outcome.Wages, money supply, credit and house prices are all stillshowing healthy rates of growth in G-4.

Eurozone’s fortunes to improve in ‘15

Figure 17: Eurozone M1 growth vs PMI

Source: ECB, Markit

The bearishness with respect to Eurozone’s growth prospects has become universal again. In contrast, we believe that some indicators are pointing to animprovement in the region’s activity momentum ahead.Eurozone M1 has bottomed out recently and it typicallyleads the Euro PMIs.

1.2%

1.6%

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

Ireland

Austria

France

Germany

Eurozone

Italy

Spain

Portugal

Slovakia

Netherlands

Belgium

Greece

Net Crude imports % of GDP

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US headline CPI (%3mom) Brent (%3mom,rhs)

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G4 Money Supply G4 House prices G4 Wages G4 Credit Growth

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99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

EMU M1 %6mom (brought forward by 6m) EMU PMI composite %6mom (rhs)



7



Figure 18: Eurozone Banks' ROE vs private loan growth

Source: ECB, Datastream

Credit growth is still outright negative in the region, butwe believe that the credit cycle could do better than thewidespread bearish sentiment would suggest. The T-LTROs and potentially an outright sovereign QE willhelp change that. Eurozone’s Banks should stand to bemajor beneficiaries of any improvement in creditdynamics.

Figure 19: Loan officer surveys - Eurozone banks are reportingoutright positive loan demand

Source: ECB

The chart above clearly shows that there is a net positivedemand for credit in Eurozone. Typically, loan officersurveys tended to lead the actual credit growth by 4-5quarters.

Figure 20: Peripheral spreads to Bunds

Source: Datastream, dotted lines show J.P. Morgan forecasts

Notably, peripheral spreads remain well behaved and arelikely to tighten further, in our view.

Table 2: Eurozone GDP growth model from J.P. MorganEconomists%q/q saar 2010 ‘11 ‘12 ‘13 ‘14e ‘15e ‘16Real GDP 2.4 0.7 -0.9 0.4 0.9 2.1 2.0Impact from

Potential growth 0.9 0.9 0.9 0.9 0.9 1.0 1.Global cycle 0.4 -0.2 -0.3 0.1 -0.1 0.1 0Monetary policy 0.9 0.8 0.8 1.1 1.1 1.2 1Fiscal policy 1.0 -0.8 -1.3 -1.0 -0.4 -0.2 -0Exchange rate 0.2 0.3 0.2 -0.1 -0.4 0.2 0.3Commodity prices -0.2 -0.5 0.0 0.0 0.2 0.1 0Credit -0.5 -0.4 -0.8 -0.9 -0.7 -0.5 -0.

Sentiment 0.2 0.0 -0.6 -0.3 0.0 0.1 0.2Sum of shocks 3.0 0.0 -1.1 -0.2 0.5 2.0 2.2Residual -0.6 0.7 0.2 0.6 0.4 0.1 -0.2Source: J.P. Morgan Economic Research

Our economists believe the Eurozone will see a step upin growth towards a 2% annualized pace next year.

They expect the drag from the weak global activity backdrop to fade and turn into a small tailwind, as the UShits its stride and EM growth holds in. The increasedflexibility in the application of the Stability and GrowthPact means that the fiscal headwind should declinefurther. The currency looks set to turn from a headwindinto a tailwind, while the private sector deleveragingheadwind continues to ease slightly, as the creditenvironment improves further. Commodity prices should

be acting as a tailwind.

0%

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Total credit to pr ivate sector -%y/y Eurozone banks ROE (%) -rhs

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Corporate Mortgage Lending, rhs Consumer Credit, rhs

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Spanish 10y bond yield spread to bund Italian 10y bond yield spread to bund



8



3) Equities are still attractively valued vs other assetclasses

Figure 21: MSCI World 12m Fwd P/E

Source: IBES

In absolute terms, global equities have shown asignificant P/E expansion over the past few years. This isunnerving many.

Table 3: Equities Bonds yield gap for main regions

Euro Div yield vs. Current Median vs median, bps10-year Govt yield 1.6% -1.1% 270HG corporate 1.9% -1.2% 306HY corporate -3.0% -4.7% 167UK Div yield vs.10-year Govt yield 1.6% -2.9% 451HG corporate 0.7% -2.1% 283HY corporate -3.8% -5.2% 138US Div yield vs.10-year Govt yield -1.1% -3.8% 271HG corporate -1.3% -4.9% 353HY corporate -3.7% -7.7% 397

Source: Datastream, J.P. Morgan

Still, relative to the fixed income, equities continue totrade attractively, in our view.

Figure 22: Equity P/E vs "P/E" of government bonds and of HGcredit, in the Eurozone and in the US


The “P/E” that credit and government bonds are tradingon remains dramatically above the P/E of equities.

Figure 23: Cumulative mutual fund flows into equities and bonds

Source: ICI, Bloomberg

In addition, despite the strong performance over the pastfew years, equities remain relatively underowned vsfixed income in investor portfolios. We have not yetwitnessed a wholesale rotation out of fixed income andinto equities.

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MSCI World 12M Fwd P/E Median since 03 +1 Stdev -1 Stdev

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MSCI Eurozone trailing P/E Euro HG P/E German Bunds P/E

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MSCI US trailing P/E US HG P/E US Bond P/E

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Cumulat ive fund f lows into equi ties ($ bn) Bonds



9



Table 4: J.P. Morgan bond yield forecasts

1Q15 2Q15 3Q15 4Q15

US 2.55 2.70 2.75 2.80UK 2.20 2.40 2.50 2.65Germany 1.00 1.15 1.20 1.25Japan 0.40 0.40 0.45 0.50Source: J.P. Morgan Fixed Income research

Our fixed income strategists expect rising bond yieldsnext year, which, if it materializes, should cap bondreturns.

4) Fed policy normalization not to be a problem forstocks - it should drive a change in market leadership

Figure 24: Fed fund rates with JPM forecasts vs market pricing

Source: J.P. Morgan

JPM expects the Fed to start raising rates in June. This ismore hawkish than the consensus which is currently projecting the start of tightening for Q4 of next year.

Figure 25: S&P500 performance around the first Fed hike in thecycle

Source: Datastream, J.P. Morgan, Since 1970

Our work suggests that equities experienced a smallsetback as the start of tightening, but they would recoverall the losses quickly and tended to post new cycle highswithin 12 months of the first hike.

Table 5: EUR/USD target: baseline and alternative scenariosBased on a regression model relating EUR/USD to relative balance sheetgrowth and Euro-US 5-yr rate spreads (EUR/USD = 1.3647 –

0.0016*[Fed minus ECB balance sheet growth in %] + 0.0007*[5-yrspreads in basis points]). Weekly data since 2010. R -sq of 54%

Source: J.P. Morgan Fx Strategy

While we don’t believe equities will be hurt by hikes, theUSD is likely to continue strengthening vs a broad rangeof currencies. Our FX strategists project furtherEUR/USD weakness next year to 1.18, as the spread andthe balance sheet differential between Fed and ECBlooks set to widen.

Figure 26: Commodity index vs DXY

Source: J.P. Morgan, Bloomberg

The prospect of further dollar appreciation suggests thatcommodity prices will remain under pressure.

0.13

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0.140.23

0.39

0.54

-0.1

0.1

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0.9

1.1

Q1 '15 Q2 '15 Q3 '15 Q4 '15

Fed Funds rate (%) -JPM Forecast Market implied rate-probability weighted

88

90

92

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-12m -9m -6m -3m 0m 3m 6m 9m 12m

S&P500 performance around Fed rate hike

150 175 200 225 250 275 300 325 350

€ 2.000 1.28 1.26 1.24 1.23 1.21 1.19 1.17 1.16 1.14

€ 2.250 1.26 1.24 1.23 1.21 1.19 1.17 1.16 1.14 1.12

€ 2.500 1.24 1.23 1.21 1.19 1.17 1.16 1.14 1.12 1.10

€ 2.750 1.23 1.21 1.19 1.17 1.16 1.14 1.12 1.10 1.09

€ 3.000 1.21 1.19 1.17 1.16 1.14 1.12 1.10 1.09 1.07

€ 3.250 1.19 1.17 1.16 1.14 1.12 1.10 1.09 1.07 1.05

€ 3.500 1.17 1.16 1.14 1.12 1.10 1.09 1.07 1.05 1.03

€ 3.750 1.16 1.14 1.12 1.10 1.09 1.07 1.05 1.03 1.02

€ 4.000 1.14 1.12 1.10 1.09 1.07 1.05 1.03 1.02 1.00

ECB balancesheet size (trn)

US - Euro 5-yr spreads (basis points)

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JPM commodity index %yoy DXY %yoy (rhs, rs)



10



Figure 27: Global Cyclicals vs Defensives and US bond yields


If US rates were to start moving higher, we believe thatthe equity market would likely witness a rotation insector leadership. The chart above suggests that there isan extremely tight link between the relative performanceof Cyclical and Defensive sectors and the direction of

bond yields. This year Defensives outperformed becauseyields fell. The opposite could work next year.

Earnings outlook – Looking for the gapbetween Eurozone and the US to startclosingTable 6: IBES estimates for '15 EPS growth in the main regions

EPS %yoy14e 15e

MSCI World 5.8% 10.2%S&P500 7.8% 9.6%MSCI Europe 4.0% 11.1%MSCI Eurozone 7.2% 16.4%MSCI UK 0.3% 4.2%MSCI Japan 6.9% 12.1%MSCI EM 2.9% 11.4%Source: IBES

Current IBES estimates are for 10-12% EPS growth forthe main regions in 2015. Eurozone is the outlier with16% EPS growth expected, but we note that the medianEPS growth projection at the stock level is lower, at11.5%.

Figure 28: Eurozone vs US EPS

Source: IBES

One of the key considerations for the earnings outlooknext year is whether the gap between the US andEurozone earnings will start to close. We believe that itwill.

Figure 29: Labor compensation vs corporate profits share of GDP

Source: BEA

On the one hand, the US might see some increasing cost pressure. We note that there is a clear inverse historicalrelationship between the profit share and the wage shareof GDP.

-50%

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Cycl icals r el t o Defens ives (%3mom) US 10y Bdy %3mom ( rhs)

25

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115

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97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

MSCI Eurozone 12m Fwd EPS ( ) MSCI US 12m Fwd EPS (rhs )

52%

53%

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58%

6%

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72 75 78 81 84 87 90 93 96 99 02 05 08 11 14

Corporate profits share of GDP US employee compensation share of GDP (rhs)



11



Figure 30: US actual profit share of GDP vs forecast derived fromwage share of GDP projection

Source: BEA, J.P. Morgan

Assuming the rising economic cost index and a furtherfall in unemployment rate, along with JPM forecast of4.4% nominal GDP growth in 2015, it is possible that

profit share of GDP moves somewhat lower.

Table 7: US margins and EPS growth in different GDP growthregimes

US Real GDP%yoy

Profit Margins, yoy,bps

S&P 500 EPS%yoy

<-3% -16 -85%-3% to -2 -103 -11%-2% to -1 -84 -6%-1% to 0% 10 -4%0% to 1% -44 -40%

1% to 2% 0 8%2% to 3% 55 8%3% to 4% 51 15%4% to 5% 20 16%>5% 76 23%Source: NIPA, Shiller, J.P. Morgan. *Data since 1980

We believe that some deceleration in margins will not be problematic for equities provided that real GDP growthdelivers 2.5% or higher next year. An initial rise in wagesshould not immediately be seen as a negative, in ourview, as it makes the economy appear more balanced andthere would still be a positive topline support.

Table 8: Timing of the peak in margins, peak in US equities andthe start of recessions

ProfitMarginspeak

S&P500Peak

RecessionStart

# of quartersS&P500 peaksafter the peak

in profitmargins

# of quartersRecessionstarts afterthe peak in

profitmargins

Nov-48 Jun-48 Nov-48 -2 0Nov-50 Jan-53 Jul-53 9 11May-55 Aug-56 Aug-57 5 9May-59 Jan-60 Apr-60 3 4Feb-66 Nov-68 Dec-69 11 16Feb-73 Jan-73 Nov-73 -1 3 Aug-77 Feb-80 Jan-80 10 10Feb-81 Nov-80 Jul-81 -1 2Nov-88 Jul-90 Jul-90 7 7 Aug-97 Sep-00 Mar-01 12 15 Aug-06 Oct-07 Dec-07 5 5Average 5 7Median 5 7Source: NBER, BEA, J.P. Morgan

In our framework, the outlook for US profit margins iscrucial. We have never had a downturn starting beforethe margins peaked. However, once margins have

peaked, we note that the risk reward for stocks becomesless attractive and the likelihood of significant activityslowdown increases. Assuming margins have peaked inQ4 ’13, the peak in equity market for this cycle couldmaterialize sometime in 2H ’15.

Table 9: Eurozone margins and EPS growth in different GDPgrowth regimes

Eurozone Real GDP,%y/y

Profit margins, yoybps

MSCI Eurozone EPS, %y/y

<-3 -453 -46%-3% to -2% -211 -31%-2% to -1% -145 -11%-1% to 0% -115 -21%0% to 1% -44 4%1% to 2% 65 14%2% to 3% 100 14%3% to 4% 56 25%>4 87 12%Source: Datastream, IBES

For Eurozone, we have argued for the past four years thatconsensus EPS projections at the start of the year werelikely to be missed. For 2015 though, we believe thatdouble-digit earnings growth could materialise in theregion. Typically, greater than 1% real GDP growthdelivery calls for double digit EPS growth and marginexpansion.

5%

6%

7%

8%

9%

10%

11%

12%

13%

82 85 88 91 94 97 00 03 06 09 12 15

US corporate profits / GDP Profits/GDP derived from compensation/GDP projection



12



Figure 31: Eurozone EPS growth vs GDP growth

Source: IBES, J.P. Morgan

JPM forecast of 1.6% Eurozone real GDP growth in2015, if achieved, would be consistent with strong doubledigit EPS delivery.

Figure 32: Europe relative to US EPS vs EUR/USD


The prospect of a weaker euro next year should be anadditional tailwind for Eurozone earnings, as the regionderives around 45% of its revenues from abroad. Therewas historically a strong inverse relationship between therelative performance of Eurozone earnings to US onesand the EUR/USD.

Figure 33: UK EPS model


In the UK, we expect earnings to remain under relatively

greater pressure. Our economists' forecast of near trendGDP growth points to a strong top-line delivery by UKcompanies, but we note that the UK market is heavilyweighted in commodities and defensive sectors, whichwill likely be a drag.

Table 10: J.P. Morgan index targets for 2015

Dec '15Target Current

%upside

TargetP/E

14eEPS

15eEPS

MSCI Europe 1,550 1,407 10% 14.0 10% 13MSCI EMU 215 190 13% 14.0 12% 13FTSE 100 7,200 6,731 7 13.0 6% 10Source: Datastream, J.P. Morgan, as at CoB 25th November

Our base case is for 13% price return for MSCI Eurozonenext year. This is driven by a rebound in the earningsgrowth to low double-digit territory and a stable P/Emultiple.

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Eurozone Real GDP %yoy (consensus forecast for '14 and '15)

MSCI Eurozone 12m Fwd EPS %yoy (rhs)

-30%

-20%

-10%

0%

10%

20%

30%-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Europe Fwd ea rn ings re l to US (e-Financ ia ls , %yoy) EUR/USD (%yoy, rhs, r s)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

UK EPS %yoy Mode l Pre dicted EPS %yoy



13



Regional allocationOW Eurozone vs the US

Figure 34: Performance of Eurozone relative to US equities

Source: Datastream

We reversed our preference for US over Eurozone on17th November. One of the reasons for this move was the

particularly poor performance of Eurozone this year; itlost 22% relative to the US in dollar terms, to be tradingagain below summer of '12 lows.

Figure 35: Net US buying of European equities

Source: US Treasury, J.P. Morgan

Positioning became much cleaner, as seen in hugeoutflows out of the region most recently.

Figure 36: Shares outstanding in Eurozone and US ETF's

Source: Bloomberg

ETF data shows that investors have unwound most oftheir bets on Eurozone and returned back to the US.

Figure 37: MSCI Eurozone 12m Fwd P/E relative to US

Source: IBES

Given the significant underperformance, Eurozonevaluations improved on forward P/E metrics and are nowin line with historical relatives vs the US.

Figure 38: MSCI Eurozone P/B relative to US

Source: Datastream

The valuation metrics which are not based on short termearnings dynamics, such as cycle-adjusted P/E or theP/B, continue to show that Eurozone is attractively

priced.

80

84

88

92

96

100

104

108

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

MSCI Eurozone rel to MSCI US ( )

-40

-30

-20

-10

0

10

20

30

40

50

60

01 02 03 04 05 06 07 08 09 10 11 12 13 14

US investors net buyingof European equities ($Bn)

260,000

270,000

280,000

290,000

300,000

310,000

320,000

330,000

340,000

350,000

185,000

195,000

205,000

215,000

225,000

235,000

245,000

255,000

265,000

275,000

Jan-1 4 Feb -14 Mar-14 Apr-14 M ay-14 Ju n-14 Jul-14 Aug-1 4 Sep-14 Oct -14 No v-14 De c-14

iShares MSCI EMU ETF -shares outstanding iShares S&P500 (rhs)

0.65

0.70

0.75

0.80

0.85

0.90

0.95

03 04 05 06 07 08 09 10 11 12 13 14

MSCI Eurozone 12m Fwd P/E rel to US median +1stdev -1stdev

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

MSCI Eurozone P/Book rel to US median +1stdev -1stdev



14



Figure 39: US vs Eurozone ROE differential

Source: Datastream

Another consideration is that relative profitability trends between Eurozone and the US are at extremes. The ROEdifferential was never this wide for long. It is likely tostart closing, in our view.

Table 11: Projected ECB balance sheet expansion

€b n 4Q14 1H15 2H15 End 2016TLTRO 275 500 600 7003Y LTRO – outstanding 250 0 0 01W 60 30 20 203M 28 25 10 10New ABS/covered 50 150 250 400Unsterilized SMP 145 135 120 70Covered bonds (old 1 and 2) 35 30 20 20Excess liquidity 227 329 554 854Cum. Net increase in b/s 123 225 450 750Source: J.P. Morgan Fixed Income research

In addition, while we believe Fed is done with money printing, ECB is just embarking on it.

Figure 40: Fed vs ECB balance sheet as % of GDP

Source: J.P. Morgan

The policy stance between the two central banks will beconverging, which should support Eurozone over the USequities.

OW Japan

Figure 41: BOJ balance sheet % of GDP

Source: BOJ, J.P. Morgan

The first key pillar behind our OW stance on Japan is theaggressive BOJ action, which is likely to expand the sizeof its balance sheet to close to the 5x the GDP ratio.

Figure 42: Topix vs Yen

Source: Datastream, doted line shows J.P. Morgan Yen forecast

This could result in further JPY weakness, which istraditionally a tailwind for Japanese equities.

Figure 43: Japan total and scheduled wages

Source: MHLW

-5%

-3%

-1%

1%

3%

5%

7%

9%

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

US minus Eurozone ROE

10

15

20

25

30

35

5

10

15

20

25

30

07 08 09 10 11 12 13 14 15 16 17

Fed - Balance Sheet % of GDP ECB

15

25

35

45

55

65

75

85

07 08 09 10 11 12 13 14 15 16 17

BoJ Balance Sheet % of GDP

75

85

95

105

115

125

700

900

1100

1300

1500

1700

11 12 13 14 15 16

Topix JPY/USD (rhs)

-6

-4

-2

0

2

4

6

91 93 95 97 99 01 03 05 07 09 11 13

Japan to ta l wages , %y/y Scheduled wages, %y/y



15



The second key support is the rising evidence ofimproving inflationary expectations, of credit growth and

wage growth.Figure 44: Japan Price to Book relative

Source: Datastream

Furthermore, Japanese equities appear attractively pricedon various valuation measures.

Table 12: GPIF asset allocation

Previous arget New targetDomestic bonds 60% 40%Domestic equities 12% 25%Foreign bonds 11% 14%Foreign equities 12% 16%Money market 5% 5%Total 100% 100%Source: J.P. Morgan

What is also relevant, in our view, is that the demand – supply dynamics will be supportive of Japanese equitiesvs other asset classes.

UW UK

We have been UW UK equities for two years now andremain so into 2015.

Table 13: MSCI UK and World sector weights

UK WorldEnergy 16% 9%Staples 16% 10%Materials 9% 5%Financials 23% 21%Telecoms 5% 3%Utilities 5% 3%Health Care 10% 13%Discretionary 8% 12%Industrials 6% 11%IT 1% 13%Cyclicals 25% 41%Defensives 36% 29%Source: Datastream, MSCI

The following pushbacks are relevant, in our view:1) UK is almost 2x more weighted in commodity sectorsthan World markets, and we believe commodities willremain under pressure for the foreseeable future.2) General elections next May are unlikely to provide amarket friendly result, irrespective of who gets into

power.3) UK is heavily weighted in Defensives. If we are rightthat bond yields start to move higher, there should be asector leadership change, away from defensives.

Table 14: Relative performance of UK vs Eurozone equitiesaround the first BOE rate hike

Source: Datastream ,* using Datastream indices before 1994

4) UK is likely to see some tightening next year, whichcould result in a stronger GBP vs Euro. The rate hikestypically meant UK underperforms Eurozone equities.

0.5

0.6

0.7

0.8

0.9

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

MSCI Japan P/Book rel to MSCI Wor ld Median +1stdev - 1stdev

-12m -6m -3m -1m +1m +3m +6m +12m

May-75 0.2% 31.8% 23.1% 14.8% 10.4% 0.2% 18.5% 30.4%

Nov-77 50.0% 10.8% 8.3% -6.2% -5.5% -13.4% -16.3% -37.8%

Sep-81 44.0% 24.8% 12.1% 3.5% -14.1% -8.3% -3.5% 15.5%

May-84 12.7% 12.4% 4.7% 4.4% -6.0% 3.4% 8.5% 12.4%

Jun-88 -6.3% 9.5% 0.4% 1.1% 3.2% 0.5% -13.0% 6.4%

Sep-94 -0.1% -0.9% 7.3% 4.3% -0.9% -0.5% -0.5% 6.5%

Oct-96 -5.1% -0.2% 5.6% -3.5% 0.2% -4.9% -16.1% -19.4%

Sep-99 0.8% -5.3% -2.5% -3.3% -2.7% -9.5% -40.6% -30.4%

Nov-03 1.3% -3.7% -1.2% -3.1% -0.8% -6.5% -3.1% -2.3%

Average 10.8% 8.8% 6.4% 1.3% -1.8% -4.3% -7.4% -2.1%

Median 0.8% 9.5% 5.6% 1.1% -0.9% -4.9% -3.5% 6.4%

% positive 67% 56% 78% 56% 33% 33% 22% 56%

MSCI UK vs Eurozone performance*



16



Neutral EM vs DM

Figure 45: MSCI EM vs DM price relative

Source: Datastream

We were underweight EM equities for as long as 3 yearsuntil May ‘14, at which point we closed our bearishstance. Since May, EM initially showed a somewhat

better performance, but have rolled over again mostrecently.

Entering into 2015, we advise a neutral stance betweenEM and DM. On the positive side we highlight:

Figure 46: MSCI EM vs DM 12m Fwd P/E

Source: IBES

EM valuations have improved a lot after the dramaticunderperformance over the past few years.

Figure 47: EM CPI vs Oil price


The fall in commodity prices is likely to feed into thelower inflation across the EM space. This should allowfor greater policy flexibility, and potentially lead to ratecuts.

Among the headwinds we highlight that:

Figure 48: EM vs DM GDP growth differential

Source: J.P. Morgan, dotted line shows JPM forecasts

EM growth rates are still likely to continue deceleratingvs the DM, although we note that the consensus viewappears to be already bearish in this regard.

60

65

70

75

80

85

90

95

100

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

MSCI EM vs DM, $

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

MSCI EM vs DM 12m Fwd PE Median +1 stdev -1 Stdev

-30%

-20%

-10%

0%

10%

20%

30%

40%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

10 11 12 13 14

EM CPI (%3mom) Brent (%3mom, rhs)

1%

2%

3%

4%

5%

6%

7%

01 02 03 04 05 06 07 08 09 10 11 12 13 14

EM minus DM real GDP growth %yoy



17



Figure 49: China total social financing % of GDP

Source: PBOC, J.P. Morgan Economics

The imbalances in China, which we have beenhighlighting for a long while do not appear to be goingaway. Credit excess is a problem. The policymakersdecided most recently to “kick the can down the roadsome way”, but the problem is not being fundamentallyaddressed, in our view.

Figure 50: China gross fixed investment % of GDP

Source: CEIC

The excessive FAI and the resulting overcapacity inmany industries, as well as no pricing power forcorporate and therefore weak profitability, remain thekey issues.

Figure 51: NBS China house price index

Source: NBS, J.P. Morgan

Most agree that FAI being such a high proportion of GDP isunsustainable and look for the consumer to take over. The

problem is that house prices are falling now in most keycities => wealth effect is working against this rebalancing.

Themes for 20151) Eurozone recovery basket is cheap again

Table 15: J.P. Morgan '15 Eurozone recovery basket – JPDEER15 <indicker Name Country Sector

CABK SM CAIXABANK S.A Spain FinancialsG IM GENERALI ASSIC Italy Financials ATL IM ATLANTIA SPA Italy IndustrialsMS IM MEDIASET SPA Italy Discretionary AGS BB AGEAS Belgium Financials

INGA NA ING GROEP NV Netherlands FinancialsGLE FP SOC GENERALE SA France FinancialsDG FP VINCI SA France IndustrialsENEL IM ENEL SPA Italy Utilities AC FP ACCOR SA France DiscretionaryHMB SS HENNES & MAURI-B Sweden DiscretionarySEV FP SUEZ ENVIRONNEME France UtilitiesUCG IM UNICREDIT SPA Italy FinancialsCA FP CARREFOUR SA France StaplesRAND NA RANDSTAD HOLDING Netherlands IndustrialsRNO FP RENAULT SA France DiscretionaryTIT IM TELECOM ITALIA S Italy Telecoms ALV GR ALLIANZ SE-VINK Germany FinancialsMEO GR METRO AG Germany StaplesSGO FP SAINT GOBAIN France IndustrialsEZJ LN EASYJET PLC Britain IndustrialsUG FP PEUGEOT SA France DiscretionaryCAP FP CAP GEMINI France IT

PRY IM PRYSMIAN SPA Italy IndustrialsDPW GR DEUTSCHE POST-RG Germany IndustrialsREP SM REPSOL SA Spain Energy ADEN VX ADECCO SA-REG Switzerland IndustrialsBOSS GR HUGO BOSS -ORD Germany DiscretionaryTKA GR THYSSENKRUPP AG Germany Materials AGL IM AUTOGRILL SPA Italy DiscretionaryTOD IM TOD'S SPA Italy DiscretionarySIE GR SIEMENS AG-REG Germany Industrials AGN NA AEGON NV Netherlands FinancialsIFX GR INFINEON TECH Germany ITLR FP LEGRAND SA France IndustrialsHEI GR HEIDELBERGCEMENT Germany MaterialsSource: Bloomberg, J.P. Morgan, all stocks are equally weighted in the basket

110

130

150

170

190

210

03 04 05 06 07 08 09 10 11 12 13 14

China stock o f total social financing, % of GD

25%

30%

35%

40%

45%

50%

1980 1985 1990 1995 2000 2005 2010

Chinese Fixed Capital Formation as % of GD

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

08 09 10 11 12 13 14

70 City Average House Prices Index, %oya



18



We update our Eurozone recovery basket and believe thatit is again becoming an attractive area to invest in.

We screened for stocks which have significant domesticexposure (>30%) and are most positively correlated toEuro area PMIs. We confirmed the list with our sectoranalysts and checked for other names that are mostgeared to a recovery in the Euro area. We excludedstocks where our analysts have an UW rating and theones that don’t meet our liquidity criteria.

Figure 52: Relative performance of the Eurozone recovery basket


The basket had a strong run in ‘13, but it rolled over thisyear, as the earnings growth didn’t deliver.

Figure 53: Eurozone recovery basket P/E relative


The basket is trading attractively again, at the P/Erelative lows. In fact, its’ P/E is lower relative to themarket than it was at the height of the Eurozone crisis, inthe summer of 2012.

2) Buy the winners and sell the losers from the lowerfor longer oil prices

Table 16: J.P. Morgan oil prices forecasts

($/BBL) Brent Y/Y Chg, % WTI Y/Y Chg, %Spot 78.3 74.12014 100.3 -8% 93.7 -4%1Q15 75.0 72.02Q15 80.0 76.03Q15 85.0 80.04Q15 88.0 81.02015 82.0 -18% 77.3 -18%2016 87.8 7 80.8 5LT 90.0 80.0Source: J.P. Morgan Commodity research, as of COB 25th November

Oil prices have fallen sharply, with WTI and Brent down

25-30% from their June highs. Our commodity analystsexpect oil price to remain under pressure and crucially,’15 and ’16 averages to remain near current levels,expecting no rebound at all.

We see the fall in oil and in other commodity prices as awelcome development for final demand, as it boosts realdisposable incomes and purchasing power. At the sectorlevel, lower oil is a headwind for Commodity equities,selected Industrials, Chemicals and UK Utilities. On theflipside, it is a positive for Consumer Cyclicals -Transport, Airlines, Autos, Retail, Travel and Leisure.

Table 17: J.P. Morgan basket of the beneficiaries of loweroil/commodity prices – JPDECW15 <index>

Ticker Name Country Sector DAI GR DAIMLER AG Germany Discretionary ABI BB ANHEUSER-BUSCH I Belgium StaplesBMW GR BAYER MOTOREN WK Germany DiscretionarySAB LN SABMILLER PLC Britain StaplesCFR VX CIE FINANCI-REG Switzerland DiscretionaryDPW GR DEUTSCHE POST-RG Germany IndustrialsPHIA NA KONINKLIJKE PHIL Netherlands IndustrialsHMB SS HENNES & MAURI-B Sweden DiscretionaryITX SM INDITEX Spain DiscretionaryLHA GR DEUTSCHE LUFT-RG Germany IndustrialsHOLN VX HOLCIM LTD-REG Switzerland MaterialsHEIA NA HEINEKEN NV Netherlands StaplesIAG LN INTL CONS AIRLIN Britain Industrials ATL IM ATLANTIA SPA Italy IndustrialsHEI GR HEIDELBERGCEMENT Germany Materials ASC LN ASOS PLC Britain DiscretionaryELUXB SS ELECTROLUX AB-B Sweden DiscretionarySKFB SS SKF AB- B SHARES Sweden IndustrialsPNDORA DC PANDORA A/S Denmark DiscretionaryLG FP LAFARGE SA France Materials AF FP AIR FRANCE-KLM France IndustrialsGKN LN GKN PLC Britain DiscretionaryPRY IM PRYSMIAN SPA Italy IndustrialsZC FP ZODIAC AEROSPACE France IndustrialsSource: Bloomberg, J.P. Morgan, all stocks are equally weighted in the basket

100

102

104

106

108

110

112

114

116

118

Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14

Eurozone recovery basket relative

0.8

0.9

1.0

1.1

03 04 05 06 07 08 09 10 11 12 13 14

Eurozone recovery basket median 12m Fwd PE relative Median +1 Stdev -1 Stdev



19



We advise to go long the basket of stocks that that shouldfundamentally benefit from lower oil and commodity

prices, according to our analysts. We excluded stockswhere our analysts have an UW rating and the ones thatdon’t meet our liquidity criteria.

Table 18: J.P. Morgan basket of the stocks hurt by loweroil/commodity prices - JPDECL15 <index>

Ticker Name Country Sector BP/ LN BP PLC Britain EnergyBAS GY BASF SE Germany MaterialsENI IM ENI SPA Italy EnergyGLEN LN GLENCORE PLC Switzerland MaterialsGSZ FP GDF SUEZ France UtilitiesBG/ LN BG GROUP PLC Britain EnergyBLT LN BHP BILLITON PLC Australia Materials ABBN VX ABB LTD-REG Switzerland IndustrialsSTAN LN STANDARD CHARTER Britain FinancialsEOAN GR E.ON SE Germany UtilitiesDNB NO DNB ASA Norway Financials AAL LN ANGLO AMER PLC Britain Materials ATCOA SS ATLAS COPCO-A Sweden IndustrialsSSE LN SSE PLC Britain UtilitiesMAERSKB DC AP MOELLER-B Denmark IndustrialsCNA LN CENTRICA PLC Britain UtilitiesRWE GR RWE AG Germany UtilitiesSOLB BB SOLVAY SA-A Belgium MaterialsHEXAB SS HEXAGON AB-B Sweden ITCARLB DC CARLSBERG-B Denmark StaplesGALP PL GALP ENERGIA Portugal EnergyBNZL LN BUNZL PLC Britain Industrials ALFA SS ALFA LAVAL AB Sweden Industrials

SMIN LN SMITHS GRP PLC Britain IndustrialsWEIR LN WEIR GROUP PLC Britain IndustrialsBALN VX BALOISE HOL-REG Switzerland Financials AGK LN AGGREKO PLC Britain IndustrialsVK FP VALLOUREC France IndustrialsLXS GR LANXESS AG Germany MaterialsDNO NO DNO ASA Norway EnergySSABA SS SSAB-A Sweden MaterialsSource: Bloomberg, J.P. Morgan, all stocks are equally weighted in the basket

Against it, we would go short the basket of stocks thatare likely to be hurt by a low oil and commodity priceenvironment, according to our sector analysts. This is in

particular the case for oil capex names. We excludedstocks that don’t meet our liquidity criteria.

3) Sell the UK stocks that could be hurt by increasedpolitical uncertainty

Figure 54: UK General Elections polls

Source: Polling companies, J.P. Morgan. *If more than one poll was carried out on thesame day the aggregate weighted by the number of respondents has been used

Political uncertainty looks set to increase ahead of nextyear's General Elections in the UK. The latest polls showa narrow gap between Labour and the Conservatives.

Table 19: J.P. Morgan basket of the stocks that could be hurt byincreasing political uncertainty in the UK - JPDEUKPU <index>

Ticker Name Sector AZN LN ASTRAZENECA PLC Health CareLLOY LN LLOYDS BANKING Financials

IMT LN IMPERIAL TOBACCO StaplesRBS LN ROYAL BK SCOTLAN FinancialsSSE LN SSE PLC UtilitiesCNA LN CENTRICA PLC UtilitiesBAB LN BABCOCK INTL GRP IndustrialsCPI LN CAPITA PLC IndustrialsWMH LN WILLIAM HILL DiscretionaryBKG LN BERKELEY GROUP DiscretionaryHSBA LN HSBC HLDGS PLC FinancialsPRU LN PRUDENTIAL PLC FinancialsBARC LN BARCLAYS PLC FinancialsLGEN LN LEGAL & GEN GRP FinancialsSource: Bloomberg, J.P. Morgan, all stocks are equally weighted in the basket

We advise to go short the basket of UK stocks, which

according to our analysts are likely to face headwindsstemming from an uncertain political environment - in

particular, the general elections expected next May and potentially a referendum on EU exit in 2017. Weexcluded stocks that don’t meet our liquidity criteria.

29%

31%

33%

35%

37%

39%

41%

Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14

Con servatives L abour

Conservatives: 30%

Labour: 34%



20



If Labour were to assume government, we find thesectors most negatively impacted would be Banks due to

a potential drive for greater competition in the sector,Utilities from a possible 20-month energy price freeze,Business Services due to potentially less outsourcing andrenegotiation of past contracts and Homebuilders fromweaker margins.

The referendum on EU exit appears to be conditional onthe Conservative government winning next year'selections, among other considerations. Banks, especiallywholesale names, would be negatively impacted by thisuncertainty, in our view.

The impact on individual stocks will vary depending onthe different election outcomes, but we think that mostUK stocks which are sensitive to elections will be under

pressure over the next few months as we anticipate thatthe election result will be highly unpredictable until right

before polling day, and headline risk will be elevated fora while.

4) Bond proxies appear stretched, but might be stillbenefitting from continued inflows – Sell expensivebond proxies to buy cheap ones and keep buyingBuyback plays

Figure 55: J.P. Morgan global CPI forecast

Source: J.P. Morgan

Our economists expect global inflation to move lowerover the coming months, largely due to the fallingcommodity prices. As base effects dissipate, inflationshould start to rebound in 2H '15.

Figure 56: Dividend yield relative of European Defensives* to thebroader market

Source: Datastream, * Staples, Healthcare, Telecoms, Utilities

The traditional defensive bond proxies have already

benefited from the search for yield theme, as bond yieldsfell, and are starting to appear expensive. The aggregatedividend yield of all 4 defensive sectors in Europe isnowadays barely higher than the one of the overall market.

Table 20: J.P. Morgan basket of expensive "bond proxies" –JPDERL15 <index>

icker Name Country Sector DLG LN DIRECT LINE INSU Britain FinancialsSWEDA SS SWEDBANK AB-A Sweden FinancialsZURN VX ZURICH INSURANCE Switzerland FinancialsDL NA DELTA LLOYD NV Netherlands FinancialsEDP PL EDP Portugal UtilitiesTEF SM TELEFONICA Spain TelecomsSSE LN SSE PLC Britain UtilitiesGSK LN GLAXOSMITHKLINE Britain Health CareTEL2B SS TELE2 AB-B SHS Sweden TelecomsVOD LN VODAFONE GROUP Britain TelecomsENG SM ENAGAS SA Spain UtilitiesIMT LN IMPERIAL TOBACCO Britain StaplesUL NA UNIBAIL-RODAMCO France FinancialsBELG BB BELGACOM SA Belgium TelecomsHNR1 GR HANNOVER RUECK S Germany FinancialsNG/ LN NATIONAL GRID PL Britain UtilitiesZIGGO NA ZIGGO NV Netherlands TelecomsSL/ LN STANDARD LIFE Britain FinancialsORA FP ORANGE France TelecomsBATS LN BRIT AMER TOBACC Britain StaplesSVT LN SEVERN TRENT Britain UtilitiesUU/ LN UNITED UTILITIES Britain UtilitiesSCMN VX SWISSCOM AG-REG Switzerland TelecomsUNA NA UNILEVER NV-CVA Britain StaplesNESN VX NESTLE SA-REG Switzerland StaplesBT/A LN BT GROUP PLC Britain Telecoms ASSAB SS ASSA ABLOY AB-B Sweden IndustrialsSource: Bloomberg, J.P. Morgan, all stocks are equally weighted in the basket

We advise to go short the basket of expensive “bond proxies”. We screened for names with dividend yieldgreater than 3%, which have outperformed the marketand rerated YTD. We also filtered for stocks that areexpensive on P/E and P/B compared to the 10Y historicalmedian. We excluded stocks that don’t meet our liquiditycriteria.

1.7%

1.9%

2.1%

2.3%

2.5%

2.7%

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

G lob al CPI %yoy J PM fo re cat s

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

European Defensives dividend yield rel to the market median



21



Figure 57: P/E relative of expensive bond proxies


The basket is currently trading at a 12% P/E premium tohistorical relatives.

Table 21: J.P. Morgan basket of sustainable yield plays –JPDEDP15 <index>

Ticker Name Country Sector MUV2 GR MUENCHENER RUE-R Germany FinancialsCO FP CASINO GUICHARD France Staples AMFW LN AMEC FOSTER WHEE Britain EnergySESG FP SES Luxembourg DiscretionaryPSON LN PEARSON PLC Britain Discretionary ADN LN ABERDEEN ASSET Britain FinancialsNXT LN NEXT PLC Britain DiscretionaryTEC FP TECHNIP SA France EnergySKY LN SKY PLC Britain DiscretionarySIE GR SIEMENS AG-REG Germany Industrials

PHIA NA KONINKLIJKE PHIL Netherlands IndustrialsDSM NA DSM (KONIN) Netherlands MaterialsCRH ID CRH PLC Ireland MaterialsGIVN VX GIVAUDAN-REG Switzerland MaterialsWPP LN WPP PLC Britain DiscretionaryUMI BB UMICORE Belgium MaterialsKINVB SS KINNEVIK-B SHS Sweden FinancialsSGE LN SAGE GROUP Britain ITROG VX ROCHE HLDG-GENUS Switzerland Health CareBOKA NA BOSKALIS WES Netherlands IndustrialsSource: Bloomberg, J.P. Morgan, all stocks are equally weighted in the basket

Against it, we would go long the basket of sustainable,growing and high dividend yielding names. We screenedfor stocks which have shown sustainable dividendgrowth since 2006 and have a 15e dividend yield greaterthan 3%. We also filtered the non-financials for positivefree cash flow and strong balance sheet (positive '15eFCF yield and ‘15e net debt to equity less than 1.5). Weexcluded stocks where our analysts have an UW ratingand the ones that don’t meet our liquidity criteria.

Figure 58: P/E relative sustainable dividend yield plays


The basket appears attractively valued, currently tradingat a 5% P/E discount to historical relatives.

Table 22: J.P. Morgan basket of buyback stocks – JPDEBB15<index>

Ticker Name Country Sector PNDORA DC PANDORA A/S Denmark Discretionary AGS BB AGEAS Belgium FinancialsNESN VX NESTLE SA-REG Switzerland StaplesMUV2 GR MUENCHENER RUE-R Germany FinancialsTEL NO TELENOR ASA Norway Telecoms ADEN VX ADECCO SA-REG Switzerland IndustrialsNOK1V FH NOKIA OYJ Finland ITPHIA NA KONINKLIJKE PHIL Netherlands IndustrialsGN DC GN STORE NORD Denmark Health CareNOVOB DC NOVO NORDISK-B Denmark Health Care

SGE LN SAGE GROUP Britain ITSIE GR SIEMENS AG-REG Germany IndustrialsNOVN VX NOVARTIS AG-REG Switzerland Health CareIFX GR INFINEON TECH Germany IT ASML NA ASML HOLDING NV Netherlands ITREL LN REED ELSEVIER PL Britain DiscretionaryWPP LN WPP PLC Britain Discretionary ABBN VX ABB LTD-REG Switzerland IndustrialsSAN FP SANOFI France Health CareGSK LN GLAXOSMITHKLINE Britain Health CareYAR NO YARA INTL ASA Norway Materials ADS GR ADIDAS AG Germany Discretionary AGN NA AEGON NV Netherlands Financials AMS SM AMADEUS IT HOLDI Spain ITSOON VX SONOVA HOLDING A Switzerland Health Care

Source: Bloomberg, J.P. Morgan, all stocks are equally weighted in the basket

We refresh our basket of European stocks that areconducting or are expected to do share buybacks,according to our analysts. It outperformed by 3% ytd andwe believe that these stocks will continue to find support.We excluded stocks where our analysts have an UWrating and the ones that don’t meet our liquidity criteria.

0.7

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Reflation Losers vs Market Median - 12m Fwd P/E Median Median Median

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S ust ai nab le Di vi de nd Pl ays vs Ma rk et Med ia n- 1 2m Fwd P /E M ed ia n +1 Std ev - 1 St de v



22



5) Sell US exporters to buy Eurozone and Japaneseones

Table 23: J.P. Morgan FX forecasts

vs U$ Dec-14 Mar-15 Jun-15 Sep-15 Dec-15EUR 1.25 1.22 1.20 1.18 1.18JPY 119 120 123 125 128GBP 1.56 1.53 1.51 1.51 1.53DXY 88.1 89.9 91.3 92.3 92.3Source: J.P. Morgan FX research

Our FX strategists expect USD to appreciate against allthe major currencies next year.

Table 24: US exporters to be hurt by the stronger dollar

Ticker Name Sector

Non-

DomesticSales, % AFL US AFLAC Financials 76% AGCO US AGCO Industrials 74%BDX US BECTON DICKINSON Health Care 58%BWA US BORGWARNER INC Discretionary 74%CE US CELANESE CORP-SERIES A Materials 72%CCE US COCA COLA ENTS. Staples 70%CL US COLGATE-PALM. Staples 82%COP US CONOCOPHILLIPS Energy 75%DISCA US DISCOVERY COMMS.'A' Discretionary 45%EBAY US EBAY IT 52%FCX US FREEPORT-MCMORAN INC Materials 55%HAIN US HAIN CELESTIAL GP. Staples 37%HAR US HARMAN INTERNATIONAL Discretionary 70%JNJ US JOHNSON & JOHNSON Health Care 55%JOY US JOY GLOBAL INC Industrials 57%MGA US MAGNA INTERNATIONAL INC Discretionary 76%MCD US MCDONALDS Discretionary 69%MDLZ US MONDELEZ INTERNATIONAL Staples 80%NEM US NEWMONT MINING CORP Materials 100%NUS US NU SKIN ENTERPRISES 'A' Staples 88%OII US OCEANEERING INTL INC Energy 66%PLL US PALL CORP Industrials 100%PG US PROCTER & GAMBLE Staples 61%PRU US PRUDENTIAL FINL. Financials 46%RL US RALPH LAUREN CL.A Discretionary 33%SLB US SCHLUMBERGER LTD Energy 69%STJ US ST.JUDE MEDICAL Health Care 53%SPLS US STAPLES Discretionary 30%TUP US TUPPERWARE BRANDS Discretionary 75%UTX US UNITED TECHNOLOGIES Industrials 43%Source: Bloomberg, J.P. Morgan

We list in the above table the US names that derive asignificant part of their revenues from abroad and whichwill likely be hurt by a strong dollar, according to oursector analysts.

Table 25: J.P. Morgan basket of Euro exporters – JPDEEX15<index>

Ticker Name Country Sector ASML NA ASML HOLDING NV Netherlands ITLUX IM LUXOTTICA GROUP Italy DiscretionarySTM IM STMICROELECTRONI Switzerland ITREN NA REED ELSEVIER Britain DiscretionaryWRT1V FH WARTSILA OYJ ABP Finland IndustrialsMC FP LVMH MOET HENNES France DiscretionaryGIVN VX GIVAUDAN-REG Switzerland MaterialsZC FP ZODIAC AEROSPACE France IndustrialsPUB FP PUBLICIS GROUPE France DiscretionaryOR FP L'OREAL France StaplesRI FP PERNOD RICARD SA France StaplesMT NA ARCELORMITTAL Luxembourg MaterialsDAI GR DAIMLER AG Germany Discretionary AIR FP AIRBUS GROUP NV France IndustrialsUCB BB UCB SA Belgium Health CareCFR VX CIE FINANCI-REG Switzerland DiscretionaryBAYN GR BAYER AG-REG Germany Health CareDSY FP DASSAULT SYSTEME France ITSW FP SODEXO France Discretionary AH NA AHOLD NV Netherlands StaplesSAF FP SAFRAN SA France IndustrialsG1A GY GEA GROUP AG Germany IndustrialsBMW GR BAYER MOTOREN WK Germany DiscretionaryBNR GR BRENNTAG AG Germany Industrials AKZA NA AKZO NOBEL Netherlands MaterialsCRH ID CRH PLC Ireland MaterialsSource: Bloomberg, J.P. Morgan, all stocks are equally weighted in the basket

On the flipside, Euro exporters are likely to benefit from

a weaker EUR/USD. We advise to go long the basket ofstocks that should benefit the most, according to oursector analysts. We screened for stocks with significantinternational exposure (>50%) and which are the mostnegatively correlated to the Euro. We confirmed the listwith our sector analysts and checked for other names thatare likely to benefit the most from a weaker Euro. Weexcluded stocks where our analysts have an UW ratingand the ones that don’t meet our liquidity criteria.



23



Table 26: Japanese exporters to benefit from the weaker Yen

Ticker Name Sector Non domestic

sales, %6857 JP ADVANTEST IT 89%7259 JP AISIN SEIKI Discretionary 47%6113 JP AMADA Industrials 53%5201 JP ASAHI GLASS Industrials 69%7762 JP CITIZEN HDG. IT 66%6902 JP DENSO Discretionary 54%6702 JP FUJITSU IT 38%6305 JP HITACHI CON.MCH. Industrials 71%6473 JP JTEKT Industrials 60%7276 JP KOITO MANUFACTURING Discretionary 55%6503 JP MITSUBISHI ELECTRIC Industrials 33%6268 JP NABTESCO Industrials 43%5991 JP NHK SPRING Discretionary 46%7201 JP NISSAN MOTOR Discretionary 78%6471 JP NSK Industrials 62%7733 JP OLYMPUS Health Care 53%

6753 JP SHARP Discretionary 61%9984 JP SOFTBANK Telecoms 40%6758 JP SONY Discretionary 72%5802 JP SUMITOMO ELECTRIC Discretionary 55%6762 JP TDK IT 90%8035 JP TOKYO ELECTRON IT 60%Source: Bloomberg, J.P. Morgan

Likewise, a weaker Yen will be a strong positive forJapanese exporters. We list in the above table theJapanese names that are likely to benefit the most fromthis.

Table 27: J.P. Morgan Strategy thematic baskets for 2015

Name Ticker RecommendationEurozone recovery JPDEER15 BuyWinners from lower oil prices JPDECW15 BuyLosers from lower oil prices JPDECL15 SellUK political uncertainty JPDEUKPU SellExpensive bond proxies JPDERL15 SellSustainable yield plays JPDEDP15 BuyBuyback stocks JPDEBB15 BuyEurozone exporters JPDEEX15 BuySource: J.P. Morgan, Bloomberg



24



Sector AllocationTable 28: European sector allocation

Sector JPM RecommendationFinancials OverweightDiscretionary OverweightIndustrials OverweightEnergy NeutralMaterials NeutralTechnology NeutralTelecoms NeutralStaples UnderweightUtilities UnderweightHealthcare UnderweightSource: J.P. Morgan

We started 2014 with an UW stance on Chemicals,Industrials, Mining, Luxury, Retail, Energy and otherCyclicals, while we had a relative preference for Pharmaand Utilities. We started to reverse this stance from themid year and entering 2015 we have a preference forCyclicals and Financials over Defensives and overcommodity sectors.

OW Cyclicals vs Defensives

Figure 59: Cyclicals price relative to Defensives

Source: Datastream

Cyclicals have lagged Defensives by 930bp in Europeytd and by 510bp in the US. Most recently though,Cyclicals have started to perform better, which we

believe will continue into next year.

Figure 60: Cyclicals 12m Fwd P/E relative to Defensives

Source: IBES

In our view, Cyclicals are offering an attractive risk-reward at present. Relative to Defensives, they arecurrently trading at the cheapest P/E multiple sinceQ1’09. In a sense, their P/E multiples are alreadyconsistent with the start of recessions, as was the case in’01 and ’08. If the recession does not materialize nextyear, as is the JPM view, the relative derating ofCyclicals has gone too far, in our view.

Figure 61: Global Cyclicals vs Defensives and US bond yields


As outlined earlier, a potential move up in bond yieldswould likely induce a change in market leadership. Therewas historically a strong positive correlation between therelative performance of Cyclicals vs Defensives and the

direction of bond yields.

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Europe Cyclicals rel to Defensives US Cyclicals rel to Defensives

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25



Figure 62: Cyclicals relative to Defensives vs IFO

Source: Datastream

In addition, our expectation of a pickup in Eurozone andin global activity momentum also points to a betterrelative performance of Cyclicals vs Defensives. We notethat the latest rebound in German IFO and in FrenchInsee surveys is a positive development in this regard.

Figure 63: Cyclicals 12m Fwd EPS relative to Defensives vs Euroreal GDP growth

Source: IBES, J.P. Morgan, dotted line shows J.P. Morgan GDP forecast for 2015

The relative EPS momentum of Cyclicals vs Defensivesshould accelerate next year, as activity improves.

Table 29: Eurozone sectors' 15e EPS growth IBES projections

2015e EPS

Weighted MedianMSCI Eurozone 16.4% 11.5%Energy 7.9% 10.0%Materials 18.1% 20.3%Industrials 15.2% 14.0%Discretionary 14.2% 13.0%Staples 11.2% 11.5%Healthcare 9.1% 10.4%Financials 27.6% 15.7%IT 21.2% 17.8%Telecoms 8.6% 6.2%Utilities 4.5% 4.4%Source: IBES

In Eurozone, we expect domestic cyclicals and exportersto deliver better than consensus projected earningsgrowth next year. On the flipside, commodity producersand capex-related names, Staples and Utilities will likelyface significant earnings pressure, resulting in potentialestimate downgrades, in our view.

Table 30: US sectors' 15e EPS growth

2015e EPSWeighted Median

MSCI US 9.9% 9.6%Energy -1.2% 4.5%Materials 13.9% 12.6%Industrials 9.7% 12.0%Discretionary 17.3% 13.2%Staples 6.8% 7.7%

Healthcare 10.5% 10.2%Financials 14.8% 7.2%IT 10.0% 11.7%Telecoms 7.2% 8.8%Utilities 3.5% 4.9%Source: IBES

In the US, we believe that consumer cyclicals will likely benefit from a pickup in consumer spending due to lowergasoline prices, improving wage growth and greaterlabour market visibility. On the flipside, Oil companiesand Staples' earnings could be under more pressure dueto the fall in commodity prices. Tech earnings could also

be hurt by the stronger USD.

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99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Europe Cyclicals r el to Def ensives ( %6mom ) IF O (%6mom, rhs)

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96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Cyclicals rel to Defensives 12m FwdEPS %6mom Euro Area GDP growth (rhs)



26



Energy - NeutralTable 31: Energy sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

FCFyield P/B

Europe 4% 11% 14.0 3.7% 5.4% 1.8

Energy N -5% 0% 10.9 5.3% 0.9% 1.2

Oil & Gas N -2% 0% 11.1 5.2% 0.3% 1.2

Equipment & Svs UW -30% 2% 9.0 6.4% 6.9% 1.0

Source: Datastream, MSCI, IBES, J.P. Morgan, as at COB 25th Nov ‘14

Energy is by far the worst performing level 1 sector ytd, both in Europe and in the US, lagging the broader market

by 9% and 14%, respectively. We have been cautious onthe space for more than two years, but advise not to beshort into ‘15. We look to use any significant rallies tosell into them, though. Within Energy, we maintain a

preference for integrated vs services names.

Oil price to remain under pressure over the mediumterm …

Figure 64: WTI and Brent prices ytd ($/BBL)

Source: Bloomberg

Oil prices have fallen sharply in H2 ’14, with Brent andWTI down 25-30% from their June highs.

Table 32: J.P. Morgan oil price projections($/BBL) Brent Y/Y Chg, % WTI Y/Y Chg, %Spot 78.3 74.12014 100.3 -8% 93.7 -4%1Q15 75.0 72.02Q15 80.0 76.03Q15 85.0 80.04Q15 88.0 81.02015 82.0 -18% 77.3 -18%2016 87.8 7% 80.8 5%LT 90.0 80.0Source: J.P. Morgan Commodity research. As at COB 25th Nov ‘14

Our commodity analysts believe the oil price will remainunder pressure. Importantly, the forecasts assume no

significant rebound in oil price from current levels overthe medium term. WTI and Brent are expected to average$77 and $82, respectively in ’15.

Figure 65: Energy sector EPS growth vs oil price

Source: IBES, Bloomberg. dotted line represents J.P. Morgan forecasts

Against the backdrop of weakening oil prices, we expectEnergy earnings to continue being downgraded. Here,IBES expectations of flat EPS growth for Energy nextyear appear too optimistic.

Figure 66: Energy FCF yield

Source: IBES

Also, cash flow generation will likely stay under pressurenext year despite greater capex cuts by integratedcompanies, as lower oil prices hurt their profitability. Wefear that sell side analysts’ hopes of positive FCF yieldfor the Energy sector in ’15 will not be met.

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Jan-14 F eb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14

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Energy FCF Yield, %



27



…but a lot is in the price already

Figure 67: Energy sector performance ytd vs oil price

Source: Bloomberg

Clearly, the Energy sector is unlikely to reboundmaterially without a bottoming out in oil prices. We note,however, that the sector has already underperformedsharply, peaking almost to the day with the peak in oil

price, and it followed oil price all the way down.

Figure 68: European Energy 12m forward P/E relative

Source: IBES

Given the big recent underperformance, Energyvaluations have improved materially, to be back to the

bottom of the range on P/E relative metrics.

Figure 69: Energy P/Book relative

Source: Datastream

The sector also screens cheap on P/Book metric,currently trading at the bottom of the historical range

relative to the overall market.Figure 70: Energy dividend yield relative

Source: Datastream

While lower oil prices will likely keep Energy dividendsunder pressure, the sector offers some cushion to

potential cuts, with current dividend yield at 5% vs 3.3%for the market. Our sector analysts believe that thesector's dividends are largely covered at the current spotoil prices.

Figure 71: Oil sector seasonality

Source: Datastream

We note that the Oil sector tended to perform well in the

first half of the year. Seasonality is soon likely to becomea support.

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Stoxx600 Oil & Gas YTD total return relative to marke Brent ($) -rhs

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28



Materials - NeutralTable 33: Materials sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

FCFyield P/B

Europe 4% 11% 14.0 3.7% 5.4% 1.8

Materials N -2% 10% 13.7 3.4% 6.1% 1.8

Chemicals N 0% 9% 15.6 3.1% 5.0% 2.7

Cons Mat OW 6% 30% 15.5 2.6% 7.8% 1.3

Met&Min N -6% 9% 11.7 4.0% 6.8% 1.3


Our big picture view is that commodity sectors will

remain under structural pressure due to the strong USDregime and the continued slowing in China. We believethe current situation is similar to the ’95-’00 period.

Within this, Materials have already dramaticallyunderperformed over the past 3 years, and the near term

potential for more Chinese monetary easing keeps usfrom being outright short. However, we would sell intoany meaningful rallies in the space.

Mining - Neutral

Figure 72: Mining price relative

Source: Datastream

We started the year UW Mining, the third year in a rowwith a cautious stance, but tactically upgraded in Mayfollowing the sector’s sharp underperformance. After a

brief rebound since May, Miners have rolled over again,to be back to the price relative lows seen in ‘09.

Figure 73: Speculative positions on Copper futures contracts

Source: Bloomberg

Investor positioning in commodity space appears to be bearish again. As per the above chart, speculative shortson copper are back to the lows of '02 and '09. Both werefollowed by a strong rebound in Mining stocks and incommodity prices.

Figure 74: Chinese copper inventories

Source: Bloomberg

Also, Chinese commodity destocking has gone a longway already, with inventories at low levels.

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29



Figure 75: Chinese copper imports

Source: Bloomberg

We note that Chinese commodity imports have started toincrease again.

In the very short term, some of these oversold indicators,the helpful time of the year with seasonal restocking intoChinese New Year and the potential further monetaryeasing could support the sector.

Figure 76: Cement consumption vs GDP per capita - China vsSpanish and Irish bubbles

Source: J.P. Morgan

However, we believe that the long standing concernsover Chinese structural imbalances, credit excess andovercapacity in many parts of the economy, are not goingaway.

Figure 77: Commodity index vs DXY

Source: J.P. Morgan, Bloomberg

Also, our expectation of further dollar strengthening points to continued downside to commodity prices.

Figure 78: Mining EPS vs Metal prices

Source: CRB, IBES

In an environment of low commodity prices, we expectMining’s profitability to remain under significant

pressure. Here, IBES estimates of nearly 30% cumulativeEPS growth for the sector over the next two years looktoo optimistic. The cash return thesis is beingincreasingly challenged by the stubbornly lowcommodity prices.

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30



Figure 79: Mining P/E relative

Source: IBES

Mining is not particularly attractively priced, in our view

currently trading in line with its’ long term P/E relative.In the very short term, potential for further policy support

prevents us from being outright short the sector, but wewould use any rally to reset shorts.

Chemicals – Neutral

Figure 80: European chemicals volume and pricing growth vsEPS growth

Source: J.P. Morgan, IBES

We remain unexcited by Chemicals going into next year.We believe that their pricing will continue to be under

pressure due to soft demand and still significantovercapacity.

Figure 81: Chemicals EPS growth vs oil price

Source: IBES, Datastream. *Dotted line represents J.P. Morgan forecasts

The prospect of lower oil prices next year does not bodewell for the sector, in our view. The derivatives of oil,through naphtha, are used as inputs or raw materials. Alower oil price is typically passed through to customers,in terms of falling selling prices.

Figure 82: US and European Chemicals EBIT margins

Source: IBES

European players will likely continue to see margin pressure compared to US Chemicals. US peers benefitfrom lower production costs thanks to the shale gas rampup.

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31



Figure 83: Chemicals 12m Fwd P/E relative

Source: IBES

Chemicals’ fundamentals remain uninspiring, but weacknowledge that their valuations have improvedrecently. This should limit the downside to share prices.Also, the sector is highly correlated to PMIs and couldsee a rebound if the region’s PMIs stabilize.

Construction Materials – Overweight

Table 34: Construction Materials geographical sales exposure

WesternEurope

NorthAmerica

DevelopedAsia EM

CRH 45% 44% 0% 11%

Heidelberg cement 31% 24% 9% 37%

Holcim 25% 18% 10% 48%

Lafarge 20% 21% 0% 59%Source: Worldscope, Bloomberg

Construction Materials are offering an attractive risk-reward at present, in our view. They are one of best playson Eurozone recovery. Construction activity could

bottom out in Europe next year, while it is expected toremain strong in the US and to stabilize in EM.

Figure 84: Construction Materials EV/EBITDA relative

Source: IBES

The sector valuations do not look particularly cheap, butour sector analysts see limited downside risks to ‘15consensus earnings estimates, following the sharp cutsseen earlier this year.

Figure 85: US construction spending and construction materialsrelative performance

Source: Census, Datastream

US construction plays, Heidelberg Cement and CRH,should benefit from further strong recovery in USconstruction activity. Historically, the sector tended to

perform well in the environment of improving USconstruction spending. We note that a gap between thetwo series has opened up most recently.

0.6

0.7

0.8

0.9

1.0

1.1

1.21.3

1.4

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Chemicals 12mth Fwd P/E rel Median +1stdev -1stdev

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

01 02 03 04 05 06 07 08 09 10 11 12 13 14

Cons Materials EV/EBITDA rel to Europe Avg -1sd +1sd

40

50

60

70

80

90

100

600

700

800

900

1000

1100

1200

1300

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

US construction spending ($ bn, saar) Europe Construction Materials relative (rhs)



32



Industrials - OverweightTable 35: Industrials sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

FCFyield P/B

Europe 4% 11% 14.0 3.7% 5.4% 1.8

Industrials OW -2% 14% 14.8 3.2% 6.4% 2.7

Cap Goods OW -2% 14% 14.8 3.2% 7.0% 2.7

Transport OW 4% 17% 13.6 3.2% 4.1% 2.2

Business Svs N -5% 11% 16.3 3.1% 6.4% 5.2


We are OW Industrials, mainly through the Capital

Goods and the Transport - in particular the Airlines. Wenote that the sector’s relative valuations are the mostattractive in 10 years, it is not a consensus long anymoreand the prospect of a pickup in global growth, coupledwith a lower Euro, could be the supports next year.

Capital Goods – Overweight

Figure 86: Capital Goods 12M Fwd P/E relative

Source: IBES

Capital Goods have underperformed the market sharplythis year, derating further. The sector is now trading onthe cheapest relative P/E multiple in 10 years.

Figure 87: Industrials EPS growth vs Euro IP


We think that the sector is offering an attractive risk-reward into next year. Our expectation of a recovery inEurozone IP points to an improving EPS momentum forCapital Goods. We believe the inventories are gettingdepleted as the consumer spend has held up well recentlyand the fall in commodity prices will likely boostspending further into next year.

Figure 88: Capital Goods EBIT/Margins

Source: IBES

Capital Goods’ profit margins have moderated in the last3 years and are below their last cycle peak. Our analystsexpect improving margin trend going forward due to afavorable base, improving topline and the FX tailwind.

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Capital Goods 12mth Fwd P/E rel Median +1stdev -1stdev

-15%

-10%

-5%

0%

5%

10%

15%

-60%

-40%

-20%

0%

20%

40%

60%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Indus tr ia ls 12m Fwd EPS %yoy Euro IP %yoy (rhs)

4%

5%

6%

7%

8%

9%

03 04 05 06 07 08 09 10 11 12 13 14e

European Capital Goods EBIT margins, %



33



Figure 89: Eurozone capex share of GDP

Source: Eurostat

Regionally, Eurozone capex could show some pickup. Itis depressed in the historical context as a share of GDPand is unlikely to move much lower from here.

Figure 90: Eurozone capex growth vs corporate profits

Source: IBES, Eurostat *dotted line represents JPM forecasts

The combination of improving credit dynamics,accelerating corporate profit growth and rising utilizationrates points to a turn in Eurozone capex ahead.

Figure 91: US non-residential capex share of GDP

Source: BEA

On the flipside, the US capex cycle appears to be moremature, with non-residential capex share of GDP already

back to above historical norms.In addition, Chinese demand will likely stay soft.Chinese fixed investment share of GDP is currently near50%, and in our view there is only one direction this cango from here.

Figure 92: Capital Goods price relative vs US bond yields

Source: Datastream

We note that Capital Goods were historically one of themost positively correlated sectors to bond yields. IfJPM’s forecast of rising US yields next year materializes,the sector will likely outperform.

Figure 93: Mining capex projections

Source: J.P. Morgan

Within Capital Goods, we are particularly positive onconsumer plays, US construction related names and onAerospace & Defense, while we stay cautious on Miningand Energy capex plays.

12%

13%

14%

15%

16%

17%

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Eurozone non-residential fixed investment % of GDP average

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-15%

-10%

-5%

0%

5%

10%

15%

92 94 96 98 00 02 04 06 08 10 12 14

EMU Non-Residential fixed investment (%yoy)MSCI EMU 12m Fwd EPS (%yoy, rhs) - brough t forward by 1Q

10%

11%

12%

13%

14%

15%

16%

70 73 76 79 82 85 88 91 94 97 00 03 06 09 12

US Nonresidential fixed investment % of GDP Long term average

-60%

-40%

-20%

0%

20%

40%

60%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Capital Goods relat ive, %6mom US 10 Yr Bdy, %6mom, rhs

19 22

37

53

44

32 3226 27

0

10

20

30

40

50

60

2009 2010 2011 2012 2013 2014E 2015E 2016E 2017

Cumulative Capex of BHP, RIO, GLEN ($bn)



34



Transports – Overweight

Figure 94: Transports 12m Fwd P/E relative

Source: IBES

We are Overweight Transports in Europe. The sector istrading on the cheapest relative P/E in more than 10years.

Figure 95: Airlines relative performance vs oil price

Source: Datastream

The overall Transport sector, and Airlines in particular,should be one of the main beneficiaries of lower oil

prices.

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Transport 12mth Fwd P/E rel Median +1stdev -1stdev

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Global Airlines relative %yoy Oil price %yoy (rhs,RS)



35



Consumer Discretionary -

OverweightTable 36: Discretionary sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

FCFyield P/B

Europe 4% 11% 14.0 3.7% 5.4% 1.8

Discretionary OW 3% 13% 13.6 3.0% 5.4% 2.5

Automobile OW 2% 13% 9.2 3.3% 4.4% 1.4

Cons Durables OW 1% 16% 16.5 2.4% 6.7% 3.0

Media N 4% 13% 16.5 3.4% 6.9% 4.2

Retailing OW -1% 12% 18.9 3.3% 4.6% 5.0

Hotels, Rest&Leis OW 11% 11% 19.0 2.5% 3.4% 4.6Source: Datastream, MSCI, IBES, J.P. Morgan, as at COB 25th Nov ‘14

Big picture - we believe that Consumer Cyclicals stocksstand to benefit from the falling oil prices, resilientlabour markets in the US, bottoming out in Eurozoneactivity and the stronger USD.

Figure 96: Euro area consumer credit growth

Source: ECB

In addition, the turn in Eurozone’s credit cycle will likely provide a boost to consumer spending into '15.

Autos – Overweight

Figure 97: Sectoral correlation to Eurozone Composite PMI

Source: Markit, IBES

Autos, along with Banks, are the two sectors whichdisplay the highest sensitivity to the Eurozone businesscycle. We believe the disappointment on this front seenin '14 will not be repeated next year.

Figure 98: Autos EV/EBITDA relative

Source: IBES

Autos’ valuations appear attractive; the sector has shownone of the most significant deratings of the 24 Europeanlevel 2 sectors ytd.

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

04 05 06 07 08 09 10 11 12 13 14

Euro Area consumer credit (%y/y)

7%

21%39%

40%42%

45%46%

54%

55%56%

59%

64%

67%67%

69%69%70%

70%70%

73%74%

76%78%

85%

88%90%

0% 20% 40% 60% 80% 100%

Tech Hardware

SemiconSoftware

UtilitiesHotels,Rest&Leis

MediaTelecoms

Energy

Cons DurablesInsurance

Real Estate

Cons Mat

HealthcareRetailing

Food Drug RetFood Bev&Tob

Euro Area

Cap GoodsDiv Fin

TransportChemicals

Business ServicesHPC

Met&Min

Banks Automobile

Earnings correlation to Eurozone Composite PMI

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

01 02 03 04 05 06 07 08 09 10 11 12 13 14

Autos EV/EBITDA rel to Europe Avg -1sd +1sd



36



Figure 99: Eurozone car sales and unemployment rate

Source: Eurostat, ECB

We expect improving labor markets in Europe to helpvolume growth next year.

Figure 100: Spanish car sales and unemployment rate

Source: Eurostat, ECB

Car sales appear to have bottomed out already in the periphery, as the unemployment rate started to fall. Inaddition, lower energy costs are a welcome developmentfor global final demand, as they boost consumer

purchasing power through higher disposable incomes.Autos are likely to be one of the key beneficiaries here.

Table 37: European Autos' regional sales split

as % ofTotal

WesternEurope

NorthAmerica EM

of whichChina Others

BMW 39.4% 21.8% 29.9% 21.3% 8.9%

Daimler 43.7% 21.0% 25.1% 14.7% 10.2%

Fiat 20.1% 48.5% 28.8% 3.9% 2.6%

PSA 53.6% 0.2% 42.2% 19.2% 4.0%

Renault 50.5% 0.9% 43.4% 1.3% 5.2%

Volkswagen 32.6% 9.5% 52.4% 34.8% 5.5%

Source: Worldscope, Bloomberg, J.P. Morgan

Our sector analyst expects EM volumes to stay under pressure in the near term, but we think that the fallingEuro will help mitigate some of the negative impact forAuto exporters.

Figure 101: Steel prices

Source: Bloomberg

Lower commodity prices will benefit the profitability ofthe Auto sector, in our view. Raw commodities accountfor around 60% of COGS.

Figure 102: Tyre manufacturers’ price relative vs Oil price

Source: Datastream

Tyre manufacturers and Auto parts will likely benefit themost from the lower oil price, as it reduces their inputcosts significantly.

5

67

8

9

10

11

12

1355

65

75

85

95

105

115

125

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Euro Area car registrations, ( '000s) Eurozone Unemployment rate, % (rhs) -rs

5

10

15

20

25

3025

35

45

55

65

75

85

95

105

115

125

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Spain Spanish Unemployment ra te , % (rhs) - r s

620

630

640

650

660

670

680

690

Jan 14 Apr 14 Jul 14 Oct 14

Hot-Rolled Coil Steel Index

-100%

-50%

0%

50%

100%

150%

200%-200%

-150%

-100%

-50%

0%

50%

100%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

European tyres manufactures relative %yo WTI %yoy (rhs, rs)



37



Luxury Goods – Overweight

Figure 103: Luxury Goods price relative to Europe

Source: Datastream

We started the year cautious on Luxury Goods, butupgraded the sector to OW in October. The sector hasstruggled to perform over the past two years.

Figure 104: Luxury Goods P/E relative

Source: IBES

Luxury Goods' valuations have derated sharply and thesector is now trading on the cheapest P/E relative inalmost 10 years.

Table 38: Luxury goods' regional sales split

% Sales From

Company EMEA Japan Americas Asia Pacific

LVMH 30% 12% 21% 36%Richemont 37% 8% 15% 40%

Swatch 35% 8% 8% 58%

Hermès 36% 12% 17% 33%Burberry 36% - 25% 39%

Tod's 55% 4% 9% 32%

Pandora 38% - 50% 12%

Hugo Boss 61% - 24% 13%

Luxottica 17% - 57% 13%Source: Worldscope, Bloomberg, J.P. Morgan

With two thirds of sales coming from outside Europe,Luxury Goods companies look set to benefit more than

most other sectors from further Euro weakness.Figure 105: HK luxury watches sales vs Luxury goods EPSgrowth

Source: IBES, Bloomberg

Concerns about the health of the mainland Chineseconsumer and the anti-corruption campaign are unlikelyto go away. However, we note that HK luxury watchsales – a good leading indicator of luxury goods earnings- have rebounded again.

Figure 106: Luxury Goods relative performance vs Japaneseconsumer sentiment

Source: Datastream, ESRI

Also, Japanese consumer confidence appears to be bottoming out most recently.

98

103

108

113

118

123

128

Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14

Luxury Goods price relative to MSCI Europe

0.6

0.8

1.0

1.2

1.4

1.6

1.8

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Luxury 12mth Fwd P/E rel Median +1stdev -1stdev

-60%

-40%

-20%

0%

20%

40%

60%

80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

05 06 07 08 09 10 11 12 13 14

Hong Kong Retail Sales Value Jewelry Watches & Clocks %yoy Consumer Durables 12m Fwd EPS %yoy (rhs

-50%

-30%

-10%

10%

30%

50%

-80%

-40%

0%

40%

80%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Luxury Goods rel to Europe (%yoy) Japanese consumer sentiment (%yoy,RHS)



38



Retail – Overweight

Figure 107: Oil price vs retail sales

Source: J.P. Morgan

We expect strengthening consumer activity over the nextfew quarters, partly helped by lower oil price.

Figure 108: Eurozone consumer spending vs confidence

Source: Eurostat, Bloomberg

Consumer spending is likely to continue recovering nextyear in Eurozone, helped by the improving employmentand credit conditions.

Figure 109: UK consumer confidence vs UK retail performance

Source: GFK, Datastream

We see headwinds for the UK consumer ahead of theupcoming General Elections and the potential start of

policy normalisation, but the sector has already performed rather poorly. Within the UK, we have a preference for domestic consumer and the global playsrelative to the commodities and the long duration sectors.

Hotels, Restaurants & Leisure – Overweight

Figure 110: Hotels, Restaurants & Leisure relative performanceand US consumer confidence

Source: Datastream, Bloomberg

Hotels, Restaurants & Leisure should benefit from thestrong consumer backdrop next year, particularly in theUS where the sector is highly exposed.

Media – Neutral

Figure 111: Eurozone advertising spend and GDP growth

Source: J.P. Morgan

We are Neutral Media, with a preference for cyclical plays - TV broadcasters and advertising agencies, overthe more defensives plays – pay TV and publishers.

1

2

3

4

5

6

7

8-25

-20

-15

-10

-5

0

5

10

1511 12 13 14

Crude Oil Price, %3m/m (rs) Global (ex-Japan) Real Retail Sales, %3m/m, saar (rhs)

-35

-30

-25

-20

-15

-10

-5

0

5

-3

-2

-1

0

1

2

3

4

5

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14Euro Area Consumer Spending, %q/q, 2qma Eurozone Consumer Confidence (rhs)

-60%

-40%

-20%

0%

20%

40%

60%

-30

-20

-10

0

10

20

30

01 02 03 04 05 06 07 08 09 10 11 12 13 14

UK GFK consumer confidence (ch oya) MSCI Retailing rel to UK (%yoy, rhs)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

03 04 05 06 07 08 09 10 11 12 13 14 15

Hotels,Restaurants & Leisure rel to Europe %yoy US consumer confidence %yoy (rhs)

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14e 15e

Euro-area advertising spending (%yoy) EMU Real GDP (%yoy,rhs)



39



Figure 112: Eurozone advertising spending

Source: J.P. Morgan

Advertising trends are stabilizing in most Eurozonecountries, we expect this to continue into next year.

Figure 113: Mediaset Italy and Mediaset Spain advertisingrevenue

Source: Company reports, J.P. Morgan

Spanish advertising growth is already positive. Italyappears to be bottoming out as well.

Figure 114: Media 12m Fwd P/E relative

Source: IBES

The sector's valuations are not particularly stretched,trading in line with historical relatives.

50

60

70

80

90

100

110

120

2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

Germany (Advertising Spending -rebased) Spain Italy France UK Eurozone

-60%

-40%

-20%

0%

20%

40%

60%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Mediaset (Italian Business) Advertising revenue (%y/y) Mediaset Espana (rhs)

0.7

0.8

0.91.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Media 12mth Fwd P/E rel Median +1stdev -1stdev



40



Consumer Staples -

UnderweightTable 39: Staples sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

FCFyield P/B

Europe 4% 11% 14.0 3.7% 5.4% 1.8

Staples UW 6% 8% 18.5 3.0% 5.4% 3.7

Food Drug Ret UW -21% 6% 13.3 3.4% 5.9% 1.5

Food Bev&Tob UW 10% 8% 19.1 3.1% 5.5% 4.3

HPC N 4% 8% 19.7 2.3% 4.8% 3.9


Staples have outperformed the market ytd, benefitingfrom the broader rotation into defensive growth style.However, we find Staples’ fundamentals poor and areUW the sector into ’15, with a preference for HPC overFood producers and over Food retail.

Food, Beverages & Tobacco - Underweight

Figure 115: Food, Beverages and Tobacco 12m Fwd P/E relativeto Europe

Source: IBES

Staples' valuations are unattractive. Their P/E has rerated back to the outright expensive territory relative to the

overall market.

Figure 116: Food, Beverages and Tobacco EV/EBITDA relative toEurope

Source: IBES

On EV/EBITDA metrics, Staples also look expensiverelative to the market, trading near the top of their historical range.

Figure 117: Staples profit margins vs sales growth

Source: IBES

Staples' margins have been resilient so far, despiteweakening top line growth. We think that this will startto change. Margins could come under increasing pressureas EM volume growth slows further and pricingenvironment gets tougher.

0.5

0.7

0.9

1.1

1.3

1.5

1.7

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Food Bev&Tob 12mth Fwd P/E rel Median +1stdev -1stdev

0.80.91.01.11.21.31.41.51.61.71.81.9

01 02 03 04 05 06 07 08 09 10 11 12 13 14

Fd Bev & Tob EV/EBITDA rel to Europe Avg -1sd +1sd

18%

19%

20%

21%

22%

23%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14e

Food, Bev & Tobacco Sales growth, Food, Bev & Tobacco EBITDA / Sales (rhs)



41



Figure 118: CRB Food price index vs Food PPI

Source: Eurostat, CRB, Bloomberg

Soft commodity prices have rolled over again. This points to a challenging pricing environment ahead, for both food producers and the retailers.

Figure 119: Staples 12m EPS vs soft commodity prices


We expect the deflationary food pricing trends to weighon Staples’ profitability. We see downside risks to IBESestimates of 8% EPS growth for Food producers in '15.

Food retail - Underweight

Figure 120: UK Food retail capex to depreciation vs sales growth

Source: Worldscope, IBES

Food retailers underperformed sharply ytd, to be down21% in absolute terms. We stay UW as we believe thesector's structural outlook remains poor, particularly inthe UK. The combination of intense competition,deflationary trends and unwinding of excess capacity willcontinue to drag the sector's margins lower in our view.

Figure 121: UK food retail sales vs overall retail sales

Source: ONS

We note that despite resilient UK consumer backdrop,food spending appears to be on a downtrend.

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

CRB Food %6mom (2m lead , rhs ) Food PPI %6mom

-50%

-30%

-10%

10%

30%

50%

70%

-25%

-15%

-5%

5%

15%

25%

35%

03 04 05 06 07 08 09 10 11 12 13 14

Staples 12m Fwd EPS %yoy (1m lag) JPM Agricultural commodity index %yoy ()rhs)

-5%

0%

5%

10%

15%

20%

25%

1

2

3

4

5

6

7

8

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14e

UK Food retail Capex/Depreciation Sales growth %yoy (rhs)

-4%

-3%

-2%

-1%

0%

1%

2%

05 06 07 08 09 10 11 12 13 14

UK Food retail sales vs overall retail sales %yoy, 3mma



42



HPC - Neutral

Figure 122: HPC 12m Fwd P/E relative

Source: IBES

Within Staples, we keep a relative preference for theHPC subsector. We find its’ valuations to be moreattractive than the rest of the sector and its earningsoutlook is more favorable due to more resilient pricing

power and diversified geographical revenue exposure.

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Household Products 12mth Fwd P/E rel Median +1stdev -1stdev



43



Healthcare - UnderweightTable 40: Healthcare sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

FCFyield P/B

Europe 4% 11% 14.0 3.7% 5.4% 1.8

Healthcare UW 16% 7% 17.3 3.0% 6.2% 4.6


We were OW Healthcare for most of the year, but cut thesector to UW in October. We stay UW into ’15.

Figure 123: European level 1 sectors ytd performance

Source: Datastream. As at of 25th Nov ‘14

Healthcare performed strongly this year, up 16% vs 4%for the overall market.

Figure 124: Healthcare 12m Fwd P/E relative

Source: IBES

The outperformance was largely due to the P/E rerating,rather than improving profitability. Pharma was still

outright cheap at the start of the year, but its relative P/Eis now looking expensive relative to historical norms.

Figure 125: Healthcare PEG relative

Source: IBES

Healthcare’s PEG relative is back to the top of itshistorical range vs the overall market. Our sector analystssee little near term potential for upward revisions to longterm earnings growth expectations, due to lack ofvisibility with respect to pipeline and new drugslaunches.

Figure 126: Healthcare EPS relative vs US drug CPI

Source: IBES, Bloomberg

Our analysts worry that drug pricing in the US couldcome under increased pressure, following the sharprebound seen this year.

-5%

-2%

-2%

3%

3%

3%

4%

6%

6%

14%

16%

-10% -5% 0% 5% 10% 15% 20%

Energy

Materials

Industrials

Discretionary

Financials

IT

Europe

Staples

Telecoms

Utilities

Healthcare

YTD Performance, %

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Healthcare 12m Fwd P/E relative median +1stdev -1stdev

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Healthcare PEG ratio relative median +1stdev -1stdev

-4%

-2%

0%

2%

4%

6%

8%

-60%

-40%

-20%

0%

20%

40%

60%

80%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Europe Healthcare EPS relative (%yoy) US prescription drugs CPI rel (%yoy,rhs)



44



Figure 127: Healthcare relative performance vs DXY

Source: Datastream, Bloomberg

On the positive side, Healthcare is likely to benefit fromfurther strengthening in the dollar next year, as the bulkof the sector’s revenues are USD denominated.

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

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20%

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50%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Healthcare relative %yoy DXY (%yoy, rhs, rs)



45



Financials - OverweightTable 41: Financials sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

P/B

Europe 4% 11% 14.0 3.7% 1.8

Financials OW 3% 17% 11.1 4.5% 1.0

Banks OW 2% 23% 10.8 4.7% 0.9

Div Fin OW -1% 31% 11.8 3.5% 1.1

Insurance OW 6% 5% 10.5 4.8% 1.2

Real Estate N 15% 7% 19.6 4.2% 1.2


We are OW Financials and like both Banks andInsurance subsectors. In contrast, we recommend a

Neutral stance on real Estate into ’15 as it has performedstrongly and it might be sensitive to a potential increasein interest rates. Within Banks, we focus our OW on thecontinental banks, and are relatively more cautious on theUK.

Banks – Overweight

Figure 128: Eurozone banks price relative ytd

Source: Datastream

Eurozone Banks gave up all of their ytd gains in the lastmonth. We think that the selloff post the stress test and

AQR results was largely due to heavy positioning and theinvestor concern over the lack of the new catalysts tosupport the share prices going forward. We see the recentcorrection as an opportunity to increase exposure to thesector.

Figure 129: Banks price to Book relative

Source: Datastream

Eurozone Banks' valuations are attractive, in our view.The sector is trading at a significant P/Book discount tohistorical relatives. We think that Banks offer potentialfor multiple rerating next year.

Figure 130: Eurozone banks leverage

Source: ECB

The dilution fears and balance sheet concerns should belargely behind us. We believe that the stress tests werecredible and that the sector’s share count is now safe.

Figure 131: % change in Financials credit spreads vs earnings


99

101

103

105

107

109

111


MSCI Eurozone Banks price relative

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

European Banks P/Book rel Median +1stdev -1stdev

12

13

14

15

16

17

18

19

20

1.03

1.08

1.13

1.18

1.23

1.28

1.33

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Eurozone Loan to Deposit Ratio, % Eurozone banks leverage, % (rhs)

0

50

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300

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400

450-80%

-60%

-40%

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04 05 06 07 08 09 10 11 12 13 14 15

EMU Banks 12m Fwd EPS %yoy Euro Financials HG spreads (brought Fwd by 6m, rhs, rs)



46



We expect further improvement in Banks' costs of equitydue to the lower funding costs, which will boost earnings

materially. Our fixed income analysts expect a strongtake-up at the upcoming December T-LTRO, of around €190bn, with the money being used for carry trades andincreased lending activity.

Figure 132: Banks performance vs Itraxx Senior financial spreads

Source: Bloomberg

We note that despite the recent underperformance ofEurozone Banks, senior Financials CDS spreads haveremained well behaved and continue to trade at veryhealthy levels, at 65bp over swaps, which is 5x tighterthan they were at the peak of the crisis in the summer of’12.

Table 42: Private loan growth - current vs recent trough

Private Loan growth, %yoyLatest -October Trough Trough date

Germany 1.3% -1.5% Mar 10France -0.3% -1.6% Nov 09

Netherlands -0.3% -3.4% Sep 09

Euro Area -1.1% -2.4% Jan 14Italy -1.9% -4.7% Feb 14

Greece -3.4% -8.4% Jan 13

Portugal -4.9% -6.7% Nov 12

Spain -6.4% -10.2% Jun 13

Ireland -7.2% -12.3% Dec 10Source: ECB

We think that the market underestimates the potential fora turn in loan growth and its likely positive impact onBanks profitability. Private loan growth is still outrightnegative in most Eurozone countries, but the secondderivative has improved, even in periphery. We note thatloan growth is already expanding in Germany.

Figure 133: Eurozone Banks ROE vs private loan growth

Source: ECB, Datastream

There was historically a strong positive correlation between Banks’ ROE and the region’s loan growth. Here,the positive 2nd derivative in loan growth points toimproving ROE trends.

Figure 134: Eurozone banks provisioning

Source: Worldscope

We see the potential for Banks provisioning to startcoming down next year, as credit quality improves anddelinquencies fall.

0.003

0.005

0.007

0.009

0.011

0.013

0.015

0.017

0.019

0.021

70

90

110

130

150

170

190

210

230

250

Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14

SX7E Index 1/Senior Financials 5Y CDS Swap Spread (rhs)

0%

2%

4%

6%

8%

10%

12%

14%

16%18%

20%

-4%

-2%

0%

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4%

6%

8%

10%

12%

14%

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Tot al cr ed it to pr iv at e s ec to r - % y /y E ur oz on e b an ks RO E ( %) - r h s

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

00 01 02 03 04 05 06 07 08 09 10 11 12 13

Eurozone Banks provisions as % pre-provision operating income Provisions as % total loans (rhs)



47



Figure 135: Spanish loan delinquencies vs unemployment rate

Source: Bloomberg

Improving macro momentum should result in lower NPLs. We note that in Spain both the unemployment rateand loan delinquencies appear to have peaked recently.

While we are positive on Eurozone Banks, we advisecaution on UK names. Political uncertainty ahead of theupcoming General Elections and the likelihood of risingBOE rates next year are expected to be drags onsentiment for the space.

Insurance – Overweight

Figure 136: Insurance dividend yield relative

Source: Datastream

Insurance benefited from the search for yield theme thisyear, slightly outperforming the overall market. In thenear term, the sector will likely continue to be seen as anattractive alternative to the low bond yields, in our view.The prospect of subdued inflation bodes well for non-lifeinsurers, due to low claims inflation while pricingremains healthy.

Figure 137: Insurance relative performance vs US bond yields

Source: Datastream

However, lower bond yields are ultimately a negative forthe sector due to the asset/liability duration mismatch.Here, our expectation of a moderate move up in yieldsnext year points to a positive backdrop for insurers.

Figure 138: Life Insurance Price to Book and US bond yields

Source: Datastream, MSCI, J.P. Morgan, dotted line indicates J.P. Morgan forecast for US10-year bond yields

A move up in bond yields could lead to a significantrerating potential for life insurers.

5%

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83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Spain loan delinquencies % total Spain unemployment rate (rhs)

0.6

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1.0

1.1

1.2

1.3

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1.6

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Insurance dividend yield relative average +1stdev -1stdev

-50%

-30%

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70%

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02 03 04 05 06 07 08 09 10 11 12 13 14 15

Insurance re l to Europe (%yoy) US 10yr yields (%yoy, rhs)

0.7%

1.7%

2.7%

3.7%

4.7%

5.7%

6.7%

7.7%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Life Insurance P/Book US 10Y BDY, rhs



48



IT - NeutralTable 43: IT sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

FCFyield P/B

Europe 4% 11% 14.0 3.7% 5.4% 1.8

IT N 3% 22% 18.0 2.0% 6.3% 3.4

Software UW -3% 10% 16.3 2.0% 6.7% 3.9

Tech Hardware OW 13% 37% 17.5 2.7% 5.8% 2.7

Semicon N 4% 34% 22.6 1.4% 6.0% 3.7


We have upgraded Tech sector to OW on 2nd June, but

are cutting it now back to Neutral. Within the sector, wehave a preference for Tech equipment over Semis andSoftware.

Figure 139: Global IT price relative

Source: Datastream

Global Tech has performed very well in the 2H of theyear, up almost 10% relative to the market. We fear thatOW Tech is a crowded position nowadays.

Figure 140: European Tech 12m Fwd P/E relative

Source: IBES

The overall Tech sector in Europe is still tradingattractively on a P/E relative metric, but we see few

catalysts for outperformance into ’15.Figure 141: Total mobile data estimates

Source: Cisco VNI

Tech Hardware is our preferred area in Europe. Dataconsumption by mobile users is expected to increase bymore than 50% over the next 4 years. This will require asignificant increase in Tech spending by Telecomoperators, in our view. We see Nokia in particular as akey beneficiary from this.

Figure 142: Electronics and Semiconductor $$ content in Cars

Source: KPMG, Infineon and J.P. Morgan estimates

We are Neutral on Semis. Our sector analysts expectstrong revenue growth for Semi companies to come fromAutomotive areas, as usage of Tech content within cars isexpected to increase substantially.

98

99

100

101

102

103

104

105

106

107

108


MSCI World IT price relative

1.0

1.4

1.8

2.2

2.6

3.0

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

IT 12mth FwdP/E rel Median -1stdev +1stdev

1.52.6

4.4

7.0

10.8

15.9

-

2

4

6

8

10

12

14

16

18

2013 2014e 2015e 2016e 2017e 2018e

Total mobile data (ExaBytes per month)

CAGR: 61%

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1950 1960 1970 1980 1990 2000 2010 2020 2030

Automotive Electronics cost as % of total car cost



49



Figure 143: Smartphones unit and revenue growth

Source: J.P. Morgan

However, smartphones volume growth is expected todecelerate further over time, which will offset some ofthe benefits from higher demand from the Autosindustry.

Figure 144: PC market growth

Source: Gartner, J.P. Morgan forecasts

PC growth forecasts appear to be stabilizing after 2 yearsof weakness, but we don’t expect an outright accelerationfrom here.

Figure 145: SAP 12m Fwd PE relative to market

Source: IBES

We are UW on Software & Services. Our analysts arecautious on SAP, the biggest European stock by marketcap, due to the headwinds from cloud. We note thoughthat one potential positive is that the P/E relative of thestock is already near record lows.

62%

46%40%

29%

55%

35%

28%

16%

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2011 2012 2013E 2014E

Unit growth (LHS) Revenue growth (LHS) ASP decline (RHS)

9%

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'06 '07 '08 '09 '10 '11 '12 '13 '14e '15e

PC Growth wit h forecasts (%)

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2.2

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03 04 05 06 07 08 09 10 11 12 13 14

SAP 12m Fwd PE relative toMSCI Europe Median



50



Telecoms – NeutralTable 44: Telecoms sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

FCFyield P/B

Europe 4% 11% 14.0 3.7% 5.4% 1.8

Telecoms N 6% 7% 18.3 4.4% 6.9% 1.8


We upgrade Telecoms from UW to Neutral. The sector has benefitted from search for yield theme this year, buthas lagged behind the other 3 defensive sectors,Healthcare, Utilities and Staples. We see a better risk-

reward tradeoff for the sector into next year compared tothe other Defensives. The key support will hopefully bethe stabilization in the earnings dynamics as the sectortakes advantage of greater data usage.

Figure 146: Ytd move in European level 2 sectors' 12m Fwd P/E

Source: IBES

At face value, Telecoms’ valuations appear stretched.This is the case even excluding Vodafone. For the secondyear in a row, Telecoms enjoyed the biggest P/E reratingout of all 24 level 2 sectors in Europe ytd, at 23%.

Figure 147: Telecoms 12m Fed P/E relative

Source: IBES

Telecoms’ P/E relative is back to the top of the range, to be at the highest level in more than 10 years.

Figure 148: Telecoms EV/EBITDA relative

Source: IBES

Our sector analysts believe that Telecoms P/E is inflated by the impact of amortization and high capex onearnings. On EV/EBITDA, Telecoms are looking lessexpensive and trade in line with historical relatives to themarket.

-11%-10%

-8%-8%-7%-7%

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0%1%1%2%

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4%6%

9%11%

13%13%

23%

-15% 0% 15% 30%

TransportTech Hardware

SemiconBusiness Services

AutomobileSoftwareMet&Min

BanksRetailing

Cons MatCap Goods

HPCHotels,Rest&Leis

InsuranceCons Durables

MediaDiv Fin

ChemicalsEurope

Food Drug RetEnergy

Food Bev&TobReal Estate

UtilitiesHealthcareTelecoms

YTD Rerating, %

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95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Telecoms 12m Fwd P/E relative to Europe median +1stdev -1stdev

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01 02 03 04 05 06 07 08 09 10 11 12 13 14

Telecoms EV/EBITDA rel to Europe Avg -1sd +1sd



51



Figure 149: Telecoms EBITDA growth

Source: IBES

Telecom fundamentals remain fragile and profitabilityhas been on a downtrend for several years. Relative tothe market, they will remain under pressure, but inabsolute terms the trends are expected to improve.

Figure 150: Telecoms CPI vs overall Eurozone CPI

Source: Eurostat

Also, we note that the Telecom pricing appears to have bottomed out in ’13, in contrast to overall inflation whichcontinues to move lower.

Figure 151: Mobile data usage per capita

Source: J.P. Morgan

Our sector analysts believe that increase in data usagecould lead to further rerating. The data usage ofEuropean customers is running at half the average usageof a US customer.

Improving pricing trends and the stabilizing earningssuggest one should not be short Telecoms into ’15, butrelative valuations remain dire, preventing us from beingoutright OW.

Figure 152: Telecoms seasonality

Source: Datastream

We note that Telecoms typically enjoyed good Q4seasonality, and the sector could come under pressure in1H.

-15%

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0%

5%

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04 05 06 07 08 09 10 11 12 13 14e 15e 16e

Telecoms EBITDA %yoy

-6%

-4%

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03 04 05 06 07 08 09 10 11 12 13 14

EMU HCPI %yoy E MU Tel ecoms HCPI % yoy

2.4

1.3 1.3

0.70.6

0.3 0.3 0.30.2

Sweden Japan Korea US Norway UK Portugal Germany France

Data usage GB per capita per month

-0.8%

-2.7%

0.7%

3.6%

-1.0% -1.1%

1.1%

4.9%

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-2%

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Q1 Q2 Q3 Q4

Telecoms rel to Europe (%qoq avg, since 1995) Telecoms rel to Europe (%qoq median, since 1995)



52



Utilities - UnderweightTable 45: Utilities sector snapshot

15e

Allocation YtdPerf

EPSGr P/E

Div Yield

FCFyield P/B

Europe 4% 11% 14.0 3.7% 5.4% 1.8

Utilities UW 14% 4% 14.6 4.8% 5.5% 1.5


We were positive on Utilities for most of ’14 butdowngraded the sector to UW in August. We remaincautious into next year.

Figure 153: Utilities 12m Fwd P/E relative

Source: IBES

Most of the Utilities’ outperformance ytd has come fromP/E rerating, rather than EPS upgrades. The sector is nowlooking expensive, trading at the top of the historicalrange relative to the market.

Figure 154: German electricity prices vs steam coal prices

Source: Bloomberg

At the same time, power prices remain depressed, pointing to a challenging profitability outlook for thesector.

Figure 155: Utilities relative performance vs bond yields

Source: Datastream

Utilities have benefited from the search for yield themethis year. However, with German bund yields currently at0.7%, the lowest level in history, we think thedeflationary trade offers little upside from here.

Figure 156: Utilities dividend yield relative

Source: Datastream

In addition, the dividend yield of Utilities has come downsubstantially, to be in line with long term relatives.

0.7

0.8

0.9

1.0

1.1

1.2

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95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Utilities 12mth Fwd P/Erel Median -1stdev +1stdev

70

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130

140

30

35

40

45

50

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Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Oct 14

German Elect rici ty prices ( ) Steam Coal price ( ) , rhs

0.7%

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97

99

101

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113

Jan-14 Apr-14 Jul-14 Oct-14

Uti li ties re la tive to Europe 10-year bund yield (rhs)

0.8

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1.8

2.0

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Utilities dividend yield relative median +1stdev -1stdev



53



Figure 157: UK vs Eurozone Utilities

Source: Datastream

Within Utilities, we keep our preference for continentalover UK names, looking for the chunk of ’08-’12outperformance to be unwound.

Figure 158: Spanish Utilities relative performance vs Spanishbond spreads to Germany


The bulk of the peripheral spread normalization is largely behind us, but our fixed income strategists expect another20-30bp tightening next year, which should support theshare prices of peripheral Utilities.

Figure 159: UK utilities relative performance vs UK bond yields

Source: Datastream

On the flipside, UK Utilities, which are mostly regulated,

look particularly vulnerable to a potential move up in bond yields, if BOE/Fed raise rates. Also, the upcomingGeneral Elections are likely to be a source of regulatoryuncertainty for the sector. Finally, the prospect for loweroil prices is a clear negative for UK Utilities, as UK

power prices are largely driven by gas prices, which tendto be highly correlated to oil.

50

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125

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95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

UK vs EMU Utilities price relative

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Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15

Spanish Utilities rel to EuropeanUtilities Spanish 10yr Spread to Bunds (rhs, revs scale) JPM forecasts

-2.0%

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96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

MSCI UK Utilities relative toMarket (%y/y) UK 10Y Bond Yields vs 1 year ago (rhs, rs)



54



Top picksTop picks by Sector Heads

Price PT Mkt cap Adj. EPS P/E (x) Div yieldPrice Ccy Rating Target End date bn 15E 16E 15E 16E 15E % 15E

Aerospace & Defence Airbus Group 48.28 OW 60.50 31 Dec 15 37.8 3.30 3.68 14.7 13.2 2.2%AutosValeo SA* 98.28 OW 119.00 31 Dec 15 €7.8 9.2 11.2 10.4 8.5 2.9BanksUBS 16.90 SF OW 23.00 31 Dec-15 SF65.0 1.65 1.81 10.3x 9.3x 5.3%Danske Bank* 167.00 Dkr OW 194.00 31 Dec-15 Dkr164.6 15.73 17.28 10.4x 9.4x 4.8%Building MaterialsHolcim 72.45 SF OW 83.00 03 Nov 15 SF23.6 4.78 6.84 15.1 10.6 2.2%Business ServicesBrenntag 44.22 OW 50.00 31 Dec 15 6.83 2.50 n/a 17.7 n/a 1.9%Capital Goods

Wärtsilä 38.41 OW 47.50 31 Dec 15 €7.5 2.82 2.94 13.6 13.1 3%ChemicalsClariant 17.52 SF OW 20.20 31 Dec 15 SF5.8 1.39 1.55 12.6 11.3 2.4%Consumer Anheuser Busch InBev* 92.78 OW 106.00 31 Dec 15 $185.3 6.30 7.19 18.3x 16.1x 3.5%Nestle 72.10 SF OW 74.00 31 Dec 15 SF231 3.70 3.99 19.5 18.1 3.5Carrefour* 25.47 OW 30.00 30 Sep 15 €16.67 1.66 1.93 15.4 13.2 2.9Inditex 23.14 OW 26.60 31 Aug 15 72.5 0.78 0.82 27.0 24.2 2.1L'Oréal 135.45 OW 135.00 31 Dec 15 82.0 6.08 6.54 21.8* 20.2* 2.3Elior 13.00 OW 16.00 30 Nov 15 €2.1 87c 96c 14.9x 13.5x 2.7%LVMH 144.95 OW 155.00 31 Dec 15 72.8 7.7 8.6 18.8 16.8 2.5British American Tobacco 3,704p £ OW 4,233p 21 Oct 15 £69.1 223.4 240.7 16.6 15.4 6.1%General FinancialsEuronext 22.86 OW 24.50 31 Dec 15 1.26 1.80 2.08 12.7x 11.0x 3.3%Infrastructure Atlantia 19.69 OW 24.00 10 Nov 15 16.1 0.99 1.19 19.5 16.2 4.5%InsuranceMunich Re 161.00 OW 185.00 31 Dec 15 27.8 17.3 18.1 9.3 8.9 5.3MediaReed NV* 18.94 OW 21.70 31 Dec 15 13.3 1.14 1.21 16.5 15.6 3.2%Medtech & ServicesFresenius SE 42.33 OW 44.33 31 Mar 15 €22.92 2.42 2.78 17.5x 15.2x 1.4%Metals & MiningRio Tinto plc* 3,012p £ OW 4,050p 30 Dec 15 $88.6 508USc 516 USc 9.3 9.1 4.7Oil & GasRoyal Dutch Shell B 2,391p £ OW 2,500p 31 Dec 15 £150.2 $3.64 $2.54 14.7 13.6 5.1Tecnicas Reunidas 41.19 OW 47.00 31 Dec 15 2.21 2.94 3.26 14.0 12.6 4.2PharmaceuticalsNovartis* 92.75 SF OW 100.00 30 Jun 15 $226.4 6.02 6.43 16.0 15.0 3.1%PropertyDeutsche Annington 25.39 OW 27.00 31 Oct 15 6.76 1.36 1.42 19.8 19.0 3.0%SteelThyssenKrupp 20.85 OW 25.00 01 Jun 15 €11.88 1.14 1.75 18.3 11.9 1.4Technology - IT HardwareNokia 6.54 OW 8.00 31 Dec 15 €24.47 0.27 - 24.1 - 1.8%Technology - Software & IT ServicesDassault Systèmes 52.76 OW 60.00 31 Dec 15 13.2 2.07 2.32 25.4x 22.7x 1.9%Telecom ServicesVodafone 228p £ OW 265p 31 Mar 16 £60.4 7.12p 9.62p 30.0 21.0 5.3%Transportation & LogisticsCTT - Correios de Portugal 7.74 OW 10.05 31 Dec 15 €1.2 0.58 0.60 13.3 12.9 7.2Transportation - AirlineseasyJet 1,553p £ OW 1,815p 31 Dec 15 £6.15 132.6 147.9 11.7x 10.5x 3.6%UtilitiesE.ON 13.49 OW 17.00 31 Dec 15 €25.74 1.03 1.01 13.1 13.3 4.4

Source: Bloomberg, J.P. Morgan estimates, Prices and Valuations as of November 21, 2014 unless stated otherwise with * (see individual company pages).



55



Least preferredLeast preferred by sector heads

Price PT Mkt cap Adj. EPS P/E (x) Div yield ROPrice Ccy Rating arget End date bn 15E 16E 15E 16E 15E % 15

Aerospace & DefenceMeggitt 488p £ UW 460p 31 Dec 15 £3.9 35.8 38.6 13.6 12.6 2.8%AutosMichelin* 74.72 UW 73.00 31 Dec 15 13.9 7.8 8.1 9.6 9.2 3.7BanksBankinter 6.84 UW 6.00 31 Dec-15 6.2 0.41 0.46 16.5x 14.7x 3.1%Raiffeisen 15.70 N 16.00 31 Dec-15 4.6 1.35 2.66 11.6x 5.9x 0.0%Building MaterialsItalcementi 5.02 N 5.40 11 Oct 15 1.8 0.05 0.25 - 20.0 1.2%Business ServicesSecuritas 90.30 Skr UW 67.92 31 Dec 15 Skr31.41 6.30 n/a 14.3 n/a 3.3%Capital GoodsSandvik 80.50 Skr UW 72.00 31 Dec 15 Skr100.9 5.38 5.35 15.0 15.1 4%

ChemicalsSolvay 110.60 UW 90.00 31 Dec 15 9.4 6.05 6.38 18.3 17.3 3.3%Consumer Carlsberg 540.00 Dkr UW 500.00 31 Aug 15 $14.2 39.27 43.29 13.8x 12.5x 1.8%Unilever NV/Plc 32.22/2,656p €/£ UW 29.00/2,400p 31 Dec 15 £91.4 1.67 1.79 19.3 18.0 3.8DIA 5.71 UW 4.45 31 Mar 15 3.69 0.36 0.42 16.0 13.7 3.2Debenhams 71p £ UW 64p 31 Aug 15 £0.86 7.57 8.14 10.8 9.9 5.3Henkel 85.04 UW 75.00 31 Dec 15 14.8 4.41 4.74 19.3 17.9 1.5World Duty Free 7.35 UW 6.50 30 Nov 15 1.9 30.3c 35.5c 24.3x 20.7 0.0%Puma 185.90 UW 155.00 31 Dec 15 2.8 7.4 9.3 25.2 20.1 0.4General FinancialsDeutsche Börse 56.24 UW 54.00 31 Dec 15 8.59 3.85 4.17 14.6x 13.5x 3.7%Infrastructure Abertis 16.73 UW 16.00 10 Nov 15 15.0 0.87 0.95 19.2 17.6 4.1%Insurance AXA 18.92 UW 17.20 31 Dec 15 45.8 1.93 1.83 9.8 10.3 4.8MediaWolters Kluwer 22.66 UW 16.80 31 Dec 15 6.8 1.66 1.70 13.7 13.4 3.3%

Medtech & ServicesStraumann 245.50 SF UW 189.00 30 Dec 15 SF3.82 9.52 10.49 25.8x 23.4x 1.5%Metals & Mining Anglo American 1,380p £ UW 1,310p 31 Dec 15 $29.8 186.7 USc 242.8 USc 11.4 8.8 4.0Oil & GasGalp Energia 11.35 UW 11.50 31 Dec 15 9.3 0.38 0.49 30 23 3.1CGG 7.94 UW 3.50 31 Dec 15 1.41 0.18 0.49 54.7 20.5 0PharmaceuticalsSanofi 75.91 N 78.00 30 Jun 15 $124 5.60 5.81 13.6 13.1 4.1%PropertyCofinimmo 93.01 UW 96.00 31 Jul 15 1.68 6.85 6.95 13.5 13.3 6.0%SteelSSAB 51.45 Skr UW 55.00 30 Jun 15 Skr26.76 2.54 3.79 20.2 13.6 2.3

echnology - IT Hardware Arm Holdings Plc 901p £ N 750p 31 Mar 15 £12.64 29.7p 36.3p 30.3 24.8 0.8%

echnology - Software & IT ServicesSAP 55.94 N 55.00 30 Sep 15 67.0 3.70 4.02 15.1x 14.0x 2.0%

elecom ServicesTeliaSonera 51.90 Skr UW 48.00 31 Dec 15 Skr225 Skr4.1 Skr4.2 11.9 10.9 6.8

ransportation & LogisticsKuehne + Nagel 129.50 SF UW 114.00 31 Dec 15 SF15.5 6.58 7.11 21.9 19.7 5.2

ransportation - AirlinesLufthansa 13.40 N 12.00 31 Dec 15 6.12 2.08 2.12 6.4x 6.3x 3.4%UtilitiesEDF 22.98 N 22.00 31 Dec 15 42.80 1.89 1.79 12.2 12.8 4.9

Source: Bloomberg, J.P. Morgan estimates, Prices and Valuations as of November 21, 2014 unless stated otherwise with * (see individual company pages).



56



PerformanceTable 46: Sector Index Performance — MSCI Europe(%change) Local currencyIndustry Group 4week 12m 14YTDEurope 5.3 5.3 3.8Energy 0.4 (4.2) (5.5)Materials 4.9 0.7 (1.4)

Chemicals 6.7 1.5 0.0Construction Materials 8.5 6.5 5.2Metals & Mining 1.8 (2.2) (5.2)

Industrials 6.3 0.5 (1.9)Capital Goods 6.7 (0.4) (2.3)Transport 4.8 10.1 4.4Business Svs 4.9 (3.2) (4.9)

Consumer Discretionary 8.7 3.9 2.5 Automobile 10.6 4.2 2.4Consumer Durables 8.9 (1.1) 0.6

Media 7.4 6.9 4.0Retailing 7.1 (0.1) (1.4)Hotels, Restaurants & Leisure 7.6 15.6 9.9

Consumer Staples 5.6 5.6 5.6Food & Drug Retailing 7.7 (23.4) (21.7)Food Beverage & Tobacco 5.2 10.3 10.3Household Products 6.2 4.6 3.2

Healthcare 5.2 17.7 16.4Financials 4.4 4.9 2.7

Banks 2.9 2.7 1.1Diversified Financials 6.3 3.0 (0.6)Insurance 6.5 9.6 6.1Real Estate 4.8 14.0 15.3

Information Technology 9.3 5.4 2.9Software and Services 9.8 0.9 (3.6)Technology Hardware 8.4 11.2 12.8Semicon & Semicon Equip 9.4 7.4 3.7

Telecommunications Services 9.0 8.8 6.8Utilities 3.2 13.8 14.5Source: MSCI, Datastream, as at COB 26th Nov, 2014

Table 47: Country and Region Index Performance

(%change) Local Currency US$Country Index 4week 12m YTD 4week 12m YTD Austria ATX 6.0 (13.2) (9.8) 4.0 (19.8) (18.0)Belgium BEL 20 4.7 14.3 11.6 2.8 5.6 1.5Denmark KFX 4.1 29.6 23.6 2.2 20.1 12.7Finland HEX 20 5.8 8.3 8.3 3.9 0.0 (1.5)France CAC 40 6.4 2.2 1.8 4.5 (5.5) (7.4)Germany DAX 9.2 6.7 3.8 7.2 (1.4) (5.6)Greece ASE General 4.7 (15.2) (16.0) 2.8 (21.7) (23.6)Ireland ISEQ 7.3 12.1 10.1 5.3 3.6 0.1Italy FTSE MIB 4.1 6.2 5.1 2.2 (1.9) (4.4)Japan Topix 10.7 12.2 8.0 1.8 (3.2) (3.5)Netherlands AEX 5.7 7.6 5.5 3.8 (0.6) (4.1)Norway OBX 1.5 5.3 3.4 (0.9) (5.3) (7.8)Portugal BVL GEN (0.3) (14.9) (15.6) (2.2) (21.4) (23.3)Spain IBEX 35 3.9 9.6 7.4 2.0 1.3 (2.4)Sweden OMX 4.9 11.6 9.4 3.7 (0.5) (4.8)Switzerland SMI 4.7 10.0 10.4 3.1 4.0 2.3United States S&P 500 4.6 15.0 12.1 4.6 15.0 12.1United States NASDAQ 5.2 19.2 14.6 5.2 19.2 14.6United Kingdom FTSE 100 4.3 1.4 (0.3) 2.0 (1.0) (4.9)EMU MSCI EMU 6.7 5.6 3.9 4.8 (2.4) (5.5)Europe MSCI Europe 5.3 5.3 3.8 3.4 (0.8) (4.2)Global MSCI AC World 5.1 11.4 8.9 3.7 7.8 5.2Source: MSCI, Datastream, as at COB 26th Nov, 2014.



57



EarningsTable 48: IBES Consensus EPS Sector Forecasts — MSCI Europe

EPS Growth (%)2013 2014E 2015E 2016E

Europe (6.1) 3.7 10.9 10.6Energy (19.5) 1.9 (0.2) 10.8Materials (13.5) 5.8 10.4 15.8Chemicals (9.8) 3.2 9.3 10.1Construction Materials (1.0) 10.5 30.4 22.7Metals & Mining (19.6) 7.3 8.6 20.5Industrials 1.2 7.5 14.3 10.3Capital Goods (1.9) 5.9 14.3 9.6Transport 22.8 20.6 16.8 14.1Business Svs 3.5 3.9 11.2 10.2Discretionary (12.9) 7.1 13.4 11.4 Automobile (28.6) 14.8 13.1 12.0Consumer Durables 6.9 (3.2) 15.7 11.9Media 2.1 2.8 13.0 9.2Retailing 5.1 8.4 11.6 10.4Hotels, Restaurants & Leisure 7.0 1.9 11.4 13.3Staples 0.2 (1.9) 8.0 8.5Food & Drug Retailing (5.1) (23.0) 5.7 9.1Food Beverage & Tobacco 0.9 1.6 8.4 8.6Household Products 2.8 2.9 7.6 6.8Healthcare (3.0) 1.2 7.2 8.2Financials 7.3 13.2 17.5 11.4Banks (4.3) 35.2 23.1 13.9Diversified Financials 15.0 (30.8) 31.2 17.4Insurance 23.9 3.7 5.0 4.8Real Estate 5.0 6.7 6.6 5.0IT 26.7 34.4 22.1 14.3Software and Services 11.0 2.2 10.3 9.7Technology Hardware - 213.3 36.8 13.9Semicon & Semicon Equip (1.2) 40.0 33.9 25.8

Telecoms (28.7) (24.7) 7.4 9.8Utilities (5.2) (15.1) 4.2 3.4Source: IBES, MSCI, Datastream. As at COB 26th Nov, 2014.

Table 49: IBES Consensus EPS Country ForecastsEPS Growth (%)

Country Index 2013 2014E 2015E 2016E Austria ATX (28.5) (66.5) 383.3 18.3Belgium BEL 20 17.0 (2.3) 11.2 9.0Denmark Denmark KFX 19.1 30.4 13.2 13.4Finland MSCI Finland 24.3 25.5 8.2 5.7France CAC 40 (5.0) (0.3) 11.7 10.5Germany DAX (10.1) 1.8 10.5 9.8Greece MSCI Greece - (85.4) 155.8 45.3Ireland MSCI Ireland - 309.8 31.9 23.8Italy MSCI Italy (47.9) 111.5 35.1 17.1

Netherlands AEX (10.5) 10.2 13.5 10.7Norway MSCI Norway (7.2) 7.7 3.4 5.6Portugal MSCI Portugal - - 33.5 19.3Spain IBEX 35 28.8 6.6 22.2 17.1Sweden OMX (4.6) 6.4 12.2 10.2Switzerland SMI 4.6 (0.3) 10.6 9.1United Kingdom FTSE 100 (10.4) 2.9 4.2 10.0EMU MSCI EMU (6.3) 6.7 16.4 11.7Europe ex UK MSCI Europe ex UK (3.8) 5.7 14.7 10.9Europe MSCI Europe (6.1) 3.7 10.9 10.6United States S&P 500 6.5 7.8 9.5 11.9Japan Topix 74.2 7.0 12.8 9.1Emerging Market MSCI EM 20.6 2.7 10.9 11.2Global MSCI AC World 7.8 5.3 10.2 11.2Source: IBES, MSCI, Datastream. As at COB 26th Nov, 2014** Japan refers to the period from March in the year stated to March in the following year – EPS post-goodwill.



58



ValuationsTable 50: IBES Consensus European Sector Valuations

P/E Dividend Yields EV/EBITDA Price to Book2014e 2015e 2016e 2014e 2015e 2016e 2014e 2015e 2016e 2014e 2015e 201

Europe 15.6 14.1 12.7 3.4% 3.6% 3.9% 7.7 7.3 6.7 1.7 1.7 1Energy 10.9 10.9 9.8 5.3% 5.2% 5.3% 4.4 4.5 4.0 1.2 1.1 1Materials 15.2 13.8 11.9 3.1% 3.3% 3.6% 7.7 7.2 6.4 1.6 1.5 1Chemicals 17.2 15.7 14.3 2.9% 3.0% 3.3% 9.2 8.6 7.9 2.5 2.3 2Construction Materials 20.1 15.4 12.5 2.2% 2.6% 3.0% 9.1 8.0 7.1 1.2 1.2Metals & Mining 12.8 11.8 9.8 3.4% 3.7% 4.2% 6.8 6.3 5.6 1.2 1.2Industrials 17.0 14.8 13.5 2.9% 3.2% 3.4% 8.7 7.9 7.5 2.5 2.3 2Capital Goods 17.0 14.9 13.6 3.0% 3.2% 3.5% 8.9 8.1 7.4 2.5 2.3

ransport 15.9 13.6 12.0 2.6% 3.2% 3.0% 7.5 6.9 7.2 1.9 1.8 1Business Svs 18.3 16.4 14.9 2.8% 3.0% 3.3% 11.9 10.4 9.3 4.7 4.2 3Discretionary 15.4 13.6 12.2 2.6% 2.9% 3.2% 6.5 5.9 5.4 2.3 2.1 1 Automobile 10.5 9.2 8.3 2.8% 3.2% 3.6% 3.7 3.4 3.0 1.2 1.1Consumer Durables 19.2 16.6 14.8 2.1% 2.4% 2.7% 9.3 8.7 7.9 2.8 2.5Media 18.7 16.6 15.2 3.2% 3.3% 3.6% 10.3 9.5 8.8 4.4 4.0 3Retailing 21.1 18.9 17.1 2.5% 2.8% 3.1% 13.6 12.4 11.2 5.9 5.4Hotels, Restaurants & Leisure 21.1 19.0 16.7 2.3% 2.5% 2.8% 10.6 9.7 9.0 4.2 3.8Staples 20.0 18.5 17.1 2.8% 2.9% 3.1% 11.3 10.7 9.9 3.2 3.1 2Food & Drug Retailing 14.0 13.3 12.2 4.5% 3.5% 3.7% 6.7 6.2 5.9 1.4 1.4Food Beverage & Tobacco 20.7 19.1 17.6 2.8% 3.0% 3.2% 12.3 11.5 10.7 3.7 3.4Household Products 21.2 19.7 18.5 2.1% 2.3% 2.4% 12.9 11.8 10.7 3.8 3.3Healthcare 18.7 17.4 16.1 2.8% 2.9% 3.1% 12.7 11.8 10.3 4.0 3.8 3Financials 13.0 11.1 10.0 3.8% 4.4% 5.1% - - - 1.0 1.0 0

Banks 13.2 10.8 9.4 3.6% 4.5% 5.4% - - - 0.9 0.9 0Diversified Financials 15.6 11.9 10.2 2.7% 3.3% 3.9% - - - 1.1 1.0Insurance 11.1 10.6 10.1 4.6% 4.8% 5.0% - - - 1.2 1.2 1Real Estate 20.9 19.6 18.7 4.0% 4.3% 4.5% - - - 1.1 1.0 1IT 22.0 18.0 15.7 1.8% 2.0% 2.2% 10.9 9.2 8.0 3.3 3.0 2Software and Services 18.0 16.3 14.9 1.7% 1.9% 2.1% 10.4 9.1 8.1 3.6 3.2

echnology Hardware 24.1 17.6 15.5 2.6% 2.6% 2.8% 9.5 7.8 6.8 2.6 2.4Semicon & Semicon Equip 30.3 22.6 18.0 1.3% 1.5% 1.7% 14.8 11.7 9.7 3.7 3.4Telecoms 19.8 18.4 16.8 4.3% 4.3% 4.4% 6.4 6.1 6.0 1.7 1.8 1Utilities 15.3 14.7 14.2 4.6% 4.8% 4.9% 7.4 7.3 7.2 1.4 1.3 1Source: IBES, MSCI, Datastream. As at COB 26th Nov, 2014



59



Table 51: IBES P/E and 12-Month Forward Dividend Yields —Country ForecastsP/E Dividend Yield

Country Index 12-Mth Fwd 2014E 2015E 2016E 12-Month Forward Austria ATX 12.1 54.2 11.2 9.5 2.8%Belgium BEL 20 16.4 18.1 16.3 14.9 3.8%Denmark Denmark KFX 16.5 18.5 16.4 14.4 1.9%Finland MSCI Finland 16.6 17.9 16.5 15.6 3.6%France CAC 40 13.3 14.7 13.2 11.9 5.0%Germany DAX 12.7 14.0 12.7 11.6 2.9%Greece MSCI Greece 16.3 39.8 15.5 10.7 1.2%Ireland MSCI Ireland 17.5 22.5 17.1 13.8 2.5%Italy MSCI Italy 12.6 16.7 12.4 10.6 3.1%Netherlands AEX 13.5 15.2 13.4 12.1 3.5%Norway MSCI Norway 11.1 11.5 11.1 10.5 5.7%Portugal MSCI Portugal 15.0 19.6 14.7 12.3 4.5%Spain IBEX 35 15.1 18.2 14.9 12.7 4.7%Sweden OMX 15.3 17.1 15.2 13.8 3.7%Switzerland SMI 16.0 17.5 15.8 14.5 2.9%United Kingdom FTSE 100 13.6 14.1 13.6 12.3 4.0%

EMU MSCI EMU 13.7 15.8 13.6 12.2 3.9%Europe ex UK MSCI Europe ex UK 14.4 16.4 14.3 12.9 3.6%Europe MSCI Europe 14.2 15.6 14.1 12.7 3.8%United States S&P 500 16.2 17.7 16.2 14.5 2.3%Japan Topix 14.5 15.8 14.0 12.8 1.7%Emerging Market MSCI EM 10.8 11.9 10.7 9.6 2.8%Global MSCI AC World 14.7 16.1 14.6 13.1 2.7%Source: IBES, MSCI, Datastream. As at COB 26th Nov, 2014; ** Japan refers to the period from March in the year stated to March in the following year – P/E post goodwill



60



Economic, Interest Rate and Exchange Rate OutlookTable 52: Economic Outlook in Summary

Real GDP Real GDP Consumer prices

% oya % oqa, saar % oqa, saar

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

United States 2.2 3.0 -2.1 4.6 3.5 2.5 3.0 3.0 2.1 1.4 1.6

Eurozone 0.9 1.6 1.2 0.3 0.6 1.5 1.8 2.0 0.6 0.4 1.1

United Kingdom 3.0 2.8 3.0 3.7 2.8 2.5 2.5 3.0 1.7 1.3 1.8

Japan 0.3 1.1 6.7 -7.3 -1.6 2.0 2.5 2.5 3.6 3.0 2.5

Emerging market 4.1 4.2 3.1 4.0 4.2 4.5 4.0 4.2 4.1 3.6 3.6

Global 2.5 3.0 1.7 2.3 2.6 3.0 3.1 3.1 2.6 2.1 2.3Source: J.P. Morgan economic research, J.P. Morgan estimates, as of COB 26th Nov, 2014.

Table 53: Official Rates Outlook%

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

Forecast for Mar 15 Jun 15 Sep 15 Dec 15

United States Federal funds rate 0 - 0.25 16 Dec 08 (-87.5bp) Jun 15 (+25bp) 0 - 0.25 0.25 - 0.50 0.50 - 0.75 0.75 - 1.00Eurozone Refi rate 0.05 4 Sep 14 (-10bp) 3Q 18 (+20bp) 0.05 0.05 0.05 0.05United Kingdom Repo rate 0.50 5 Mar 09 (-50bp) 2Q 15 (+25bp) 0.50 0.75 1.00 1.25Japan Overnight call rate 0.06 5 Oct 10(-5bp) On Hold 0.06 0.06 0.06 0.06Source: J.P. Morgan estimates, Datastream, as of COB 26th Nov, 2014

Table 54: 10-Year Government Bond Yield Forecasts% Forecast for end of

26-Nov-14 Mar 15 Jun 15 Sep 15 Dec 15United States 2.24 2.55 2.70 2.75 2.80Eurozone 0.74 1.00 1.15 1.20 1.25

United Kingdom 1.98 2.20 2.40 2.50 2.65Japan 0.44 0.40 0.40 0.45 0.50Source: J.P. Morgan estimates, Datastream, as of COB 26th Nov, 2014.

Table 55: Exchange Rate Forecasts vs. US Dollar Forecast for end of

26-Nov-14 Mar 15 Jun 15 Sep 15 Dec 15EUR 1.25 1.22 1.20 1.18 1.18GBP 1.58 1.53 1.51 1.51 1.53CHF 0.96 0.99 1.00 1.02 1.02JPY 118 120 123 125 128Source: J.P. Morgan estimates, Datastream, forecasts as of COB 26th Nov, 2014



61



Sector, Regional and Asset Class AllocationsTable 56: J.P. Morgan Equity Strategy — European Sector Allocation

MSCI Europe WeightsJ.P. Morgan

Allocation Deviation From MSCIJ.P. Morgan

Recommendation

Energy 8.5% 8.0% -0.5% NeutralMaterials 7.6% 7.0% -0.6% NeutralChemicals NConstruction Materials OWMetals & Mining N

Industrials 11.0% 13.0% 2.0% OverweightCapital Goods OWTransport OWBusiness Svs N

Consumer Discretionary 10.3% 14.0% 3.7% Overweight Automobile OWConsumer Durables OWMedia NRetailing OWHotels, Restaurants & Leisure OW

Consumer Staples 13.5% 10.0% -3.5% UnderweightFood & Drug Retailing UWFood Beverage & Tobacco UWHousehold Products N

Healthcare 13.6% 12.0% -1.6% UnderweightFinancials 22.6% 26.0% 3.4% Overweight

Banks OWDiversified Financials OWInsurance OWReal Estate N

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

Telecoms 5.2% 5.0% -0.2% NeutralUtilities 4.3% 2.0% -2.3% Underweight

100.0% 100.0% 0.0% BalancedSource: MSCI, Datastream, J.P. Morgan

Table 57: J.P. Morgan Equity Strategy — Global Regional AllocationMSCI Weights Allocation Deviation Recommendation

EM 11% 11% 0% Neutral DM 89% 89% 0% Neutral US 57% 54% -3% Underweight Japan 8% 11% 3% Overweight Eurozone 12% 15% 3% Overweight UK 8% 5% -3% Underweight Others* 15% 15% 0% Neutral

100% 100% 0% BalancedSource: MSCI, J.P. Morgan

Table 58: J.P. Morgan Equity Strategy — European Regional AllocationMSCI Europe Weights Allocation Deviation Recommendation

Eurozone 46% 60% 14% Overweight United Kingdom 32% 20% -12% Underweight Others** 22% 20% -2% Neutral

100% 100% 0% BalancedSource: MSCI, J.P. Morgan

Table 59: J.P. Morgan Equity Strategy — Asset Class AllocationBenchmark Weighting Allocation Deviation Recommendation

Equities 60% 75% 15 OverweightBonds 30% 20% -10 UnderweightCash 10% 5% -5 Underweight

100% 100% 0 BalancedSource: MSCI, J.P. Morgan estimates * Switzerland, Sweden, Norway and Denmark



62



Companies Discussed in This Report (all prices in this report as of market close on 27 November 2014)AXA (AXAF.PA/€19.28/Underweight), Abertis (ABE.MC/€17.10/Underweight), Airbus Group(AIR.PA/€49.79/Overweight), Anglo American (AAL.L/1352p/Underweight), Anheuser Busch InBev(ABI.BR/€93.30/Overweight), Arm Holdings Plc (ARM.L/915p/Neutral), Atlantia (ATL.MI/€20.17/Overweight),Bankinter (BKT.MC/€7.13/Underweight), Brenntag (BNRGn.DE/€44.59/Overweight), British American Tobacco(BATS.L/3741p/Overweight), CGG (GEPH.PA/€7.80/Underweight), CTT - Correios de Portugal(CTT.LS/€7.49/Overweight), Carlsberg (CARLb.CO/Dkr537.50/Underweight), Carrefour (CARR.PA/€25.55/Overweight),Clariant (CLN.VX/SF17.69/Overweight), Cofinimmo (COFB.BR/€93.69/Underweight), DIA(DIDA.MC/€5.58/Underweight), Danske Bank (DANSKE.CO/Dkr169.00/Overweight), Dassault Systèmes(DAST.PA/€52.38/Overweight), Debenhams (DEB.L/72p/Underweight), Deutsche Annington(ANNGn.DE/€25.74/Overweight), Deutsche Börse (DB1Gn.DE/€58.56/Underweight), E.ON(EONGn.DE/€14.28/Overweight), EDF (EDF.PA/€23.90/Neutral), Elior (ELIOR.PA/€12.63/Overweight), Euronext(ENX.PA/€22.78/Overweight), Fresenius SE (FREG.DE/€43.62/Overweight), Galp Energia(GALP.LS/€10.40/Underweight), Henkel (HNKG_p.DE/€87.11/Underweight), Holcim Ltd(HOLN.VX/SF71.25/Overweight), Inditex (ITX.MC/€23.27/Overweight), Italcementi (ITAI.MI/€4.87/Neutral), Kuehne +

Nagel (KNIN.VX/SF130.50/Underweight), L'Oréal (OREP.PA/€136.30/Overweight), LVMH(LVMH.PA/€143.00/Overweight), Lufthansa (LHAG.DE/€13.69/Neutral), Meggitt (MGGT.L/497p/Underweight),Michelin (MICP.PA/€74.21/Underweight), Munich Re (MUVGn.DE/€164.02/Overweight), Nestle(NESN.VX/SF72.15/Overweight), Nokia (NOK1V.HE/€6.69/Overweight), Novartis (NOVN.VX/SF93.00/Overweight),Puma (PUMG.DE/€184.75/Underweight), Raiffeisen Bank International (RBIV.VI/€16.46/Neutral), Reed NV(ELSN.AS/€19.62/Overweight), Rio Tinto plc (RIO.L/3012p/Overweight), Royal Dutch Shell B(RDSb.L/2266p/Overweight), SAP (SAPG.DE/€56.67/Neutral), SSAB (SSABa.ST/Skr53.30/Underweight), Sandvik(SAND.ST/Skr80.55/Underweight), Sanofi (SASY.PA/€77.23/Neutral), Securitas (SECUb.ST/Skr91.40/Underweight),Solvay (SOLB.BR/€112.30/Underweight), Straumann (STMN.S/SF245.50/Underweight), Tecnicas Reunidas(TRE.MC/€38.97/Overweight), TeliaSonera (TLSN.ST/Skr53.15/Underweight), ThyssenKrupp(TKAG.DE/€21.29/Overweight), UBS (UBSN.VX/SF17.10/Overweight), Unilever NV (UNIA.AS/€32.45/Underweight),Unilever plc (ULVR.L/2677p/Underweight), Valeo SA (VLOF.PA/€98.69/Overweight), Vodafone(VOD.L/227p/Overweight), Wolters Kluwer (WLSNc.AS/€23.51/Underweight), World Duty Free

(WDF.MI/€7.69/Underweight), Wärtsilä (WRT1V.HE/€38.10/Overweight), easyJet (EZJ.L/1633p/Overweight)Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the documentindividually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as perKOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence orintervention.

Important Disclosures

Market Maker: JPMS makes a market in the stock of Sanofi, Arm Holdings Plc.

Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider inAirbus Group, Valeo SA, UBS, Danske Bank, Holcim Ltd, Brenntag, Wärtsilä, Clariant, Anheuser Busch InBev, Nestle, Carrefour,Inditex, L'Oréal, Elior, LVMH, British American Tobacco, Euronext, Atlantia, Munich Re, Reed NV, Fresenius SE, Rio Tinto plc, RoyalDutch Shell B, Tecnicas Reunidas, Novartis, Deutsche Annington, ThyssenKrupp, Nokia, Dassault Systèmes, Vodafone, CTT - Correiosde Portugal, E.ON, Meggitt, Michelin, Bankinter, Raiffeisen Bank International, Italcementi, Securitas, Sandvik, Solvay, Carlsberg,Unilever NV, Unilever plc, DIA, Debenhams, Henkel, World Duty Free, Puma, Deutsche Börse, Abertis, AXA, Wolters Kluwer,Straumann, Anglo American, Galp Energia, CGG, Sanofi, Cofinimmo, SSAB, Arm Holdings Plc, SAP, TeliaSonera, Kuehne + Nagel,Lufthansa, EDF.

Designated Sponsor: J.P. Morgan Securities plc is the appointed designated sponsor to Brenntag, Deutsche Annington.

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,UBS, Danske Bank, Holcim Ltd, Anheuser Busch InBev, Nestle, Elior, LVMH, British American Tobacco, Euronext, Fresenius SE,

Novartis, Deutsche Annington, ThyssenKrupp, Vodafone, CTT - Correios de Portugal, E.ON, Sandvik, Solvay, Carlsberg, Unilever NV,Unilever plc, DIA, Henkel, Anglo American, Galp Energia, Sanofi, SAP, EDF within the past 12 months.



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Director: An employee, executive officer or director of JPMorgan Chase & Co. and/or J.P. Morgan is a director and/or officer ofInditex.

Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of Inditex, Nokia, Unilever NV, World Duty Free, Lufthansa.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Airbus Group, Valeo SA,UBS, Danske Bank, Holcim Ltd, Brenntag, Wärtsilä, Clariant, Anheuser Busch InBev, Nestle, Carrefour, Inditex, L'Oréal, Elior, LVMH,British American Tobacco, Euronext, Atlantia, Munich Re, Reed NV, Fresenius SE, Rio Tinto plc, Royal Dutch Shell B, TecnicasReunidas, Novartis, Deutsche Annington, ThyssenKrupp, Nokia, Dassault Systèmes, Vodafone, CTT - Correios de Portugal, easyJet,E.ON, Meggitt, Michelin, Bankinter, Raiffeisen Bank International, Italcementi, Securitas, Sandvik, Solvay, Carlsberg, Unilever NV,Unilever plc, DIA, Henkel, World Duty Free, Puma, Deutsche Börse, Abertis, AXA, Wolters Kluwer, Straumann, Anglo American, GalpEnergia, Sanofi, Cofinimmo, SSAB, Arm Holdings Plc, SAP, TeliaSonera, Kuehne + Nagel, Lufthansa, EDF.

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, UBS, Danske Bank, Holcim Ltd, Brenntag, Anheuser Busch InBev, Nestle, L'Oréal, Elior, LVMH, BritishAmerican Tobacco, Euronext, Reed NV, Fresenius SE, Rio Tinto plc, Royal Dutch Shell B, Novartis, Deutsche Annington,ThyssenKrupp, Nokia, Vodafone, CTT - Correios de Portugal, E.ON, Michelin, Sandvik, Solvay, Carlsberg, Unilever NV, Unilever plc,DIA, Henkel, AXA, Anglo American, Galp Energia, Sanofi, SAP, EDF.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the followingcompany(ies) as clients, and the services provided were non-investment-banking, securities-related: Airbus Group, UBS, Danske Bank,Holcim Ltd, Brenntag, Anheuser Busch InBev, Nestle, Carrefour, Inditex, L'Oréal, LVMH, British American Tobacco, Munich Re, Reed

NV, Fresenius SE, Rio Tinto plc, Royal Dutch Shell B, Tecnicas Reunidas, Novartis, Deutsche Annington, ThyssenKrupp, Nokia,Vodafone, easyJet, E.ON, Meggitt, Michelin, Bankinter, Raiffeisen Bank International, Italcementi, Sandvik, Solvay, Carlsberg, Unilever

NV, Unilever plc, DIA, Henkel, World Duty Free, Puma, Deutsche Börse, AXA, Wolters Kluwer, Anglo American, Galp Energia, Sanofi,Cofinimmo, SSAB, Arm Holdings Plc, SAP, Kuehne + Nagel, Lufthansa, EDF.

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, UBS, Danske Bank, Holcim Ltd, Brenntag, Anheuser Busch InBev,

Nestle, Carrefour, L'Oréal, LVMH, British American Tobacco, Euronext, Fresenius SE, Rio Tinto plc, Royal Dutch Shell B, Novartis,Deutsche Annington, ThyssenKrupp, Nokia, Vodafone, E.ON, Meggitt, Michelin, Bankinter, Raiffeisen Bank International, Italcementi,Sandvik, Solvay, Carlsberg, Unilever NV, Unilever plc, DIA, Henkel, Puma, Deutsche Börse, Abertis, AXA, Anglo American, GalpEnergia, Sanofi, Cofinimmo, SAP, EDF.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking AirbusGroup, UBS, Danske Bank, Holcim Ltd, Brenntag, Anheuser Busch InBev, Nestle, L'Oréal, Elior, LVMH, British American Tobacco,Euronext, Reed NV, Fresenius SE, Rio Tinto plc, Royal Dutch Shell B, Novartis, Deutsche Annington, ThyssenKrupp, Nokia, Vodafone,CTT - Correios de Portugal, E.ON, Michelin, Sandvik, Solvay, Carlsberg, Unilever NV, Unilever plc, DIA, Henkel, AXA, AngloAmerican, Galp Energia, Sanofi, SAP, EDF.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment bankingservices in the next three months from Airbus Group, UBS, Danske Bank, Holcim Ltd, Brenntag, Anheuser Busch InBev, Nestle,Carrefour, L'Oréal, Elior, LVMH, British American Tobacco, Euronext, Munich Re, Reed NV, Fresenius SE, Rio Tinto plc, Royal DutchShell B, Novartis, Deutsche Annington, ThyssenKrupp, Nokia, Vodafone, CTT - Correios de Portugal, E.ON, Michelin, Raiffeisen BankInternational, Sandvik, Solvay, Carlsberg, Unilever NV, Unilever plc, DIA, Henkel, Puma, Deutsche Börse, Abertis, AXA, AngloAmerican, Galp Energia, Sanofi, Cofinimmo, SAP, Lufthansa, EDF.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or servicesother than investment banking from Airbus Group, UBS, Danske Bank, Holcim Ltd, Brenntag, Anheuser Busch InBev, Nestle, Carrefour,Inditex, L'Oréal, LVMH, British American Tobacco, Munich Re, Reed NV, Fresenius SE, Rio Tinto plc, Royal Dutch Shell B, Tecnicas

Reunidas, Novartis, Deutsche Annington, ThyssenKrupp, Nokia, Vodafone, easyJet, E.ON, Meggitt, Michelin, Bankinter, RaiffeisenBank International, Italcementi, Sandvik, Solvay, Carlsberg, Unilever NV, Unilever plc, DIA, Henkel, World Duty Free, Puma, DeutscheBörse, AXA, Wolters Kluwer, Anglo American, Galp Energia, Sanofi, Cofinimmo, SSAB, Arm Holdings Plc, SAP, Kuehne + Nagel,Lufthansa, EDF.

Broker: J.P. Morgan Securities plc acts as Corporate Broker to British American Tobacco, Reed NV, Rio Tinto plc, Vodafone.

“J.P. Morgan Limited (“J.P. Morgan”) is acting as the sole financial advisor to AXA to sell its Mandatory Provident Fund (MPF) andOccupational Retirement Schemes Ordinance (ORSO) businesses in Hong Kong to The Principal Financial Group as announced on 7

November 2014. J.P. Morgan will be receiving fees for so acting. J.P. Morgan and/or its affiliates may perform, or may seek to perform,other financial or advisory services for AXA and/or its affiliates and may have other interests in or relationships with AXA and/or itsaffiliates, and receive fees, commissions or other compensation in such capacities. This research report and the information herein is notintended to serve as an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any



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other action by a security holder. This report is based solely on publicly available information. No representation is made that it isaccurate or complete.”

MSCI: The MSCI sourced information is the exclusive property of MSCI. Without prior written permission of MSCI, this informationand any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including anyindices. This information is provided on an 'as is' basis. The user assumes the entire risk of any use made of this information. MSCI, itsaffiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties oforiginality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Withoutlimiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing orcompiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI andits affiliates.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan– covered companies by visiting https://jpmm.com/research/disclosures , calling 1-800-477-0406, or [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams mayscreen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or [email protected] .

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 theaverage total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelvemonths, 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 ofthe stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, ifapplicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policyreasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not arecommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return iscompared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appearin the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s researchwebsite, www.jpmorganmarkets.com.

J.P. Morgan Equity Research Ratings Distribution, as of September 30, 2014Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 46% 42% 12%IB clients* 57% 49% 34%

JPMS Equity Research Coverage 46% 48% 7%IB clients* 76% 67% 51%

*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 holdrating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the tableabove.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for coveredcompanies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com , contact the primary analystor your J.P. Morgan representative, or email [email protected] .

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based

upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-USaffiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS,and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, publicappearances, and trading securities held by a research analyst account.

Other DisclosuresJ.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketingname for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.

All research reports made available to clients are simultaneously available on our client website, J.P. Morgan Markets. Not all research content isredistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your salesrepresentative.

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Options related research: If the information contained herein regards options related research, such information is available only to persons who havereceived the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options,

please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdfLegal Entities DisclosuresU.S .: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K .: JPMorgan Chase N.A., LondonBranch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation bythe Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from J.P. Morgan onrequest. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority andregulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England & Wales No. 2711006. Registered Office 25Bank Street, London, E14 5JP. South Africa : J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg SecuritiesExchange and is regulated by the Financial Services Board. Hong Kong : J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated

by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong and/or J.P. Morgan Broking (Hong Kong) Limited (CEnumber AAB027) is regulated by the Securities and Futures Commission in Hong Kong. Korea : J.P. Morgan Securities (Far East) Ltd, Seoul Branch, isregulated by the Korea Financial Supervisory Service. Australia : J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No:238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated byASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan : J.P.Morgan Securities (Taiwan) Limited is a participantof the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited(Corporate Identity Number - U67120MH1992FTC068724), having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz - East,

Mumbai – 400098, is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/ INE230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237) and is regulated by Securities andExchange Board of India. Telephone: 91-22-6157 3000, Facsimile: 91-22-6157 3990 and Website: www.jpmipl.com . For non local research reports, thismaterial is not distributed in India by J.P. Morgan India Private Limited. Thailand : This material is issued and distributed in Thailand by JPMorganSecurities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities andExchange Commission and its registered address is 3rd Floor, 20 North Sathorn Road, Silom, Bangrak, Bangkok 10500. Indonesia : PT J.P. MorganSecurities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the OJK a.k.a. BAPEPAM LK. Philippines : J.P. Morgan SecuritiesPhilippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and theSecurities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil : Banco J.P. Morgan S.A. is regulated by theComissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico : J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan GrupoFinanciero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities ExchangeCommission. Singapore : This material is issued and distributed in Singapore by or through J.P. Morgan Securities Singapore Private Limited (JPMSS)[MCI (P) 199/03/2014 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by theMonetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Thismaterial is provided in Singapore only to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities andFutures Act, Cap. 289. Recipients of this document are to contact JPMSS or JPMCB Singapore in respect of any matters arising from, or in connectionwith, the document. Japan : JPMorgan Securities Japan Co., Ltd. is regulated by the Financial Services Agency in Japan. Malaysia : This material is issuedand distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and aholder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan : J. P. Morgan Pakistan Broking (Pvt.) Ltd is amember of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia : J.P. Morgan Saudi ArabiaLtd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising andcustody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King FahadRoad, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai : JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai FinancialServices Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.

Country and Region Specific DisclosuresU.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc.Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of

publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a pol icy. Thisreport has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000(Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by personswho are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will beengaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) intheir home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not takeinto account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it toany third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has themeaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, FrankfurtBranch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for PersonsLicensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may

be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the l iquidity provider/market maker for derivativewarrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKExwebsite: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, andthat a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will bereceiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individuallyagreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd.,Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan,Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to

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from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any ofthe securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosuressection above. Taiwan : This material is issued and distributed in Taiwan by J.P. Morgan Securities (Taiwan Limited). India: For private circulation only,

not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money.JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. Therecipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: Theinformation contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sellsecurities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale ofthe securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadiansecurities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealerregistration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under nocircumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent thatthe information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory ofCanada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority inCanada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein,and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under theDFSA rules. Brazil : Ombudsman J.P. Morgan: 0800-7700847 / [email protected].

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co.

or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative toJPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for thesecurities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to changewithout notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of anyfinancial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are notintended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its ownindependent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S.affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments orannouncements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P.Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

"Other Disclosures" last revised October 18, 2014.

Copyright 2014 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold orredistributed without the written consent of J.P. Morgan. #$J&098$#*P



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JPM Equity Strategy 2015

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