Equity Strategy: Stay Cautious Near-Term Q1 Results Unlikely To Restore Confidence

Europe Equity Research
10 April 2012
Equity Strategy
Stay cautious near-term; Q1 results unlikely to restore confidence
We have been very bullish on equities at the start of the year, but have turned cautious a few weeks back. The key drivers of the more bearish stance are tracking. In particular, our call for tactical risk reduction was based on the expectation of a loss of macro momentum. Since, the JPM Global composite PMI for March has slipped. The new orders to inventories ratios were sequentially lower in all the key regions; US, EMU and China. This points to further weakening ahead. The roll-over in macro momentum is calling for reduced allocation to Cyclical sectors. Second, the US EASI is on the verge of entering negative territory. Out of the last 6 times when US EASI went below zero the best return that S&P500 managed over the next 3 months was only 0.7%. On 5 out of these 6 occasions the market was down. Cyclicals are the clear underperformers when EASI is falling. Additional concerns we are monitoring are the renewed stress in peripheral bonds, elevated gasoline price and Chinese growth uncertainty. What would make us turn bullish again? Reacceleration in macro momentum for one, but this is not likely to happen quickly. Aggressive policy response by Chinese and/or US/Euro officials could be another positive signal, but again this is not likely immediately. Recall that in 08/09 China delivered fiscal stimulus worth 15% of GDP, compared to nearly nothing now. Euro policymakers have the tools to arrest the renewed rise in peripheral yields in our view, but could end up being reactive, rather than proactive. Any prospect of QE3 would likely first see much weaker economy and markets. Q1 reporting season is upon us and is seen by many as a potential catalyst for improving market sentiment. We are not sure. We dont think that it is likely to disappoint materially as the hurdle rate is low. Consensus is looking for 3.0% yoy EPS growth in the US and a 4.6% fall in Europe. But also we believe it is unlikely to provide a significant boost to the market. Weaker topline growth and stalling macro momentum argue against strong improvement in corporate guidances. EPS revisions ratio did stabilise most recently. This is the 2nd leg which we expect to support the market in 2H. However it is unlikely to decisively break higher in the near term as macro concerns will weigh on the prospect of further EPS upgrades.
European Equity Strategy Mislav Matejka, CFA
AC
(44-20) 7325-5242 mislav.matejka@jpmorgan.com
Emmanuel Cau, CFA

(44-20) 7325-1684 emmanuel.b.cau@jpmorgan.com
Siddhartha Singh
(44-20) 7155-6106 siddhartha.z.singh@jpmorgan.com J.P. Morgan Securities Ltd.
On the last 6 occasions that US EASI turned negative market struggled

100 50 0 -50 -100 -150 03 04 05 06 07 08 09 10 11 12 CITI US Economic Activity Surprise Indicator
Source: Bloomberg
Stalling global PMIs call for further rotation out of Cyclicals

40% 30% 20% 10% 5% 0% -5% -10% -20% -30% -40% -15% -25% -35% 35% 25% 15%
99
00
01
02
03
04
05
06
07
08
09
10
11
12
Global Cyclicals rel to Defensives (%6mom) Assuming PMI down 0.5pt each month untill June
Global Composite PMI (%6mom, rhs)
Source: Datastream, MSCI
EPS revisions stabilized, but unlikely to break higher in the near term
40% 65 60 55 50 45 40 35 99 00 01 02 03 04 05 06 07 08 09 10 11 12 MSCI Europe +ve to -ve EPS revisions Global composite PMI (rhs) 20% 0% -20% -40% -60% -80%
Despite most recent weakness, Cyclicals are still outperforming Defensives by 10% ytd and are sitting on big P/E re-rating. This rerating might reverse further if earnings fail to surprise on the upside. Sectors which had the biggest P/E expansion ytd and also trade at a premium to their LT average relative P/Es are Transport, Durables, Discretionary Retailing, Chemicals and Hotels&Leisure. On the flipside, Food Retailing, Telecoms, Pharma and Energy are at discount and had the smallest rerating this year.
Source: IBES
See page 24 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com
Mislav Matejka, CFA (44-20) 7325-5242 mislav.matejka@jpmorgan.com
Europe Equity Research 10 April 2012
Table of Contents
Stay cautious near-term; Q1 results unlikely to restore confidence ................................................................................3 Appendix European reporting calendar for Q112............12 European Equity Strategy Key Calls and Drivers ................15 Top Picks ................................................................................16 Technical Indicators...............................................................17 Performance ...........................................................................18 Earnings ..................................................................................19 Valuations ...............................................................................20 Economic, Interest Rate and Exchange Rate Outlook ........22 Sector, Regional and Asset Class Allocations ....................23
Stay cautious near-term; Q1 results unlikely to restore confidence

We have recently tactically reduced our cyclical exposure (see "Stalling momentum calls for reduced beta, but big picture has not changed", 26th March). While we don't think that the upcycle is over, we expect the near-term macro momentum to be mixed following the improvement over the past 4-5 months. This is calling for reduced risk exposure and a more balanced sector allocation in our view. Stall in macro momentum signals a change in sector leadership
Figure 1: Global composite PMI
59 58 57
Figure 2: Cyclicals/Defensives relative performance and Global composite PMI

40% 30% 20% 10% 5% 0% -5% -10% -20% -30% -40% 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Global Cyclicals rel to Defensiv es (%6mom) Assuming PMI down 0.5pt each month untill June Global Composite PMI (%6mom, rhs) -15% -25% -35% 35% 25% 15%
Source: MSCI, Datastream, J.P. Morgan
If the Global PMI is flat or down over the next few months, Cyclicals will continue to struggle. This is especially after their strong outperformance of the past few months.
Figure 3: European Cyclicals vs Defensives relative performance
100
56 55 54 53 52
80 95
90
85
51 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 JPMorgan global composite PMI Source: J.P. Morgan Source: Datastream, MSCI
75 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12
Europe Cyclicals vs Defensives, 2011 to date
Our Global composite PMI moved lower in March, to 54.6 from 55.4 in February. While this level is consistent with 3% global growth, the forward looking components were mixed, with new orders to inventories falling.
Table 1: New orders to inventories ratios of key regional manufacturing PMIs
Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Global 1.01 1.04 1.08 1.07 1.05 US 1.18 1.20 1.16 1.11 1.09 EMU 0.89 0.96 1.03 1.02 0.98 UK 1.02 1.05 1.09 1.08 1.13 China* 0.89 0.98 1.07 1.04 0.96
Cyclicals have already stopped outperforming Defensives in the past few weeks and have fallen by 6% in absolute terms since their peak on 16th March. EASI approaching zero points to unattractive nearterm risk-reward for stocks
Source: Datastream, Bloomberg, *Markit PMI
We note that the softening trend in new orders to inventories is broad based across the main regions.
3
Figure 4: US EASI
100 50
Table 3: Cyclicals / Defensives relative performance after US EASI went below zero
Date EASI<0 20-Feb-03 18-Feb-04 2-Jul-04 20-Jan-05 15-Jun-05 27-Jan-06 31-Jul-06 13-Mar-07 18-Sep-07 11-Jan-08 6-Oct-08 13-Nov-09 11-Jun-10 2-May-11 Average Median Hit Ratio Cyc vs Def +1m 2.7% -2.0% -1.0% -0.2% 1.0% -1.3% 0.5% -1.2% 1.6% 5.3% -1.6% -2.4% -1.5% -3.8% -0.3% -1.1% 35.7% Cyc vs Def +3m -9.1% -3.6% -0.9% -5.7% -0.8% 5.5% 5.9% 1.5% -5.9% 8.8% -5.5% -2.5% -1.9% -0.9% -1.1% -1.4% 28.6% +3m min Cyc O/P -9.1% -4.6% -5.7% -6.8% -1.6% -2.2% -1.3% -2.1% -6.9% -0.6% -13.3% -4.4% -5.0% -6.2% -5.0% -4.8% +3m max Cyc O/P 6.3% 0.5% 1.3% 1.2% 2.3% 5.7% 8.3% 1.9% 1.7% 10.1% 3.6% 1.6% 0.9% 0.4% 3.3% 1.8%
-50 -100
-150 03 04 05 06 07 08 09 10 11 12 CITI US Economic Activity Surprise Indicator
Source: Bloomberg
The US EASI index is currently at 4.6, fast approaching zero, a level which was typically followed by poor equity performance.
Table 2: S&P500 performance after US EASI went below zero
Date EASI<0 20-Feb-03 18-Feb-04 2-Jul-04 20-Jan-05 15-Jun-05 27-Jan-06 31-Jul-06 13-Mar-07 18-Sep-07 11-Jan-08 6-Oct-08 13-Nov-09 11-Jun-10 2-May-11 Average Median Hit Ratio
Source: Bloomberg
SPX +1m 7.0% -2.6% -2.3% 2.2% 1.8% -0.2% 2.2% 5.1% 1.4% -3.7% -4.8% 1.3% 0.3% -3.4% 0.3% 0.8% 57.1%
SPX +3m 10.0% -4.9% -0.9% -1.9% 2.8% 1.7% 8.3% 9.4% -2.1% -2.9% -11.8% -1.6% 0.7% -4.4% 0.2% -1.3% 42.9%
+3m max fall -4.3% -5.9% -5.5% -3.2% -1.3% -2.3% -0.8% 0.7% -7.4% -9.1% -28.8% -3.4% -6.3% -7.9% -6.1% -4.9%
+3m max rise 13.1% 0.4% 0.5% 4.2% 3.2% 2.2% 8.8% 11.7% 3.0% 1.1% 0.0% 5.2% 3.3% 0.0% 4.1% 3.1%
Source: Bloomberg, MSCI, Datastream
The same applies to sector leadership. Cyclicals tended to underperform Defensives in the months after EASI turned negative. Renewed stress in the periphery is an additional headwind, but circuit-breakers are available
Figure 5: Ytd move in Spanish and Italian 10Y bond yields
7.5 7.0 6.5 6.0 5.5 5.0 4.5 Jan 12
During Q1, our view was that EASI peaking, but remaining positive, was not a reason to fade the rally, as market typically continues to perform well post the peak. However, the risk-reward for stocks becomes less compelling when the EASI turns outright negative. The market was down on 5 out of the last 6 occasions when EASI went below zero. During these 6 periods, the maximum move up in the market over the next 3 months after EASI went below zero was 5% while the maximum fall was 29%, pointing to asymmetric risk-reward.
Feb 12 Italy 10y bond yield
Mar 12 Spain 10y bond yield
Apr 12
Source: Datastream
The recent spike in Spanish and Italian bond yields is another concern, as it is reminiscent of last summer. A number of factors can explain the recent increase in peripheral stress: exhaustion of the impact of the 3Y LTRO, Spanish fiscal slippage, end of the SMP, and upcoming French and Greek elections.
Periphery continues to face a long and painful fiscal adjustment which is likely to keep bond markets jittery for a foreseeable future. However, we believe that a number of circuit breakers are available at present to avoid a significant worsening of the funding situation in the periphery.
Table 4: Peripheral Eurozone funding needs for the remainder of the year
Rest of 2012 Gross conv. Net conv. Issuance, Issuance, Bn Bn 14 4 13 -2 11 5 129 59 135 22 0 0 0 0 114 45 39 23 0 -10 62 22 516 169
Also, we believe that if Spanish and Italian yields continue to rise, the ECB will likely reactivate the SMP to avoid contagion to other sovereign and bank funding markets. US labour market holding up limits downside risks though
Figure 7: US jobless claims and recessions
750
650
Austria Belgium Finland France Germany Greece Ireland Italy Netherlands Portugal Spain Total
550
450
350
250
150 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
Source: J.P. Morgan Fixed Income Research
US Recessions
Initial jobless claims, 4wk avg
LT Average
According to our colleagues from the Global Asset Allocation team (see Flow and Liquidity, dated 30th March), less than 50bn out of the 320bn injected into the EMU banking system via the February LTRO have been deployed so far. They estimate that Spanish and Italian banks borrowed around 80bn each in the 2nd LTRO, which would translate to around 100bn of domestic government debt purchases, assuming a 60% usage ratio. This is more than enough to absorb the net government debt issuance of the two countries for the remainder of 2012, at 22bn and 45bn for Spain and Italy, respectively. However, this would capture only 19% of the refinancing of maturing bonds.
Figure 6: ECB SMP purchases of Euro debt
50 45 40 35 30 25 20 15 10 5 0 Aug Sep Oct Nov Dec Jan Feb 13 8 7 0 0 Mar 31 43 45
Source: BLS, NBER
While the moderation in the pace of manufacturing output growth is calling for a tactical beta reduction, we advise against positioning for a more pronounced macro slowdown over the medium term. The US economy is continuing to show signs of a broadening recovery, particularly evident in the labor market.
Figure 8: Global PMI and jobless claims
57 56 55 54 53 52 51 50 49 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 440 430 420 410 400 390 380 370 360 350 340
Global Manufacturing PMI
Initial jobless claims (rhs)
J.P. Morgan, Bloomberg
ECB SMP Purchases, Bn
Source: ECB
We note that the 10-15% S&P500 correction last summer occurred against the backdrop of a falling Global PMI and elevated jobless claims, above 400k. So far claims are remaining near the lows of the current upcycle.
5
Q1 earnings season preview

Figure 9: Q1 reporting season calendar
40% 35% 30% 25% 20% 15% 10% 6% 5% 8 0% 4 0% 9-Apr 6% 27 34% 36% 174 200 180 160 140 105 96 16% 72 9% 4% 19 16-Apr 23-Apr 30-Apr 7-May 14-May 17% 120 107 120 100 80 60 40 22 5% 5% 40 2% 2% 22 16 1% 20 0% 9 1 0 28-May
of the current upcycle. This is half the growth rate (5.5%) expected at the start of the year.
Figure 11: S&P500 QoQ EPS vs US GDP growth
25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 08 09 S&P500 EPS QoQ 10 11 US real GDP QoQ (rhs) 12 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10%
28%
21-May
% S&P500 mkt cap
% DJStoxx 600 mkt cap
# companies (rhs)
# companies (rhs)
Source: Thomson Reuters, Bloomberg
Source: Bloomberg
Sequentially S&P500 EPS is expected to fall 2.1% in Q1.

Table 5: S&P500 level 1 sectoral Q1 EPS growth expectations
Q1'12e EPS %q/q 11.4% 44.9% -11.8% -21.9% -6.9% 3.9% 8.6% -17.5% n.m. 41.1% -2.1% -2.9% %y/y 1.1% -15.4% 10.6% 6.5% 2.2% 0.6% 5.6% 6.3% -14.1% -7.8% 3.0% 1.1%
Many believe that the Q1 earnings reporting season will bring positive newsflow and drive a second leg of EPS upgrades and market upside. The reporting season is kicking-off today in the US with Alcoa and the bulk of results will be announced next week. As usual, it will start two weeks later in Europe. While we think earnings are unlikely to materially disappoint, we doubt they will provide a significant boost to the market. Low hurdle rate reduces the likelihood of broad based disappointments
Figure 10: S&P500 yoy EPS growth
50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 08 09 10 S&P500 %y oy EPS 11 12
Energy Materials Industrials Discretionary Staples HealthCare Financials Technology Telecom Utilities S&P 500 S&P 500 Ex-Financials
Source: Thomson Reuters
Sectorwise, Materials are expected to show highest %qoq earnings growth due to base effects from Q411. On the other hand, Industrials, Discretionary and Tech sector earnings are expected to show outright contraction vs Q4.
Table 6: MSCI Europe level 1 sectoral Q1 EPS growth expectations
Q1'12e EPS %q/q -10.4% 57.8% -14.2% 3.4% -42.6% 7.4% 46.1% -44.9% 17.4% 16.7% 5.3% -3.3% %y/y 8.9% -23.9% 0.6% 14.0% 9.0% -1.5% -10.8% -41.8% -10.9% -13.0% -4.6% -2.1%
In the US consensus is looking for 3.0% yoy S&P500 EPS growth in Q1, the lowest growth rate since the start
Energy Materials Industrials Discretionary Staples HealthCare Financials Technology Telecom Utilities MSCI Europe MSCI Europe ex-Financials
Source: Datastream, MSCI, IBES
Consensus is looking for MSCI Europe EPS to fall 4.6%yoy but to be up 5.3% qoq. Stripping out financials, the yoy and qoq growth rates are -2.1% and -3.3%, respectively. Preannouncements not as bad as for Q4
Figure 12: Negative to Positive earnings pre-announcements for S&P500
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 02 03 04 05 06 07 08 09 10 11 12
S&P500 N/P Pre-announcements Ratio 10 year average
Table 8: Summary of the key global macro data - Q1 vs Q4

Q1'12 vs Q4'11 Leading Indicators ISM IFO Euro PMI Manufacturing UK PMI Manufacturing China PMI Manufacturing Real GDP (%qoq, saar) US Euro UK EM China IP (%qoq, saar) US Euro UK EM Retail Sales (%qoq, saar) US Euro UK China Car Sales (%qoq, saar) US Euro UK China 1.8% 2.3% 4.4% 6.5% 0.1% 1.5% 0.0% 2.0% 5.7% 7.2% 9.0% -1.0% -1.0% 10.3% 5.5% -0.8% 1.2% -4.6% 8.5% -5.1% 1.2% 0.8% Q4'11 vs Q3'11 0.4% -2.6% -5.1% -3.3% -1.2% 3.0% -1.3% -1.2% 4.1% 9.2% 5.1% -6.7% -5.3% 1.4% 7.6% -3.3% 4.4% 22.4% 8.0% 1.2% -0.9% 4.2% Q3'11 vs Q2'11 -7.8% -3.9% -10.2% -4.9% -2.8% 1.8% 0.6% 2.3% 4.9% 8.4% 4.9% 1.6% -0.1% 2.9% 4.6% 1.3% -0.9% 22.5% 2.8% 0.3% -2.0% 10.8%
So far, ahead of the current reporting season, the earnings newsflow looks better than into the Q4 reporting season. The ratio of negative to positive pre-announcements for Q1 stands at 2.8x, below 3.6x recorded for Q4.
Table 7: S&P500 performance following different levels of Negative to Positive EPS preannouncements
N/P ratio (median) 3.6 2.3 2.0 1.4 Median S&P500 Perf +1m 2.7% 3.0% 0.3% -2.6% Average S&P500 Perf +1m 2.3% 2.5% -1.6% -1.2%
Source: Bloomberg, J.P. Morgan forecasts for Q1 GDP, IP, Retail sales and Auto sales
After the sharp activity slowdown of Q4, the macro momentum has turned up in Q1 with most indicators showing sequential improvement during the quarter. Our economists expect Global real GDP growth to have accelerated to 2.4%qoq in Q1 from 1.6% in Q4.
Figure 13: MSCI Europe yoy EPS growth vs IFO
25% 20% 15% 10% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 IFO %yoy MSCI Europe trailing EPS %yoy, rhs, lagged by 3Q
Quartile Q1 Q2 Q3 Q4
Hit Ratio* 70% 82% 60% 40%
Source: Thomson Reuters, Bloomberg, *% of time positive performance
While 2.8x negative to positive pre-announcements is high in a historical context, it actually did not lead to market fall. As we showed before (see "Q4 reporting Poor preannouncements, but hurdle rate is low", dated 16th January), stocks tended to perform well during the quarters that started with a high N/P preannouncements ratio. Global macro activity improved in Q1, but sub-trend GDP growth points to mixed top-line delivery.
5% 0% -5% -10% -15% -20% -25%
Source: Datastream, MSCI
In Europe, the IFO, which is a good indicator of the EPS growth momentum, was up 2.3% in Q1 after 3 quarters in a row of sequential decline. However, it is still down 5% yoy, pointing to negative EPS growth.
7
Figure 14: US ISM vs S&P500 quarterly EPS surprises

70 65 60 55 50 45 40 35 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 ISM S&P500 EPS surprise factor (rhs) -5% 5% 15%
S&P 500 S&P 500 ex-Financials

-3.4% -4.2%
4.1% 4.6%
10%
We note that consensus is already looking for sequential revenue fall in the US for most sectors.
Table 10: MSCI Europe Level 1 sectoral sales growth expectations
Q1'12e Sales %q/q %y/y -12.7% 2.9% 0.6% 2.4% -15.3% 6.0% -6.0% 23.8% 8.3% 3.7% -2.9% 8.4% 5.4% 9.6% -18.7% -13.3% -5.1% 0.6% -16.8% 4.7% -9.4% 3.8% -11.2% 3.0%
0%
-10%
Source: Datastream, Thomson Reuters
The ISM, which was up in Q1 compared to Q4 suggests there is potential for modest positive EPS surprises, in line with the past few reporting seasons. However, it seems unlikely that earnings will come out significantly above expectations.
Figure 15: S&P500 Sales Growth (ex-Financials) vs GDP Growth
10%
Energy Materials Industrials Discretionary Staples HealthCare Financials Technology Telecom Utilities MSCI Europe MSCI Europe ex-Financials
Also in Europe consensus expects revenue fall exFinancials. Our constructive margin call over medium term remains.
Figure 16: Quarterly EBIT margins for Eurozone
12% 11%
5%
0%
-5%
-10%
10% 9%
-15% 06 Forecast 07 08 09 10 11 12 US Nominal GDP Gr, %qoq saar S&P 500 Ex- Fin Rev Gr, %qoq saar
8% 7% 6% 5% 4%
Source: Thomson Reuters, NIPA
Both the US and European GDP have been growing subtrend in Q1, which suggests top-line delivery is likely to be mixed at best.
Table 9: S&P 500 Level 1 sectoral sales growth expectations
Q1'12e Sales %qoq -3.0% 6.8% -3.8% -11.4% -5.1% -2.2% 2.7% -7.8% -0.7% 16.6% %yoy 0.9% 5.0% 5.7% 5.7% 5.7% 2.7% 0.7% 6.7% 3.9% 9.8%
3% 2% 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
EMU (Ex-Fin) EBIT Margins
Source: Worlscope
Energy Materials Industrials Discretionary Staples HealthCare Financials Technology Telecom Utilities
8
While top-line growth is likely to be soft at the overall market level in Q1, we think that European profit margins could actually stabilize after their weakness of H211.
Figure 17: EBIT margins expectations for MSCI Europe exFinancials

14.5% 13.5% 12.5% 11.5% 10.5% 9.5% 8.5%
Figure 19: US NIPA corporate profit margins and recessions

14% 13% 12% 11% 10% 9% 8% 7% 6% 47 50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10
Recessions
7.5% 99 00 01 02 03 04 05 06 07 08 09 10 11e 12e
US Corporate profits as a % of GDP
Source: BEA, NBER
EBIT/Sales Europe Ex-Financials
IBES forecasts
IBES- 1st Jan'11
Source: IBES
Consensus EBIT margins estimates for Europe have already been reduced significantly since the start of last year. IBES is looking for a 50bp fall in 12e margins vs '10, compared to expectations of a 110bp increase one year ago. At the same time, the destocking that put pressure on margins in Q4 is over, which points to stronger pricing power and firmer margins in Q1.
Figure 18: J.P. Morgan global commodity price index
350 340 330 320 310 300 290 Jan 11 Mar 11 May 11 Jul 11 Sep 11 H1'11 average Nov 11 Jan 12 H2'11 average Mar 12
In the US, profit margins have been more resilient than in Europe so far and were flat in Q4, near their historical highs.
Table 11: S&P500 performance after the peak in profit margins to the peak of the market
Profit Margins Peak Dec 48 Dec 50 Jun 55 Jun 59 Mar 66 Mar 73 Sep 77 Mar 81 Dec 88 Sep 97 Sep 06 Average Median
Source: Bloomberg
S&P500 Peak Jun 48 Jan 53 Aug 56 Jan 60 Nov 68 Jan 73 Feb 80 Nov 80 Jul 90 Sep 00 Oct 07
S&P500 Perf n/m 28% 19% 3% 19% n/m 20% n/m 32% 55% 16% 24% 19%
J.P. Morgan Commodity Index
Source: J.P. Morgan
Also commodity prices tend to impact margins with the lag. We believe that Q1 margins should also benefit from the large drop in commodity prices during H2'11. US profit margins defying gravity supportive of further medium term equity upside
We believe the US margins upcycle is not over, as we expect labour costs to remain low given the still high unemployment rate (see Two medium term arguments for a shift into equities", 13th February). However, even if one believes that margins have already peaked in Q3'11 it doesn't mean the equity upcycle is exhausted. Historically, profit margins lead the peaks in economic activity by 7 quarters on average and the equity market peaks by 5 quarters. Following the peak in margins, the S&P500 tended to go up another 24% on average before peaking. EPS revisions momentum back in positive territory, but unlikely to decisively break higher in the near term.
Figure 20: +ve to -ve EPS revisions for MSCI Europe vs Global composite PMI
40% 20% 0% -20% -40% -60% -80% 99 00 01 02 03 04 05 06 07 08 09 10 11 12 MSCI Europe +v e to -v e EPS revisions Global composite PMI (rhs) 65 60
Figure 22: Cyclicals vs Defensives +ve to -ve EPS revisions

60%
40%
20%
55
0%
50
-20%
45
-40%
40
-60%
35
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
Cyclical-Defensives +ve to -ve EPS revisions
Source: IBES
Source: IBES
One of our calls of the past few months was the expectation that a turn in EPS revisions would follow the initial phase of the rally which was driven by multiple expansion (see First leg P/E rerating, next to be EPS upgrades, 12th March). As expected, the ratio of EPS upgrades to downgrades has moved into positive territory recently. This is consistent with the stabilization in global activity seen during Q1.
Figure 21: EPS revisions momentum and Eurozone EASI
150 100 50 0 -20% -50 -100 -150 -200 03 04 05 06 07 08 09 10 11 12 EMU EASI MSCI Europe +ve to -ve EPS revisions (brought Fwd by 1m,rhs) -40% -60% -80% 40% 20% 0%
Cyclicals have enjoyed the bulk of positive EPS revisions so far, but the momentum seems to be stabilizing now relative to Defensives. Where to look for earnings surprises?
Figure 23: Ytd change in 12e P/E
Tech Hardware Banks Div Fin Met&Min Software Cons Mat Insurance Automobile Transport Hotels,Rest&Leis Cons Durables Cap Goods Real Estate Chemicals Retailing Europe Utilities HPC Media Food Bev&Tob Healthcare Energy Semicon Telecoms Food Drug Ret 0% 5% 5% 4% 4% 10% 20% Ytd ch in '12e P/E 30% 40% 50% 6% 9% 7% 12% 11% 17% 16% 16% 15% 18% 25% 24% 24% 24% 22% 21% 21% 20% 29% 36% 42%
Source: Bloomberg, IBES
However, if the macro momentum were to stall over the next few months, it is likely that the pace of EPS upgrades will slow.
Source: IBES
Cyclical sectors have enjoyed significant P/E multiple expansion ytd, as the move in price was significantly higher than the change in EPS estimates.
10
Table 12: European level 2 sectors YTD P/E move and valuations relative to historical median
20% Cons Mat 10% 0% -10% -20% Utilities -30% -40% -50% -10% Food Drug Ret Telecoms Energy Media Healthcare Semicon Food Bev&Tob Transport Cons Durables Retailing Chemicals Hotels,Rest&Leis Tech Hardware HPC Insurance Banks Met&Min Div Fin Software Automobile
Table 14: Re-rated Stocks to avoid

Perf Stock NESTE OIL DANSKE BANK KBC GROUP NATIXIS ROYAL BANK OF SCTL.GP. SOCIETEGENERALE CELESIO (XET) QIAGEN (XET) GROUPEEUROTUNNEL SCANIA 'B' ALCATEL-LUCENT STORA ENSO 'R' VEDANTA RESOURCES YARA INTERNATIONAL HELLENICTELECOM.ORG. INMARSAT SWISSCOM'R' FORTUM Sector ENERGY FINANCIALS FINANCIALS FINANCIALS FINANCIALS FINANCIALS HEALTHCARE HEALTHCARE INDUSTRIALS INDUSTRIALS IT MATERIALS MATERIALS MATERIALS TELECOMS TELECOMS TELECOMS UTILITIES UTILITIES UTILITIES T icker NES1V FH DANSKE D C KBC BB KN FP RBS LN GLE FP CLS1GY QGEN US GET FP SCVB SS ALU FP STERV FH VEDLN YAR NO HTO G A ISAT LN SCMNVX FUM1V FH R EG W R VER AV Ctry FI D K BE FR G B FR D E D E FR SE FR FI G B NO G R G B CH FI D E AT Abs 16% 25% 63% 35% 29% 18% 7% 12% 18% 34% 36% 16% 19% 13% 5% 10% 2% 6% 29% 7% Rel 18% 16% 54% 26% 20% 9% 7% 11% 10% 26% 24% 8% 12% 6% 10% 15% 7% 7% 29% 8% EPS Ch Abs -3% -12% -12% -7% -18% -22% 0% -1% 0% -1% 0% -10% -12% -7% -11% -20% -5% -3% -5% -6% Rel -7% -9% -10% -4% -15% -19% -2% -3% -3% -3% -1% -7% -9% -3% -9% -18% -2% 0% -2% -3% Reporting Date 26/04/2012 10/05/2012 10/05/2012 09/05/2012 04/05/2012 03/05/2012 14/05/2012 25/04/2012 23/07/2012 24/04/2012 26/04/2012 24/04/2012 10/04/2012 27/04/2012 07/05/2012 09/05/2012 02/05/2012 26/04/2012 10/05/2012 03/05/2012
Current P/E rel to Median since 1995
Cap Goods Europe Real Estate
-5%
0%
5%
10%
15%
20%
25%
R E (XET) W VERBUND
Ytd P/E Re-rating
Source: IBES
We think the sectors that had the biggest P/E expansion year to date and which are also trading at a premium to their historical multiple relative to the market could be the most at risk of earnings disappointment. Transport, Consumer Durables, Retailing, Chemicals and Hotels & Leisure fall in this category. Screening for stock opportunities
Table 13: De-rated Stocks - earnings opportunities
Perf Stock VOLKSWAGENPREF.(XET) BANKINTER 'R' BRITISHLAND G JENSIDIGEFORSIKRING INTESASANPAOLO MAPFRE NATIONAL BK.OF GREECE POHJOLAPANKKIA TRYG UBI BANCA VIENNA INSURANCE GROUP A ZURICH FINANCIAL SVS. SHIRE FERROVIAL SCHINDLER'P' ARM HOLDINGS UNITED INTERNET (XET) ACERINOX 'R' NOVOZYMES RANDGOLD RESOURCES SALZGITTER (XET) SUEDZUCKER(XET) EDPENERGIASDEPORTUGAL ENELGREENPOWER GAS NATURALSDG Sector DISCRETIONARY FINANCIALS FINANCIALS FINANCIALS FINANCIALS FINANCIALS FINANCIALS FINANCIALS FINANCIALS FINANCIALS FINANCIALS FINANCIALS HEALTHCARE INDUSTRIALS INDUSTRIALS IT IT MATERIALS MATERIALS MATERIALS MATERIALS STAPLES UTILITIES UTILITIES UTILITIES T icker VOW3GR BKT SM BLNDLN G NO JF ISP IM MAPSM ETE GA POH1SFH TRYGDC UBI IM VIG AV ZURN VX SHPLN FER SM SCHP SW ARM LN UTDIGR ACX SM NZYMBDC RRS LN SZG G R SZU GR EDPPL E P IM GW GAS SM Ctry D E ES G B NO IT ES G R FI D K IT AT CH G B ES CH G B D E ES D K G B D E D E PT IT ES Abs 12% -25% 1% -2% -4% -4% 1% 5% -2% -6% 3% 4% -10% -10% -2% 0% 1% -8% -7% -22% 2% -4% -12% -14% -14% Rel -3% -34% -8% -11% -13% -13% -9% -4% -11% -15% -6% -5% -10% -18% -10% -12% -12% -16% -14% -29% -5% -7% -11% -13% -13% EPS Ch Abs 10% 3% 0% 0% 6% 3% 60% 4% 0% 3% 5% 6% 8% 69% 7% 10% 3% -1% 3% 0% 2% 7% 0% 0% 1% Rel 2% 5% 3% 3% 9% 6% 63% 7% 3% 6% 8% 9% 6% 66% 4% 9% 2% 2% 6% 4% 5% 3% 3% 3% 5% Reporting Date 26/04/2012 26/04/2012 21/05/2012 04/05/2012 15/05/2012 04/05/2012 20/04/2012 03/05/2012 14/05/2012 14/05/2012 23/05/2012 10/05/2012 26/04/2012 26/04/2012 19/04/2012 24/04/2012 10/05/2012 27/04/2012 25/04/2012 03/05/2012 15/05/2012 15/05/2012 10/05/2012 09/05/2012 08/05/2012
On the flip side, we screened for stocks that have outperformed their sector year to date while their earnings have been revised downwards both in absolute terms and relative to the sector. These stocks could be the most at risk of earnings disappointment.
At the stock level, we have screened for names that have underperformed their sector year to date despite having positive and higher EPS revisions than their sector. These stocks could offer better risk reward in the coming earnings season. Our bottom up analysts are OW the following stocks: Volkswagen, Shire, EDP and Enel.
11
Appendix European reporting calendar for Q112

Table 15: European reporting calendar for Q1'12
Name KUEHNE+NAGEL INTL. ASML HOLDING SCA 'B' ACTELION AKZO NOBEL GETINGE MODERN TIMES GP.MTG 'B' NOKIA SCHINDLER 'P' SKF 'B' TELE2 'B' TELIASONERA WARTSILA ORION 'B' ALFA LAVAL PHILIPS ELTN.KONINKLIJKE SAIPEM ARM HOLDINGS ASSA ABLOY 'B' KONE 'B' KPN KON NORDEA BANK NOVARTIS 'R' SCANIA 'B' SEB 'A' STORA ENSO 'R' ABB 'R' CREDIT SUISSE GROUP N ELECTROLUX 'B' ERICSSON 'B' GLAXOSMITHKLINE NOVOZYMES QIAGEN (XET) SAP (XET) SIEMENS (XET) SWEDBANK 'A' TELENOR ALCATEL-LUCENT ASTRAZENECA BBV.ARGENTARIA BANCO DE SABADELL BANCO SANTANDER BANKINTER 'R' BAYER (XET) COLOPLAST 'B' DASSAULT SYSTEMES DEUTSCHE BANK (XET) FIAT FIAT INDUSTRIAL FORTUM HUSQVARNA 'B' KESKO 'B' MAN (XET) METSO NESTE OIL RANDSTAD HOLDING ROYAL DUTCH SHELL A(LON) ROYAL DUTCH SHELL B SANDVIK SHIRE STMICROELECTRONICS (PAR) Sector INDUSTRIALS IT MATERIALS HEALTH CARE MATERIALS HEALTH CARE DISCRETIONARY IT INDUSTRIALS INDUSTRIALS TELECOMS TELECOMS INDUSTRIALS HEALTH CARE INDUSTRIALS INDUSTRIALS ENERGY IT INDUSTRIALS INDUSTRIALS TELECOMS FINANCIALS HEALTH CARE INDUSTRIALS FINANCIALS MATERIALS INDUSTRIALS FINANCIALS DISCRETIONARY IT HEALTH CARE MATERIALS HEALTH CARE IT INDUSTRIALS FINANCIALS TELECOMS IT HEALTH CARE FINANCIALS FINANCIALS FINANCIALS FINANCIALS HEALTH CARE HEALTH CARE IT FINANCIALS DISCRETIONARY INDUSTRIALS UTILITIES DISCRETIONARY STAPLES INDUSTRIALS INDUSTRIALS ENERGY INDUSTRIALS ENERGY ENERGY INDUSTRIALS HEALTH CARE IT Ctry CH NL SE CH NL SE SE FI CH SE SE SE FI FI SE NL IT GB SE FI NL SE CH SE SE FI CH CH SE SE GB DK DE DE DE SE NO FR GB ES ES ES ES DE DK FR DE IT IT FI SE FI DE FI FI NL GB GB SE GB FR Ticker KNIN VX ASML NA SCAB SS ATLN VX AKZA NA GETIB SS MTGB SS NOA3 GY SCHP VX SKFB SS TEL2B SS TLSN SS WRT1V FH ORNBV FH ALFA SS PHIA NA SPM IM ARM LN ASSAB SS KNEBV FH KPN NA NDA SS NOVN VX SCVB SS SEBA SS STERV FH ABBN VX CSGN VX ELUXB SS ERICB SS GSK LN NZYMB DC QGEN US SAP GR SIE GR SWEDA SS TEL NO ALU FP AZN LN BBVA SM SAB SM SAN SM BKT SM BAYN GR COLOB DC DSY FP DBK GR F IM FI IM FUM1V FH HUSQB SS KESBV FH VOW GR MEO1V FH NES1V FH RAND NA RDSA LN RDSA LN SAND SS SHP LN STM IM Rep. Date 16/04/2012 18/04/2012 18/04/2012 19/04/2012 19/04/2012 19/04/2012 19/04/2012 19/04/2012 19/04/2012 19/04/2012 19/04/2012 19/04/2012 20/04/2012 22/04/2012 23/04/2012 23/04/2012 23/04/2012 24/04/2012 24/04/2012 24/04/2012 24/04/2012 24/04/2012 24/04/2012 24/04/2012 24/04/2012 24/04/2012 25/04/2012 25/04/2012 25/04/2012 25/04/2012 25/04/2012 25/04/2012 25/04/2012 25/04/2012 25/04/2012 25/04/2012 25/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 Cur CHF EUR SEK CHF EUR SEK SEK EUR CHF SEK SEK SEK EUR EUR SEK EUR EUR BPN SEK EUR EUR EUR USD SEK SEK EUR USD CHF SEK SEK BPN DKK USD EUR EUR SEK NOK EUR USD EUR EUR EUR EUR EUR DKK EUR EUR EUR EUR EUR SEK EUR EUR EUR EUR EUR USD USD SEK USD USD 4Q10 1.29 0.90 1.89 1.20 0.54 1.75 7.29 0.13 1.24 3.44 2.75 1.04 0.38 0.49 1.71 0.16 0.41 2.73 2.53 0.38 0.39 0.20 1.41 3.14 1.58 0.22 0.33 0.90 1.60 1.39 31.90 1.53 0.21 0.44 1.85 2.47 1.71 0.01 2.23 0.25 0.05 0.26 0.10 1.45 9.20 0.51 2.13 0.02 0.08 0.48 0.84 0.24 1.13 0.56 0.10 0.38 1.02 1.02 1.71 0.41 0.19 Actual EPS 1Q11 2Q11 1.34 1.20 0.97 0.84 1.96 1.82 0.64 0.57 1.15 0.63 2.03 2.14 6.79 4.69 0.06 0.03 1.32 1.42 3.76 3.52 2.50 2.87 1.01 1.11 0.35 0.26 0.34 0.34 1.92 1.84 0.04 0.10 0.55 0.51 2.98 3.05 3.02 3.29 0.56 0.61 0.28 0.31 0.18 0.15 1.46 1.45 3.04 2.88 1.57 1.29 0.21 0.10 0.38 0.39 0.48 0.53 1.96 3.00 1.61 1.52 24.70 28.20 1.42 1.62 0.23 0.24 0.59 0.72 0.82 1.32 3.01 3.11 1.80 1.60 0.04 0.09 1.73 1.71 0.25 0.17 0.05 0.03 0.22 0.26 0.10 0.10 1.29 1.12 11.40 12.64 0.64 0.77 1.24 0.74 0.07 0.01 0.19 0.17 0.24 0.21 1.18 0.10 0.54 0.54 1.89 1.13 0.58 0.72 0.23 0.15 0.59 0.66 1.05 1.12 1.05 1.12 1.78 1.97 0.45 0.43 0.14 0.09 3Q11 1.23 0.68 2.35 -0.11 0.17 4.69 7.33 0.06 0.79 2.79 3.00 1.07 0.48 0.32 2.43 -0.07 0.58 3.71 3.43 0.96 0.32 0.20 1.23 2.67 1.19 0.10 0.44 -0.62 1.13 0.58 29.30 1.13 0.31 1.08 1.52 2.66 1.43 0.07 1.61 0.18 0.02 0.19 0.07 0.97 11.40 0.87 0.15 0.08 0.10 0.40 -0.24 0.50 -0.49 0.93 0.05 0.69 1.04 0.78 1.97 0.50 -0.01 IBES EPSe 4Q11e %yoy 1.31 2% 0.64 -29% 2.29 21% 0.74 -38% 0.65 20% 2.15 23% 6.21 -15% -0.03 1.07 -14% 2.93 -15% 2.66 -3% 1.14 10% 0.39 3% 0.39 -20% 1.76 3% 0.20 25% 0.54 32% 3.21 18% 3.14 24% 0.37 -3% 0.20 -49% 0.18 -10% 1.36 -4% 1.93 -39% 1.18 -25% 0.12 -45% 0.30 -9% 1.02 13% 1.82 14% 0.67 -52% 29.19 -8% 1.55 1% 0.21 0% 0.53 20% 1.60 -14% 2.69 9% 1.88 10% -0.03 1.73 -22% 0.19 -24% 0.04 -20% 0.19 -27% 0.08 -20% 1.44 -1% 12.27 33% 0.68 33% 1.68 -21% 0.20 900% 0.10 25% 0.53 10% 1.02 21% 0.24 0% 1.58 40% 0.55 -2% 0.13 30% 0.34 -11% 1.11 9% 1.09 7% 1.66 -3% 0.60 46% -0.02 -
12
Name SVENSKA HANDBKN.'A' TECHNIP TENARIS UPM-KYMMENE VOLVO 'B' ATLAS COPCO 'A' BASF (XET) DAIMLER (XET) DEUTSCHE BOERSE (XET) DSV 'B' ELISA ENI GALP ENERGIA SGPS NORSK HYDRO NOVO NORDISK 'B' SANOFI SSAB 'A' TOTAL YARA INTERNATIONAL ERSTE GROUP BANK UBS 'R' BP RECKITT BENCKISER GROUP BRITISH SKY BCAST.GROUP SWISSCOM 'R' TNT EXPRESS VESTAS WINDSYSTEMS ADIDAS (XET) BANCO ESPIRITO SANTO BEIERSDORF (XET) BG GROUP BMW (XET) BOLIDEN CONTINENTAL (XET) DEUTSCHE LUFTHANSA (XET) FRESENIUS (XET) FRESENIUS MED.CARE (XET) HEIDELBERGCEMENT (XET) INFINEON TECHS. (XET) METRO (XET) ORKLA POHJOLA PANKKI A RANDGOLD RESOURCES SANOMA SCOR SE SMITH & NEPHEW SOCIETE GENERALE ABERTIS INFRAESTRUCTURAS BANCO POPULAR ESPANOL BELGACOM BNP PARIBAS DNB FOMENTO CONSTR.Y CNTR. GJENSIDIGE FORSIKRING GRIFOLS LAFARGE LEGRAND LINDE (XET) SWEDISH MATCH TRANSOCEAN (SWX) WACKER CHEMIE (XET) COMMERZBANK (XET) SECURITAS 'B' SOLVAY ADECCO 'R' DEUTSCHE POST (XET)
Sector FINANCIALS ENERGY ENERGY MATERIALS INDUSTRIALS INDUSTRIALS MATERIALS DISCRETIONARY FINANCIALS INDUSTRIALS TELECOMS ENERGY ENERGY MATERIALS HEALTH CARE HEALTH CARE MATERIALS ENERGY MATERIALS FINANCIALS FINANCIALS ENERGY STAPLES DISCRETIONARY TELECOMS INDUSTRIALS INDUSTRIALS DISCRETIONARY FINANCIALS STAPLES ENERGY DISCRETIONARY MATERIALS DISCRETIONARY INDUSTRIALS HEALTH CARE HEALTH CARE MATERIALS IT STAPLES INDUSTRIALS FINANCIALS MATERIALS DISCRETIONARY FINANCIALS HEALTH CARE FINANCIALS INDUSTRIALS FINANCIALS TELECOMS FINANCIALS FINANCIALS INDUSTRIALS FINANCIALS HEALTH CARE MATERIALS INDUSTRIALS MATERIALS STAPLES ENERGY MATERIALS FINANCIALS INDUSTRIALS MATERIALS INDUSTRIALS INDUSTRIALS
Ctry SE FR IT FI SE SE DE DE DE DK FI IT PT NO DK FR SE FR NO AT CH GB GB GB CH NL DK DE PT DE GB DE SE DE DE DE DE DE DE DE NO FI GB FI FR GB FR ES ES BE FR NO ES NO ES FR FR DE SE CH DE DE SE BE CH DE
Ticker SHBA SS TEC FP TEN IM UPM1V FH VOLVB SS ATCOA SS BAS GY DAI GR DB1 GR DSV DC ELI1V FH ENI IM GALP PL NHY NO NOVOB DC SAN FP SSABA SS FP FP YAR NO EBS AV UBSN VX BP/ LN RB/ LN BSY LN SCMN VX TNTE NA VWS DC ADS GR BES PL BEI GR BG/ LN BMW GR BOL SS CON GR LHA GR FRE GR FME GR HEI GR IFX GR MEO GR ORK NO POH1S FH RRS LN SAA1V FH SCR FP SN/ LN GLE FP ABE SM POP SM BELG BB BNP FP DNB NO FCC SM GJF NO GRF SM LG FP LR FP LIN GR SWMA SS RIG US WCH GR CBK GR SECUB SS SOLB BB ADEN VX DPW GR
Rep. Date 26/04/2012 26/04/2012 26/04/2012 26/04/2012 26/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 27/04/2012 30/04/2012 30/04/2012 01/05/2012 01/05/2012 02/05/2012 02/05/2012 02/05/2012 02/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 03/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 04/05/2012 05/05/2012 07/05/2012 07/05/2012 08/05/2012 08/05/2012
Cur SEK EUR USD EUR SEK SEK EUR EUR EUR DKK EUR EUR EUR NOK DKK EUR SEK EUR NOK EUR CHF USD BPN BPN CHF EUR EUR EUR EUR EUR USD EUR SEK EUR EUR EUR USD EUR EUR EUR NOK EUR USD EUR EUR USD EUR EUR EUR EUR EUR NOK EUR NOK EUR EUR EUR EUR SEK USD EUR EUR SEK EUR EUR EUR
4Q10 4.63 0.92 0.27 0.32 2.01 2.47 1.94 0.99 1.14 1.51 0.28 0.61 0.05 0.65 7.06 1.66 1.20 1.38 9.15 0.60 0.47 0.28 52.20 10.50 9.05 -0.42 1.00 0.05 0.53 0.24 1.84 3.51 2.34 -0.59 1.04 0.73 -0.83 0.15 0.00 1.71 0.24 0.45 0.11 -0.44 0.18 1.59 0.16 0.12 0.60 2.12 1.78 0.35 1.30 0.18 -0.10 0.47 1.86 2.49 3.39 0.59 1.13 1.23 0.54 0.27
Actual EPS 1Q11 2Q11 4.88 5.10 1.15 1.08 0.24 0.26 0.19 2.52 1.89 2.45 2.91 1.75 1.52 1.51 1.34 0.96 1.31 1.84 2.03 0.29 0.36 0.40 0.50 0.08 0.07 0.61 0.50 7.21 7.39 1.64 1.79 2.73 1.19 1.24 1.24 7.82 9.13 0.54 -1.33 0.26 0.07 0.31 0.27 56.80 63.90 10.95 11.50 9.36 10.89 0.07 0.03 0.27 -0.29 0.67 1.45 0.08 -0.02 0.58 0.33 0.33 0.30 2.75 1.64 2.94 3.06 2.08 1.59 0.66 1.08 1.17 1.22 0.86 0.92 0.88 1.43 0.16 0.21 0.20 0.70 1.56 0.58 0.26 0.14 1.22 1.15 0.29 0.30 0.66 1.03 0.18 0.16 1.36 0.75 0.26 0.34 0.07 0.06 0.62 0.61 1.77 1.84 2.17 1.52 0.51 0.60 1.80 1.25 0.18 0.17 1.01 0.93 0.51 0.45 1.89 1.88 2.92 3.26 0.64 2.87 2.50 0.35 0.11 1.28 1.63 1.74 1.18 0.74 0.77 0.23 0.32
3Q11 4.70 1.35 0.34 0.16 2.33 2.77 1.05 1.62 0.89 1.96 0.36 0.43 0.10 0.42 8.33 1.56 -0.23 1.20 8.82 0.26 0.54 74.20 12.30 7.05 -0.02 -0.27 0.09 0.02 0.59 0.43 1.22 2.88 2.42 -0.04 1.24 1.02 1.06 0.10 1.91 0.23 0.13 1.25 0.18 0.55 0.22 0.75 0.16 0.05 0.69 0.93 2.51 0.50 1.32 0.13 0.00 0.49 2.01 3.40 0.24 -1.66 0.09 1.75 1.70 0.73 0.31
IBES EPSe 4Q11e %yoy 5.15 11% 1.02 11% 0.31 15% 0.14 -56% 1.77 -12% 2.59 5% 1.41 -27% 1.34 35% 1.18 4% 1.55 3% 0.29 4% 0.59 -3% 0.10 100% 0.25 -62% 8.39 19% 1.69 2% 1.12 -7% 1.39 1% 8.92 -3% 1.05 75% 0.39 -17% 0.27 -4% 55.40 6% 11.45 9% 8.09 -11% 0.06 -0.18 1.01 1% 0.04 -20% 0.52 -2% 0.37 54% 1.70 -8% 3.05 -13% 1.94 -17% -1.10 1.11 7% 0.77 5% -0.67 0.09 -40% -0.03 0.87 -49% 0.22 -8% 1.39 209% 0.11 0% 0.66 0.18 0% 0.85 -47% 0.23 44% 0.07 -42% 0.57 -5% 1.74 -18% 1.87 5% 0.17 -51% 1.28 -2% 0.19 6% -0.15 0.53 13% 1.77 -5% 3.14 26% 0.57 0.73 -78% 0.06 -90% 1.24 10% 1.37 11% 0.63 17% 0.31 15%
13
Name DSM KONINKLIJKE GEA GROUP (XET) GENERALI HOLMEN 'B' MUENCHENER RUCK. (XET) SAMPO 'A' STATOIL AKER SOLUTIONS AMADEUS IT HOLDING CARLSBERG 'B' E ON (XET) FRAPORT (XET) HENKEL PREF (XET) HEXAGON 'B' HOLCIM 'R' ING GROEP K + S (XET) LANXESS (XET) LUNDIN PETROLEUM MEDIOBANCA NATIXIS NOKIAN RENKAAT OMV TDC TELECOM ITALIA ACS ACTIV.CONSTR.Y SERV. AEGON ARCELORMITTAL ARKEMA BT GROUP COCA-COLA HLC.BT. CIE.GL.DE GPHYQ.-VERT. CORIO DANSKE BANK DEUTSCHE TELEKOM (XET) HOCHTIEF (XET) KBC GROUP PORTUGAL TELECOM SGPS SKANSKA 'B' TELEKOM AUSTRIA UNICREDIT UNITED INTERNET (XET) VALLOUREC ZURICH FINANCIAL SVS. ACCIONA CREDIT AGRICOLE INDRA SISTEMAS REPSOL YPF SUBSEA 7 TELEFONICA BANCA MONTE DEI PASCHI CELESIO (XET) TRYG UBI BANCA VIVENDI ALLIANZ (XET) BANCO POPOLARE INTESA SANPAOLO MERCK KGAA (XET) SALZGITTER (XET) SUEDZUCKER (XET) THYSSENKRUPP (XET) EADS (PAR) OPAP BRITISH LAND RYANAIR HOLDINGS VIENNA INSURANCE GROUP A RAIFFEISEN BANK INTL. VOESTALPINE SEADRILL AHOLD KON. KABEL DEUTSCHLAND (XET) HLDG. Source: Datastream, IBES
Sector MATERIALS INDUSTRIALS FINANCIALS MATERIALS FINANCIALS FINANCIALS ENERGY ENERGY IT STAPLES UTILITIES INDUSTRIALS STAPLES IT MATERIALS FINANCIALS MATERIALS MATERIALS ENERGY FINANCIALS FINANCIALS DISCRETIONARY ENERGY TELECOMS TELECOMS INDUSTRIALS FINANCIALS MATERIALS MATERIALS TELECOMS STAPLES ENERGY FINANCIALS FINANCIALS TELECOMS INDUSTRIALS FINANCIALS TELECOMS INDUSTRIALS TELECOMS FINANCIALS IT INDUSTRIALS FINANCIALS UTILITIES FINANCIALS IT ENERGY ENERGY TELECOMS FINANCIALS HEALTH CARE FINANCIALS FINANCIALS TELECOMS FINANCIALS FINANCIALS FINANCIALS HEALTH CARE MATERIALS STAPLES MATERIALS INDUSTRIALS DISCRETIONARY FINANCIALS INDUSTRIALS FINANCIALS FINANCIALS MATERIALS ENERGY STAPLES DISCRETIONARY
Ctry NL DE IT SE DE FI NO NO ES DK DE DE DE SE CH NL DE DE SE IT FR FI AT DK IT ES NL FR FR GB GR FR NL DK DE DE BE PT SE AT IT DE FR CH ES FR ES ES NO ES IT DE DK IT FR DE IT IT DE DE DE DE FR GR GB IE AT AT AT NO NL DE
Ticker DSM NA G1A GR G IM HOLMB SS MUV2 GR SAMAS FH STL NO AKSO NO AMS SM CARLB DC EOAN GR FRA GR HEN3 GR HEXAB SS HOLN VX INGA NA SDF GR LXS GR LUPE SS MB IM KN FP NRE1V FH OMV AV TDC DC TIT IM ACS SM AGN NA MT NA AKE FP BT/A LN EEEK GA GA FP CORA NA DANSKE DC DTE GY ACS SM KBC BB PTC PL SKAB SS TKA AV UCG IM UTDI GR VK FP ZURN VX ANA SM ACA FP IDR SM REP SM SUBC NO TEF SM BMPS IM CLS1 GY TRYG DC UBI IM VIV FP ALV GR BP IM ISP IM MRK GR SZG GR SZU GR TKA GR EAD FP OPAP GA BLND LN RYA ID VIG AV RBI AV VOE AV SDRL NO AH NA KD8 GR
Rep. Date 08/05/2012 08/05/2012 08/05/2012 08/05/2012 08/05/2012 08/05/2012 08/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 09/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 10/05/2012 11/05/2012 11/05/2012 11/05/2012 11/05/2012 11/05/2012 11/05/2012 14/05/2012 14/05/2012 14/05/2012 14/05/2012 14/05/2012 15/05/2012 15/05/2012 15/05/2012 15/05/2012 15/05/2012 15/05/2012 15/05/2012 16/05/2012 17/05/2012 21/05/2012 21/05/2012 23/05/2012 24/05/2012 30/05/2012 31/05/2012 06/06/2012 08/06/2012
Cur EUR EUR EUR SEK EUR EUR NOK NOK EUR DKK EUR EUR EUR EUR CHF EUR EUR EUR USD EUR EUR EUR EUR DKK EUR EUR EUR USD EUR BPN EUR EUR EUR DKK EUR EUR EUR EUR SEK EUR EUR EUR EUR USD EUR EUR EUR EUR USD EUR EUR EUR DKK EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR BPN EUR EUR EUR EUR USD EUR EUR
4Q10 0.91 0.23 0.40 4.40 -5.28 0.58 3.74 1.85 0.32 1.67 0.69 0.27 0.73 0.21 0.03 0.39 1.42 2.05 0.18 0.18 0.17 0.48 0.90 1.07 0.03 0.65 0.19 0.40 2.51 5.80 0.00 -0.08 0.73 2.18 0.16 -2.30 1.50 0.15 0.32 0.24 0.28 0.20 0.69 4.07 0.88 0.42 0.30 0.65 0.20 0.38 0.01 0.31 4.50 0.09 0.76 1.88 0.03 0.05 2.03 0.79 0.26 0.58 -0.01 0.52 7.23 -0.03 0.85 1.13 1.02 0.61 0.25 0.00
Actual EPS 1Q11 2Q11 0.99 0.94 0.41 0.48 0.31 0.13 3.60 4.10 4.14 1.61 0.55 0.22 4.02 3.58 0.45 -0.83 0.28 0.31 14.08 13.24 -0.20 0.34 0.86 1.20 0.79 0.85 0.22 0.19 1.09 1.11 0.40 0.34 0.66 0.64 2.23 1.91 0.25 0.13 -0.06 0.17 0.13 0.57 0.60 0.77 0.71 0.93 1.22 0.03 0.04 1.33 0.63 0.17 0.05 0.93 0.46 3.02 2.09 4.90 5.60 0.40 0.43 -0.04 0.18 0.74 0.69 1.30 -0.40 0.22 0.30 0.19 1.34 1.11 -1.17 0.11 0.12 1.86 2.16 0.12 0.30 0.20 -0.17 0.19 0.21 0.95 0.77 9.02 8.43 3.02 1.19 0.13 0.37 0.34 0.24 0.44 0.35 0.39 0.31 0.34 -0.10 0.01 0.00 0.17 0.31 6.00 2.65 0.28 0.04 0.71 0.55 2.17 1.79 0.04 -0.01 0.05 0.03 0.94 1.91 0.89 0.38 0.46 0.32 0.51 1.67 0.15 0.26 0.34 0.42 7.20 7.40 0.09 0.27 0.83 0.77 1.49 0.67 1.13 0.69 0.60 0.71 0.17 0.21 0.09 0.40
3Q11 0.71 0.73 3.50 3.52 0.49 4.56 2.50 0.20 6.47 0.48 0.27 0.77 0.24 -0.07 -0.14 0.80 0.48 -0.05 0.71 1.00 1.06 0.72 0.13 -0.36 0.88 5.80 0.08 0.22 0.76 0.23 -0.02 -1.41 0.23 0.04 1.91 -0.14 0.20 3.79 1.14 0.18 0.22 0.31 0.28 0.41 0.33 5.26 0.35 1.06 1.69 0.46 0.53 -0.11 0.61 0.40 7.50 0.01 0.66 0.91 0.27 0.73 0.25 0.62
IBES EPSe 4Q11e %yoy 0.60 -34% 0.29 26% 0.29 -28% 3.32 -25% 2.99 0.50 -14% 4.48 20% 1.59 -14% 0.38 19% 0.95 -43% 0.44 -36% 0.21 -22% 0.90 23% 0.22 5% 0.09 200% 0.30 -23% 1.11 -22% 1.65 -20% 0.12 -33% 0.14 -22% 0.11 -35% 0.56 17% 1.01 12% 1.03 -4% 0.03 0% 0.34 -48% 0.15 -21% 0.30 -25% 3.42 36% 6.39 10% -0.03 0.07 0.75 3% 0.63 -71% 0.11 -31% 0.36 1.14 -24% 0.11 -27% 1.18 269% 0.12 -50% 0.03 -89% 0.18 -10% 0.50 -28% 6.75 66% 4.24 382% -0.35 0.23 -23% 0.45 -31% 0.30 50% 0.32 -16% 0.01 0% 0.25 -19% 5.96 32% 0.10 11% 0.77 1% 2.76 47% 0.08 167% 0.05 0% 1.78 -12% 0.50 -37% 0.45 73% 0.14 -76% 0.32 0.31 -40% 7.37 2% -0.04 1.63 92% 1.01 -11% 0.55 -46% 0.69 13% 0.29 16% 0.55 -
14
European Equity Strategy Key Calls and Drivers

We have recently advised cutting beta and risk in portfolio for the following reasons: 1) Macro momentum is stalling, as seen in weakening Global PMIs; 2) US EASI could turn negative soon, pointing to a negative risk-reward for stocks; 3) Stocks have rallied 30% from their '11 lows and valuations have normalized; 4) Sector rotation into Cyclicals was substantial Ytd and Cyclicals are now trading above fair value compared to Defensives; 5) Investors have participated in the rally and sentiment has turned bullish; 6) Chinese risk remains underestimated by the market, macro dataflow is still mixed post the holiday season; 7) US gasoline prices are near last years peak and could start hurting the consumer. We have recently cut Cyclicals from OW to N post strong Ytd performance (we still like Construction Materials, Semiconductors and Software, have cut Autos, Mining and Capital Goods). We are cautious on commodities. Within Eurozone, we still find DAX the most attractive, and remain OW core vs periphery, with a preference for Italy over Spain. The medium term picture is still constructive in our view, but we think there could be a better entry point.
Table 16: J.P. Morgan Equity Strategy Factors driving our medium-term views
Driver Global Growth European Growth Inflation Monetary Policy Currency Earnings Valuations Technicals Impact Neutral Negative Positive Positive Neutral Neutral Positive Neutral Our Core Working Assumptions Global growth to be near trend in 2012 Eurozone likely to have entered mild Recession in Q411 DM and EM inflation to move lower ECB to cut rates to 0.75% by mid year, 3 more RRR cuts in China Looking for weaker EUR/USD Mid-single digit European EPS growth in 12e Equities attractively valued vs bonds and history Recent Developments Global composite PMI down in March March PMI consistent with modest GDP contraction Chinese CPI lower at 3.2% in February China cut RRR by 50bps in February Near term EUR/USD stabilization likely EPS negative revisions have turned up Europe on 10.7x Fwd P/E, 24% below LT average AAII Bull Bear index improved recently
Source: J.P. Morgan estimates.
Table 17: J.P. Morgan Equity Strategy Scenarios: Base Case and Risks
Scenario Upside scenario Base-case scenario Downside scenario
Source: J.P. Morgan estimates
Macro environment in 2012 Eurozone funding crisis stabilizes as a credible backstop is implemented, global growth rebounds, profit margins move even higher. ->Positive EPS growth and significant P/E expansion. Euro situation remains volatile but does not get worse, US growth slows due to fiscal tightening but does not go into recession, China soft landing. ->Flat EPS growth and modest P/E expansion Euro crisis worsens. Policy action inadequate. One or more core countries lose market access. US double dip and/or China hard landing. >double digit EPS fall and P/E compression to 09 lows
Table 18: J.P. Morgan Equity Strategy Key sector calls*

Sector Insurance Construction Materials Banks Utilities Pharma Recommendations Overweight Overweight Overweight Underweight Underweight Key Drivers Cheap, rising bond yields US construction picking up, Chinese outlook remains supportive Consensus UW, new ECB measures key to reduce funding costs Pricing weakness, regulatory risk, dividend risk, expensive Consensus OW, P/E rerating in 2011 The view could be expressed through these ETFs hedged by SDJ600 GR XIPS GR XOPS GR X7PS GR X6PS GR XDPS GR
Source: J.P. Morgan estimates. * Please see the last page for the full list of our calls and sector allocation.
Table 19: J.P. Morgan Equity Strategy Key regional calls

Region Global Developed Eurozone Recommendations OW EM vs DM OW Europe vs US OW Core vs Periphery J.P. Morgan Views Growth inflation tradeoff improving, EM equities cheap Cheaper valuations and investors positioning favor Europe Stronger GDP and EPS growth outlook and lower EUR/USD favor core EMU ETFs MXFS LN / SMSWLD GR SMSEUR GR / SMSUSA GR DAX30S GR / SDJE50 GR
Source: J.P. Morgan estimates
15
Top Picks
Table 20: J.P. Morgan European Strategy: Top European picks
Name BP BG Group ENI Petrofac Heidelberg Cement Saint-Gobain Arkema Rio Tinto Arcelor Mittal Safran Vinci Schneider Volvo Brenntag IAG Deutsche Post Volkswagen Continental SABMiller Publicis Marks & Spencer Anheuser-Busch InBev BAT Casino Nestle Unilever Sanofi Roche SwedBank HSBC DnB Nor UBS Societe Generale Land Securities Swiss Re Aegon Infineon ASML Imagination Technologies SAP Tele2 Inmarsat TDC Terna Centrica Price 452.1 1409.0 17.1 1698.0 43.3 31.3 67.4 3406.5 13.4 26.9 37.0 46.4 93.7 90.9 2.2 14.1 129.4 70.3 2535.0 40.1 370.0 54.1 3176.0 71.9 56.3 25.7 57.1 158.4 101.0 556.8 71.0 12.1 20.4 719.0 56.7 3.9 7.4 36.5 681.5 51.3 133.6 446.2 40.6 3.0 309.9 Ticker BP/ LN BG/ LN ENI IM PFC LN HEI GR SGO FP AKE FP RIO LN MT NA SAF FP DG FP SU FP VOLVB SS BNR GR IAG LN DPW GR VOW3 GR CON GR SAB LN PUB FP MKS LN ABI BB BATS LN CO FP NESN VX UNA NA SAN FP ROG VX SWEDA SS HSBA LN DNBNOR NO UBSN VX GLE FP LAND LN SREN VX AGN NA IFX GR ASML NA IMG LN SAP GR TEL2B SS ISAT LN TDC DC TRN IM CNA LN JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Analyst Name Frederick G Lucas Frederick G Lucas Nitin Sharma Andrew Dobbing Michael Morris Michael Morris Martin Evans Benjamin Defay Alessandro Abate John Middleton Elodie Rall Andreas Willi Nico Dil Robert Plant David Pitura Christopher G Combe Ranjit A Unnithan Ranjit A Unnithan Matthew Webb Filippo Pietro Lo Franco Gillian Hilditch Mike J Gibbs Rae Maile Paul Diamond Polly Barclay Celine Pannuti Richard Vosser Alexandra Schuele Sofie Peterzens Raul Sinha Sofie Peterzens Kian Abouhossein Delphine Lee Harm M Meijer Michael Huttner Duncan Russell Sandeep S Deshpande Sandeep S Deshpande Sandeep S Deshpande Stacy E Pollard Akhil Dattani Torsten Achtmann Hannes C Wittig Javier Garrido Edmund Reid Sector Energy Energy Energy Energy Materials Industrials Materials Materials Materials Industrials Industrials Industrials Industrials Industrials Industrials Industrials Discretionary Discretionary Discretionary Discretionary Discretionary Staples Staples Staples Staples Staples Health Care Health Care Financials Financials Financials Financials Financials Financials Financials Financials IT IT IT IT Telecoms Telecoms Telecoms Utilities Utilities IBES consensus estimates 12e EPS Gr 12e P/E 12e DY -23.4% 6.4 4.6% 16.2% 14.8 1.2% 15.1% 7.8 6.2% 18.3% 14.5 2.4% 17.1% 13.5 1.4% -2.1% 9.7 4.2% -21.0% 9.3 2.2% -4.7% 7.0 2.8% 34.2% 9.0 4.2% 26.3% 13.3 2.8% 1.1% 10.5 4.8% 1.0% 11.6 3.9% -6.1% 11.4 3.8% 20.8% 13.9 2.6% -62.5% 36.2 0.0% 1.7% 11.5 5.1% 5.8% 6.6 2.9% -0.7% 8.4 2.5% 8.3% 19.5 2.2% 20.8% 12.6 2.0% -4.8% 11.2 4.7% 10.5% 16.1 2.7% 10.2% 14.8 4.3% 16.8% 12.5 4.5% 11.4% 17.1 3.7% 17.0% 15.6 3.7% -12.0% 9.8 4.8% 10.4% 11.7 4.6% 3.3% 9.2 5.4% 2.9% 9.5 5.0% 1.9% 8.8 4.1% 20.9% 9.2 1.7% -23.9% 6.1 3.8% 4.5% 18.9 4.0% -8.2% 9.3 6.0% -11.9% 6.6 5.1% -34.8% 17.3 1.8% -28.7% 14.9 1.3% -7.7% 68.8 0.0% 8.8% 16.6 1.7% 10.4% 11.0 10.4% 17.5% 11.5 6.3% -12.1% 10.7 11.0% 5.3% 14.8 6.4% 13.8% 11.4 5.3% Performance 11 ytd -3m -1.8% -4.5% 2.4% -1.4% 7.1% 4.3% 17.8% 15.9% 32.2% 25.3% 5.4% 3.3% 23.2% 19.7% 9.0% 1.9% -4.8% -10.0% 16.1% 17.5% 9.6% 7.1% 14.1% 10.3% 24.4% 16.9% 26.4% 25.8% 24.9% 20.1% 18.9% 14.4% 11.8% 5.2% 46.7% 33.4% 11.8% 9.7% 12.9% 11.6% 19.0% 19.8% 14.3% 16.7% 3.9% 3.6% 10.5% 11.5% 4.3% 3.5% -3.4% -3.5% 0.5% 1.5% -0.5% -2.6% 13.3% 7.4% 13.4% 11.4% 21.3% 23.6% 8.5% 4.8% 18.4% 19.9% 13.1% 14.4% 18.3% 15.3% 26.3% 25.2% 27.7% 22.5% 12.3% 13.9% 24.1% 22.6% 25.5% 22.5% -0.2% 0.2% 10.3% 5.9% -11.8% -11.7% 13.3% 9.7% 7.1% 4.3% -12m -3.7% -9.5% -3.4% 11.6% -13.8% -29.8% 1.1% -23.9% -47.7% 5.5% -17.2% -24.6% -16.2% 15.4% -14.4% 9.6% 10.7% 9.4% 13.3% -0.8% 8.1% 29.2% 25.5% 4.5% 6.0% 16.2% 13.7% 19.1% -9.1% -14.0% -17.4% -27.8% -55.5% -3.7% 4.1% -28.5% -0.5% 17.0% 54.3% 17.0% -9.7% -28.9% -3.7% -13.7% -6.5% E E E E E E E E SK E E E E E E E E SF E E SF SK NK SF E SF E E E E SK DK E
Source: Datastream, MSCI, IBES, J.P. Morgan, Prices and Valuations as of COB 4th April, 2012 Please see the most recent company-specific research published by J.P. Morgan for an analysis of valuation methodology and risks on companies recommended in this report. Research is available at http://www.morganmarkets.com, or you can contact the covering analyst or your J.P. Morgan representative.
16
Technical Indicators
Figure 24: AAII Bulls vs. Bears
75% 60% 45% 30% 15% 0% -15% -30% -45% -60% 04 05 06 07 08
AAII Bull - Bear
-1% 0% 3% 3% 3% 5% 5% 5% 29%
09 10 11 12
-10% 0% 10% 20% 30% 40% Europe 6m fwd av erage return
Source: Datastream, Bloomberg, J.P. Morgan
Figure 25: Put Call ratios

2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 04 05 06 07 08
S&P Put Call ratio
7% 4% 4% 4% 1% 4% 2% 3% 5%
09
10
11
12
0.0%
2.0% 4.0% 6.0% 8.0% Europe 6m fw d average return
Figure 26: Skew

3.5 3.3 3.1 2.9 2.7 2.5 2.3 2.1 1.9 1.7 01 02 03 04 05 06 07 08 09 10 11 12
6% 7% 5% 2% -2% 1% -4% -9% -11% -15% -10% -5% 0% 5% 10%
EStoxx 1 year Skew
Europe 6m fwd av erage return
17
Performance
Table 21: Sector Index Performances MSCI Europe
(%change) Industry Group Europe Energy Materials Chemicals Construction Materials Metals & Mining Industrials Capital Goods Transport Consumer Discretionary Automobile Consumer Durables Media Retailing Hotels,Restaurants&Leisure Consumer Staples Food & Drug Retailing Food Beverage & Tobacco Household Products Healthcare Financials Banks Diversified Financials Insurance Real Estate Information Technology Software and Services Technology Hardware Semicon & Semicon Equip Telecommunications Services Utilities
Source: MSCI, Datastream, as at COB 4th April, 2012.
4week (1.0) (4.4) (1.6) 3.3 (0.9) (5.5) (0.4) (1.1) 2.3 0.8 (0.7) 2.2 (0.9) 3.4 1.3 1.8 2.2 1.5 3.6 0.9 (3.2) (6.0) (1.1) (0.2) 1.7 2.0 0.6 1.8 5.1 (0.2) (2.5)
Local currency 12m (10.9) (8.7) (18.0) (0.2) (16.9) (29.5) (15.0) (18.0) (11.1) (0.6) (5.8) 8.7 (9.9) 14.2 (4.4) 8.9 (17.2) 14.3 10.7 9.3 (25.1) (31.4) (26.1) (11.6) (13.4) (6.7) 15.2 (30.8) (1.6) (17.9) (21.8)
12YTD 4.7 (1.9) 7.4 13.7 11.5 1.5 7.8 6.3 15.1 15.0 24.3 19.1 4.8 10.9 8.5 3.8 (8.9) 5.0 13.7 0.4 9.3 7.2 10.8 12.5 8.0 12.1 20.2 1.7 12.5 (5.0) (0.7)
Table 22: Country and Region Index Performances

(%change) Country Austria Belgium Denmark Finland France Germany Greece Ireland Italy Japan Netherlands Norway Portugal Spain Sweden Switzerland United States United States United Kingdom EMU Europe Global Index ATX BEL 20 KFX HEX 20 CAC 40 DAX ASE General ISEQ FTSE MIB Topix AEX OBX BVL GEN IBEX 35 OMX SMI S&P 500 NASDAQ FTSE 100 MSCI EMU MSCI Europe MSCI AC World 4week (1.6) 1.0 1.6 (3.2) (2.3) 1.7 (5.5) 1.7 (7.0) 1.5 (1.8) 1.2 (2.2) (6.1) (2.0) 1.1 3.4 4.5 (1.5) (1.4) (1.0) 1.8 Local Currency 12m (27.8) (16.4) (3.3) (23.4) (18.0) (5.5) (52.8) 8.5 (30.7) (2.8) (14.9) (11.1) (24.5) (28.8) (9.5) (3.9) 5.0 10.0 (5.2) (16.9) (10.9) (2.8) US$ 12YTD 10.6 8.6 16.4 8.6 4.9 15.0 3.5 10.4 1.0 14.7 0.4 8.7 (1.5) (10.6) 5.4 3.9 11.2 17.8 2.4 6.0 4.7 9.3 4week (1.7) 1.0 1.5 (3.2) (2.3) 1.7 (5.6) 1.7 (7.1) (0.5) (1.8) (0.6) (2.2) (6.2) (0.6) 1.2 3.4 4.5 (0.5) (1.4) (0.6) 1.7 12m (33.5) (23.0) (10.7) (29.5) (24.5) (12.9) (56.5) (0.0) (36.2) (1.2) (21.6) (15.3) (30.5) (34.4) (15.0) (3.6) 5.0 10.0 (6.8) (23.4) (15.0) (4.0) 12YTD 11.8 9.7 17.4 9.7 6.0 16.2 4.5 11.5 2.1 7.0 1.5 12.3 (0.4) (9.6) 7.6 5.9 11.2 17.8 4.6 7.1 6.4 9.2
Source: MSCI, Datastream, as at COB 4th April, 2012. 18
Earnings
Table 23: IBES Consensus EPS Sector Forecasts MSCI Europe
Europe Energy Materials Chemicals Construction Materials Metals & Mining Industrials Capital Goods Transport Discretionary Automobile Consumer Durables Media Retailing Hotels,Restaurants&Leisure Staples Food & Drug Retailing Food Beverage & Tobacco Household Products Healthcare Financials Banks Diversified Financials Insurance Real Estate IT Software and Services Technology Hardware Semicon & Semicon Equip Telecoms Utilities
Source: IBES, MSCI, Datastream. As at COB 4th April, 2012
2011E 0.5 20.7 18.1 13.3 (14.6) 26.6 1.8 6.5 (29.2) 14.6 22.7 6.5 13.0 2.0 13.3 0.8 (6.0) 1.5 9.7 1.8 (15.2) (6.8) (36.7) (17.0) (3.7) 4.5 19.8 (20.7) 33.3 (5.1) (18.9)
EPS Growth (%) 2012E 5.2 1.8 (2.2) (0.5) 21.7 (4.5) 7.0 7.6 0.2 9.2 7.2 16.7 8.6 12.1 1.5 9.8 7.9 11.0 4.4 (0.1) 14.5 (2.3) 47.6 36.1 2.8 (10.4) 4.8 (16.4) (27.2) (2.1) 3.3
2013E 11.5 8.5 15.5 11.3 24.1 17.0 13.6 12.9 22.2 13.3 15.5 13.8 8.6 12.1 12.6 9.7 9.5 10.0 7.6 7.5 15.4 20.3 14.4 8.3 6.1 24.2 12.3 37.7 31.3 3.4 6.2
2014E 8.6 2.4 8.4 9.0 22.8 6.6 11.7 10.4 22.1 11.5 11.9 11.1 8.6 11.3 16.6 9.1 10.0 9.1 7.4 7.9 11.1 14.1 11.2 5.8 3.8 14.7 13.9 13.8 17.9 2.8 8.9
Table 24: IBES Consensus EPS Country Forecasts

Country Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom EMU Europe ex UK Europe United States Japan Emerging Market Global Index ATX BEL 20 Denmark KFX MSCI Finland CAC 40 DAX MSCI Greece MSCI Ireland MSCI Italy AEX MSCI Norway MSCI Portugal IBEX 35 OMX SMI FTSE 100 MSCI EMU MSCI Europe ex UK MSCI Europe S&P 500 Topix MSCI EM MSCI AC World 2011E (16.1) (55.9) (13.8) (19.3) (1.6) (8.4) (107.1) 18.6 (9.8) 5.6 20.8 (8.9) (9.0) (3.6) (8.8) 15.6 (6.1) (6.6) 0.5 15.3 62.0 3.5 6.4 EPS Growth (%) 2012E 22.9 138.7 31.8 (7.8) 1.4 7.3 6.2 9.5 7.6 7.3 10.5 (5.9) 3.6 10.7 1.8 5.2 7.1 5.2 8.7 64.0 13.0 8.0 2013E 17.3 12.1 24.9 21.6 11.0 12.2 37.4 23.2 15.5 14.7 11.1 11.8 17.3 11.6 11.0 10.9 12.8 12.5 11.5 12.8 17.3 10.4 12.2 2014E 10.4 4.5 16.8 8.7 9.2 9.3 5.7 25.2 12.0 5.3 9.0 7.1 7.0 11.1 8.2 7.9 9.1 9.4 8.6 10.8
6.6 9.6
Source: IBES, MSCI, Datastream. As at COB 4th April, 2012** Japan refers to the period from March in the year stated to March in the following year EPS post-goodwill. 19
Valuations
Table 25: IBES Consensus European Sector Valuations
2011E 11.0 8.6 10.0 13.0 17.8 7.8 13.4 12.8 15.1 12.3 7.9 18.9 12.8 17.4 14.7 16.4 11.0 17.6 17.0 11.5 9.7 8.3 11.9 10.9 15.5 14.5 15.9 13.1 14.0 9.0 10.7 P/E 2012E 10.5 8.4 10.2 13.1 14.6 8.2 12.5 11.9 15.0 11.2 7.4 16.2 11.8 15.5 14.5 14.9 10.2 15.9 16.3 11.5 8.4 8.5 8.1 8.0 15.1 16.2 15.2 15.7 19.2 9.2 10.3 2013E 9.4 7.8 8.9 11.7 11.8 7.0 11.0 10.5 12.3 9.9 6.4 14.2 10.9 13.8 12.9 13.6 9.3 14.4 15.1 10.7 7.3 7.0 7.1 7.4 14.2 13.0 13.5 11.4 14.6 8.9 9.7 2011E 3.9% 4.2% 2.8% 2.8% 2.8% 2.7% 3.5% 3.6% 3.6% 2.9% 3.3% 1.8% 3.5% 3.1% 3.3% 3.0% 4.0% 2.9% 2.4% 3.6% 4.2% 4.1% 2.4% 5.4% 5.4% 2.2% 1.7% 3.6% 1.6% 7.7% 6.4% Dividend Yields 2012E 4.2% 4.5% 3.0% 3.0% 2.8% 2.9% 3.6% 3.8% 3.2% 3.3% 3.8% 2.1% 4.0% 3.3% 3.5% 3.3% 4.2% 3.2% 2.6% 3.9% 4.7% 4.5% 3.0% 5.9% 5.6% 2.4% 2.0% 3.7% 1.7% 8.1% 6.3% 2013E 4.6% 4.7% 3.3% 3.3% 3.2% 3.2% 3.9% 4.1% 3.6% 3.7% 4.4% 2.4% 4.4% 3.7% 3.9% 3.6% 4.5% 3.5% 2.8% 4.2% 5.4% 5.4% 4.0% 6.3% 5.9% 2.6% 2.2% 4.2% 1.8% 8.3% 6.5% 2011E 6.1 3.9 6.0 6.9 7.8 5.5 6.8 6.9 5.5 5.5 2.8 9.5 7.9 9.4 7.4 9.2 6.4 10.0 10.0 7.8 7.2 8.6 5.8 6.8 5.3 6.9 EV/EBITDA 2012E 6.1 3.8 6.1 7.2 7.6 5.5 6.9 6.9 6.0 5.8 3.2 9.2 7.6 10.1 7.9 9.2 5.8 10.1 10.2 8.1 8.2 9.1 6.2 9.6 5.2 6.7 2013E 5.6 3.7 5.3 6.4 6.8 4.7 6.2 6.1 5.4 5.1 2.8 8.1 7.0 9.3 7.0 8.4 5.4 9.2 9.2 7.4 6.6 7.9 4.7 7.2 5.0 6.3 2011E 1.4 1.4 1.4 2.2 0.9 1.2 2.0 1.9 1.6 1.9 1.0 3.1 2.6 3.8 2.4 2.8 1.6 3.2 3.5 2.8 0.7 0.6 0.8 0.9 0.8 2.4 3.6 1.4 2.7 1.3 1.0 Price to Book 2012E 1.3 1.3 1.3 2.0 0.8 1.2 1.9 1.8 1.5 1.8 0.9 2.7 2.4 3.5 2.3 2.8 1.5 3.0 4.1 2.6 0.7 0.6 0.7 0.9 0.8 2.3 3.2 1.4 2.5 1.4 1.0 2013E 1.2 1.2 1.2 1.9 0.8 1.0 1.7 1.7 1.4 1.6 0.8 2.4 2.2 3.2 2.1 2.5 1.4 2.8 3.6 2.4 0.7 0.6 0.7 0.8 0.8 2.1 2.8 1.3 2.3 1.3 1.0
Europe Energy Materials Chemicals Construction Materials Metals & Mining Industrials Capital Goods Transport Discretionary Automobile Consumer Durables Media Retailing Hotels, Restaurants & Leisure Staples Food & Drug Retailing Food Beverage & Tobacco Household Products Healthcare Financials Banks Diversified Financials Insurance Real Estate IT Software and Services Technology Hardware Semicon & Semicon Equip Telecoms Utilities
Source: IBES, MSCI, Datastream. As at COB 4th April, 2012
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Table 26: IBES Consensus P/E and 12-Month Forward Dividend Yields Country Forecasts
Country Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom EMU Europe ex UK Europe United States Japan Emerging Market Global Index ATX BEL 20 Denmark KFX MSCI Finland CAC 40 DAX MSCI Greece MSCI Ireland MSCI Italy AEX MSCI Norway MSCI Portugal IBEX 35 OMX SMI FTSE 100 MSCI EMU MSCI Europe ex UK MSCI Europe S&P 500 Topix MSCI EM MSCI AC World 12-Mth Fwd 9.2 11.8 16.0 13.1 9.5 10.2 7.6 19.2 8.4 9.3 10.2 10.7 9.1 12.0 12.2 9.9 9.8 10.4 10.2 12.9 13.2 10.3 12.0 P/E 2011E 11.7 29.1 23.0 12.7 9.9 11.3 -66.8 21.5 9.5 10.4 11.3 12.2 8.9 12.8 13.9 10.4 10.6 11.5 11.0 14.6 17.3 11.9 13.4 2012E 9.5 12.2 17.1 13.8 9.7 10.5 8.3 20.3 8.7 9.7 10.5 11.0 9.5 12.3 12.5 10.2 10.1 10.8 10.5 13.4 21.6 10.4 12.1 2013E 8.1 10.9 13.7 11.3 8.8 9.4 6.0 16.5 7.5 8.4 9.5 9.8 8.1 11.0 11.3 9.2 9.0 9.6 9.4 11.9 13.2 9.3 10.7 Dividend Yield 12-Month Forward 2.9% 5.2% 2.0% 5.0% 6.2% 3.6% 6.6% 3.1% 4.9% 4.0% 4.3% 10.9% 7.3% 4.0% 3.6% 4.0% 5.1% 4.5% 4.4% 2.4% 2.1% 2.7% 3.1%
Source: IBES, MSCI, Datastream. As at COB 4th April, 2012; ** Japan refers to the period from March in the year stated to March in the following year P/E post goodwill
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Economic, Interest Rate and Exchange Rate Outlook

Table 27: Economic Outlook in Summary
Real GDP % oya 2011E 2012E 1.7 2.2 1.5 -0.4 0.7 0.8 -0.7 1.7 5.8 5.0 2.6 2.2 Real GDP % oqa, saar 1Q12E 2Q12E 1.5 2.5 0.0 -1.5 2.0 -1.0 2.2 1.6 5.7 5.4 2.4 2.0 Consumer prices % oya 2Q12E 4Q12E 2.1 1.7 2.4 2.0 3.0 3.0 -0.2 -0.1 4.8 5.0 2.7 2.6
United States Eurozone United Kingdom Japan Emerging markets Global
2013E 2.2 0.3 1.9 1.3 5.6 2.6
3Q11E 1.8 0.6 2.3 7.1 4.9 3.0
4Q11E 3.0 -1.3 -1.2 -0.7 4.1 1.6
3Q12E 3.0 -0.3 2.5 1.2 5.5 2.6
4Q12E 2.0 0.3 1.5 1.0 5.8 2.5
1Q13E 1.5 0.5 2.0 1.2 5.7 2.5
4Q11E 3.3 2.9 4.6 -0.3 5.7 3.6
2Q13E 1.6 1.6 2.7 -0.2 5.5 2.6
Source: J.P. Morgan economic research, J.P. Morgan estimates, as of COB 4th April, 2012.
Table 28: Official Rates Outlook

% United States Eurozone United Kingdom Japan Official interest rate Federal funds rate Refi rate Repo rate Overnight call rate Current 0.125 1.00 0.50 0.05 Last change (bp) 16 Dec 08 (-87.5bp) Dec '11(-25 bps) 5 Mar 09 (-50bp) 5 Oct 10(-5bp) Forecast next change (bp) On Hold Mar '12(-25 bps) On Hold On Hold Mar 12 0.125 1.00 0.50 0.05 Forecast for Jun 12 Sep 12 0.125 0.125 0.75 0.75 0.50 0.50 0.05 0.05 Dec 12 0.125 0.75 0.50 0.05 Mar 13 0.125 0.75 0.50 0.05
Source: J.P. Morgan estimates, Datastream, as of COB 4th April, 2012.
Table 29: 10-Year Government Bond Yield Forecasts

% United States Eurozone United Kingdom Japan 04-Apr-12 2.28 1.79 2.12 1.02 Jun 12E 2.50 2.00 2.55 1.15 Forecast for end of Sep 12E 2.50 2.00 2.55 1.05 Dec 12E 2.50 2.00 2.40 1.05 Mar 13E 2.50 2.00 2.40 1.15
Source: J.P. Morgan estimates, Datastream, as of COB 4th April, 2012.
Table 30: Exchange Rate Forecasts vs. US Dollar

04-Apr-12 1.31 1.59 0.92 82.46 Jun 12 1.34 1.59 0.90 86 Forecast for end of Sep 12 1.36 1.61 0.88 84 Dec 12 1.36 1.61 0.88 83 Mar 13 1.36 1.61 0.88 82
EUR GBP CHF JPY
Source: J.P. Morgan estimates, Datastream, forecasts as of COB 4th April, 2012
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Sector, Regional and Asset Class Allocations

Table 31: J.P. Morgan Equity Strategy European Sector Allocations
Energy Materials MSCI Europe Weights 12.1% 9.9% Chemicals Construction Materials Metals & Mining Capital Goods Transport Consumer Discretionary Automobile Consumer Durables Media Retailing Hotels, Restaurants & Leisure Consumer Staples Food & Drug Retailing Food Beverage & Tobacco Household Products Healthcare Financials Banks Diversified Financials Insurance Real Estate Information Technology Software and Services Technology Hardware Semicon & Semicon Equip Telecoms Utilities
Source: MSCI, Datastream, J.P. Morgan
J.P. Morgan Allocation 12.0% 10.0%
Industrials
10.9% 8.8%
11.0% 9.0%
13.7%
14.0%
11.2% 19.5%
9.0% 22.0%
3.0%
4.0%
6.2% 4.7% 100%
6.0% 3.0% 100.0%
Deviation From MSCI J.P. Morgan Recommendation -0.1% Neutral 0.1% Neutral = + = 0.1% Neutral = = 0.2% Neutral = = = = = 0.3% Neutral = = = -2.2% Underweight 2.5% Overweight + + + = 1.0% Overweight + = + -0.2% Neutral -1.7% Underweight 0% Balanced
Table 32: J.P. Morgan Equity Strategy European Regional Allocations

Eurozone United Kingdom Others* MSCI Europe Weights 44% 35% 21% 100% J.P. Morgan Allocations 47% 32% 21% 100% Deviation From MSCI J.P. Morgan Recommendation 3% Overweight -3% Underweight 0% Neutral 0% Balanced
Source: MSCI, J.P. Morgan estimates * Switzerland, Sweden, Norway and Denmark.
Table 33: J.P. Morgan Equity Strategy European Asset Class Allocations
Equities Bonds Cash Benchmark Weightings 60% 30% 10% 100% J.P. Morgan Allocations 70% 25% 5% 100% Deviation From Benchmark J.P. Morgan Recommendation 10% Overweight -5% Underweight -5% Underweight 0% Balanced
J.P. Morgan. Note: We use the MSCI Europe Developed index as the benchmark against which to determine our sector and regional allocations. Our Overweight/Underweight recommendations reflect our belief that the relevant sector/region will out/ underperform he index in the next 6 to 12 month. Source: Datastream, MSCI, JP Morgan
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Companies Recommended in This Report (all prices in this report as of market close on 05 April 2012) EDP (EDP.LS/2.08/Overweight), Enel Green Power (EGPW.MI/1.35/Overweight), Shire plc (SHP.L/2021p/Overweight)
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Market Maker: JPMS makes a market in the stock of ASML, Arm Holdings Plc, Qiagen N.V.. Designated Sponsor: J.P. Morgan Securities Ltd. is the appointed designated sponsor to Brenntag.
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Enel Green Power, Aegon, Anheuser Busch InBev, ArcelorMittal, BP, Brenntag, Casino, Centrica, Deutsche Post DHL, ENI, HSBC Holdings plc, Rio Tinto plc, Roche, SABMiller, Saint-Gobain, Sanofi, SAP, Schneider Electric, Socit Gnrale, Swedbank, TDC, Terna, UBS, Vinci, Volkswagen Prefs., Volvo, DnB ASA, Pohjola, Zurich Financial Services, IntesaSanpaolo, Acerinox, Gas Natural, Suedzucker, Danske Bank, KBC Group, Natixis, Qiagen N.V., Royal Bank of Scotland, Stora Enso, RWE, Vedanta Resources, Verbund within the past 12 months.
Director: A senior employee, executive officer or director of JPMorgan Chase & Co. and/or J.P. Morgan is a director and/or officer of Rio Tinto plc. Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of HSBC Holdings plc, Nestle, UBS, Unilever NV, IntesaSanpaolo. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Shire plc, EDP, Enel Green Power, Aegon, Anheuser Busch InBev, ArcelorMittal, Arkema, ASML, BG Group, BP, Brenntag, British American Tobacco, Casino, Centrica, Continental AG, Deutsche Post DHL, ENI, HeidelbergCement, HSBC Holdings plc, Imagination Technologies, Infineon Technologies, Inmarsat PLC, Land Securities, Marks & Spencer, Nestle, Petrofac, Publicis Groupe, Rio Tinto plc, Roche, SABMiller, Safran, Saint-Gobain, Sanofi, SAP, Schneider Electric, Socit Gnrale, Swedbank, Swiss Re, TDC, Tele2, Terna, UBS, Unilever NV, Vinci, Volkswagen Prefs., Volvo, DnB ASA, IAG, Pohjola, Tryg, UBI, Vienna Insurance Group, Zurich Financial Services, Bankinter, British Land, IntesaSanpaolo, MAPFRE, National Bank of Greece, Acerinox, Arm Holdings Plc, Gas Natural, Novozymes, Randgold Resources Ltd, Salzgitter, Suedzucker, United Internet AG, Alcatel-Lucent, Danske Bank, KBC Group, Natixis, Qiagen N.V., Royal Bank of Scotland, Scania, Stora Enso, Fortum, RWE, Vedanta Resources, Verbund, Yara.
Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: EDP, Enel Green Power, Aegon, Anheuser Busch InBev, ArcelorMittal, BP, Brenntag, British American Tobacco, Casino, Centrica, Deutsche Post DHL, ENI, HSBC Holdings plc, Imagination Technologies, Infineon Technologies, Inmarsat PLC, Rio Tinto plc, Roche, SABMiller, Saint-Gobain, Sanofi, SAP, Schneider Electric, Socit Gnrale, Swedbank, Swiss Re, TDC, Terna, UBS, Unilever NV, Vinci, Volkswagen Prefs., Volvo, DnB ASA, Pohjola, UBI, Zurich Financial Services, Bankinter, IntesaSanpaolo, Acerinox, Gas Natural, Suedzucker, Danske Bank, KBC Group, Natixis, Qiagen N.V., Royal Bank of Scotland, Stora Enso, RWE, Vedanta Resources, Verbund.
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Shire plc, EDP, Enel Green Power, Aegon, Anheuser Busch InBev, ArcelorMittal, Arkema, ASML, BG Group, BP, Brenntag, British American Tobacco, Casino, Centrica, Deutsche Post DHL, ENI, HeidelbergCement, HSBC Holdings plc, Infineon Technologies, Inmarsat PLC, Land Securities, Marks & Spencer, Nestle, Publicis Groupe, Rio Tinto plc, Roche, SABMiller, Safran, Saint-Gobain, Sanofi, SAP, Schneider Electric, Socit Gnrale, Swedbank, Swiss Re, TDC, Terna, UBS, Unilever NV, Vinci, Volkswagen Prefs., Volvo, DnB ASA, IAG, Pohjola, Tryg, UBI, Vienna Insurance Group, Zurich Financial Services, Bankinter, British Land, IntesaSanpaolo, MAPFRE, National Bank of Greece, Arm Holdings Plc, Gas Natural, Novozymes, Suedzucker, Alcatel-Lucent, Danske Bank, KBC Group, Natixis, Qiagen N.V., Royal Bank of Scotland, Stora Enso, RWE, Vedanta Resources, Verbund, Yara.
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: EDP, Enel Green Power, Aegon, Anheuser Busch InBev, ArcelorMittal, BG Group, BP, Brenntag, British American Tobacco, Casino, Centrica, Deutsche Post DHL, ENI, HSBC Holdings plc, Land Securities, Nestle, Rio Tinto plc, Roche, SABMiller, Saint-Gobain, Sanofi, SAP, Schneider Electric, Socit Gnrale, Swedbank, Swiss Re, TDC, UBS, Unilever NV, Vinci, Volkswagen Prefs., DnB ASA, IAG, Zurich Financial Services, IntesaSanpaolo, Acerinox, Gas Natural, Suedzucker, Danske Bank, Natixis, Qiagen N.V., Royal Bank of Scotland, Stora Enso, RWE, Verbund, Yara.
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Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking EDP, Enel Green Power, Aegon, Anheuser Busch InBev, ArcelorMittal, BP, Brenntag, British American Tobacco, Casino, Centrica, Deutsche Post DHL, ENI, HSBC Holdings plc, Imagination Technologies, Infineon Technologies, Inmarsat PLC, Rio Tinto plc, Roche, SABMiller, Saint-Gobain, Sanofi, SAP, Schneider Electric, Socit Gnrale, Swedbank, Swiss Re, TDC, Terna, UBS, Unilever NV, Vinci, Volkswagen Prefs., Volvo, DnB ASA, Pohjola, UBI, Zurich Financial Services, Bankinter, IntesaSanpaolo, Acerinox, Gas Natural, Suedzucker, Danske Bank, KBC Group, Natixis, Qiagen N.V., Royal Bank of Scotland, Stora Enso, RWE, Vedanta Resources, Verbund.
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Shire plc, EDP, Enel Green Power, Aegon, Anheuser Busch InBev, ArcelorMittal, BG Group, BP, Brenntag, British American Tobacco, Casino, Centrica, Continental AG, Deutsche Post DHL, ENI, HSBC Holdings plc, Imagination Technologies, Infineon Technologies, Inmarsat PLC, Land Securities, Nestle, Rio Tinto plc, Roche, SABMiller, Saint-Gobain, Sanofi, SAP, Schneider Electric, Socit Gnrale, Swedbank, Swiss Re, TDC, Terna, UBS, Unilever NV, Vinci, Volkswagen Prefs., Volvo, DnB ASA, IAG, Pohjola, UBI, Zurich Financial Services, Bankinter, IntesaSanpaolo, National Bank of Greece, Acerinox, Gas Natural, Suedzucker, United Internet AG, Alcatel-Lucent, Danske Bank, KBC Group, Natixis, Qiagen N.V., Royal Bank of Scotland, Stora Enso, RWE, Vedanta Resources, Verbund, Yara.
Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Shire plc, EDP, Enel Green Power, Aegon, Anheuser Busch InBev, ArcelorMittal, Arkema, ASML, BG Group, BP, Brenntag, British American Tobacco, Casino, Centrica, Deutsche Post DHL, ENI, HeidelbergCement, HSBC Holdings plc, Infineon Technologies, Inmarsat PLC, Land Securities, Marks & Spencer, Nestle, Publicis Groupe, Rio Tinto plc, Roche, SABMiller, Safran, Saint-Gobain, Sanofi, SAP, Schneider Electric, Socit Gnrale, Swedbank, Swiss Re, TDC, Terna, UBS, Unilever NV, Vinci, Volkswagen Prefs., Volvo, DnB ASA, IAG, Pohjola, Tryg, UBI, Vienna Insurance Group, Zurich Financial Services, Bankinter, British Land, IntesaSanpaolo, MAPFRE, National Bank of Greece, Arm Holdings Plc, Gas Natural, Novozymes, Suedzucker, Alcatel-Lucent, Danske Bank, KBC Group, Natixis, Qiagen N.V., Royal Bank of Scotland, Stora Enso, RWE, Vedanta Resources, Verbund, Yara.
Broker: J.P. Morgan Securities Ltd. acts as Corporate Broker to BG Group, British American Tobacco, Imagination Technologies, Inmarsat PLC, Land Securities, Petrofac, Rio Tinto plc, SABMiller, Vedanta Resources. "J.P. Morgan Securities LLC (J.P. Morgan) is acting as financial advisor to HSBC on the sale of 195 Upstate New York and Connecticut branches and $15.0 billion of deposits from its wholly owned subsidiary, HSBC Bank USA, N.A. and other wholly owned affiliates to First Niagara Bank, N.A., a subsidiary of First Niagara Financial Group, Inc. as announced on 31 July 2011. J.P. Morgan will be receiving fees for so acting. J.P. Morgan may perform, or may seek to perform, other financial or advisory services for HSBC or its associates and may have other interests in or relationships with HSBC or its affiliates, and receive fees, commissions or other compensation in such capacities. This research report and the information herein is not intended to serve as an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder. This report is based solely on publicly available information. No representation is made that it is accurate or complete. J.P. Morgan Securities LLC (J.P. Morgan) is acting as financial advisor to HSBC on the sale of its card and retail services business in the United States except for HSBC Bank USAs credit card programme, to Capital One Financial Corporation as announced on August 10, 2011. J.P. Morgan will be receiving fees for so acting. J.P. Morgan may perform, or may seek to perform, other financial or advisory services for HSBC or its associates and may have other interests in or relationships with HSBC or its affiliates, and receive fees, commissions or other compensation in such capacities. The transaction is subject to applicable governmental and regulatory approvals. This research report and the information herein is not intended to serve as an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder. This report is based solely on publicly available information. No representation is made that it is accurate or complete.
J.P. Morgan and/or its affiliates is acting as financial advisor to SAP AG (NYSE: SAP) in connection with their acquisition of SuccessFactors , Inc. (NYSE: SFSF) as announced on December 3, 2011 pursuant to which a subsidiary of SAP would offer to acquire all outstanding shares of common stock of SuccessFactors for $40.00/per share in cash. The closing of the tender offer is conditioned on SuccessFactors stockholders tendering at least a majority of the outstanding shares of SuccessFactors common stock (on a fully diluted basis) and clearances by relevant regulatory authorities. This research report and the information herein is not intended to provide voting advice, serve as an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder.
J.P. Morgan Limited is acting as corporate broker and financial advisor to Vedanta Resources on its corporate reorganisation as announced on 25 February 2012. J.P. Morgan does not currently have a recommendation for Vedanta Resources Plc, Cairn India Ltd, Sesa Goa Ltd and Sterlite Industries (India) Ltd. MSCI: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an 'as is' basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any
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third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing research.disclosure.inquiries@jpmorgan.com with your request. Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.morganmarkets.com. J.P. Morgan Equity Research Ratings Distribution, as of April 3, 2012
Overweight (buy) 45% 51% 43% 70% Neutral (hold) 43% 45% 48% 61% Underweight (sell) 12% 34% 9% 53%
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.
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"Other Disclosures" last revised January 6, 2012.
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Equity Strategy: Stay Cautious Near-Term Q1 Results Unlikely To Restore Confidence

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Equity Strategy: Stay Cautious Near-Term Q1 Results Unlikely To Restore Confidence

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Europe Equity Research

(44-20) 7325-5242 mislav.matejka@jpmorgan.com

Emmanuel Cau, CFA

On the last 6 occasions that US EASI turned negative market struggled

Stalling global PMIs call for further rotation out of Cyclicals

Global Composite PMI (%6mom, rhs)

Source: Datastream, MSCI

Mislav Matejka, CFA (44-20) 7325-5242 mislav.matejka@jpmorgan.com

Europe Equity Research 10 April 2012

Mislav Matejka, CFA (44-20) 7325-5242 mislav.matejka@jpmorgan.com

Europe Equity Research 10 April 2012

Stay cautious near-term; Q1 results unlikely to restore confidence

Figure 2: Cyclicals/Defensives relative performance and Global composite PMI

Source: MSCI, Datastream, J.P. Morgan

Europe Cyclicals vs Defensives, 2011 to date

Source: Datastream, Bloomberg, *Markit PMI

Mislav Matejka, CFA (44-20) 7325-5242 mislav.matejka@jpmorgan.com

Europe Equity Research 10 April 2012

-150 03 04 05 06 07 08 09 10 11 12 CITI US Economic Activity Surprise Indicator

Source: Bloomberg, MSCI, Datastream

Feb 12 Italy 10y bond yield

Mar 12 Spain 10y bond yield

Mislav Matejka, CFA (44-20) 7325-5242 mislav.matejka@jpmorgan.com

Europe Equity Research 10 April 2012

Source: J.P. Morgan Fixed Income Research

Initial jobless claims, 4wk avg

Source: BLS, NBER

Global Manufacturing PMI

Initial jobless claims (rhs)

J.P. Morgan, Bloomberg

ECB SMP Purchases, Bn

Mislav Matejka, CFA (44-20) 7325-5242 mislav.matejka@jpmorgan.com

Europe Equity Research 10 April 2012

Q1 earnings season preview

% S&P500 mkt cap

% DJStoxx 600 mkt cap

Source: Thomson Reuters, Bloomberg

Sequentially S&P500 EPS is expected to fall 2.1% in Q1.

Source: Thomson Reuters

Mislav Matejka, CFA (44-20) 7325-5242 mislav.matejka@jpmorgan.com

Europe Equity Research 10 April 2012

Table 8: Summary of the key global macro data - Q1 vs Q4

Source: Thomson Reuters

Hit Ratio* 70% 82% 60% 40%

Source: Thomson Reuters, Bloomberg, *% of time positive performance

5% 0% -5% -10% -15% -20% -25%

Source: Datastream, MSCI

Mislav Matejka, CFA (44-20) 7325-5242 mislav.matejka@jpmorgan.com

Europe Equity Research 10 April 2012

Figure 14: US ISM vs S&P500 quarterly EPS surprises

S&P 500 S&P 500 ex-Financials

Source: Datastream, Thomson Reuters

Source: Thomson Reuters, NIPA

EMU (Ex-Fin) EBIT Margins

Mislav Matejka, CFA (44-20) 7325-5242 mislav.matejka@jpmorgan.com

Europe Equity Research 10 April 2012

Figure 17: EBIT margins expectations for MSCI Europe exFinancials

Figure 19: US NIPA corporate profit margins and recessions

US Corporate profits as a % of GDP

Source: BEA, NBER

EBIT/Sales Europe Ex-Financials

IBES- 1st Jan'11