JPMorgan Asia Pacific Equity Strategy 20100903

Asia Pacific Equity Research
03 September 2010
Winning in a Weaker World

Perspectives and Portfolios - Lite
• Weak developed economic growth is proving favorable for Asia and Asia Pacific Equity Strategy
EM. Capital flows are strong. EM and APxJ are outperforming AC
developed equity markets. Adrian Mowat
(852) 2800-8599
• The key changes are to upgrade Malaysia to OW, downgrade Korea to adrian.mowat@jpmorgan.com
Neutral from OW and sell business discretionary. J.P. Morgan Securities (Asia Pacific) Limited
• In this report we describe our base case for the balance of 2010: Rajiv Batra
1) Sub-trend DM economic growth and low core inflation (91-22) 6157-3568
rajiv.j.batra@jpmorgan.com
2) G3 interest rates on hold
3) Healthy EM and Asian growth (2010 6.9% and 2011 5.5%) J.P. Morgan India Private Limited
4) EM inflation near central bank target zone Sanaya Tavaria
5) China’s economic rebalancing is positive for sustainable growth but a (91-22) 6157-3312
risk to commodity investors and large SoEs. sanaya.x.tavaria@jpmorgan.com
6) Capital flows to EM continue as investors seek carry and growth J.P. Morgan India Private Limited
The result is that EM markets melt up.
ASEAN Strategy
• Within APxJ, autos in Korea, semiconductors in Korea and Taiwan, and Sriyan Pietersz
industrials in Korea and China offer cheap growth. These sectors had (662) 684 2670
strong earnings momentum in the last three months. Consumer staples sriyan.pietersz@jpmorgan.com
offer high growth but are expensive (see page 5). JPMorgan Securities (Thailand) Limited
• EM weighted and median 2011 EPS growth are 17%. This is 5% higher Quant Strategy
than the 2011 nominal GDP growth forecast of 12%. Material and Steve Malin
financial sectors’ earnings are forecast to grow in excess of 20% while (852) 2800 8568
IT and telecom have the lowest growth forecasts at 10-11%. Brazil steel steven.j.malin@jpmorgan.com
and Russian oil & gas contribute 20% of 2011 EPS growth. The median J.P. Morgan Securities (Asia Pacific) Limited
EPS growth for Taiwan tech is 19%.
• The main risks to our view are a significant increase in EM inflation, Figure 1: Asia relative to the world
sharp slowdown in global growth and no sell-off in commodities. For 190
more on risks, please see 30. EM Asia / World
170
• Key asset allocation calls:
OW: India, Taiwan and ASEAN 150
OW: Technology
UW: China, Australia and Hong Kong 130
UW: Commodities and Energy
110
APx J / World
For our APxJ Key Trade stock ideas, click here to download the
90
Bloomberg sheet.
2004 2005 2006 2007 2008 2009
Table 1: Regional Model Portfolio Changes
Source: Bloomberg, 1 Sept 2010.
Purchases Sales
APxJ China Yurun, CMB, China Unicom, First Financial Huabao, China Shipping Container, KB
Holding, Far Eastern, PT Telekomunikasi , CIMB, Financial, Fubon Financial, China Airlines,
Ayala Land Bank Danamon, Singapore Airlines
Source: J.P. Morgan.
See page 32 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.
Adrian Mowat Asia Pacific Equity Research
(852) 2800-8599 03 September 2010
adrian.mowat@jpmorgan.com
Winning in a Weaker World

The base case Figure 2: US 2010 GDP growth forecasts - J.P. Morgan and
Consensus
• Range bound developed markets:
4
S&P 1000 to 1200 J.P. Morgan
M&A and share-buy-back provide the floor 3.5
Unresolved double dip debate caps upside
3
• Below potential developed world growth
DM GDP growth 2010 2.3% and 2011 2.0% 2.5
Consensus
• Developed world core inflation below 1% - fear of 2
deflation
1.5
• G3 interest rates unchanged through 2011 Feb-09 May -09 Aug-09 Nov -09 Feb-10 May -10 Aug-10
US 0.125%, Euro 1%, Japan 0.1%
Source: J.P. Morgan economics, Bloomberg, August 2010
• Healthy EM and Asian growth
EM GDP growth 2010 6.9% and 2011 5.5% Figure 3: Asia ex Japan relative to World and JPM Global PMI
58 J.P. Morgan Global PMI (LHS) 107
• Inflation rather than deflation is the concern in EM
• High risk of 2011 earnings downgrades in 57
105
developed markets, materials and energy sectors
103
• Expanding EM carry vs DM 56
101
Today 3.35%, September 2011 3.8%
55
99
• Capital flows to EM continue as investors seek carry
MSCI Ax J rel AC World
and growth – EM markets melt up 54 97
Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May -10 Jun-10 Jul-10
• Ongoing successful rebalancing of China’s
economy from fixed asset investment to Source: MSCI Indices, Datastream, J.P. Morgan economics
consumption:
1) Expensive consumer stocks get more expensive – Figure 4: EM CPI and Earnings Yield
midcaps (particularly in the A-share market)
outperform as investors seek new growth. Seek alpha 12 MSCI EM 12m Fw d PE 5
not beta in MSCI China and A-shares 11 EM CPI %oy a
(RHS inv erted)
2) Large cap index stocks suffer as profits to GDP 10 (LHS)
9 EM central banks' 8
ratio fall – hence MSCI China UW
8 av g target range ceiling
3) Threat to commodity markets as China's demand
for commodities slows 7
11
6
• Current account deficit markets with increasing fixed 5
investment continue to outperform as they surf the 4 14
CEMBI (benefit from strong flows into EM credit 3
markets). 02 03 04 05 06 07 08 09
OW: India, ASEAN
Source: J.P. Morgan economics, IBES, MSCI, August 2010. Note: CPI data is till Jun 10 .
• Growth style outperforms as growth premium
expands in a world where growth is in short supply.
This increases valuation and stock specific risk.
• Limited valuation arbitrage; investors already
paying premium for growth. Within cyclical sectors
tech offers the best value. Investors are undervaluing
dividend yield. Please see page 5 for “Where is the
cheap growth?”
2
(852) 2800-8599 03 September 2010
What are we changing? is a serious risk now that we have entered a decade of
low growth, with deflation around the corner.
In our view the base case supports running the winners.
This is frustrating as it limits portfolio changes to what
What would break the range? Macro economic data
appears to be chasing sectors or markets that we missed.
that resolves the double-dip or sustainable growth debate,
Our Malaysia upgrade falls into this category (see Figure
but this is unlikely soon. That said, as noted in Circle of
5). The downgrade of Korea and closing out
Life Equities tailwinds are relative value and the Fed; 19
transportation or business discretionary OW are not
ideas, Thomas J Lee et al, 19 August 2010, there are
selling losers!
positive arguments for the economy and markets.
Upgrading Malaysia to Overweight Figure 5: Performance of ASEAN relative to Asia Pacific ex Japan
1. Relative call versus APxJ and EM
120
2. Defensive market in a world of worries
115
3. Robust domestic demand and credit growth
110
4. Strengthening currency
105
5. Consensus UW in EM – as the market and currency
melts up shorts versus the benchmark maybe closed 100
6. Potential positive catalysts from increased 95

infrastructure spending and economic reform Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May -10 Jun-10 Jul-10
Downgrading Korea to Neutral Source: FTSE Indices, Datastream.

1. Driven by the downgrade in regional view on banks.
As Sunil Garg notes in Asian Financial Strategy, 26 Figure 6: JPM APxJ Business Discretionary Basket vs MSCI APxJ
August 2010, “Our previous Overweight rating was
140
premised on strong earnings recovery from credit JPM Ax J Business Disc. Basket
normalization and NIM expansion. Both have come 130
through and if anything, asset quality is showing 120
some deterioration. We see continued regulatory
110
intervention as a source of earnings volatility
justifying the low headline valuations.” 100
90 MSCI APx J
Closing OW business discretionary
1. Significant outperformance of transportation stocks 80
reflects improvement in yields and load-factors (see Jan-10 Mar-10 May -10 Jul-10 Sep-10
Figure 6).
Source: Bloomberg
2. Macro data (PMIs) suggest that the best of the
recovery has occurred Figure 7: S&P 500 trading range
For more on our asset allocation changes please see page 1250
23. 1200
1150
Range bound markets
1100
Markets are miserable. On balance economic data is
1050
weaker but inconclusive on a sustainable recovery or a
double dip. The result is a volatile trend-less markets. 1000
Equities, commodities and credit markets have now been 950
effectively in a range for almost a year. Sep-2009 Jan-2010 May -2010 Sep-2010
Sovereign bonds are not stuck in a range. Global bond Source: Bloomberg
yields are at historical lows and equity risk premia at
historical highs. The fundamentals against which to value
bond are not clear. If growth and inflation return to
normal, then bonds are massively overvalued. But there
3
(852) 2800-8599 03 September 2010
Are emerging markets range bound? Figure 8: MSCI World trading range
This is a reasonable question with MSCI EM 5% below 1300
its 15 April 2010 high. MSCI World is 10% below its
1250
April high. So EM is outperforming DM. Within EM the
1200
FTSE Asian index is at a year high and just 2% below its
29 October 2007 life high. Chile, Columbia, India and 1150
Turkey are within a few percent of their two year highs. 1100
Major EMs are stuck in trading ranges, these include; 1050
Brazil, China, Korea and Taiwan. 1000
950
Implications of weak DM growth Sep-2009 Jan-2010 May -2010 Sep-2010
Today's economic conditions are relatively favorable for
Source: Bloomberg
emerging economies and markets. Sub-trend developed
economic growth is not a risk to emerging economic Figure 9: China retail and passenger automobile sales
growth. Remember that emerging economies survived
120 25
the 2008 stress test of a sharp decline in developed China retail sales (RHS)
consumption and capital markets. Emerging economic 100
20
growth recovered ahead of developed economies. The 80
drivers of the recovery were domestic investment and 60 15
China Auto Sales (LHS)
consumption growth. EM has scale. At current exchange 40 10
rates emerging economies are a third of global GDP. The 20
scale of EM demand increases the diversification of 5
0
export markets and thus reduces macro economic risk.
-20 0
2006 2007 2008 2009 2010
Is our confidence in EM domestic driven growth
consistent with our China UW? Yes. Ironically it is the
Source: Bloomberg
success of China's pro-consumption rebalancing policy
that drives our underweight. Note the strength in retail Figure 10: China consumer and defensives outperform
and car sales (see Figure 9Error! Reference source not
130 JPM China Mid-Cap
found.). This strength is reflected in the outperformance
Consumer Basket
and high valuation of consumer stocks. Part of the policy 120 JPM China Defensiv e
is to expand household income share of GDP, this will
Grow th Basket
partly be at the expense of profits share of GDP; bad 110
news for the large SoEs that are 80% of the benchmark.
100
At the start of 2010, our portfolio was positioned for 90

stronger than forecast developed world growth. Early in MSCI China
2Q10 we moved UW material and energy, but remained 80
OW transportation and technology. Transportation Jan-10 Mar-10 May -10 Jul-10 Sep-10
continued to outperform but technology has performed

Source: Bloomberg (JPHCHDGW Index and JPHCHMCS Index)
poorly. Within the global cyclical sectors we believe that
technology offers the better value, product drivers and Figure 11: MSCI APxJ cyclical sector performance
more disciplined capex. We remain OW.
110
105
IT
100
95
90
85
Energy
80
75 Materials
70
Jan-10 Mar-10 May -10 Jul-10 Sep-10
Source: Bloomberg.
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(852) 2800-8599 03 September 2010
Where is the cheap growth? clear trend observed in Taiwan Tech. HTC, Advantech,
Delta and most of the semiconductors had good
Using J.P. Morgan Quant team's Q-score, we aim to momentum (TSMC, UMC, ASE) while the upstream
identify sectors and large liquid stocks in MSCI APxJ players (Mediatek, Quanta, Asustek), and Chimei
that offer cheap growth and have strong earnings Innolux had poor momentum.
momentum in the last three months. Please see page 12
for a detailed explanation of the Q-score methodology The drivers of positive earnings momentum are:
and application.
• Korea: autos, selective chemical and consumer
Cheap growth stocks, industrials, SEMCO and SEC
We screen for stocks that have low valuations but a good
earnings outlook (Value and Earnings Q-score greater • Hong Kong: Real estate
than 70%). The list is dominated by tech, autos and
industrials (particularly in China). There is only one real • Indonesia: Banks, Indofood and Astra
estate stock ie Agile Property. Genting Singapore appears
attractive on these parameters. • Malaysia: Financials, Genting and Axiata
Autos: Group
• Jardine Cycle & Carriage Ltd. • Philippines: Financials
• Tata Motors Ltd. • Singapore: Consumer, selective industrials and

real estate.
• Dongfeng Motor Group Co. Ltd.
• Kia Motors Corp. The drivers of negative earnings momentum are:
Banks: • China: Majority of the banks and materials
• China Minsheng Banking Corp. Ltd. • India: Diverse group namely ICICI Bank,
Reliance Industries, DLF, Sterlite and Reliance
• Busan Bank
Communications.
• Suncorp-Metway Ltd.
• Australia: Banks, consumer and real estate.
• Alliance Financial Group Bhd
Please see page 8 of the Asia Pacific Strategy
Industrials:
Dashboards for 2010 and 2011 Consensus earnings
revisions.
• China Railway Group Ltd.
• China Railway Construction Corp. Ltd. We compare current trailing PE with CAGR earnings
growth between 2006 and 2011F for MSCI APxJ stocks
• China Communications Construction Co. Ltd. with 3 month average trading value of more than USD 5
million. The objective is to identify stocks that are
Tech:
inexpensive and offer better earnings growth than APxJ
over 5 years. A comparison with 2006 is used in order to
• ASM Pacific Technology Ltd.
obtain earnings multiples unaffected by the financial
• Taiwan Semiconductor Manufacturing Co. Ltd. crisis. The EPS multiple used is the calendarised diluted
EPS from IBES.
• Wistron Corp.
The center of the scatter chart (red dot) represents MSCI
• Samsung Electronics Co. Ltd. APxJ’s trailing PE of 14.4 and 5 year CAGR earnings
• Hynix Semiconductor Inc. growth of 7.6%.The top right quadrant comprises stocks
that are cheaper and offer higher growth relative to APxJ.
Earnings momentum The bottom left quadrant comprises stocks that are the
Earnings momentum in the last three months is strong in worst positioned; higher PE and lower earnings growth
Korea, Hong Kong, Indonesia, Malaysia, Philippines and than APxJ.
Singapore. It is weak in Australia, China and India. No
5
(852) 2800-8599 03 September 2010
It is difficult to identify a distinct pattern at a sector level Chinese large cap banks, China Mobile, selective tech
with the exception of consumer staples which are (SEC, Mediatek, Quanta, Wistron).
expensive and offer high growth (top left quadrant).
Chaoda Modern Agriculture and CP Foods are the only Expensive stocks with low earnings growth: Australia
staples that are cheap. Financials, KB Financial, Singapore financials, Taiwan
IT (Everlight, Foxconn, TSMC, UMC, ASE), China
Below are selective stocks that fall into the best and the Unicom, China Telecom and selective telecoms in
worst categories. Please see pages 7 and 8 for the full list. Taiwan.
Cheap stocks with high earnings growth: Korean

autos, Korean industrials, Korean Chemicals and Steel,
Figure 12: Trailing PE vs CAGR EPS growth of MSCI APxJ constituents with 3m avg daily trading value greater than USD 5 mn
ATTRACTIVE
Expensive and high earnings growth Cheap with high earnings growth
60
40
20
EPS Growth CAGR (2011/06)
-20
UNATTRACTIVE
Expensive and low earnings growth Cheap but low earnings growth
-40
60 50 40 30 20 10 0
Trailing PE
CD CS EN FIN HC ID IT MT TEL UT
Source: IBES, MSCI. Note:
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(852) 2800-8599 03 September 2010
Table 2: Stocks in top right quadrant (Cheaper and higher earnings growth relative to APxJ) – sorted by PEG ratio
Name Trailing EPS growth Country Sector PEG Ratio
PE (CAGR 11/06)
DAEWOO SHIPBLDG.& MAR. ENGR. 6.4 58.5 KOREA INDUSTRIALS 0.1
LG ELECTRONICS 6.5 58.7 KOREA CONSUMER DISCRETIONARY 0.1
HYOSUNG 6.9 41.1 KOREA MATERIALS 0.2
SAMSUNG HEAVY INDS. 6.9 38.1 KOREA INDUSTRIALS 0.2
SKYWORTH DIGITAL HDG. 11.3 57.6 CHINA CONSUMER DISCRETIONARY 0.2
KIA MOTORS 6.9 32.6 KOREA CONSUMER DISCRETIONARY 0.2
LG 8.0 36.8 KOREA INDUSTRIALS 0.2
ENERGY RES.OF AUS. 9.6 40.2 AUSTRALIA ENERGY 0.2
HYUNDAI HEAVY INDUSTRIES 6.3 26.2 KOREA INDUSTRIALS 0.2
SESA GOA 11.4 46.4 INDIA MATERIALS 0.2
CHINA NAT.BLDG.MRA.'H' 13.5 53.6 CHINA MATERIALS 0.3
OCI 14.0 50.4 KOREA MATERIALS 0.3
CHENG SHIN RUB.INDS. 10.1 34.0 TAIWAN CONSUMER DISCRETIONARY 0.3
CHINA CITIC BANK 'H' 12.5 40.6 CHINA FINANCIALS 0.3
LG CHEM 13.8 41.0 KOREA MATERIALS 0.3
CHAROEN POKPHAND FOODS 14.3 41.1 THAILAND CONSUMER STAPLES 0.3
HANKOOK TIRE 8.0 22.2 KOREA CONSUMER DISCRETIONARY 0.4
CHAODA MODERN AGRIC.HDG. 6.4 17.7 CHINA CONSUMER STAPLES 0.4
CHINA EVERBRIGHT 6.8 18.7 CHINA FINANCIALS 0.4
BANPU 14.0 37.7 THAILAND ENERGY 0.4
WEICHAI POWER 'H' 13.7 36.4 CHINA INDUSTRIALS 0.4
DONGFENG MOTOR GP.'H' 13.0 31.7 CHINA CONSUMER DISCRETIONARY 0.4
HYUNDAI MOBIS 10.5 25.4 KOREA CONSUMER DISCRETIONARY 0.4
NOBLE GROUP 12.4 29.7 SINGAPORE INDUSTRIALS 0.4
HYUNDAI STEEL 6.4 15.0 KOREA MATERIALS 0.4
CHINA CON.BANK 'H' 12.6 26.5 CHINA FINANCIALS 0.5
BANK OF COMMS.'H' 12.9 27.1 CHINA FINANCIALS 0.5
COMPAL ELECTRONICS 9.0 18.9 TAIWAN INFORMATION TECHNOLOGY 0.5
DONGBU INSURANCE 10.3 21.4 KOREA FINANCIALS 0.5
CHINA OILFIELD SVS.'H' 12.8 25.7 CHINA ENERGY 0.5
FARGLORY LAND DEV. 5.7 11.5 TAIWAN FINANCIALS 0.5
HONAM PETROCHEMICAL 6.9 13.8 KOREA MATERIALS 0.5
INDL.& COML.BK.OF CHINA 'H' 13.4 25.3 CHINA FINANCIALS 0.5
HYUNDAI MOTOR 10.5 19.6 KOREA CONSUMER DISCRETIONARY 0.5
BANK OF CHINA 'H' 11.2 19.6 CHINA FINANCIALS 0.6
DAELIM INDUSTRIAL 6.6 11.3 KOREA INDUSTRIALS 0.6
HYUNDAI MIPO DOCKYARD 8.5 14.3 KOREA INDUSTRIALS 0.6
FUBON FINL.HLDG. 13.6 22.5 TAIWAN FINANCIALS 0.6
INCITEC PIVOT 13.8 22.5 AUSTRALIA MATERIALS 0.6
CHICONY ELECTRONICS 13.1 20.2 TAIWAN INFORMATION TECHNOLOGY 0.6
SEMBCORP MARINE 11.4 17.3 SINGAPORE INDUSTRIALS 0.7
SHANGHAI INDL.HDG. 13.4 19.7 CHINA INDUSTRIALS 0.7
KOREA GAS 7.2 10.6 KOREA UTILITIES 0.7
WISTRON 11.1 16.1 TAIWAN INFORMATION TECHNOLOGY 0.7
KANGWON LAND 9.9 14.1 KOREA CONSUMER DISCRETIONARY 0.7
SAMSUNG ELECTRONICS 9.8 13.5 KOREA INFORMATION TECHNOLOGY 0.7
BUSAN BANK 7.8 10.6 KOREA FINANCIALS 0.7
CHINA COMMS.CON.'H' 13.2 17.9 CHINA INDUSTRIALS 0.7
HANWHA CHEMICAL 7.4 9.8 KOREA MATERIALS 0.8
STATE BANK OF INDIA 13.2 17.2 INDIA FINANCIALS 0.8
LEE & MAN PAPER MNFG. 14.2 18.4 CHINA MATERIALS 0.8
QUANTA COMPUTER 9.8 12.6 TAIWAN INFORMATION TECHNOLOGY 0.8
HANWHA 6.2 7.6 KOREA MATERIALS 0.8
KOREAN AIR LINES 8.3 9.7 KOREA INDUSTRIALS 0.9
ORIGIN ENERGY (EX BORAL) 11.7 13.6 AUSTRALIA ENERGY 0.9
CHINA MOBILE 11.9 12.9 CHINA TELECOMMUNICATION SERVICES 0.9
COMPUTERSHARE 13.9 14.8 AUSTRALIA INFORMATION TECHNOLOGY 0.9
GUANGZHOU R&F PROPS.'H' 13.7 13.7 CHINA FINANCIALS 1.0
HYUNDAI DEPARTMENT STORE 10.9 10.7 KOREA CONSUMER DISCRETIONARY 1.0
POSCO 8.8 8.5 KOREA MATERIALS 1.0
FRASER AND NEAVE 13.2 12.3 SINGAPORE INDUSTRIALS 1.1
SEMBCORP INDUSTRIES 10.6 9.5 SINGAPORE INDUSTRIALS 1.1
LEIGHTON HOLDINGS 14.3 12.6 AUSTRALIA INDUSTRIALS 1.1
SIAM COMMERCIAL BANK 14.0 11.6 THAILAND FINANCIALS 1.2
POWERTECH TECHNOLOGY 13.2 10.9 TAIWAN INFORMATION TECHNOLOGY 1.2
PHISON ELECTRONICS 14.1 11.4 TAIWAN INFORMATION TECHNOLOGY 1.2
KEPPEL 10.1 8.0 SINGAPORE INDUSTRIALS 1.3
PCCW 10.7 8.5 HONG KONG TELECOMMUNICATION SERVICES 1.3
Source: IBES, MSCI. Note: The table consists of those stocks that have a trailing PE less than 14.4 (APxJ) and earnings growth higher than 7.6% (APxJ).
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(852) 2800-8599 03 September 2010
Table 3: Stocks in bottom left quadrant (Expensive and lower earnings growth relative to APxJ) – Sorted by Trailing PE
Name Trailing PE EPS growth Country Sector
(CAGR 11/06)
MAANSHAN IRON & STL.'H' 67.5 -2.9 CHINA MATERIALS
AGL ENERGY 48.1 4.1 AUSTRALIA UTILITIES
DAEWOO ENGR.& CON. 45.0 -10.0 KOREA INDUSTRIALS
RELIANCE CAPITAL 44.3 -1.4 INDIA FINANCIALS
NAN YA PRINTED CUB. 39.2 -8.2 TAIWAN INFORMATION TECHNOLOGY
AMCOR 39.1 5.6 AUSTRALIA MATERIALS
S-OIL 38.1 -6.1 KOREA ENERGY
COSCO (SING.) 33.8 -0.7 SINGAPORE INDUSTRIALS
ONESTEEL 33.5 4.5 AUSTRALIA MATERIALS
LARGAN PRECISION 33.0 4.6 TAIWAN INFORMATION TECHNOLOGY
HYUNDAI DEV. 32.7 2.9 KOREA INDUSTRIALS
CHINA SHIPPING DEV.'H' 31.9 -1.5 CHINA INDUSTRIALS
UNITECH 29.2 -4.0 INDIA FINANCIALS
FOSTER'S GROUP 29.1 4.3 AUSTRALIA CONSUMER STAPLES
KOREA ELECTRIC POWER 28.6 1.1 KOREA UTILITIES
CAPITAMALL TRUST 28.2 -17.7 SINGAPORE FINANCIALS
ANEKA TAMBANG 27.9 -1.1 INDONESIA MATERIALS
NAN YA PLASTICS 27.0 -5.4 TAIWAN MATERIALS
HONG KONG AND CHINA GAS 26.9 -1.5 HONG KONG UTILITIES
ASCENDAS REAL ESTATE IT. 26.8 4.0 SINGAPORE FINANCIALS
LEND LEASE GROUP 26.4 -6.5 AUSTRALIA FINANCIALS
CHANG HWA COML.BANK 26.1 -9.1 TAIWAN FINANCIALS
NATIONAL AUS.BANK 25.9 0.2 AUSTRALIA FINANCIALS
SINGAPORE EXCHANGE 24.6 5.6 SINGAPORE FINANCIALS
CHINA RES.ENTERPRISE 24.3 -0.9 CHINA CONSUMER STAPLES
SUNCORP-METWAY 23.5 -11.1 AUSTRALIA FINANCIALS
WESFARMERS 23.4 -1.4 AUSTRALIA CONSUMER STAPLES
DATANG INTL.PWR.GNRTN. 'H' 23.1 -4.9 CHINA UTILITIES
KERRY PROPERTIES 23.0 2.5 HONG KONG FINANCIALS
CHINA UNICOM (HONG KONG) 22.8 -6.0 CHINA TELECOMMUNICATION SERVICES
KB FINANCIAL GROUP 22.8 -0.7 KOREA FINANCIALS
UNIMICRON TECHNOLOGY 22.7 6.3 TAIWAN INFORMATION TECHNOLOGY
FLETCHER BUILDING 22.7 -3.6 NEW ZEALAND MATERIALS
ADVANCED SEMICON.ENGR. 22.5 -0.9 TAIWAN INFORMATION TECHNOLOGY
SINGAPORE TECHS.ENGR. 21.7 2.4 SINGAPORE INDUSTRIALS
FAR EASTERN NEW CENTURY 21.4 7.5 TAIWAN INDUSTRIALS
SINO LAND 21.3 -4.6 HONG KONG FINANCIALS
CHINA STEEL 21.0 -2.8 TAIWAN MATERIALS
EVERLIGHT ELECTRONICS 20.8 1.7 TAIWAN INFORMATION TECHNOLOGY
ARISTOCRAT LEISURE 20.6 -14.7 AUSTRALIA CONSUMER DISCRETIONARY
INTL.NICKEL INDONESIA 20.0 -4.7 INDONESIA MATERIALS
JIANGXI COPPER 'H' 19.1 -1.4 CHINA MATERIALS
CHINA TELECOM 'H' 19.0 -8.3 CHINA TELECOMMUNICATION SERVICES
BORAL 18.9 -11.5 AUSTRALIA MATERIALS
CSR 18.8 -11.5 AUSTRALIA INDUSTRIALS
KEPPEL LAND 18.8 6.4 SINGAPORE FINANCIALS
SANTOS 18.5 -13.5 AUSTRALIA ENERGY
HENDERSON LD.DEV. 18.5 -2.1 HONG KONG FINANCIALS
TOLL HOLDINGS 18.3 -7.9 AUSTRALIA INDUSTRIALS
CFS RETAIL PR.TST. 18.1 3.7 AUSTRALIA FINANCIALS
TAIWAN SEMICON.MNFG. 18.0 3.5 TAIWAN INFORMATION TECHNOLOGY
COSCO PACIFIC 17.9 -3.3 CHINA INDUSTRIALS
SWIRE PACIFIC 'A' 17.7 4.9 HONG KONG FINANCIALS
TAIWAN MOBILE 17.3 2.7 TAIWAN TELECOMMUNICATION SERVICES
WESTPAC BANKING 17.2 3.8 AUSTRALIA FINANCIALS
WOODSIDE PETROLEUM 17.1 4.9 AUSTRALIA ENERGY
MALAYAN BANKING 17.0 2.4 MALAYSIA FINANCIALS
AXA ASIA PACIFIC HDG. 16.9 -3.2 AUSTRALIA FINANCIALS
AUS.AND NZ.BANKING GP. 16.9 1.7 AUSTRALIA FINANCIALS
FOXCONN TECHNOLOGY 16.9 3.1 TAIWAN INFORMATION TECHNOLOGY
WESTFIELD GROUP 16.9 -1.8 AUSTRALIA FINANCIALS
CLP HOLDINGS 16.8 -1.1 HONG KONG UTILITIES
REALTEK SEMICON. 16.6 -6.7 TAIWAN INFORMATION TECHNOLOGY
KGI SECURITIES 16.5 4.6 TAIWAN FINANCIALS
BILLABONG INTERNATIONAL 16.5 -1.8 AUSTRALIA CONSUMER DISCRETIONARY
SHANGHAI ELEC.GP.CO.'H' 16.2 6.2 CHINA INDUSTRIALS
FORMOSA PETROCHEMICAL 16.1 -2.0 TAIWAN ENERGY
BANK OF EAST ASIA 16.1 -0.1 HONG KONG FINANCIALS
Source: IBES, MSCI. Note: The table consists of those stocks that have a trailing PE greater than 14.4 (APxJ) and earnings growth less than 7.6% (APxJ).
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(852) 2800-8599 03 September 2010
Dissection of EM EPS growth

The Objective Dataset
Disaggregate the EM EPS growth into countries, sectors IBES EPS forecasts for MSCI EM constituents
and key sectors in countries.
Calculation
Main observations on 2011 EPS growth The index's calendar year EPS is calculated using the
• MSCI EM weighted and median EPS growth are profit-weight of the constiuents.
17%. This is 5% higher than our economists’ 2011
nominal GDP growth forecast of 12%. Index EPS = I x (∑ (C-EPS x FFS) / ∑ (FFS x P))
• Growth is high for materials and financials where C-EPS = Index constiuent's EPS, FFS = free float
shares for the constituents, I = index level and P =
• Growth is low for IT and telecom (see Table 5) current market price
• Two sectors contribute 20% of MSCI EM 2011 EPS The check

growth; Brazil steel and Russian oil & gas sectors Median EPS growth of the index constituents: Reviewing
(2011 EPS growth for Vale, Sider and Gazprom is the median helps identify sectors in which a single
estimated to be 44%, 42% and 20% respectively) stock’s impact on weighted EPS growth is large. This
could be due its large weight in the index or moving from
• Note that the weighted EPS growth for Taiwan tech loss to profit.
is high at 88% (primarily due to losses or low profits
at AU Optronics, Chimei Innolux, Chunghwa picture
tubes, Wintek, E - Ink, Nanaya Tech, Powerchip,
Qisda and Inotera Memories). The median EPS
growth is 19% (see Table 6).
Table 4: Emerging markets earnings growth and contribution

Country Mkt Cap Earnings weights (%) Index EPS Growth Median EPS Growth Contribution to Earning growth (%)
Weight 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Brazil 16.0 16.1 17.0 16.8 16.9 24.0 14.9 19.5 23.1 18.0 9 22 16
Russia 6.4 11.0 11.9 11.9 42.5 26.8 16.4 44.1 34.0 14.6 13 17 12
China 18.5 17.0 16.8 17.0 25.9 16.0 17.5 21.6 20.0 20.0 13 16 18
South Africa 7.3 6.9 7.4 7.5 29.0 26.4 18.2 18.0 20.7 16.5 6 10 8
Taiwan 10.8 9.8 9.5 9.1 119.9 14.5 10.9 23.7 14.3 10.7 20 8 6
India 7.9 5.3 5.4 5.6 20.7 21.7 20.6 14.5 18.6 17.6 3 7 7
Korea 13.4 17.6 15.9 14.8 56.4 6.0 7.9 26.0 14.4 11.5 24 6 8
Mexico 4.2 3.4 3.4 4.7 14.3 17.1 61.0 19.8 14.3 14.0 2 3 13
Indonesia 2.4 1.9 2.0 1.9 22.9 18.8 13.0 17.6 17.8 12.5 1 2 2
Malaysia 3.1 2.3 2.2 2.1 25.6 12.5 11.1 17.2 11.1 10.2 2 2 2
Thailand 1.6 1.6 1.6 1.5 17.8 17.8 15.1 16.5 19.7 16.7 1 2 1
Poland 1.5 1.4 1.4 1.3 17.9 17.9 11.4 13.7 18.7 10.3 1 1 1
Turkey 1.8 2.1 2.0 1.9 17.4 11.2 14.1 11.0 12.9 13.8 1 1 2
Egypt 0.5 0.5 0.6 0.6 34.5 33.5 19.6 30.2 23.5 17.6 1 1 1
Colombia 0.9 0.5 0.5 0.5 29.2 29.3 23.3 27.0 33.3 25.0 0 1 1
Peru 0.7 0.5 0.5 0.5 25.6 25.8 13.2 21.1 28.6 19.5 0 1 0
Hungary 0.4 0.5 0.5 0.5 5.4 27.5 18.9 4.2 20.8 7.3 0 1 1
Chile 1.7 1.3 1.2 1.2 33.5 8.2 11.8 39.2 19.2 16.0 1 1 1
Philippines 0.5 0.4 0.4 0.4 20.4 12.5 14.9 15.0 10.5 14.6 0 0 0
Czech Republic 0.4 0.4 0.4 0.4 -2.6 8.4 7.0 -7.3 4.2 8.1 0 0 0
Morocco 0.2 0.1 0.1 0.1 10.4 10.4 4.8 -0.7 1.6 4.8 0 0 0
Source: IBES, Datastream, J.P. Morgan calculation. Note: Sorted by 2011 earning growth contribution.
9
(852) 2800-8599 03 September 2010
Table 5: EM Sectors earnings growth and contribution

EM Sectors Mkt Cap Earnings weights (%) Index EPS Growth Median EPS Growth Contribution to Earning growth (%)
Weight 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Financials 25.8 24.7 25.1 25.9 24.8 19.6 19.8 18.6 19.0 17.6 19 28 31
Materials 14.4 14.3 15.5 16.8 63.6 27.9 25.3 29.6 22.0 14.8 21 23 24
Energy 13.7 19.4 19.1 18.6 21.5 15.3 13.5 19.7 18.2 13.1 13 17 16
Information Technology 12.7 13.5 12.7 12.1 122.2 10.8 10.6 31.6 14.8 14.3 28 8 8
Industrials 7.1 6.0 6.0 6.0 40.5 17.4 15.8 16.9 18.8 15.9 7 6 6
Consumer Discretionary 6.5 6.0 5.9 5.8 24.5 15.7 14.9 20.1 16.1 15.8 4 5 5
Utilities 3.8 3.3 3.6 3.4 12.6 28.1 10.0 3.4 12.0 9.2 1 5 2
Telecommunication Services 8.4 8.5 8.0 7.6 12.1 10.8 10.2 6.8 6.8 9.0 3 5 5
Consumer Staples 6.9 4.4 4.2 4.0 19.3 10.7 11.4 15.9 15.7 15.5 3 3 3
Health Care 0.8 0.5 0.5 0.5 22.9 17.6 17.0 17.4 21.4 16.9 0 0 0
EM 100 100.0 100.0 100.0 35.4 17.3 16.3 19.5 17.4 14.8 100 100 100
Table 6: Countries sub-industry contributing 70% of EM Earning growth

Country Sub-Industry Mkt Cap Earnings weights (%) Index EPS Growth Median EPS Growth Contribution to Earning growth
(%)
Weight 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Brazil Steel 3.9 4.8 6.0 6.0 112.8 45.8 15.6 49.7 45.1 19.3 10 13 6
Russia Integrated Oil & Gas 3.2 7.5 7.3 7.2 20.8 13.3 15.4 19.2 3.7 14.4 5 6 7
China Diversified Banks 4.3 5.1 5.0 5.4 22.9 14.0 25.1 27.7 14.3 22.5 4 4 8
Russia Diversified Banks 0.9 0.9 1.3 1.3 483 81.0 13.2 483.3 81.0 13.2 3 4 1
Brazil Diversified Banks 3.5 3.6 3.6 3.6 5.3 17.5 17.1 24.3 16.4 14.0 1 4 4
Taiwan Electronic Components 0.9 0.6 0.9 0.8 -150.4 87.8 6.1 47.6 19.1 20.8 7 3 0
Brazil Integrated Oil & Gas 2.7 4.2 4.0 3.5 -5.1 10.8 0.5 -5.1 10.8 0.5 -1 3 0
Korea Diversified Banks 1.3 1.8 1.9 1.9 121.1 21.6 12.7 108.1 13.5 9.4 4 2 2
China Semiconductors 0.0 -0.1 0.2 0.4 -50.0 NM 100.0 NA NA NM 0 2 1
Russia Div Metals & Mining 0.4 0.3 0.6 0.7 113 93.8 45.2 113.3 93.8 45.2 1 2 2
South Africa Gold 0.9 0.5 0.7 0.6 -386 64.9 4.4 21.3 102.0 8.1 2 2 0
Mexico Wireless Telecom 1.4 1.4 1.4 1.3 19.8 15.0 8.7 19.8 15.0 8.7 1 1 1
S Africa Integrated Oil & Gas 0.7 0.8 0.9 1.0 15.5 24.8 35.7 15.5 24.8 35.7 0 1 2
S Africa Precious Metals 0.6 0.4 0.5 0.5 53.4 50.9 16.7 25.4 44.6 20.5 1 1 1
S Africa Diversified Banks 0.8 0.8 0.9 1.0 17.1 23.4 26.4 12.2 22.5 26.5 0 1 1
S Africa Wireless Telecom 0.9 0.9 1.0 0.9 23.7 19.1 11.2 23.3 14.9 8.8 1 1 1
Taiwan Diversified Banks 0.9 0.7 0.7 0.7 34.7 26.0 7.1 27.0 29.2 0.0 1 1 0
Brazil Homebuilding 0.5 0.5 0.6 0.6 48.2 32.0 20.8 64.6 34.3 22.2 1 1 1
Russia Steel 0.3 0.3 0.4 0.4 -604 61.1 15.7 546.2 51.7 17.9 1 1 0
China Life & Health Insurance 1.5 0.8 0.8 0.9 12.9 20.0 23.0 14.7 26.6 22.3 0 1 1
Taiwan Electronic Mftg Svs 1.1 0.9 0.9 0.9 35.4 17.9 19.4 10.7 14.8 19.4 1 1 1
India Steel 0.5 0.5 0.5 0.5 60.2 32.7 14.7 19.2 18.6 14.4 1 1 0
India Diversified Banks 1.2 0.7 0.7 0.7 17.8 22.3 19.7 17.9 22.3 18.9 0 1 1
China Oil & Gas Exp & Prod 1.1 1.1 1.0 1.0 55.6 14.4 7.0 65.6 23.3 15.4 1 1 0
India Oil & Gas Refining & Mktg 0.9 0.7 0.7 0.7 22.5 20.4 10.6 26.4 18.3 9.9 1 1 0
China Integrated Oil & Gas 1.1 1.5 1.4 1.3 20.3 9.1 8.3 20.0 9.1 8.3 1 1 1
Poland Diversified Banks 0.6 0.5 0.5 0.5 23.5 29.1 18.1 32.7 28.9 18.9 0 1 1
Indonesia Coal & Consumable 0.3 0.2 0.3 0.3 21.4 55.5 1.2 -5.9 47.4 1.2 0 1 0
India It Consulting & Other Svs 1.3 0.7 0.7 0.7 13.1 16.9 14.5 16.1 17.9 15.8 0 1 1
China Real Estate Development 0.9 0.9 0.9 0.9 19.4 13.8 22.7 21.2 18.8 21.1 1 1 1
Brazil Packaged Foods & Meats 0.4 0.2 0.3 0.3 104.5 62.6 28.3 265.1 71.7 25.3 0 1 0
Korea Construction & Eng 0.5 0.5 0.5 0.5 69.9 24.2 14.5 24.5 22.2 18.1 1 1 0
South Africa Other Div Fin Svs 0.4 0.5 0.5 0.5 24.7 23.5 17.6 26.2 23.1 16.5 0 1 1
Mexico Div Metals & Mining 0.3 0.3 0.4 0.4 52.8 36.4 16.7 52.8 36.4 16.7 0 1 0
Turkey Diversified Banks 1.0 1.2 1.2 1.1 13.7 9.2 14.8 11.6 8.0 16.7 1 1 1
Russia Oil & Gas Exp & Prod 0.4 0.6 0.6 0.6 19.2 20.2 13.2 29.9 22.3 13.4 0 1 0
Russia Wireless Telecom 0.4 0.5 0.5 0.5 168.5 22.3 26.7 32.7 25.9 25.2 1 1 1
Thailand Diversified Banks 0.6 0.6 0.6 0.6 18.5 18.3 16.9 17.6 20.0 16.7 0 1 1
China Coal & Consumable Fuels 0.8 0.8 0.8 0.8 36.1 13.3 14.3 47.1 12.2 13.1 1 1 1
Taiwan Computer Hardware 0.9 1.1 1.0 1.0 17.9 8.7 12.5 21.9 13.2 14.6 1 1 1
Taiwan Commodity Chemicals 0.8 0.7 0.6 0.6 24.2 14.5 8.4 18.1 18.4 9.2 0 1 0
South Africa Cable & Satellite 0.5 0.3 0.4 0.4 25.3 28.7 23.3 25.3 28.7 23.3 0 1 1
Taiwan Life & Health Insurance 0.4 0.1 0.2 0.2 16.8 80.6 19.7 45.5 100.0 33.3 0 1 0
Korea Electric Utilities 0.2 0.2 0.2 0.2 NM 51.3 18.5 NA 51.3 18.5 1 1 0
Korea Auto Manufacturers 0.8 1.2 1.1 1.0 35.5 7.6 7.1 30.8 7.8 7.2 1 1 0
Korea Industrial Conglomerates 0.4 0.5 0.5 0.5 34.5 17.3 11.5 35.0 24.7 15.5 1 1 0
10
(852) 2800-8599 03 September 2010
Conclusion Key asset allocation calls:

• OW: India, Taiwan, and ASEAN
• Capital flows to EM continue as investors seek carry
and growth – EM markets melt up • OW: Technology
• Ongoing successful rebalancing of China’s • UW: China, Australia, and Hong Kong
economy from fixed asset investment to
• UW: Commodities, Energy
consumption:
1) Expensive consumer stocks get more expensive – For our APxJ Key Trade stock ideas see page 28.
midcaps (particularly in the A-share market)
outperform as investors seek new growth. Seek alpha For our Regional Model Portfolio and changes made
not beta in MSCI China and A-shares this month, please see pages 24, 26 and 27.
2) Large cap index stocks suffer as profits to GDP
ratio fall – hence MSCI China UW For more on risks see page 30.
3) Threat to commodity markets as China's demand
for commodities slows For our ASEAN strategy, please see page 13.
• Current account deficit markets with increasing fixed
For Quant strategy, please see page 19.
investment continue to outperform as they surf the
CEMBI (benefit from strong flows into EM credit
markets).
OW: India, ASEAN
• Growth style outperforms as growth premium
expands in a world where growth is in short supply.
This increases valuation and stock specific risk.
• Limited valuation arbitrage; investors already
paying premium for growth. Within cyclical sectors
we think tech offers the best value. Investors are
undervaluing dividend yield.
11
(852) 2800-8599 03 September 2010
Combining J.P. Morgan Q-scores and thematic top-down strategy
With the help of Steve Malin and J.P. Morgan’s quant How is the Q-Score calculated?
team, the strategy team has developed a screening tool to Share prices are affected by many different factors.
monitor current trades and identify new ideas. Quant practitioners attempt to isolate factors that can be
shown to constantly explain some of this return. The aim
The output of the screen is a list of liquid and investible is to outperform the benchmark by targeting our
stocks in MSCI APxJ consistent with our key trades and portfolios toward those stocks with positive factor
country asset allocation, and filtered using the J.P. exposures and away from those with negative factor
Morgan Q-scores developed by the Quant team. exposures.
The J.P. Morgan Q-score The Q-Score is generated by evaluating the companies’
The J.P. Morgan Q-Score provides an indication of a prospects based on combining 10 such factors
company’s expected return versus both its country peers categorized into four factor families. These families are
and its regional industry peers using a balanced multi- current valuation, recent success or momentum, quality
factor quantitative approach. The goal is a simple one. To attributes and a consideration of recent changes in
bias stock selection towards cheap, successful, quality earnings and sentiment. The detail for each factor
companies with solid earnings and away from expensive, family is shown in the table below.
poor quality, unsuccessful companies with poor earnings.
Our portfolio construction today is based on owning the
The higher the company scores, then the higher the sectors in countries that we believe will have superior
expected return (or Alpha) relative to the considered earnings revisions. The screen has generated 155 stocks
universe. A score of 50% indicates that this company is with earnings Q-score greater than 50%. Forty of these
expected to perform in line with the benchmark universe. are from our overweight markets. If our macro calls are
A score greater than 50% indicates an expected out working, then the sectors we like should have rising
performer and a score less than 50% indicates an earnings Q-scores. We will hold the trade until either the
expected underperformer. All scores are expressed as a valuation Q-score becomes uncomfortably high and/or
percentile rank from 0% to 100%. the earnings Q-score starts to weaken. Please email us if
you would like the full list.
Value Q-score Earnings Q-score

Many quant researchers have explored the ‘Value The market is not efficient at incorporating new information
Anomaly’ and it is widely recognized that low P/E stocks and a window of opportunity exists to exploit recent analyst
outperform high P/E stocks over the long term. Similar revisions in earnings and recommendations. Similarly analyst
analysis has shown consistent results using P/Sales, behavioral biases lead to subsequent changes suggesting an
P/Dividend and P/Book ratios. Our studies have also shown exploitable serial correlation in earnings upgrades/downgrades.
that Earnings Growth can complement straight Value
factors in many markets.
Component Factors Component Factors
12M Forward P/E Vs Market (34%) Earnings Momentum 3M avg FY1&FY2, Risk Adjusted (34%)
12M Forward P/E Vs Country Sector (33%) 1M change in consensus recommendations (33%)
Net Revisions (upgrades-downgrades) to mean FY2 EPS
EPS Growth; forecast FY1 mean to FY2 mean (33%)
(33%)
Momentum Q-score Quality Q-score
Momentum theory for stock prices suggests that companies Whilst arguably less readily observable than some other
that do well in one (long term) investment period will factors, it is generally accepted that it is desirable to tilt
continue to do well in the subsequent investment horizon. portfolios towards highly profitable and good quality
Over short time frames (<1month) studies have also businesses. Similarly over the long term the market also
highlighted the tendency of stocks to overreact leading to appears to reward 'earnings certainty' and penalize those stocks
short term reversion. We have widely observed these that carry a large degree of earnings risk.
phenomenon in our own testing
Component Factors Component Factors
12M Price Momentum (75%) ROE: average of FY1 and FY2 mean forecast (50%)
1M Price Reversion (25%) Earnings Risk: Variation in FY1 and FY2 forecast EPS (50%)
12
(852) 2800-8599 03 September 2010
ASEAN Strategy – going with the flows

Sriyan PieterszAC
The Emerging ASEAN-4 markets continue to As the ‘stealthy’ ASEAN rally attracts greater attention,
differentiate themselves, out-performing the broader Asia we expect valuation/performance differentials to narrow,
ex-Japan region. Strong economic growth combined with both relative to Asia ex-Japan and within the sub-
positive earnings revisions and low ownership (ex grouping. This process is well underway in Thailand,
Indonesia), continue to drive these markets higher. where the discount to MSCI AEJ has narrowed to single
digit levels. The Philippines, in our view, is set to catch
Over the course of the past month, only Indonesia up, with the recently concluded 2Q earnings season
faltered, under-performing the broader MSCI AEJ index showing significant upside surprises that suggest
by 0.8% in US$ terms as inflation worries and high valuations are understated.
valuations started to niggle.
Our weightings within Emerging ASEAN are OW
External growth concerns are now coming to the fore, position in Thailand and N positions in Indonesia and
and in this context the more domestic-driven regional Malaysia.
economies such as Indonesia and the Philippines should
provide safe havens for investors. Although Malaysia and Figure 13: ASEAN Performance
Thailand have greater exposure to external demand, both
markets are relatively under-owned and tougher 110 TH
monetary policy ‘normalization’ regimes set the platform
for continued inflows. Taken in a broad context, we MY
expect the sub-region to remain a magnet for inflows 105
supported by the carry trade, with Indonesia the key MT
PH
beneficiary given the large spread between US$ interest
rates and local currency bond yields. 100 APx J
ID
95
2-Aug-10 7-Aug-10 12-Aug-10 17-Aug-10 22-Aug-10 27-Aug-10
Source: Bloomberg
Table 7: Performance Summary
in US$ terms Performance (%) Relative Performance to AP x J (%)
1-mth 3-mth 12-mth YTD 1-mth 3-mth 12-mth YTD
Asia ex Japan -1.0 6.6 11.2 -2.7
Indonesia -1.8 13.8 34.8 17.5 -0.8 6.8 21.2 20.8
Malaysia 6.1 18.1 32.8 20.6 7.1 10.8 19.4 24.0
Philippines 4.6 10.4 23.8 13.5 5.6 3.5 11.3 16.7
Thailand 8.0 22.9 39.8 24.8 9.0 15.2 25.7 28.3
Source: Bloomberg
Table 8: ASEAN Valuations

Market Reco EPS growth (%) P/E (x) Yield (%) ROE (%)
FY10E FY11E FY10E FY11E FY10E FY11E FY10E FY11E
Indonesia N 20.5 17.7 14.6 12.4 2.5 2.9 21.9 24.3
Malaysia N 22.1 17.8 17.1 15 3.4 3.7 12.3 13.9
Thailand OW 23.8 11.8 12.7 11.4 3.5 3.8 16.5 16.7
Source: J.P. Morgan estimates. Data as of August 31, 2010
13
(852) 2800-8599 03 September 2010
Philippines – Earnings surprises will drive upgrade The monetary policy backdrop also remains benign. As
momentum widely expected, the Philippine central bank (BSP) left
We believe the Philippines, which has been the YTD its benchmark interest rate, the reverse repo rate,
under-performer within the ASEAN-4 group, is poised to unchanged at 4.00% at its recent policy meeting.
play catch-up. Growth continues to chug along, and is
likely to prove relatively defensive in the face of slowing We see reform as a MT catalyst for the stock market,
US growth and external demand, a factor that is with incremental progress rather than major steps. The
increasingly coming into focus. With exports/GDP at just main progress so far in terms of President Aquino’s
31%, the Philippines (along with Indonesia) ranks among reform agenda is the weekly filing of tax cases. We
the more domestic-oriented economies in the region. believe it is premature to judge the new administration on
OFW remittances have stabilized at high levels relative the fairly dismal revenue collection reported in Jul10
to history, and the increased component of high value- (practically first month of new government).
added service contracts within the overseas worker base
should support inflows even as external growth slows. As
long as remittances hold up so does spending, and
remittances notably fared well during the last downturn.
Further, even investment could surprise on the upside if

domestic companies stay positive on the new President’s
policies. The Philippines is deficient in infrastructure
spending, with investment to GDP averaging just 17%
over the past decade. The government economic think
tank National Economic Development Authority
(NEDA) has said that infrastructure spending needs to be
PhP3.13trillion (US$68bn) in the next 5 years, with the
bulk distributed between power (32%) and transportation
(26%).
Table 9: 2Q10 Results round-up

Philippines Above expectation In line with expectation Below expectation
Total # of cos # of cos % to total # of cos % to total # of cos % to total
Financials 4 0 0.0 4 100.0 0 0
Telco 2 0 0.0 2 100.0 0 0
Consumer 1 0 0.0 1 100.0 0 0
Property 4 2 50.0 2 50.0 0 0
Conglomerates 2 1 50.0 1 50.0 0 0
Utilities 4 4 100.0 0 0.0 0 0
Total 17 7 41.2 10 58.8 0 0
Source: J.P. Morgan estimates
Table 10: Phillipnes Top Picks

Price Upsid EPS Y/Y (%) P/E P/BV P/BV Div yield (%)
e (X) (X) (X)
Rec Last Target % 2010E 2011E 2010E 2011E 2010E 2011E 2010E 2011E 2010E 2011E
PNOC-EDC OW 4.6 5.9 27.7 170.9 -16.6 2.7 2.4 29.8 22.2 29.8 22.2 2.9 2.8
Ayala corp OW 340.0 400.0 17.6 2.2 34.5 1.6 1.5 8.0 10.1 8.0 10.1 1.2 1.2
Manila Water OW 17.4 20.0 14.9 19.1 7.7 1.8 1.6 21.0 19.7 21.0 19.7 2.8 3.0
PLDT OW 2448.0 2800.0 14.4 3.9 10.7 4.5 4.3 41.5 44.4 41.5 44.4 9.0 9.5
Ayala Land OW 16.5 18.0 9.1 30.4 28.1 3.8 3.5 9.7 11.5 9.7 11.5 0.6 0.9
Source: Bloomberg, J.P. Morgan estimates
14
(852) 2800-8599 03 September 2010
As J.P. Morgan economists have noted, the PhP325bn Thailand – foreign investors return, big caps set to
FY10 deficit target appears challenging, having reached outperform
71% of the full year budget after just 7 months. Meeting Thailand has been a stealthy out-performer in 2010,
the tough target would be a positive start, in our view, gaining 25% YTD despite only a modest recovery in
while further progress such as securing a first-ever tax foreign ownership following an epic nearly US$2bn sell-
evasion-related conviction would provide significant off in Apr-May10. Further out-performance is well-
positive guidance to the market. Progress on the core supported, in our view. We forecast 12% EPS growth for
fiscal bugbear would provide impetus for broader 2011, with the Banks, Property and Consumer sectors
reforms as bureaucrats and the public embrace the continuing to generate a significant share. Valuation re-
possibility of change. rating may well prove a more powerful driver of equities
over the next 12 months, as flattening LT bond yields
Translating the macro into the micro level, the and an appreciating currency could drive down discount
economy’s resurgence is visible in 1H10 earnings results rates. Even assuming that the 10-year Thai government
for the listed universe, with Philippine corporates bond yield steepens to 4.5% (versus the current yield of
providing the largest upside surprises in the region. This 3.43%) over the next 12 months, based on a simple
will translate into positive earnings forecast momentum, DDM, the Thai SET’s 12-mth forward P/E could re-rate
in our view, revealing a significantly cheaper-than- from currently 11.4x to 12.4x. Factoring in forecast
consensus stock universe. Sectors which would have the earnings growth, our 12 month index target is 1120, 25%
greatest number of upgrades would be the property, upside.
banking, and utilities sectors. Earnings upside potential
from a JPM perspective would be greatest in the utilities Growth will be slower in 2011, but more broad-based.
and property sectors. While financials have been quite The economy has staged a solid recovery from the crisis
strong, our forecasts are already at the top end of of 2008-9, supported by external demand recovery that
consensus. However we think that consensus will follow drove exports and investment. Although growth will
suit. On individual stocks, we see most earnings upside decelerate in 2011 as the external demand impulse fades,
potential on most property companies, with the biggest composition of growth will be broader-based, supported
on Ayala Land and Filinvest Land. For utilities, upgrades by another strong year for farm income, a recovery in
are in order for Energy Development, Aboitiz Power, tourism, draw down in accumulated household spending
Manila Water, and Meralco, in our view. and a recovery in FDI.
Figure 14: PHISIX P/E
While the monetary policy normalization process has
5,000
18x begun, it will remain weighted towards currency
4,000 15x appreciation. As such we see a shallow rise in base
(policy) rates in 2H10-2011. Recent meetings in
3,000 Index Price 12x Bangkok suggested that the near-term normalization in
9x policy rates will continue through 2H10 – and reaffirms
2,000
our view that policy rates will likely reach 2% by the end
6x
1,000 of 2010.
- Figure 16: Thailand 12 month fwd P/E vs 10-year government

bond yield
Jan-90 Oct-94 Aug-99 Jun-04 Apr-09
% p.a. x
10-y ear gov t bond
Source: Bloomberg, J.P. Morgan estimates 7 18
y ield
6 16
Figure 15: Philippines earnings momentum
5
130 14
2011 4
12
3
120 12-mth forw ard 10
2
P/E
1 8
110 (6 th l )
0 6
100 2010 2005 2006 2007 2008 2009 2010
Source: The Thai Bond Market Association, CEIC, J.P. Morgan estimates
90
Feb-09 Sep-09 Apr-10
Source: IBES, Datastream
15
(852) 2800-8599 03 September 2010
Figure 17: Thailand farm Income Profile Returning foreign investment funds (FIFs, Bt73bn
90 % Y/Y Change in farm income maturing in 2H10) are also likely to bolster retail activity
Change in price in the remainder of the year.
70 Change in production
50 Buy stocks in domestic-facing sectors. We expect large

30 cap stocks to lead the next stage of the rally on rising
foreign inflows, having underperformed during the retail
10
driven stage. Our top large capitalization picks are SCB,
(10) KBANK, PTT, LH and ADVANC.
(30)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Figure 19: Thailand net foreign equity flows
15,000 BtM
Source: Bank of Thailand 10,000
5,000
Figure 18: Thailand tourist arrivals 0
'000s, sa %3m/3m, saar (5,000)
1500 Change 100 (10,000)
1400 (15,000)
50 (20,000)
1300 (25,000)
1200 0
Oct-09
Dec-09
Jan-09
Feb-09
Mar-09
Jun-09
Jul-09
Aug-09
Sep-09
Jan-10
Feb-10
Mar-10
Apr-10
Jun-10
Jul-10
Aug-10
May-09
May-10
Nov-09
Apr-09
1100
-50
1000 Lev el Source: Stock Exchange of Thailand
900 -100
Jan 07 2007 Jan 08 2008 Jan 09 2009 Jan 10 2010 Jan 11 Figure 20: Thailand EM Fund positions: Net OWs
6
Source: J.P. Morgan economics
4
Politics remains a wild card but stable near term. Political 2
visibility in Thailand remains cloudy, but that is the
consensus. We believe an uneasy equilibrium has been 0
reached, predicated on the announcement of an early -2
election in 2011 that will appease opposition sentiment.
-4
Although the underlying issues, be they social
injustice/the wide income gap/unequal opportunity -6
and/or a power tussle between elements of Thai society, Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10
have not been resolved in our view, we see a low
probability that the volatility witnessed in 1H10 will Source: EPFR Global, J.P. Morgan calculations
resume in the near term. This has been achieved by a

combination of hard action such as the maintenance of a Indonesia – Inflation fears take center stage
state of emergency in key areas (7 provinces, including Inflation has shifted to center stage in investors’ minds
Bangkok), a clampdown on funding sources for the 'red over the last month. Inflation in Jul10 (6.2% y/y)
shirt’ UDD, extended detention and arraignment of key surprised on the upside, and moved higher than the
protest leaders on terrorism charges, as well as soft action Central Bank’s policy comfort range (5 ± 1%). Fears of
such as the formation of commissions to investigate the rampant inflation have risen fast, so much so that the
causes and outcome of the protests and formulate August inflation print of 6.4% y/y, while still ahead of
reconciliation measures. the BI’s comfort zone, was greeted by a collective rally
of relief from the currency, bonds and equity markets.
Fund flows provide a key comfort factor. Foreign
investors net sold US$1.96bn during the Apr-May The Central Bank has signaled that it believes that
protests, and while inflows of US$881m have returned in inflation is largely seasonal (ahead of the fasting and
subsequent months, net foreign flows have only just festival lunar months) and has not altered its policy
turned positive YTD, at US$241m. With DM growth stance. JP Morgan’s economics team forecasts that CPI
prospects continuing to look lackluster, we believe that will remain above the Central Banks comfort zone, but
Thailand’s combination of cheap valuations and solid within the 7% range all the way to 2QFY10. We do not
growth will continue to be a magnet for inflows. expect the central bank to raise rates till 2Q 2009, but
16
(852) 2800-8599 03 September 2010
note three scenarios that may the move the central bank Given the strength in domestic demand and our view on
into action earlier: a) core inflation trends higher towards inflation, we believe that liquidity in the domestic market
the top end of the policy band, b) food inflation feeds may show signs of tightening faster than investors
through expectations into rising non food inflation c) currently expect. Indeed interbank rates have already
inflation proves sticky beyond the lunar festival of shown some tightening at the margins. Banks stocks have
Lebaran in October. rallied recently on the recovery of the credit cycle, as we
get to the 4th quarter we believe that balance sheet
Figure 21: Indonesia CPI and WPI expansion will be taken for granted, and the emphasis
%oy a will shift to funding growth and the impact on margins.
40 WPI
Bank stocks and valuations peaked midway through the
30 credit cycle in both the previous cycles, and we expect
CPI this to recur – we would look to take profits on the Banks
20
as credit growth pushes past 4% m/m and buy under-
10 owned Telcos (EXCL top pick, TLKM preferred as large
and liquid) and take defensive exposures to out-of favor
0
commodities via United Tractors.
-10
Jan 01 Jan 03 Jan 05 Jan 07 Jan 09 Jan 11 Figure 23: Credit (m/m) and JAK Fin
8.0% 415
Source: J.P. Morgan economics JAK Fin (RHS) 365
Credit (m/m) (LHS)
315
Our own view is that inflation is an issue but not a 4.0%
problem. We see the current episode of inflation as a 265
cyclical increase with the context of a larger structural 215
decline. And while we certainly believe that investors 0.0%
165
may have underestimated inflation in the near term, at 115
this point we do not think the structural picture has -4.0% 65
changed. What rising inflation may also result in, in our Jan-04 Apr-05 Jul-06 Oct-07 Jan-09 Apr-10
opinion, is a stalling of the compression of risk free rates
that have driven the Banks re-rating specifically and Source: CEIC, Bloomberg
Indonesian equities more broadly.
Malaysia – waiting for reform or revisions
That said, we note that over the course of the last 12 Malaysia appears to be a safe refuge for foreign investors
months or so, bond yields have declined by close to 250 for now given its relatively defensive characteristics, i.e.,
bps, while market P/E multiples which peaked in Oct09 low volatility and weak correlation with major indices,
have gradually declined since. Equities remain attractive during this bout of increased volatility in regional
relative to bonds. The spread between the earnings yield markets. In our view, ST uncertainties surrounding the
and 10 year bond yield has narrowed significantly, and US growth have caused the KLCI to get squeezed
remains one of the more compelling arguments for upwards alongside other ASEAN markets, with the index
Indonesian equities. now standing above 1400 (which is a new high). We note
however, that Malaysia has the highest gross exports
Figure 22: Indonesia 12M Fwd PE and 10 Yr Bond yields exposure among the ASEAN-4, with gross exports/GDP
16.0 12M Fw d PE at 96%, and lacks a significant offsetting domestic
growth driver unless infrastructure spending accelerates
14.0 significantly. MYR63bn in construction and
12.0 infrastructure projects from the 9th Malaysia Plan remain
to be implemented, but PM Najib has also warned that
10.0 there will be no more stimulus packages even if there is a
slowdown next year as the Government wants to
8.0
10 Yr Bond Yield strengthen economic fundamentals.
6.0
Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 We recap the Malaysia-specific positive drivers we see
over the coming months:- 1) More evidence of greater
Source: Bloomberg, J.P. Morgan estimates Malaysia-Singapore cooperation and increased spending
especially in Iskandar, South Johor, and movement on
the KL mass transit system - infrastructure spending in
17
(852) 2800-8599 03 September 2010
other words; 2) More new IPOs to put Malaysia back on Figure 24: Malaysia cumulative net inflows/outflows
foreign investors’ radar screens 3) Positive sound bites
on the 2011 Budget (14 October) and proposed pump 2.0
priming agenda as the possibility of a snap general
1.0
election may emerge in 2011 (although the elections need
to only be held by March 2013). Key to this is the 0.0
Sarawak election, which will provide some visibility on
the ruling alliance’s status with voters. -1.0
-2.0
The push backs are 1) policy flip flops by the
administration as reforms prove difficult to implement -3.0
and 2) relatively high valuations with market PE of 14.3x Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
and a 15.5% premium to MSCI APxJ which to some
extent reflects the optionality of structural reform Source: J.P. Morgan. Note: Cumulative from 2007
already. Thus, despite the apparent low expectations of

Figure 25: Malaysia EM fund positions: Net OWs
reform, the question is whether the market can further re-
rate without being accompanied by strong upward 10
earnings revisions. On this front, we see only modest 5
upward momentum, with 2Q10 results mostly in line: of 0
the 27 companies in our universe, 16 (59%) reported
-5
results in line with our estimates and 7 (26%) reported
above, while 4 (15%) reported below expectations. -10
-15
The key positive argument for Malaysia in the near term -20
is the low level of foreign ownership, in our view.
-25
Malaysia is a large consensus underweight. We now see
Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10
evidence of foreign monies trickling in based on foreign
incremental buying and ownership levels. The Source: EPFR Global, J.P. Morgan calculations
cumulative foreign portfolio net flow data for equities
provided by Bank Negara show a clear inflection point in
Jun10. EPFR Global portfolio flow data shows that
significant foreign flows poured into Malaysia in Jun10
(US$308m), pushing net flows into positive territory
YTD (US$169m). Further inflows appear likely as
inflows in the last 3 months should be seen against the
perspective of net sales over the prior 3 years from 2Q07
to Apr10. Tactically, we remain positioned in cyclical
sectors with our top picks being AMMB, Public Bank,
Tenaga, Genting and IJM, while other big cap proxies are
Maybank and PLUS.
18
(852) 2800-8599 03 September 2010
Taiwan & Tech – The Seasonality Anomaly Stand-Outs

Steve MalinAC
In our recent report ‘A Factor for all Seasons – Stock Table 11: Taiwan - The traditional August Winners
Level Periodic Seasonality in Japan and beyond’ Ticker Name MTD
(Okamoto/Malin 15-Jul-2010) we investigated the Aug
degree to which ‘seasonality’ in share prices has the Long 3.5%
potential to be used as an alpha signal in many markets. 7/31/2010 2707 TT FORMOSA INT'L HOTELS 23.2%
7/31/2010 2395 TT ADVANTECH CO 5.4%
In the analysis we highlighted the degree to which 7/31/2010 3037 TT UNIMICRON TECHNOLOGY 0.8%
members of both the global technology sector and the 7/31/2010 2454 TT MEDIATEK INC 0.7%
Taiwan market appeared to be particularly fertile 7/31/2010 2325 TT SILICONWARE PRECISION -3.5%
7/31/2010 2330 TT E TAIWAN SEMICONDUCTOR -5.8%
universes for observing this market anomaly.
Source: MSCI
In this note we provide a short recap of the methodology
employed in the analysis before highlighting the Table 12: Taiwan - The traditional August Winners
individual stock names in both the Taiwan market and Ticker Name MTD
the Global I.T Sector that have exhibited a strong degree Aug
of periodic seasonality through August, September and Short 0.4%
7/31/2010 2337 TT MACRONIX INTERNATIONAL -9.1%
October in the past and hence may be worth paying close 7/31/2010 2888 TT SHIN KONG FINL HLDGS -6.9%
attention to over the next few months. 7/31/2010 2475 TT CHUNGHWA PICTURE TUBES 0.5%
7/31/2010 2362 TT CLEVO COMPANY 1.8%
For example, Table 11 and Table 12 highlight 7/31/2010 2892 TT FIRST FINANCIAL HLDG CO 2.1%
‘traditional’ winning and losing stocks in Taiwan during Source: MSCI
the month of August.
The Test results for Taiwan and Global
What is Periodic Seasonality? Technology
Seasonality refers to a characteristic of a time series in In Taiwan the backtest reveals that a systematic
which the data experiences regular and predictable investment in the top ranking 20% of stocks and against
changes which recur every calendar year. Periodic the bottom ranking 20% of stocks each month would
seasonality is sales is a concept that is well understood. have generated an annual L/S return of over 13% with
For example nobody would be surprised to hear that a success in 64% of months. $100 invested in 2000 would
company that sells sun-tan lotion or ice-cream makes now be worth $350. Of course this is NET of transaction
more sales in the summer months than in the winter costs!
months.
The concept of ‘periodic seasonality’ in stock prices is Interestingly despite little reason to expect the middle
for many investors a harder pill to swallow as - in an ranking portfolios to contain information we find the
efficient market - prices should incorporate all available return profile is in fact monotonic.
information and (for example) appropriately reflect the
outlook for seasonal sales and any other regularly In the global MSCI All World IT sector we find a factor
occurring event. However our recent analysis suggests profile that is even stronger that that exhibited in Taiwan.
that periodic seasonality does indeed exist in stock prices The annual return of the signal is over 22% since 2000
and markets fail to accurately incorporate all of the and the signal delivers a positive return in 70% of months
available information creating an observable and analysed.
potentially exploitable anomaly for investors.
Over the last 3 years (3 fairly traumatic years for many
stock selection signals!), the annual return delivered by
How do we test for it?
the signal is 30% with a positive outperformance in 78%
The test is relatively simple. At the start of each monthly of months. (Net of Transaction costs!)
test period we break the universe into equal sized groups
based on their track record of outperforming in the
following month. We use a minimum of 7 years to create
our ‘success hit-rate’ factor which is calculated as the
percentage of times over all previous years when the
stock has outperformed the local benchmark.
19
(852) 2800-8599 03 September 2010
What is driving the anomaly? Figure 26: Taiwan Annual Returns of 5 equally sized portfolios
Arguably one of the nice features of this anomaly is that 6.0%
it is more than likely driven by a whole range of things. It 4.0%
2.0%
may be related to earnings results if a company is adept
0.0%
at manipulating market expectations, it may be dividend
-2.0%
related (as we suspect is the case with many of the -4.0%
Taiwan names) or it may be due to a failure to price -6.0%
seasonal sales accurately – particularly in the case of -8.0%
certain members of the technology and consumer -10.0%
discretionary sectors. (In our full report into the topic we 1 2 3 4 5
highlight four Japan based examples for which we

suggest four very different rationales.).
Source: MSCI, J.P. Morgan Calculations
Specifically in relation to technology, our technology

team often flags the importance of ‘consumer buying Figure 27: Global IT Cumulative Return chart
patterns’ to sales. We know about the tendency of many
tech companies to “pitch” their promotions at the same 900
800
time each year (“Back to school” time for PC purchases, 700
MP3 player sales at Christmas etc) with different 600
products and geographies taking center stage at different 500
times. This is perhaps what is not being accurately 400

300
priced? 200
100
We also suggest that there may be a behavioural element 0

Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Base
that sees all the additional advertising undertaken during

these periods have an impact on investors which leads
them to pay a premium for the stock during “promotion
months”? Or perhaps it is just a function of the fact that Source: MSCI, J.P. Morgan Calculations
those stocks are “in the news” in those months and this
creates additional demand? Figure 28: Global IT Annual Returns of 5 equally sized portfolios
In addition in Taiwan we have previously identified Sales 10.0%
Momentum to be an important driver of returns in that

5.0%
market. (See “Free Alpha in Taiwan” Malin - March
2006). However the key issue with sales momentum is 0.0%
that the alpha burns very quickly. Perhaps what we are

-5.0%
partly seeing here is that previous years are being used as
a proxy to identify strong sales momentum candidates -10.0%
before it is actually delivered?

-15.0%
1 2 3 4 5
Obviously these suggestions are speculative and we
cannot know for sure what drives the outperformance.
But much of this logic also applies generally to the Source: MSCI, J.P. Morgan Calculations
Consumer Discretionary sector where we also observed
the phenomena quite strongly in several of the test
universes.
Interestingly academic findings suggest that “this pattern

of returns is still evident even after controlling for
independent of size, industry, earnings announcements,
dividends, and fiscal year.” (Steven L. Heston and
Ronnie Sadka, Seasonality in the Cross-Section of Stock
Returns).
20
(852) 2800-8599 03 September 2010
Perhaps the most surprising result to us from this analysis Table 13: Global I.T. Top and Bottom Seasonal Performers – Next
is the consistency of the alpha stream– especially in 3 months
relation to the Global IT sector. We can illustrate through Global MTD
the chart below which shows the information co-efficient Tech August
Long -5.2%
of the strategy through time. This represents the
7/31/2010 NVDA US NVIDIA 6.6%
correlation between the start of month rankings and
7/31/2010 INTU US INTUIT 6.5%
subsequent returns i.e. how predictive is the signal? The
7/31/2010 CTXS US CITRIX SYSTEMS 5.8%
black line is the 12 month rolling number.
7/31/2010 2395 TT ADVANTECH CO 5.4%
Even through the recent financial crisis where you may 7/31/2010 HCLT IN HCL TECHNOLOGIES 3.9%
have expected such a micro driven signal to be easily 7/31/2010 3037 TT UNIMICRON TECHNOLOGY 0.8%
crowded by more dominant price drivers the return to 7/31/2010 2454 TT MEDIATEK INC 0.7%
the periodic seasonality factor has remained 7/31/2010 SAP GR SAP STAMM -1.0%
extremely consistent. Its long term average Information 7/31/2010 DST US DST SYSTEMS -1.1%
co-efficient of 6.2% certainly ranks it amongst the 7/31/2010 4768 JP OTSUKA CORP -1.2%
strongest return drivers that we have identified in the 7/31/2010 INFO IN INFOSYS TECHNOLOGIES -2.6%
technology sector. The chart highlights that all the return 7/31/2010 2325 TT SILICONWARE PRECISION -3.5%
is not being delivered by just a couple of months in the 7/31/2010 ERTS US ELECTRONIC ARTS -4.1%
year (like say around Christmas for example). 7/31/2010 AU/ LN AUTONOMY CORP -5.2%
7/31/2010 CPU AU COMPUTERSHARE -5.4%
It is also very interesting to find that in the US market 7/31/2010 2330 TT TAIWAN SEMICONDUCTOR -5.8%
(widely regarded as the most efficient market in the 7/31/2010 NTAP US NETAPP -6.2%
world), we also see a strong factor profile in the I.T 7/31/2010 AAPL US APPLE -6.6%
sector. As one final note we also draw your attention to
7/31/2010 ADSK US AUTODESK -7.2%
the fact that the ‘seasonal losers’ are responsible for
7/31/2010 NEO FP NEOPOST -8.0%
generating a very sizable portion of the return and the
7/31/2010 NSM US NATIONAL SEMICONDUCTOR -8.2%
factor is relatively symmetrical – not necessarily
7/31/2010 AVT US AVNET -9.1%
something we expected to see.
7/31/2010 ALTR US ALTERA CORP -10.2%
7/31/2010 FIS US FIDELITY NAT'L INFO SVCS -10.5%
A note on turnover
7/31/2010 992 HK LENOVO GROUP -11.0%
7/31/2010 XLNX US XILINX -11.8%
Obviously we recognise that in its raw form the turnover
profile of the signal makes implementation prohibitive 7/31/2010 4704 JP TREND MICRO -12.7%
for most investors – certainly from a standalone 7/31/2010 9613 JP NTT DATA CORP -16.1%
perspective. However we believe that (in these 2 market 7/31/2010 RIM CN RESEARCH IN MOTION -16.4%
segments in particular!) the strength of the alpha profile 7/31/2010 AMD US ADVANCED MICRO DEVICES -21.6%
delivered by the factor is such that it should not be
overlooked. Short -2.7%
7/31/2010 FLIR US FLIR SYSTEMS -17.8%
In particular we suggest that the signal can provide useful 7/31/2010 7701 JP SHIMADZU CORP -12.4%
information to aid trade timing or could make a useful 7/31/2010 2337 TT MACRONIX INTERNATIONAL -9.1%
contribution as part of a multi-factor stock selection 7/31/2010 7974 JP NINTENDO CO -2.5%
model if applied as an ‘event signal’ used to boost or 7/31/2010 2475 TT CHUNGHWA PICTURE TUBES 0.5%
reduce a stock’s alpha score – especially if it is only 7/31/2010 2362 TT CLEVO COMPANY 1.8%
applied to stocks with extreme seasonality hit-rates. (The 7/31/2010 AKAM US AKAMAI TECHNOLOGIES 21.0%
stocks low correlation with other factors also makes it
inclusion appealing) Long/Short -2.5%
Source: MSCI, J.P. Morgan Calculations
Which names should be focused on
over the next 3 months?
In Table 13 we show top and bottom ranking names in
both Global technology for the next 3 months. The stocks
included have a periodicity hit-rate of >70% for the top
rankers and a periodicity hit rate of <30% for the bottom
rankers.
21
(852) 2800-8599 03 September 2010
Focus on sectors within countries rather than country recommendations

The table below provides a level summary of our views on sectors within countries. Financials are 35% of APxJ. All
recommendations are relative to APxJ. The Industrials sector consists of an eclectic group of stocks. We do not rate the
sector. We are overweight on technology.
Table 14: Key country and sector recommendations

Returns (%) P/E (x) Earnings Growth (%) DY (%) ROE (%)
Sector/Country Index Reco 12- 5 year 2010 2011 2010 2011 2012 2010 / 2010 2010 2004- Avg
Weight month CAGR 2007 2009 Earnings
Avg Q-score
APxJ 100.0 -- 14.5 11.1 13.4 11.7 30.6 14.3 13.0 4.3 3.1 13.4 13.5
Australia 25.7 UW 9.3 8.9 13.9 11.9 21.6 17.0 10.3 (10.7) 4.7 12.1 15.0 39%
China 19.3 UW 8.5 19.6 13.1 10.9 25.9 19.5 13.6 24.6 2.8 16.1 15.8 51%
Korea 14.2 N 16.2 9.1 9.8 9.3 46.3 4.8 13.5 30.6 1.1 14.2 12.6 61%
Taiwan 11.3 OW 16.7 6.3 13.2 11.6 82.8 14.4 11.6 (10.8) 3.8 13.0 10.4 43%
HK 7.9 UW 12.4 8.3 15.1 14.5 21.3 3.9 10.4 1.7 3.2 9.5 9.6 60%
India 8.2 OW 20.2 18.0 18.4 15.1 19.8 22.2 22.2 29.0 1.4 15.7 20.4 51%
Singapore 5.2 N 20.0 14.1 15.1 13.0 10.5 16.1 10.2 (26.9) 3.4 11.7 12.7 57%
Malaysia 3.2 OW 36.4 17.1 16.6 13.9 24.1 19.3 8.6 (9.7) 3.3 12.5 12.9 72%
Indonesia 2.5 N 38.3 31.0 15.0 12.8 20.8 17.5 10.9 37.3 2.7 24.3 25.4 63%
Thailand 1.7 OW 44.8 15.3 13.3 11.6 17.3 14.9 19.0 22.4 3.4 15.8 17.2 51%
Aus Fin 11.3 UW 8.1 6.3 12.5 11.2 12.4 11.7 7.8 (24.5) 5.8 12.1 13.0 34%
Aus Materials 6.7 UW 12.6 14.2 12.4 9.9 78.4 25.4 11.0 24.0 2.3 13.8 24.4 34%
Taiwan IT 6.6 OW 13.4 5.0 11.8 10.4 119.2 13.7 14.5 0.8 3.8 16.1 11.1 41%
China Fin 7.3 N 6.1 26.4 11.6 9.5 25.5 21.5 13.9 60.2 3.2 17.7 14.8 49%
HK Fin 4.7 UW 8.7 12.5 14.9 14.3 16.5 3.9 9.2 (0.0) 3.0 8.3 8.5 48%
Korea IT 4.0 OW 11.2 6.0 9.3 10.4 82.5 (10.4) 32.0 84.3 0.0 17.8 12.5 49%
China Energy 3.2 UW 13.3 17.4 10.8 9.8 26.0 10.4 7.8 29.6 3.7 17.4 20.8 54%
Aus Staples 2.8 UW 22.4 16.4 19.8 15.6 12.3 27.1 8.1 10.3 4.4 12.3 15.8 60%
Singapore Fin 2.6 N 16.9 13.3 11.1 9.4 2.1 18.6 10.0 (19.1) 4.7 9.7 10.6 44%
China T/Cm Svs 2.6 N 5.4 20.0 13.1 12.3 3.0 6.9 8.9 18.1 3.2 15.2 17.9 64%
Korea Fin 2.3 N 1.1 4.9 10.2 8.6 62.1 18.2 13.4 (26.3) 2.3 10.6 13.4 49%
Korea Ind 2.1 n/a 16.2 14.9 11.8 10.5 42.1 12.1 12.0 (6.9) 1.1 12.6 11.6 70%
India Fin 2.2 OW 27.6 20.0 22.5 17.9 17.1 25.8 29.0 29.9 1.0 10.3 13.5 33%
Aus Energy 1.7 N (3.8) 12.6 21.3 19.3 (52.1) 10.6 42.1 7.4 2.7 8.8 17.7 47%
Korea Materials 2.1 N 39.1 25.3 9.9 9.8 23.2 1.4 12.9 48.2 1.1 15.2 16.1 70%
Taiwan Fin 1.7 OW 16.0 0.4 19.0 14.6 16.2 30.3 4.7 (24.9) 2.8 6.8 5.2 48%
Korea CD 1.9 OW 27.4 12.1 8.5 7.1 9.0 18.9 (7.7) 117.5 0.9 17.6 12.5 74%
China Ind 1.5 n/a (2.1) 11.8 14.1 12.1 56.2 16.1 18.1 (22.2) 2.0 11.0 11.8 81%
Taiwan Mat 1.4 UW 21.6 15.5 14.4 13.2 28.8 9.4 5.2 (40.2) 4.5 11.3 16.4 30%
India IT 1.4 OW 32.0 14.9 21.3 17.5 15.8 21.2 10.6 32.0 1.5 24.7 31.8 67%
India Energy 1.2 N 2.8 26.7 14.4 11.5 40.1 24.7 11.9 28.4 1.3 15.9 20.4 29%
Aus Ind 1.1 n/a 3.9 (1.3) 37.7 22.6 NM 67.0 24.9 (78.0) 4.4 4.2 9.7 50%
Singapore Ind 1.2 n/a 29.1 16.5 10.5 9.6 31.0 9.5 13.0 28.7 4.9 13.7 15.3 67%
HK Utilities 1.2 UW 17.8 10.5 17.5 16.4 2.5 6.8 3.1 (21.6) 3.7 13.1 17.6 88%
HK Cons Discr 1.0 OW 28.5 5.8 17.7 16.3 25.4 8.8 16.9 8.8 3.3 19.7 20.4 57%
HK Ind 0.9 n/a 11.2 (1.0) 11.9 12.3 65.1 (3.9) 18.9 37.5 3.5 8.5 6.6 82%
Korea Staples 0.7 N 21.3 9.5 10.3 13.4 62.0 (22.7) 9.1 104.8 1.6 20.3 15.5 67%
Aus Cons Discr 0.5 N 4.6 (5.1) 12.3 11.5 56.3 7.0 (5.3) (10.5) 5.4 10.1 9.9 27%
Source: J.P. Morgan Asian strategy team, MSCI, Datastream. Table sorted by descending weight in index, countries first followed by country-sectors, 31 August 2010. Note: The average earnings
Q-score is a simple average of the country and sector constituents and includes stocks with a market cap of more than USD 2 billion.
22
(852) 2800-8599 03 September 2010
Table 15: Summary of OW and UW recommendations from end-2005
Country From To Rec. Relative return from the date of rec. YTD relative return
Australia End '05 5-Jun-07 UW 3.4
China End '05 16-May-08 OW 97.8
Hong Kong Start '06 22-Aug-07 UW 10.0
Indonesia Start '06 18-Oct-06 UW (29.3)
Malaysia Start '06 18-Oct-06 UW 1.6
Singapore Start '06 3-Oct-08 OW 13.2
Taiwan Start '06 16-Feb-07 OW (18.0)
Thailand Start '06 3-Mar-06 OW 5.5
India 2-May-06 1-Nov-07 UW (22.8)
Philippines 5-May-06 17-Mar-08 OW 17.9
South Korea 11-Aug-06 25-Feb-09 UW 14.6
Thailand 19-Oct-06 18-Dec-06 OW (5.7)
Malaysia 4-Dec-06 13-Jun-07 OW 14.5
Thailand 21-Mar-07 15-Dec-09 OW 1.0
Australia 10-Aug-07 - UW 6.2 (5.1)
Hong Kong 23-Aug-07 7-Aug-08 OW 3.0
Malaysia 25-Aug-07 16-Mar-08 OW 11.5
Taiwan 24-Aug-07 26-Feb-08 UW 3.2
India 18-Jan-08 5-Jan-09 UW 13.4
Taiwan 27-Feb-08 31-Mar-08 OW 8.8
Taiwan 18-Apr-08 19-Nov-08 OW (3.4)
China 19-Jun-08 14-May-09 OW 10.6
Hong Kong 4-Oct-08 - UW 1.0 3.7
Indonesia 3-Nov-08 26-Mar-09 UW (2.4)
South Korea 26-Feb-09 3-Sep-09 OW 25.0
Singapore 30-Mar-09 12-Nov-09 UW (9.8)
Taiwan 30-Mar-09 - OW (20.5) (6.9)
Indonesia 15-May-09 3-Sep-09 OW 18.7
Malaysia 15-May-09 2-Feb-10 UW 2.5
India 6-Aug-09 - OW 9.4 4.6
China 17-Sep-09 - UW 6.0 (3.8)
South Korea 2-Jun-10 1-Sep-10 OW 0.0
Thailand 15-Jul-10 - OW 12.8 12.8
Malaysia 2-Sep-10 - OW 0.0
Table 16: Summary of Neutral recommendations from end-2005

Country From To Reco' Relative return from the date of reco YTD relative return
India Start '06 1-May-06 N 11.8
Philippines Start '06 4-May-06 N (1.0)
South Korea Start '06 10-Aug-06 N (7.6)
Thailand 4-Mar-06 18-Oct-06 N (8.4)
Indonesia 19-Oct-06 3-Nov-08 N 0.4
Malaysia 19-Oct-06 3-Dec-06 N 4.7
Thailand 19-Dec-06 20-Mar-07 N 15.0
Taiwan 20-Feb-07 23-Aug-07 N (3.8)
Australia 5-Jun-07 9-Aug-07 N (4.9)
Malaysia 14-Jun-07 24-Aug-07 N (7.9)
India 2-Nov-07 17-Jan-08 N 17.6
Malaysia 17-Mar-08 14-May-09 N 6.2
Taiwan 1-Apr-08 17-Apr-08 N 2.9
China 17-May-08 18-Jun-08 N (3.0)
Hong Kong 8-Aug-08 3-Oct-08 N (2.1)
Singapore 4-Oct-08 26-Mar-09 N (8.9)
Taiwan 20-Nov-08 26-Mar-09 N 3.1
India 6-Jan-09 4-Aug-09 N 18.6
Philippines 17-Mar-09 3-Sep-09 N (3.4)
Indonesia 30-Mar-09 14-May-09 N 14.9
China 15-May-09 16-Sep-09 N (5.5)
Indonesia 3-Sep-09 - N 29.1 21.6
South Korea 3-Sep-09 1-Jun-10 N 0.6
Singapore 13-Nov-09 - N 11.0 7.3
Thailand 15-Dec-09 14-Jul-10 N 16.6
Malaysia 2-Feb-10 1-Sep-10 N 17.8
South Korea 2-Sep-10 - N 0.0
Source: MSCI, J.P. Morgan, 1 September 2010. Note: YTD relative return for existing calls. All returns are relative to MSCI Asia Pacific ex Japan and in US$ terms. For overweight/neutral markets,
the relative return is positive if the markets outperform the benchmark. For underweight markets, the relative return is positive if the markets underperform the benchmark. In case of calls changed
during the current year, YTD return is same as return from date of recommendation. Additional information is available upon request
23
(852) 2800-8599 03 September 2010
Model portfolio changes

This month’s regional model portfolio reflects the Table 17: Country asset allocation relative to MSCI APxJ
changes made in the GEMs Model Portfolio in Key Country Deviation
Trades and Risks, Mowat et al, 18 August 2010. India 5.0
Taiwan 3.6
Thailand 2.8
In China, we are dropping Huabao International Philippines 2.5
Holdings and adding China Yurun Food Group on Malaysia 2.1
better than expected upstream and downstream volume Korea 1.8
Singapore 0.7
growth with more upside next year. We add China Indonesia 0.0
Merchants Banks on strong NIM recovery, changing China -3.0
loan make up and higher internal capital generation in Hong Kong -3.5
Australia -11.6
2H10 which should achieve improved revenue mix and
Source: J.P. Morgan.
risk pricing ability. We dropped China Shipping
Container Lines as we reduce our exposure to cyclical
Table 18: Sector asset allocation relative to MSCI APxJ
sectors by selling transportation stocks. We increased our
exposure to telecom by adding China Unicom which is Sector Deviation
CD 9.7
inexpensive compared to its regional telecom peers. IT 7.0
Fin 6.9
In Korea we are dropping KB Financial Group as Telecom -0.9
Industrials -1.0
Korean banks are subject to potential near term earnings Utilities -1.0
disappointments from continuing regulatory pressures on HC -1.4
provisions and lack of asset growth opportunities. Staples -2.4
Energy -7.6
Materials -9.4
In Taiwan we dropped Fubon Financial Holding and Source: J.P. Morgan.
China Airlines. We are replacing them with First
Financial Holding Co Ltd, as banks should enjoy loan Figure 29: Performance of J.P. Morgan Regional Model Portfolio
growth as well as margin expansion driven by rate relative to MSCI APxJ (%)
increases. We also add Far Eastern New Century 15 Portfolio APx J
Corporation on attractive valuations, solid earnings, and
positive outlook on the property market. 12
9
In Indonesia, we dropped Bank Danamon and added PT 6
Telekomunikasi Indonesia as we expect it to benefit
3
from the improving dynamics of the Indonesian telecom
sector which include emerging price stability driving 0
faster-than-expected revenue growth. -3
1M 3M 12M
In Malaysia, we are adding CIMB Group Holdings
consistent with our OW in Malaysia. CIMB reported Source: J.P. Morgan calculations, MSCI, Datastream, 1 September 2010. Note: The chart
1H10 results inline with JPM and consensus estimates shows only capital returns.
and management has revised up ROE guidance to 16.5%
for FY10. CIMB has upside potential as being a liquid Please see pages 26 and 27 for our Regional Model
proxy for the Malaysian reform story. Portfolio by country and sector.
In Philippines, we added Ayala Land, as it will benefit

from a combination of a much faster residential sales
take-up and increases in property prices amid a bright
sector outlook.
In Singapore we are dropping Singapore Airlines.
24
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25
(852) 2800-8599 03 September 2010
Regional model portfolio by country

Price MSCI Portfolio Dividend ROE
1-Sep-10 JPM Change (%) Weight Weight Déviation P/E (x) Yield (%) (%)
Ticker (LC) Rating 4 weeks 12M (%) (%) (%) FY10E FY11E FY10E FY10E
Australia 922.3 -1.1 -7.9 24.1 12.5 -11.6 13.7 11.7 4.8 12.1
Aristocrat Leisure Limited ALL AU 3.8 OW 10.9 -6.5 0.0 1.9 1.9 18.4 16.9 2.5 45.9
Lend Lease Group LLC AU 7.2 OW -2.7 -27.8 0.1 2.8 2.7 10.3 10.7 4.5 10.6
Orica Limited ORI AU 25.8 N 2.9 9.7 0.3 1.7 1.5 17.9 13.2 3.8 18.4
Suncorp Metway SUN AU 8.6 OW 3.3 -1.6 0.3 3.0 2.7 13.9 12.4 4.1 6.2
Westfield Group WDC AU 12.6 OW -0.6 0.7 0.8 3.0 2.1 15.0 15.3 5.1 7.2
China 61.3 -4.1 -5.5 19.7 16.6 -3.0 12.9 10.8 2.8 16.1
Bank of Communications Co 3328 HK 8.3 OW -6.1 -2.6 0.2 1.3 1.1 11.0 9.3 3.0 20.8
Belle International Holdings Ltd. 1880 HK 13.5 OW 8.0 49.0 0.2 2.4 2.1 33.8 27.0 1.5 20.9
China High Speed Transmission 658 HK 17.9 OW -1.6 -5.6 0.1 1.4 1.3 16.6 13.2 2.0 27.6
China Merchants Bank - H 3968 HK 20.1 N -4.7 5.0 0.3 1.5 1.2 16.1 12.7 1.2 22.9
China Unicom - H 762 HK 10.9 OW 0.6 6.0 0.3 2.2 2.0 45.3 29.7 0.9 2.8
China Yurun Food 1068 HK 29.0 OW 10.1 25.9 0.2 1.7 1.5 22.3 19.0 1.3 22.3
Lenovo Group Limited 992 HK 4.5 N -14.1 -8.2 0.1 1.0 0.9 NM NM 0.2 8.9
Lifestyle International Holdings 1212 HK 17.3 OW 7.0 19.6 0.0 1.6 1.6 23.0 20.8 1.7 19.5
Ports Design 589 HK 19.4 OW -5.9 -19.3 0.0 1.3 1.3 21.8 18.1 2.8 34.6
Xinao Gas 2688 HK 21.5 N 10.9 7.3 0.1 2.2 2.2 21.2 16.2 1.2 15.0
Korea 496.5 -2.1 3.3 14.4 16.2 1.8 9.6 9.2 1.1 14.2
Cheil Worldwide 030000 KS 12800 NR 8.0 1.6 0.0 2.1 2.1 15.5 15.1 2.6 12.4
Hynix Semiconductor 000660 KS 20850 N -3.5 -9.9 0.3 2.0 1.7 4.9 7.9 0.0 35.5
Hyundai Department Stores 069960 KS 126000 OW -2.3 12.0 0.1 2.1 2.0 12.1 11.1 0.5 14.2
Hyundai Mobis 012330 KS 225500 OW 0.2 31.9 0.4 2.2 1.8 10.5 9.5 0.6 23.4
LG Chem Ltd 051910 KS 346000 OW 2.1 51.4 0.4 2.3 1.8 11.8 12.3 1.0 29.7
Samsung Electronics 005930 KS 752000 N -6.7 -5.9 2.3 4.3 2.0 9.4 10.8 1.2 17.3
SEMCO 009150 KS 116000 N -15.6 7.9 0.2 1.2 1.0 12.7 14.4 0.6 23.3
Taiwan 270.4 -4.4 -8.6 11.3 14.9 3.6 13.2 11.5 3.8 13.0
Far Eastern Textile Ltd. 1402 TT 37.4 OW -2.4 -4.8 0.1 2.8 2.7 15.6 16.9 4.9 11.7
First Financial Holding Co Ltd 2892 TT 18.5 OW -2.0 -4.5 0.1 2.0 1.9 18.0 11.5 2.6 6.3
Hon Hai Precision 2317 TT 108.5 OW -9.3 -19.8 1.0 1.7 0.7 11.2 9.1 1.8 17.3
Nanya Technology 2408 TT 18.8 UW -13.8 -42.5 0.0 1.4 1.3 NM 23.1 0.3 -0.9
TSMC 2330 TT 59.1 OW -4.7 -8.4 1.5 3.1 1.5 10.4 9.5 5.1 27.7
UMC 2303 TT 13.0 OW -9.4 -24.7 0.2 1.9 1.7 7.9 7.5 3.9 9.7
Yuanta FHC 2885 TT 18.2 OW -4.5 -22.8 0.1 2.1 2.0 20.6 11.5 5.0 6.2
India 730.9 -0.6 3.4 8.5 13.5 5.0 18.4 15.1 1.4 15.7
DLF Limited DLFU IN 309.5 OW -0.1 -14.3 0.1 1.7 1.6 30.4 25.5 0.5 6.9
HDFC Bank HDFCB IN 2149.8 OW 1.7 26.4 0.4 2.2 1.8 33.4 25.1 0.6 16.1
HDIL HDIL IN 259.1 OW -4.0 -28.2 0.0 1.5 1.5 13.7 9.0 0.6 11.3
IDFC IDFC IN 180.9 UW -2.8 17.3 0.1 1.5 1.4 22.1 20.0 0.8 16.1
Infosys Technologies INFO IN 2775.8 OW -3.2 6.5 0.9 1.8 0.9 25.6 22.8 0.9 28.8
Kotak Mahindra Bank KMB IN 828.5 OW 0.5 3.3 0.1 2.2 2.1 23.4 18.9 0.2 16.6
Larsen & Toubro LT IN 1832.6 OW 1.4 9.1 0.3 1.4 1.1 31.6 24.1 0.7 19.4
Tata Consultancy Services TCS IN 857.2 OW -1.5 14.3 0.3 1.1 0.9 24.4 21.2 2.7 36.8
Hong Kong 10388.5 -0.9 2.1 8.1 4.6 -3.5 15.0 14.5 3.2 9.5
Cathay Pacific 293 HK 19.1 OW 5.9 32.2 0.1 2.6 2.5 7.2 8.4 4.7 22.8
Foxconn Int'l Holdings 2038 HK 4.9 UW -20.0 -45.3 0.0 0.6 0.5 NM 29.1 0.0 -5.8
Hong Kong Exchanges & Clearing 388 HK 123.3 OW -6.7 -11.6 0.5 1.4 0.9 19.8 15.4 3.3 58.5
Singapore 353.2 -0.9 1.1 5.5 6.2 0.7 15.0 12.9 3.5 11.7
OCBC Bank OCBC SP 8.8 OW -2.4 -3.4 0.5 2.8 2.3 13.5 11.1 3.5 12.0
Singapore Exchange SGX SP 7.5 OW -3.2 -9.5 0.2 3.4 3.2 19.6 15.4 4.6 48.8
Malaysia 522.7 5.1 11.3 3.3 5.4 2.1 16.5 13.8 3.3 12.5
CIMB Group Holdings CIMB MK 7.8 N 5.6 21.5 0.3 2.5 2.2 15.8 13.3 2.5 16.4
Genting Berhad GENT MK 9.4 OW 18.9 27.9 0.2 2.9 2.7 24.1 16.0 0.8 10.0
Indonesia 4145.7 5.0 14.7 2.5 2.5 0.0 15.0 12.8 2.7 24.3
Telekomunikasi Indonesia Tbk TLKM IJ 9000.0 OW 11.1 -4.8 0.3 2.5 2.2 15.5 12.9 3.9 28.6
Thailand 360.4 5.2 19.5 1.8 4.6 2.8 13.0 11.4 3.5 15.8
Land And Houses -F LH TB 6.0 OW -1.6 -4.8 0.0 2.1 2.1 14.0 12.1 5.7 16.1
Siam Commercial Bank SCB TB 97.0 OW 5.7 11.8 0.2 2.5 2.3 14.7 12.9 2.6 15.2
Philippines 672.3 2.5 12.4 0.5 3.0 2.5 16.0 14.0 3.9 15.9
Ayala Land ALI PM 16.3 OW 6.1 45.2 0.1 1.5 1.4 40.2 31.4 0.6 9.7
MBT MBT PM 64.9 OW 5.8 44.1 0.0 1.5 1.5 14.3 9.7 2.2 11.4
TOTAL MSCI 416.0 -1.7 -2.4 100.0 100.0 0.0 13.3 11.6 3.1 13.4
Source: Datastream, MSCI, J.P. Morgan estimates. IBES estimates for NR stocks.
26
(852) 2800-8599 03 September 2010
Regional model portfolio by sector

Price MSCI Portfolio Dividend ROE
1-Sep-10 JPM Change (%) Weight Weight Déviation P/E (x) Yield (%) (%)
Ticker (LC) Rating 4 weeks 12M (%) (%) (%) FY10E FY11E FY10E FY10E
Consumer Discretionary 284.6 1.1 10.6 6.8 16.5 9.7 13.1 11.2 2.3 16.8
Aristocrat Leisure Limited ALL AU 3.8 OW 10.9 -6.5 0.0 1.9 1.9 18.4 16.9 2.5 45.9
Belle International Holdings Ltd. 1880 HK 13.5 OW 8.0 49.0 0.2 2.4 2.1 33.8 27.0 1.5 20.9
Lifestyle International Holdings 1212 HK 17.3 OW 7.0 19.6 0.0 1.6 1.6 23.0 20.8 1.7 19.5
Ports Design 589 HK 19.4 OW -5.9 -19.3 0.0 1.3 1.3 21.8 18.1 2.8 34.6
Cheil Worldwide 030000 KS 12800.0 NR 8.0 1.6 0.0 2.1 2.1 15.5 15.1 2.6 12.4
Hyundai Department Stores 069960 KS 126000.0 OW -2.3 12.0 0.1 2.1 2.0 12.1 11.1 0.5 14.2
Hyundai Mobis 012330 KS 225500.0 OW 0.2 31.9 0.4 2.2 1.8 10.5 9.5 0.6 23.4
Genting Berhad GENT MK 9.4 OW 18.9 27.9 0.2 2.9 2.7 24.1 16.0 0.8 10.0
Consumer Staples 278.4 4.9 7.4 4.0 1.7 -2.4 17.6 15.6 3.2 15.4
China Yurun Food 1068 HK 29.0 OW 10.1 25.9 0.2 1.7 1.5 22.3 19.0 1.3 22.3
Energy 616.2 -2.1 -5.3 7.6 0.0 -7.6 12.7 11.1 3.0 14.9
Financials 190.9 -2.8 -4.7 35.7 42.6 6.9 13.2 11.4 3.9 11.7
Lend Lease Group LLC AU 7.2 OW -2.7 -27.8 0.1 2.8 2.7 10.3 10.7 4.5 10.6
Westfield Group WDC AU 12.6 OW -0.6 0.7 0.8 3.0 2.1 15.0 15.3 5.1 7.2
Suncorp Metway SUN AU 8.6 OW 3.3 -1.6 0.3 3.0 2.7 13.9 12.4 4.1 6.2
Bank of Communications Co 3328 HK 8.3 OW -6.1 -2.6 0.2 1.3 1.1 11.0 9.3 3.0 20.8
China Merchants Bank - H 3968 HK 20.1 N -4.7 5.0 0.3 1.5 1.2 16.1 12.7 1.2 22.9
First Financial Holding Co Ltd 2892 TT 18.5 OW -2.0 -4.5 0.1 2.0 1.9 18.0 11.5 2.6 6.3
Yuanta FHC 2885 TT 18.2 OW -4.5 -22.8 0.1 2.1 2.0 20.6 11.5 5.0 29.0
DLF Limited DLFU IN 309.5 OW -0.1 -14.3 0.1 1.7 1.6 30.4 25.5 0.5 30.0
HDFC Bank HDFCB IN 2149.8 OW 1.7 26.4 0.4 2.2 1.8 33.4 25.1 0.6 29.0
HDIL HDIL IN 259.1 OW -4.0 -28.2 0.0 1.5 1.5 13.7 9.0 0.6 29.0
IDFC IDFC IN 180.9 UW -2.8 17.3 0.1 1.5 1.4 22.1 20.0 0.8 16.1
Kotak Mahindra Bank KMB IN 828.5 OW 0.5 3.3 0.1 2.2 2.1 23.4 18.9 0.2 16.6
Hong Kong Exchanges & Clearing 388 HK 123.3 OW -6.7 -11.6 0.5 1.4 0.9 19.8 15.4 3.3 58.5
OCBC Bank OCBC SP 8.8 OW -2.4 -3.4 0.5 2.8 2.3 13.5 11.1 3.5 12.0
Singapore Exchange SGX SP 7.5 OW -3.2 -9.5 0.2 3.4 3.2 19.6 15.4 4.6 48.8
CIMB Group Holdings CIMB MK 7.8 N 5.6 21.5 0.3 2.5 2.2 15.8 13.3 2.5 16.4
Land And Houses -F LH TB 6.0 OW -1.6 -4.8 0.0 2.1 2.1 14.0 12.1 5.7 16.1
Siam Commercial Bank SCB TB 97.0 OW 5.7 11.8 0.2 2.5 2.3 14.7 12.9 2.6 15.2
Ayala Land ALI PM 16.3 OW 6.1 45.2 0.1 1.5 1.4 40.2 31.4 0.6 9.7
MBT MBT PM 64.9 OW 5.8 44.1 0.0 1.5 1.5 14.3 9.7 2.2 11.4
Health Care 418.6 0.6 -0.2 1.4 0.0 -1.4 19.9 18.2 2.1 19.4
Industrials 151.6 1.4 4.1 9.1 8.1 -1.0 15.1 13.1 2.4 10.6
China High Speed Transmission 658 HK 17.9 OW -1.6 -5.6 0.1 1.4 1.3 16.6 13.2 2.0 27.6
Far Eastern Textile Ltd. 1402 TT 37.4 OW -2.4 -4.8 0.1 2.8 2.7 15.6 16.9 4.9 11.7
Larsen & Toubro LT IN 1832.6 OW 1.4 9.1 0.3 1.4 1.1 31.6 24.1 0.7 19.4
Cathay Pacific 293 HK 19.1 OW 5.9 32.2 0.1 2.6 2.5 7.2 8.4 4.7 22.8
Information Technology 213.9 -6.0 -9.1 13.1 20.1 7.0 12.0 11.0 2.2 17.1
Lenovo Group Limited 992 HK 4.5 N -14.1 -8.2 0.1 1.0 0.9 NM NM 0.2 8.9
Hynix Semiconductor 000660 KS 20850.0 N -3.5 -9.9 0.3 2.0 1.7 4.9 7.9 0.0 35.5
Samsung Electronics 005930 KS 752000.0 N -6.7 -5.9 2.3 4.3 2.0 9.4 10.8 1.2 17.3
SEMCO 009150 KS 116000.0 N -15.6 7.9 0.2 1.2 1.0 12.7 14.4 0.6 23.3
Hon Hai Precision 2317 TT 108.5 OW -9.3 -19.8 1.0 1.7 0.7 11.2 9.1 1.8 17.3
Nanya Technology 2408 TT 18.8 UW -13.8 -42.5 0.0 1.4 1.3 NM 23.1 0.3 -0.9
TSMC 2330 TT 59.1 OW -4.7 -8.4 1.5 3.1 1.5 10.4 9.5 5.1 27.7
UMC 2303 TT 13.0 OW -9.4 -24.7 0.2 1.9 1.7 7.9 7.5 3.9 9.7
Infosys Technologies INFO IN 2775.8 OW -3.2 6.5 0.9 1.8 0.9 25.6 22.8 0.9 28.8
Tata Consultancy Services TCS IN 857.2 OW -1.5 14.3 0.3 1.1 0.9 24.4 21.2 2.7 36.8
Foxconn Int'l Holdings 2038 HK 4.9 UW -20.0 -45.3 0.0 0.6 0.5 NM 29.1 0.0 -5.8
Materials 390.3 -1.1 -5.0 13.4 4.0 -9.4 12.0 10.1 2.2 13.9
Orica Limited ORI AU 25.8 N 2.9 9.7 0.3 1.7 1.5 17.9 13.2 3.8 18.4
LG Chem Ltd 051910 KS 346000.0 OW 2.1 51.4 0.4 2.3 1.8 11.8 12.3 1.0 29.7
Telecommunication Services 92.7 -1.8 3.5 5.6 4.8 -0.9 12.3 11.7 4.7 16.6
China Unicom - H 762 HK 10.9 OW 0.6 6.0 0.3 2.2 2.0 45.3 29.7 0.9 2.8
Telekomunikasi Indonesia Tbk TLKM IJ 9000.0 OW 11.1 -4.8 0.3 2.5 2.2 15.5 12.9 3.9 28.6
Utilities 175.6 -0.3 2.0 3.2 2.2 -1.0 15.9 13.9 3.0 9.5
Xinao Gas 2688 HK 21.5 N 10.9 7.3 0.1 2.2 2.2 21.2 16.2 1.2 15.0
Total MSCI 416.0 -1.7 -2.4 100.0 100.0 0.0 13.3 11.6 3.1 13.4
Source: Datastream, MSCI, J.P. Morgan estimates. Bloomberg estimates for NR stocks.
27
(852) 2800-8599 03 September 2010
Table 19: J.P. Morgan Strategy Thematic and Key Trades Basket
Bloomberg JPM Mkt cap Price P/E (x) DY (%) ROE (%)
Key Trade Ticker Rating (US$B) (LC) 10E 11E 10E 10E
Focus on China consumer
Belle International Holdings 1880 HK OW 15 14 29.6 23.6 1.7 19.8
Hengan Intl Group Co Ltd 1044 HK N 11 69.8 33.5 28.6 1.9 26.4
China Resources Enterprise 291 HK N 10 34 30.6 26.3 1.5 9.7
China Yurun Food Group Ltd 1068 HK OW 6.6 29.0 22.3 19.0 1.3 19.2
China Mengniu Dairy Co 2319 HK OW 5.2 23.2 26.0 19.4 0.8 13.7
Huabao International Holding 336 HK N 4.5 11 22.7 18.6 0.0 33.8
Lifestyle Intl Hldgs Ltd 1212 HK OW 3.7 17.3 23.0 20.8 1.7 16.6
Ports Design Ltd 589 HK OW 1.4 19.4 18.0 15.6 3.3 34.0
OW Information Technology
Samsung Electronics Co Ltd 005930 KS N 94 752000 9.6 11.0 0.0 16.1
Taiwan Semiconductor Manufac 2330 TT OW 48 59 10.4 9.5 5.1 26.0
Hon Hai Precision Industry 2317 TT OW 33 109 11.2 9.1 1.8 15.9
Lg Electronics Inc 066570 KS OW 12 95800 9.8 5.2 0.9 12.2
Hynix Semiconductor Inc 000660 KS N 10 20850 5.0 8.1 0.0 30.3
Lg Display Co Ltd 034220 KS OW 10 33250 4.8 6.0 0.0 20.3
Chimei Innolux Corp 3481 TT OW 8.2 33 9.0 7.5 0.0 8.8
Au Optronics Corp 2409 TT N 7.6 28 10.2 21.1 0.0 7.9
Samsung Electro-Mechanics Co 009150 KS N 7.4 116000 13.0 14.7 0.6 21.8
Lenovo Group Ltd 992 HK N 5.6 4 25.3 16.1 2.0 13.1
United Microelectronics Corp 2303 TT OW 5.3 13 7.9 7.5 3.9 9.9
Advanced Semiconductor Engr 2311 TT OW 4.1 22 8.4 7.6 1.6 17.2
Inotera Memories Inc 3474 TT UW 2.2 16 NM 42.4 0.0 -4.5
Epistar Corp 2448 TT N 2.2 83 11.9 12.9 2.2 13.7
Powertech Technology Inc 6239 TT OW 2.1 94.7 8.6 7.4 3.4 27.1
Nanya Technology Corp 2408 TT UW 2.0 19 NM 23.1 0.0 -0.8
Seoul Semiconductor Co Ltd 046890 KQ OW 1.8 37200.0 22.5 13.9 0.3 17.7
E Ink Holdings Inc 8069 TT OW 1.7 49 12.2 8.5 0.0 17.0
Catcher Technology Co Ltd 2474 TT OW 1.5 71 11.0 9.9 2.7 12.8
Novatek Microelectronics Ltd 3034 TT OW 1.4 75 7.3 6.5 6.7 26.3
Richtek Technology Corp 6286 TT N 1.0 220.5 14.6 13.2 3.5 36.3
ABC of Real Estate - Anything But China
Dlf Ltd DLFU IN OW 11 310 26.7 20.5 NA 7.1
Ayala Land Inc ALI PM OW 4.7 16 40.6 31.7 0.6 9.3
Unitech Ltd UT IN OW 4.3 80 21.1 14.6 0.1 8.3
Ijm Corp Bhd IJM MK OW 2.2 5 16.3 12.5 1.2 7.6
Housing Development & Infras HDIL IN OW 2.1 259 9.9 8.6 NA 11.5
Land & Houses Pub Co Ltd LH TB OW 1.9 6 19.2 19.2 5.2 11.1
Indiabulls Real Estate Ltd IBREL IN OW 1.5 174 60.9 18.7 0.0 1.2
Lippo Karawaci Tbk Pt LPKR IJ OW 1.0 500 20.9 14.6 0.9 8.0
Robinsons Land Co RLC PM OW 0.9 14 10.7 9.3 5.1 13.4
Sobha Developers Ltd SOBHA IN OW 0.7 346 21.6 14.3 0.0 8.5
Filinvest Land Inc FLI PM OW 0.6 1 11.8 10.6 1.5 5.7
Ciputra Development Tbk Pt CTRA IJ OW 0.6 330 22.9 19.0 0.0 4.5
Asian Property Development AP TB OW 0.5 7 7.5 9.2 5.3 22.2
OW Taiwan
Taiwan Semiconductor Manufac 2330 TT OW 48 59 10.4 9.5 5.1 26.0
Hon Hai Precision Industry 2317 TT OW 33 109 11.2 9.1 1.8 15.9
Fubon Financial Holding Co 2881 TT N 10 38 13.8 14.9 5.1 12.6
Far Eastern New Century Corp 1402 TT OW 5.5 37 15.6 16.9 4.9 11.4
United Microelectronics Corp 2303 TT OW 5.3 13 7.9 7.5 3.9 9.9
Uni-President Enterprises Co 1216 TT N 5.0 38 15.7 14.6 1.9 14.3
Yuanta Financial Holding Co 2885 TT OW 4.6 18 20.6 11.5 5.0 6.2
Advanced Semiconductor Engr 2311 TT OW 4.1 22 8.4 7.6 1.6 17.2
Taiwan Fertilizer Co Ltd 1722 TT OW 3.0 100 35.0 25.9 1.4 5.5
Sinopac Financial Holdings 2890 TT OW 2.5 11 21.2 11.1 1.0 4.3
Yulon Motor Company 2201 TT OW 2.3 47 31.1 34.6 0.7 3.9
Eva Airways Corp 2618 TT OW 2.2 23 6.2 18.2 0.0 25.9
Nanya Technology Corp 2408 TT UW 2.0 19 NM 23.1 0.0 -0.8
Catcher Technology Co Ltd 2474 TT OW 1.5 71 11.0 9.9 2.7 12.8
Formosa International Hotels 2707 TT NR 1.3 514 41.5 28.7 2.0 NA
Far Eastern Department Store 2903 TT N 1.2 32 18.6 17.1 0.9 8.0
Source: J.P. Morgan estimates, Bloomberg, IBES estimates for NR stocks. 31 Aug 2010. Note: Above table is sorted by market cap.
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J.P. Morgan Strategy Thematic and Key Trades Basket (cont’d)

Bloomberg JPM Mkt cap Price P/E DY (%) ROE (%)
Key Trade Ticker Rating (US$B) (LC) 10E 11E 10E 10E
OW India
Reliance Industries Ltd RIL IN OW 65 936 14.3 11.8 1.0 16.1
Tata Consultancy Svcs Ltd TCS IN OW 36 858 22.1 19.0 2.7 30.1
Infosys Technologies Ltd INFO IN OW 34 2776 23.6 19.5 1.0 24.4
Itc Ltd ITC IN OW 27 163 13.6 11.6 5.8 32.1
Bharat Heavy Electricals BHEL IN OW 25 2421 23.4 18.9 1.2 27.8
Icici Bank Ltd ICICIBC IN N 24 995 24.5 19.5 1.4 8.5
Larsen & Toubro Ltd LT IN OW 24 1834 25.8 21.3 0.0 34.8
Hdfc Bank Ltd HDFCB IN OW 21 2149 26.9 20.5 0.8 15.7
Axis Bank Ltd AXSB IN OW 12 1354 18.4 15.1 1.2 17.6
Dlf Ltd DLFU IN OW 11 310 26.7 20.5 NA 7.1
Adani Enterprises Ltd ADE IN N 8.8 675 34.6 22.7 0.1 26.0
Mahindra & Mahindra Ltd MM IN OW 7.8 630 15.4 13.5 1.4 25.4
Kotak Mahindra Bank Ltd KMB IN OW 6.5 830 20.0 16.6 0.2 14.7
Infrastructure Dev Finance IDFC IN UW 5.7 181 20.7 16.7 0.9 12.9
Unitech Ltd UT IN OW 4.3 80 21.1 14.6 0.1 8.3
Housing Development & Infras HDIL IN OW 2.1 259 9.9 8.6 NA 11.5
Indiabulls Real Estate Ltd IBREL IN OW 1.5 174 60.9 18.7 0.0 1.2
Sobha Developers Ltd SOBHA IN OW 0.7 346 21.6 14.3 0.0 8.5
OW ASEAN
Astra International Tbk Pt ASII IJ OW 22 49400 14.8 14.0 2.7 28.2
Telekomunikasi Tbk Pt TLKM IJ OW 20 9000 12.8 11.4 4.3 32.4
Cimb Group Holdings Bhd CIMB MK N 18 8 15.9 13.4 2.5 9.1
Public Bank Bhd-Foreign Mkt PBKF MK OW 14 12 14.5 13.1 3.5 29.2
Genting Berhad GENT MK OW 11 9 29.5 18.1 0.8 8.0
Siam Commercial Bank Pub Co SCB TB OW 11 97 14.8 13.0 2.6 14.5
Advanced Info Service Pcl ADVANC TB OW 8.9 93 12.6 10.5 6.7 36.7
Kasikornbank Pcl KBANK TB OW 8.7 114 15.3 11.9 2.4 13.5
Semen Gresik (Persero) Pt SMGR IJ OW 5.8 8800 14.1 12.3 3.2 30.3
Ammb Holdings Bhd AMM MK OW 5.6 6 14.2 11.9 2.7 13.1
Ayala Corporation AC PM OW 3.7 346 20.8 15.5 1.1 7.8
Aboitiz Power Corp AP PM OW 3.1 19 14.0 14.0 2.1 24.7
Metropolitan Bank & Trust MBT PM OW 2.8 65 14.4 9.8 2.2 11.2
Ijm Corp Bhd IJM MK OW 2.2 5 16.3 12.5 1.2 7.6
Energy Development Corp EDC PM OW 2.0 5 10.0 12.0 10.0 28.5
Land & Houses Pub Co Ltd LH TB OW 1.9 6 19.2 19.2 5.2 11.1
Pruksa Real Estate Pcl PS TB OW 1.7 24 10.0 9.3 3.5 32.0
Lippo Karawaci Tbk Pt LPKR IJ OW 1.0 500 20.9 14.6 0.9 8.0
Manila Water Company MWC PM OW 0.8 17 11.2 10.4 2.7 19.6
Filinvest Land Inc FLI PM OW 0.6 1 11.8 10.6 1.5 5.7
Ciputra Development Tbk Pt CTRA IJ OW 0.6 330 22.9 19.0 0.0 4.5
Asian Property Development AP TB OW 0.5 7 7.5 9.2 5.3 22.2
Source: J.P. Morgan estimates, Bloomberg, IBES estimates for NR stocks. 31 Aug 2010. Note: Above table is sorted by market cap.
29
(852) 2800-8599 03 September 2010
Risks
Policy risks Figure 31: Falling PMIs
65
Lack of G3 policy flexibility Global manufacturing PMI
High fiscal deficits, record-low interest rates and 60
disinflation limit policymakers’ ability to respond to a 55
relapse in growth. A growth relapse is not our base case. 50
If it occurred, it would be a serious blow to risk assets. Global Serv ices
45
Credit spreads could widen and equities would fall.
40
35
Strained social contract
Political and regulatory risk is high. The corporate sector 30
Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10
has emerged from the global recession and credit crunch
stronger than the households. Note the profits as a share Source: Bloomberg
of GDP are near cyclical highs but unemployment is
10%. Policy makers constrained by high fiscal deficits Economic risks
are likely to redress this imbalance through higher taxes Slowdown in manufacturing
and increased regulation. This would add to business We are overweight on the cyclical sectors of tech and
costs and delay normal investment decisions, threatening industrials. However, our overweight is more modest
the recovery. than the large underweight in commodities and energy. If
economic growth slows meaningfully, it could be a
As is the case in the US, Chinese corporate share of GDP potential risk to our sector view. Note that J.P. Morgan’s
increased while the household share decreased. Labor all-industry PMI output index—which is a proxy for
disputes and subsequent large pay increases may start to global GDP growth—has been falling for three
reverse this trend. This rebalancing is healthy and should consecutive months now. It went to 54.6 in July, with
move China to a more sustainable growth model. But declines in both the manufacturing and service sectors.
near term the result is likely lower profit margins. The coincidental decline in the manufacturing and
Policy risks may be more of a threat in the US than in services PMI indicates that global economic expansion is
Europe as legislation in US is negotiated rather than losing momentum.
following a defined objective. The recent UK budget is US double-dip
encouraging as set out as long-term policy. The continued weakening in US consumer spending,
Central banks target asset prices home sales, jobs and business spending intensified
Central banks are targeting asset prices in EM, notably in concerns about a contraction in the US economy. Jobless
China. These policies introduce economic and sector claims rose to 500,000 in mid August consistent with a
specific risks. Note how poorly real estate stocks have stall in growth and a decline in private sector jobs. J.P.
performed in EM despite low interest rates. Morgan economists now forecast US 2011 GDP growth
to be at 2.4% down from 3.1% in May. A sub-par to
Figure 30: Strained social contract: US profit share and depressed growth in the US increases the risk of a
unemployment negative feedback loop in financial markets and private
% sa sector sentiment across the globe.
22 Profit share 0
20 Fear of inflation
18 3 Rising inflation is a concern in EM. The Russian drought
16
plus wildfires led to a ban in wheat exports and a 45%
14
6 increase in the international price of wheat. China food
CPI is now 6.8%. Rising non-discretionary costs will
12 9
Unemploy ment rate (inv erted) likely reduce discretionary spending in EM.Food
10
inflation is elevated in Russia, China, Indonesia, India,
8 12
Argentina and Thailand.
70 75 80 85 90 95 00 05 10
Source: J.P. Morgan. Note: Chart shows % share of gross value added, JPMorgan
forecast for 2010.
30
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Figure 32: EM CPI and Earnings Yield
12 MSCI EM 12m Fw d PE 5
In October 2007, the EM CPI exceeded central banks’ EM CPI %oy a
11 (RHS inv erted)
target zones. All the EM central banks that J.P. Morgan
10 (LHS)
follow, except for Venezuela, increased interest rates in EM central banks' 8
9
late 2007. EM equities are growth assets. Higher interest av g target range ceiling
8
rates and lower growth lead to a de-rating in equities. EM 7
inflation today is hovering at the top of the central bank 11
6
band 5
4 14
Uncertain outlook for commodities 3
In our view, commodity investors are underestimating 02 03 04 05 06 07 08 09
the slowdown in China's demand. The investment return
for commodities is poor and the correlation is now high Source: J.P. Morgan economics, IBES, MSCI, August 2010. Note: CPI data is till Jun 10.
with risk assets. Commodities are the worst performing
asset class year to date. Bulk commodities including steel Figure 33: Shares outstanding in Commodity ETF
and iron ore are down 25% from their April highs. This, 210000
in our view, is a clear signal of the "hard-landing" in
180000
China's FAI. Surprisingly, we are yet to see significant
redemptions in commodity funds 150000
120000
Political risks
90000
Election-induced volatility
Brazilian elections in October 2010 are likely to be a 60000
source of volatility rather than a change in macro- 30000
economic policy. Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10
Source: Bloomberg, 27 Aug 2010
Figure 34: Public debt and fiscal balance as a % of GDP for EM and DM in 2010
0
Korea
Indonesia
-2 China Peru
Thai
Mex ico
EM Brazil
Phil
Russia Turkey
-4
Australia Italy
Czech India Hungary
Malay sia Germany
Portugal
S Africa
-6 Poland
Fiscal Balance
Euro area
Japan
DM Greece
-8
France
Spain
US
-10 UK
Ireland
-12
-14
0 50 100 Public Debt 150 200 250
Source: J.P. Morgan estimate.
31
(852) 2800-8599 03 September 2010
Companies Recommended in This Report (all prices in this report as of market close on 02 September 2010)
Bank Danamon (BDMN.JK/Rp5,300/Overweight), China Airlines (2610.TW/NT$20.75/Overweight), China Shipping
Container Lines (2866.HK/HK$2.81/Overweight), China Telecom Corporation Limited (0728.HK/HK$3.97/Overweight),
China Unicom (Hong Kong) Limited (0762.HK/HK$11.32/Overweight), Everlight Electronics Co., Ltd.
(2393.TW/NT$81.60/Overweight), Foxconn Int'l Holdings (2038.HK/HK$4.97/Underweight), Fubon Financial Holdings
(2881.TW/NT$37.55/Neutral), Huabao International Holdings Limited (0336.HK/HK$11.50/Neutral), Hynix
Semiconductor (000660.KS/W21,100/Neutral), KB Financial Group (105560.KS/W48,400/Overweight), Kia Motors
(000270.KS/W31,700/Overweight), MediaTek Inc. (2454.TW/NT$445.00/Neutral), Quanta Computer Inc.
(2382.TW/NT$46.00/Underweight), Samsung Electronics (005930.KS/W759,000/Neutral), Singapore Airlines
(SIAL.SI/S$15.52/Overweight), TSMC (2330.TW/NT$59.50/Overweight), UMC (2303.TW/NT$13.20/Overweight),
Wistron Corporation (3231.TW/NT$49.70/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
• Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Huabao
International Holdings Limited, Kia Motors, TSMC, Wistron Corporation within the past 12 months.
• Client of the Firm: Bank Danamon is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the
company non-investment banking securities-related service and non-securities-related services. China Airlines is or was in the past
12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related
service and non-securities-related services. China Shipping Container Lines is or was in the past 12 months a client of JPM. China
Telecom Corporation Limited is or was in the past 12 months a client of JPM. China Unicom (Hong Kong) Limited is or was in the
past 12 months a client of JPM. Everlight Electronics Co., Ltd. is or was in the past 12 months a client of JPM; during the past 12
months, JPM provided to the company non-investment banking securities-related service. Foxconn Int'l Holdings is or was in the
past 12 months a client of JPM. Fubon Financial Holdings is or was in the past 12 months a client of JPM; during the past 12
months, JPM provided to the company non-investment banking securities-related service and non-securities-related services. Huabao
International Holdings Limited is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the
company investment banking services. Hynix Semiconductor is or was in the past 12 months a client of JPM. KB Financial Group is
or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking
securities-related service and non-securities-related services. Kia Motors is or was in the past 12 months a client of JPM; during the
past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related service and
non-securities-related services. MediaTek Inc. is or was in the past 12 months a client of JPM; during the past 12 months, JPM
provided to the company non-securities-related services. Quanta Computer Inc. is or was in the past 12 months a client of JPM;
during the past 12 months, JPM provided to the company non-investment banking securities-related service. Samsung Electronics is
or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services,
non-investment banking securities-related service and non-securities-related services. Singapore Airlines is or was in the past 12
months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service
and non-securities-related services. TSMC is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided
to the company investment banking services, non-investment banking securities-related service and non-securities-related services.
Wistron Corporation is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company
investment banking services and non-investment banking securities-related service.
• Investment Banking (past 12 months): J.P. Morgan received, in the past 12 months, compensation for investment banking services
from Huabao International Holdings Limited, Kia Motors, Samsung Electronics, TSMC, Wistron Corporation.
• 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 Bank Danamon, Huabao International Holdings Limited, Kia Motors, MediaTek Inc.,
Samsung Electronics, Singapore Airlines, TSMC, Wistron Corporation.
• Non-Investment Banking Compensation: JPMS has received compensation in the past 12 months for products or services other
than investment banking from Bank Danamon, China Airlines, Everlight Electronics Co., Ltd., Fubon Financial Holdings, KB
Financial Group, Kia Motors, Quanta Computer Inc., Samsung Electronics, Singapore Airlines, TSMC, Wistron Corporation. An
affiliate of JPMS has received compensation in the past 12 months for products or services other than investment banking from Bank
Danamon, China Airlines, Fubon Financial Holdings, KB Financial Group, Kia Motors, MediaTek Inc., Quanta Computer Inc.,
Samsung Electronics, Singapore Airlines, TSMC, Wistron Corporation.
32
(852) 2800-8599 03 September 2010
• J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants
of Hynix Semiconductor and owns 13,674,300 as of 02-Sep-10.
of KB Financial Group and owns 3,455,710 as of 02-Sep-10.
of Kia Motors and owns 6,982,540 as of 02-Sep-10.
of Samsung Electronics and owns 10,402,950 as of 02-Sep-10.
• 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 third party involved in, or related to, computing or compiling the information have any liability for any damages
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Important Disclosures for Equity Research Compendium Reports: Important disclosures, including price charts for all companies
under coverage for at least one year, are available through the search function on J.P. Morgan’s website
https://mm.jpmorgan.com/disclosures/company or by calling this U.S. toll-free number (1-800-477-0406)
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.] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research
analysts use the same rating categories; however, each stock’s expected total return is compared to the expected total return of the FTSE
All Share Index, not to those analysts’ coverage universe. A list of these analysts is available on request. The analyst or analyst’s team’s
coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying
analyst(s) coverage universe.
J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2010

Overweight Neutral Underweight
(buy) (hold) (sell)
J.P. Morgan Global Equity Research 46% 42% 12%
Coverage
IB clients* 49% 46% 31%
JPMS Equity Research Coverage 44% 48% 9%
IB clients* 68% 61% 53%
*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.
Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on
any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on
the front of this note or your J.P. Morgan representative.
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, which
include revenues from, among other business units, Institutional Equities and Investment Banking.
Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US
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and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public
appearances, and trading securities held by a research analyst account.
33
(852) 2800-8599 03 September 2010
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34
(852) 2800-8599 03 September 2010
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35
(852) 2800-8599 03 September 2010
J.P. Morgan Equity Strategy and Asia Pacific Macro Team

Chief Equity Strategists
Adrian Mowat Emerging Markets and Asia Pacific Strategy (852) 2800 8599 adrian.mowat@jpmorgan.com
Deanne Gordon South Africa Strategy (27-21) 712 0875 deanne.gordon@jpmorgan.com
Ben Laidler Latin America Strategy (56-2) 425 5407 ben.m.laidler@jpmorgan.com
Thomas Lee US Strategy (1-212) 622-6505 thomas.lee@jpmorgan.com
Mislav Matejka European Strategy (44-20) 7325 5242 mislav.matejka@jpmorgan.com
Hajime Kitano Japan (81-3) 5545 8655 hajime.x.kitano@jpmorgan.com
Steve Malin Quantitative Strategy (852) 2800 - 8568 steven.j.malin@jpmorgan.com
Sriyan Pietersz ASEAN and Frontier Markets (66-2) 684 2670 sriyan.pietersz@jpmorgan.com
Country Strategists
Paul Brunker Australia (61-2) 9220 1638 paul.m.brunker@jpmorgan.com
Frank Li China (852) 2800 8511 frank.m.li@jpmorgan.com
Steven Li Hong Kong (852) 2800 8598 steven.mh.li@jpmorgan.com
Aditya Srinath Indonesia (62-21) 5291 8573 aditya.s.srinath@jpmchase.com
Bharat Iyer India (9122) 6157-3600 Bharat.x.iyer@jpmorgan.com
Christopher Gee Singapore (65) 6882-2345 christopher.ka.gee@jpmorgan.com
Scott Seo Korea (82-2) 758 5759 scott.seo@jpmorgan.com
Kelly Lim Philippines (63-2) 8781 188 kelly.s.lim@jpmorgan.com
Christopher Gee Singapore (65) 6882-2345 christopher.ka.gee@jpmorgan.com
Nick Lai Taiwan (886-2) 2725 9864 nick.yc.lai@jpmorgan.com
Regional Sector Research
Frank Li Autos & Auto Parts (852) 2800 8511 frank.m.li@jpmorgan.com
Vineet Sharma Consumer & Media (852) 2800 8523 vineet.sharma@jpmorgan.com
Sunil Garg Financials (852) 2800 8518 sunil.garg@jpmorgan.com
Steven Li Multi-industry & Conglomerates (852) 2800 8598 steven.mh.li@jpmorgan.com
Brynjar Bustnes Oil & Gas (852) 2800-8578 brynjar.e.bustnes@jpmorgan.com
Christopher Gee Real Estate (65) 6882-2345 christopher.ka.gee@jpmorgan.com
JJ Park Technology (822) 758 5717 jj.park@jpmorgan.com
Tim Storey Telecommunications (852) 2800 8563 tim.storey@jpmorgan.com
Edmond Lee Utilities (852) 2800 8576 edmond.ch.lee@jpmorgan.com
Economic & Policy Research
David G. Fernandez Emerging Asia (65) 6882 2461 david.g.fernandez@jpmorgan.com
Masaaki Kanno Japan (81-3) 5573 1166 masaaki.kanno@jpmorgan.com
Jahangir Aziz India (9122) 6157-3385 jahangir.x.aziz@jpmorgan.com
Jiwon Lim Korea (82-2) 758 5509 jiwon.c.lim@jpmorgan.com
Qian Wang China, Taiwan, Hong Kong (852) 2800 7009 qian.li.wang@jpmorgan.com
Stephen Walters Australia (61-2) 9220 1599 stephen.b.walters@jpmorgan.com
Rates Research
Claudio Piron Emerging Asia, Forex Strategy (65) 6882 2218 claudio.piron@jpmorgan.com
Credit Markets Research
David G. Fernandez Emerging Asia, Sovereigns (65) 6882 2461 david.g.fernandez@jpmorgan.com
Andrea Cheng Emerging Asia, Banking (852) 2800 8028 andrea.k.cheng@jpmorgan.com
36

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Asia Pacific Equity Research

Winning in a Weaker World

Winning in a Weaker World

6. Potential positive catalysts from increased 95

Downgrading Korea to Neutral Source: FTSE Indices, Datastream.

At the start of 2010, our portfolio was positioned for 90

continued to outperform but technology has performed

• Jardine Cycle & Carriage Ltd. • Philippines: Financials

• Tata Motors Ltd. • Singapore: Consumer, selective industrials and

• Kia Motors Corp. The drivers of negative earnings momentum are:

Banks: • China: Majority of the banks and materials

Cheap stocks with high earnings growth: Korean

Source: IBES, MSCI. Note:

Dissection of EM EPS growth

• Two sectors contribute 20% of MSCI EM 2011 EPS The check

Table 4: Emerging markets earnings growth and contribution

Table 5: EM Sectors earnings growth and contribution

Table 6: Countries sub-industry contributing 70% of EM Earning growth

Conclusion Key asset allocation calls:

Value Q-score Earnings Q-score

ASEAN Strategy – going with the flows

Table 8: ASEAN Valuations

Further, even investment could surprise on the upside if

Table 9: 2Q10 Results round-up

Table 10: Phillipnes Top Picks

- Figure 16: Thailand 12 month fwd P/E vs 10-year government

Source: IBES, Datastream

50 Buy stocks in domestic-facing sectors. We expect large

resume in the near term. This has been achieved by a

already. Thus, despite the apparent low expectations of

Taiwan & Tech – The Seasonality Anomaly Stand-Outs

Arguably one of the nice features of this anomaly is that 6.0%

it is more than likely driven by a whole range of things. It 4.0%

highlight four Japan based examples for which we

Specifically in relation to technology, our technology

products and geographies taking center stage at different 500

times. This is perhaps what is not being accurately 400

We also suggest that there may be a behavioural element 0

that sees all the additional advertising undertaken during

In addition in Taiwan we have previously identified Sales 10.0%

Momentum to be an important driver of returns in that

that the alpha burns very quickly. Perhaps what we are

before it is actually delivered?

Interestingly academic findings suggest that “this pattern

Focus on sectors within countries rather than country recommendations

Table 14: Key country and sector recommendations

Table 16: Summary of Neutral recommendations from end-2005

Model portfolio changes

In Philippines, we added Ayala Land, as it will benefit

In Singapore we are dropping Singapore Airlines.

Regional model portfolio by country

Regional model portfolio by sector

J.P. Morgan Strategy Thematic and Key Trades Basket (cont’d)

Source: Bloomberg, 27 Aug 2010

Source: J.P. Morgan estimate.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:

J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2010

J.P. Morgan Equity Strategy and Asia Pacific Macro Team

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