24869449 JPM Emerging Markets Outlook and Strategy 2010-01-06

Emerging Markets Research

J.P. Morgan Securities Inc.

January 5, 2010

The certifying analyst(s) is indicated by the notation “AC.” See last page of the report for analyst

certification and important legal and regulatory disclosures.www.morganmarkets.com

Joyce ChangAC

(1-212) 834-4203

[email protected]

J.P. Morgan Securities Inc.

Emerging Markets Outlook and Strategy

Review of 2009 for Emerging Markets fixed income investors

• EM debt returns were the highest registered since 1996, solidly

outperforming US credit and equities

• December-January effect apparent as EMBIG and CEMBI Broad spreads

close inside our 2009 targets, boasting 28.2% and 37.5% total returns,

respectively, in 2009

• Higher beta sovereigns lead the rally with Pakistan, Argentina and

Ukraine each reaching total returns well over 100%, with spreads

collapsing by over 1,000bp

• Although EM corporates suffered from a bout of volatility in the final

stages of the year, driven by events in Dubai which prompted UAE quasi-

sovereigns to lose -1.5% in December, overall corporate valuations remain

supported by expectations for the EM high yield corporate default rate to

fall to only 1.9% in 2010 compared to 11.1% in 2009

• EM local currency caught up with the credit rally in 2H09, with the

GBI-EM Global Diversified returning 22% for the full year, led by Latin

America’s strong performance (+34.3%)

• Record level of EM debt issuance reached in 2009 US$210 billion, surpassing

the new record level for US high yield issuance, which ended 2009 at US$178

billion; we forecast US$196 billion of EM debt issuance for 2010

• EM local currency to outperform in 2010 and we forecast 12% returns

(USD unhedged) for the GBI-EM Global Diversified compared to

projected total returns of 3.0-6.5% for the EMBIG and 4.0-7.0% for the

CEMBI Broad

• Strategic inflows into EM fixed income reached US$22.9 billion in 2009

and should rise to US$30-35 billion in 2010

• This report contains charts and tables that provide an overview of key

events in 2009, as well as our top trade recommendations for 2010

EM fixed income outperformed other asset classes in both 2008 and 2009returns (%)

-38.5

-54.5

-35.0

22.0

-26.6

-1.9

-10.9

-16.8

-5.2

-3.8

23.5

20.5

-18.0

58.2

16.7

28.2

37.5

22.0

11.74.8

6.9

74.5S&P 500

EM equities

Commodities

UST

US High Yield

US High Grade

EMBIG

CEMBI Broad

GBI-EM Global div

ELMI+

Global Agg 2008 2009

1

2

1. J.P. Morgan commodity total return index2. Barclays Capital Global AggregateSource: J.P. Morgan

Spreads and yields—actual and forecastYear Forecast

Current ago End-Dec 10

EMBIG 295 685 250GBI-EM Global Div 7.32 7.40 7.90CEMBI Broad 354 959 300Fed funds 0.125 0.25 0.12510-year bond 3.75 2.49 4.50Source: J.P. Morgan

EMBI Global, GBI-EM, JPMHY, S&P 500Return index, Nov 28, 2008 = 100

708090

100110120130140150160170

Nov 08 Feb 09 May 09 Aug 09 Nov 09

EMBIG

S&P

US HY

GBI-EM Global Div.(USD unhedged)

Source: J.P. Morgan

4) Commodity windfalls could substantially lower the

financing needs for EM oil exporters

5) Official creditor support for EM countries remains strong

6) Access down the credit curve to increase as EM issuance

goes up

7) EM fixed income inflows will play catch up in 2010

8) EM ratings upgrades will exceed downgrades during

2010, with EMBIG reaching investment grade status

9) Heavy election calendar could contribute to greater

market volatility in 2H10

10) AUM benchmarked to the EM family of indices to increase

EM sovereigns to outperform US credit

The strongest performing EM sovereign bonds on the

year were the countries that began at the highest spread.

Pakistan, Argentina and Ukraine each posted total returns

well over 100%, with spreads collapsing by over 1,000bp.

We begin 2010 with overweight positions in EM sovereign

high-yielders such as Argentina, Belize, Dominican

Republic and Jamaica. While returns may be modest in

2010, we keep core overweight positions in investment

grade sovereigns such as Mexico, Russia and Poland, which

should outperform US High Grade credit. Indeed, we now

increase duration by rebalancing our bond holdings in both

Mexico (swap out of ’13s and ’14s into ’19Ns) and Russia

(switch out of ’30s into ’28s) to take advantage of recent

curve moves; these changes make Mexico and Russia the

largest overweights in our EMBIG model portfolio. While

the YTM for the EMBIG has declined to 6.7%, it still offers

a substantial pick up to US High Grade bonds, where the

YTM has declined to 5.2%. For crossover investors, EM

spreads still appear attractive relative to similarly rated

corporates in the US. Chart 1 highlights that global bond

yields are near all-time lows, with only US High Yield

offering close to double-digit yields at 9.06%.

Market OverviewThe “January effect” supports higher

beta credits

Since we issued our 2010 year-ahead report on November

30, 2009, EM fixed income has rallied, with the exception

of EM European local currencies that suffered amid the

EUR weakening on the back of negative news from

Greece and Dubai. There are few signs of the EM rally

losing momentum this month and CEEMEA currencies

appreciated on the first two trading days of the year amid

dollar weakness. Inflows into EM are on the rise and

increasingly diversified, including sovereign wealth funds,

Japanese retail flows, crossover investors and US pension

funds. We continue to forecast robust growth in EM

(5.9%oya versus 2.8% in developed market economies),

declining default rates, and rating upgrades that will bring

the EMBIG into investment grade this year. We stay with

our year-end 2010 forecasts of 250bp and 325bp for the

EMBIG and CEMBI Broad, respectively, although we

believe that these levels could be achieved as early as 1Q10

as strong technicals factors support spreads.

The “January effect” is apparent as investors bought

assets starting in December in anticipation of new

institutional funds being deployed in the new year. EM

spreads have tightened during the December-January period

in 9 of the last 10 years. Our client survey for December

2009 also showed that trading accounts significantly

reduced risk into year-end, a move we believe is consistent

with broader reductions in hedge fund risk across multiple

markets and into cash. We expect this de-risking to similarly

contribute to stronger performance at the beginning of this

year as cash is redeployed. In addition, coupons and

amortizations for the EMBIG are highest this quarter and

exceed US$21 billion, which is nearly 40% of the US$56.4

billion of sovereign cash flows estimated for the whole year.

We forecast only US$67.5 billion of sovereign issuance this

year, with Argentina, Poland, Russia, Turkey, and Venezuela

to account for nearly half of the projected total.

We reiterate 10 investment themes and risk to monitor

in 2010 and see the balance of risk for EM skewed to the

upside this year (see Emerging Markets Outlook andStrategy for 2010, November 30, 2009):

1) EM economic growth to exceed potential, prompting

earlier tightening in EM than DM countries

2) EM policymakers become increasingly interventionist

3) EM countries will consolidate fiscal accounts much

faster than DM countries


J.P. Morgan Securities Inc. J.P. Morgan Securities Inc.

Joyce ChangAC (1-212) 834-4203 Luis OganesAC (1-212) 834-4326

[email protected] [email protected]

Chart 1: Global bond yields near all time lows with only US Highyield offering close to double-digit yields% yield

1

4

7

10

13

16

19

22

Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09

US HY EMBIGGBI-EM Global div US HGGlobal Agg

Source: J.P. Morgan

2 January 5, 2010



Joyce ChangAC (1-212) 834-4203 Warren MarAC (1-212) 834-4274


J.P. Morgan Securities Ltd.

William Oswald (44-20) 7777-3020

[email protected]

EM corporates to outperform EMsovereigns

EM Corporates closed the year at their tightest level for

2009 (but still considerably wider than the all-time tight

of 141bp recorded on January 25, 2007) for a total

return of 37.5%. Although suffering from a short bout of

volatility in late November amid developments in Dubai,

the rally in corporate spreads continued over the course of

December to push the spread on the CEMBI Broad to

346bp—one-third of the 960bp spread recorded at the start

of the year—and a yield-to-maturity of 6.9% as of year-

end. CEEMEA posted the strongest performance of the

three EM regions, delivering a full-year return of 52%,

with Emerging Asia and Latin America each returning

30%. EM corporate issuance totaled US$136.6 billion for

the year, with net supply of US$65.8 billion, growing the

outstanding EM corporate bond stock to just over US$600

billion as of December 31. Quasi-sovereign issuers

dominated supply in 2009, accounting for more than half of

total issuance with the balance split relatively evenly

between high grade and high yield corporates, respectively.

Corporate defaults (including distressed debt exchanges)

reached US$21 billion or 11.1% of the EM high yield bond

stock at the beginning of the year (compared with the

10.9% recorded in the US high yield market in 2009) with

defaults as a percentage of their respective high yield

segments reaching 11% in Asia, 7.1% in Latin America,

18.4% in Emerging Europe, and 2.9% in the Middle East

and Africa, respectively. We forecast defaults for 2010 to

fall to 1.8% of the EM high yield corporate bond stock of

US$196.5 billion as of December 31, 2009, significantly

below the 4% forecast for the US high yield market, as

refinancing risks are likely to be much more subdued in

2010 given that capital markets reopened already in 2H09.

We maintain our forecast for EM corporate spreads to

reach 325bp at the end of 2010, with risks to the upside

as the potential negative implications from the standstill

at Dubai World on broader markets has been modest—

as expected. We see the relative value arguments on a like-

for-like credit basis for crossover investors remaining firmly

in place, while the continuing rebalancing of EM corporate

indices toward higher-quality assets is likely to continue as

quasi-sovereign and high grade corporate supply is expected

to account for approximately 80% of our US$128 billion

2010 new issue forecast. We continue to favor the new-issue

market for adding risk in 1Q10 as EM corporate issuers

move to meet their external financing needs as early in the

new year as possible, while interest rates remain at record

low levels. Looking out further into 2010, we would favor a

more active approach to rotating out of lower-beta credits

and into higher-beta opportunities in order to enhance

overall returns, while selectively taking profits in names

that participate in an expected early 2010 credit rally and

reach aggressive stand-alone credit valuations.

EM local currency to outperform EMcredit this year

We expect the GBI-EM Global diversified to gain around

12% (unhedged), solidly outperforming the EMBIG and

CEMBI Broad, where we expect modest returns in the

3.0-6.5% and 4.0-7.0% ranges, respectively, depending

on the magnitude of UST moves. Although EM European

currencies suffered in December as the EUR weakened on

the back of negative news from Greece and Dubai, we see

the highest annualized returns in Central and Eastern

Europe. EM currencies closed lower on the first trading day

of the decade yesterday on the back of rising equities, capital

inflows and exporter USD selling. While our general macro

January 5, 2010 3

Table 1: GBI-EM total returns to reach close to 12% in 2010Country Forecast return Now to end-2010 Yield Forecast Local return Current FX Forecast FX FX returnGBI-EM Global Div 11.8% 7.1% 7.9% 2.7% 8.9%Russia 17.8% 8.0% 8.0% 2.4% 28.8 26.7 15.0%Poland 17.4% 5.7% 5.5% 5.0% 2.78 2.54 11.8%Hungary 17.4% 7.1% 6.9% 4.7% 180 167 12.1%Turkey 16.2% 8.9% 10.5% -0.1% 1.49 1.38 16.3%South Africa 14.4% 8.8% 8.3% 4.9% 7.53 7.40 9.0%Brazil 11.8% 11.8% 11.8% 4.6% 1.73 1.75 6.8%Indonesia 9.4% 10.4% 11.0% 1.6% 9,575 9,500 7.7%Mexico 9.2% 7.7% 7.6% 3.5% 13.0 13.0 5.5%Malaysia 7.1% 3.9% 5.0% 0.2% 3.39 3.15 6.9%Thailand 7.1% 4.1% 4.9% -0.0% 33.2 31.0 7.1%Peru 6.1% 5.9% 6.3% 3.8% 2.88 2.80 2.2%Egypt 5.1% 7.9% 10.0% -5.8% 5.46 5.40 11.6%Colombia 4.0% 7.2% 7.8% 1.9% 1969 2,000 2.1%Source: J.P. Morgan

Inflows rebounded after April, withJapanese flows accelerating by year-end

Flow data from US and European retail funds, in

addition to our proprietary estimates on strategic fund

flows, showed a strong pickup in interest from end-April

onwards as the recovery in asset prices gathered pace.

We estimate that these sources alone contributed close to

US$21 billion in 2009 (chart 3), with the pace of inflows

from end-April to year-end (US$22.9 billion) only

marginally behind the record US$25 billion set in 2007.

Our new unique dataset on Japanese investment trust

flows to Emerging Markets, not included above, showed

a strong pickup throughout 2009. Most of the inflows to

EM local currency funds were allocated to Brazilian

domestic government debt, but inflows to EM hard currency

funds reached US$7.5 billion by year-end, almost all of this

coming in 4Q09. These inflows, however, were dominated

by double-decker FX overlay strategies, with end-investors

buying EM sovereign credit overlaid with long BRL

positions. We expect this strong carry focus from Japanese

investors to remain an important source of inflows in 2010.

outlook remains for the short USD trade to continue, we are

wary of near-term USD strength. The market is beginning

2010 with renewed interests to be short USD, but USD-

buying remains a risk near-term should the US economic

data and employment outlook continue to improve.

Table 1 on the previous page highlights our bottoms-up

forecasts for EM local markets debt returns for 2010 as

tracked in the GBI-EM Global Diversified, which is the

dominant EM local markets benchmark (USD unhedged).

EM debt issuance reached record levelsas financing gaps grew

Total issuance in Emerging Markets reached record

highs in 2009, with the total across sovereigns, quasi-

sovereigns, banks and corporates reaching US$210

billion. While neither the non-sovereign issuance (US$135

billion in 2009 against US$149 billion in 2007) nor the

sovereign one (US$75 billion in 2009 versus US$83 billion

in 2000) reached its record high, which occurred in different

years, the combined issuance figures did reach the new high

in 2009 (chart 2). This issuance occurred primarily from

sovereigns, quasi-sovereigns and highly rated corporates, as

financing gaps opened up. Much of the sovereign issuance,

however, came from non-traditional (that is, non EMBI-

eligible) countries, including significant supply from the

Middle East, which accounted for over one-third of all EM

sovereign issuance last year. However, as traditional EM

investors participated in many of these transactions, we

include these countries in our estimates.


J.P. Morgan Securities Inc. J.P. Morgan Securities Ltd.

Joyce ChangAC (1-212) 834-4203 William Oswald (44-20) 7777-3020


Chart 2: Total sovereign and non-sovereign issuance reached arecord high of US$210 billion in 2009US$ billion

50

100

150

200

250

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Non Sovereign Sovereign

Source: J.P. Morgan

Chart 3: EM Debt Strategic and Retail Flows yearly, cumulativeUS$ billion

23.4

31.934.1

-11.9

20.9

-20

-10

0

10

20

30

40

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

2005 2006 20072008 2009

Source: J.P. Morgan

4 January 5, 2010

2010 Top Trade Recommendations

Top Emerging Asia trade recommendationsEM Asia external debt

Indonesia:Move to neutral

Philippines: Remain neutral

Pakistan: Sell Pakistan bonds vs. buy SriLanka bonds

Vietnam: Buy 5-year CDS

EM Asia FXChina: Short 12-month USD/CNY NDF

Indonesia: Short 6-month USD/IDR NDF

Asia: Be long KRW, INR, and SGDagainst USD

EM Asia ratesChina: 2s/5s steepenersPay 5-year repo IRS

India: Pay 5-year (partially hedged byreceiving 1-year to neutralizenegative carry)

Taiwan: Open 3s/10s steepeners

We still like Indonesia's fundamental story, but positioning has become crowded and supply concerns have risengiven expected issuance this year of up to US$4 billion. Bonds are trading near record levels and tension betweentechnocrats and vested political interests has not been resolved. Thus, we do not see much more upside in the nearterm and reduce our position.

The Philippines underperformed the EMBIG last year. Although remittances should remain strong in 2010 andmarket positioning and entry levels look attractive, we are hesitant to move to overweight given concern over publicfinances and upcoming elections in May. However, if political noise remains low, a move to overweight via the '19Nsor '34s once this month's issuance has been completed could be in the offing.

Pakistan was the best performer in the EMBIG in 2009 (+147.4%) but political uncertainty is increasing rapidly. SriLanka on the other hand is on a much more positive track now that the civil war is over and a peaceful election isexpected later this month. We recommend taking profit by selling PK '17s and buying Sri Lankan '15s.

The CDS spread has narrowed about 30bp since the government devalued VND at end of November. Though muchof the recent deterioration in economic fundamentals is now priced in, we expect data in coming months to get worseas inflation tends to rise around Tet New Year and as stronger domestic demand lifts the import bill. Despite ourbearish economic views, we do note that the yield on VN '16s is attractive relative to similarly rated and maturityequivalent Indonesia and Philippines bonds.

Entry: 6.7960; stop: 6.9150; last: 6.7373. Robust macro data are underlining our view for eventual monetary tighteningvia rates and FX this year. While policy inaction remains likely near-term, the data are tracking our longer-term tighteningview. Position via longer-dated NDFs. Our 12-month NDF position entered August 21 is currently up 84bp and we remainin this trade.

Entry 10,230; stop 9,900; last 9,339. USD/IDR should remain under pressure in view of conducive risk appetites andattractive carry. USD strength is a risk to this trade, but the central bank, having intervened to cap USD/IDR upside,appears to show little appetite for a weaker IDR. Our NDF position entered August 13 is currently up 953bp. Weremain biased to sell into short-term market rallies.

Stop: -200bp; last: +358bp. We were long KRW, TWD, and SGD against USD as a core exposure to recovery tradesin EM Asia. The position expired at a 358bps profit in December. We see further scope for gains in this trade butawait the passage of key data risks this week (US payrolls could turn positive) before re-entering.

We expect the IRS curve to rise in 2010, in a bear steepening move in 1Q. The short end of the IRS curve will remainanchored by an unchanged monetary policy in 1Q, until PBoC lets its 1-year bill yield rise (sometime in 2Q). The longend of the IRS curve (5-year) should face upward pressure all year, as a climbing CPI and bond supply take their toll.Hence, we stay with our 1s/5s IRS curve steepener, which is currently trading at 163bp, and target 190bp. Also, wesuggest a new trade where we pay 5-year IRS outright at 3.70% (target 4.20%).

In 2010, we expect India's OIS curve to rise by a further 50bp. This will happen when liquidity drops, RBI's tighteningpicks up pace, and when bond supply takes its toll (on the long end). However, significant liquidity withdrawal is notimminent, and the call rate might continue to hug the bottom of the corridor even if RBI hikes CRR by 50bp inJanuary. Hence we pay 5y swap, but we hedge the costly negative carry on the position by receiving 1/3rd of theDV01 with a received position in 1y swap. For the technical details of the trade, see our research piece.

Finally, we keep the 3s/10s steepener in Taiwan swaps at 83bp. We do not see that much upside to the curve itself,perhaps 10bp on a three-month horizon. But this is one of our favorite carry trades in the region. The CBC will only hikewhen the Fed does, i.e., in 2011, and even then it will only do so symbolically in very tiny steps, just as it has done in thepast. Meanwhile, the back end of the swap curve will be supported by payers from both onshore and offshore.

Source: J.P. Morgan


JPMorgan Chase Bank N.A., Singapore Branch

David FernandezAC (65) 6882-24613 Claudio PironAC (65) 6882-2218


JPMorgan Chase Bank N.A., Singapore Branch

Bert GochetAC (852) 2800-8325 Yen Ping HoAC (65) 6882-2216


January 5, 2010 5

J.P. Morgan Securities Inc., New York

Joyce ChangAC (1-212) 834-4203

[email protected]



[email protected]

2010 Top Trade Recommendations (continued)

Top CEEMEA trade recommendations CEEMEA external debt

Russia: We increase overweight

CEEMEA FXTurkey: Sell 6-month USD/TRY

Russia: Sell 6-month USD/RUB

Hungary: Sell 2-month USD/HUF

Poland: Sell 12-month EUR/PLN

Nigeria: Sell USD/NGN

CEEMEA RatesSouth Africa: Long R186

Russia: long 3-year OFZ

Turkey: 2-year/5-year steepener,one year forward

Ghana: Long Ghanaian cedithrough FX forwards

We have been running this trade for a month and a half, and it has remained stable but produced positive carry asexpected.We increase our overweight in Russian Eurobonds in our EMBIG model portfolio from 0.4 to 1.1 by selling7 million of the Russia ’30s and buying 3.4 million of the ’28s. We expect Russia’s 2010 issuance of new Eurobonds(predicting US$9 billion of issuance in 1H10) to be SEC-registered, which may be followed by an exchange of theexisting non-SEC-registered Russia ’18s, ’28s, and ’30s for SEC-registered bonds. These developments will mostlikely trigger inclusion of these bonds in the Barclays Capital US Aggregate Index, and attract a new client pool topurchase Russian SEC-registered issues. The '28s are even more likely than the ’30s to be included in an exchangefor SEC-registered debt. Also, the Russian ’30s have outperformed the Russian '28s by 42bp between the closes onNovember 3 and January 5. In addition, the Russian '28s are trading 68bp and 55bp wide of their Brazilian andMexican counterparts, respectively.

Target 1.40; stop 1.55; last 1.52. Retail buying of USD, which kept USD/TRY rangebound in 2H09, should slow asthe economy recovers from recession.

Target 25.5; stop 31.2; last 30.63. USD weakness and rising commodity prices are expected to support RUB. Whilethere is a near-term risk that measures are taken to curb FX borrowing, we believe that the CBR will accept fasterappreciation as growth recovers.

Target 172; stop: 195; last: 193.90. Hungary is alone in CEEMEA in reporting improving current account and budgetdeficits. In our view, investor positions in HUF do not reflect the improving economic fundamentals or the high yield.

Target 3.80; stop 4.40; last 4.30. PLN is the CEEMEA region’s most undervalued currency, in our view, and fear overrising public debt levels should diminish as growth rebounds more strongly than expected.

Buy naira based on our confidence that buoyant oil prices and rising oil production will support the Nigerian currency.We see value in selling USD/NGN on temporary spikes above 150 (currently at 149.25) with a 6% yield pickup. Wealso recommend owning NGN-denominated AAA supranational Eurobonds at yields of around 8%.

Target: 8.3%; stop: 9.5%; current 9.11%. The market is very underweight both outright and relative to the high levelof yields. Local issuance remains a concern, but the yield pickup more than reflects this. With the SARB on hold forthe medium term and inflation falling, the long end should perform best.

Target: 7.25, stop: 10, current: 8.43. The CBR continues to provide liquidity to the local market, both directly and throughcontinued rate reductions, while also emphasizing a need for banks to improve balance sheet quality. With investorsalso underweight Russia, this combination of carry and active support should continue to move bond yields lower.

Stop: -25bp; target: +90bp. The 2-year/5-year slope is only 22bp positively sloped one year forward currently and yetis at 131bp in the spot market. As we believe the CBRT has now paused and potentially ended its easing cycle, weexpect the curve to earn significant slide as it remains relatively static (3-month slide on this trade is 44bp).

The combination of local yields above 20% and good prospects for cedi appreciation support our recommendation tohold a long GHC position through FX forwards (with an expected return of 30%).Current spread: -7bp; 3-year low: -103bp; 3-year high: +13bp. Almost carry; defensive trade. The skew of this pair isfor a tighter (more negative) spread. Local specifics were a major drag for the Mexican economy in 2009, whileglobal drivers may dominate in 2010. For Colombia, the conflict with Venezuela, sub-par growth, and a heavypolitical calendar point to higher risks next year.

Source: J.P. Morgan



Michael MarreseAC (1-212) 834-4876 William OswaldAC (44-20) 7777-3020


J.P. Morgan Securities Ltd. J.P. Morgan Securities Ltd.

Robert BeangeAC (44-20) 7777-3246 Michael TrounceAC (44-20) 7777-4356


6 January 5, 2010



[email protected]

2010 Top Trade Recommendations (continued)

Top Latin America trade recommendationsLatin America external debt

Mexico/Colombia: Sell Mexico 5-year CDS vs. buyColombia 5-year CDS

Colombia: Sell 2-year CDS vs. buy 5-yearCDS (2x1)

Argentina: We remain overweight

Mexico: Increase overweight, extendingduration into '19Ns to takeadvantage of front-endsteepness

Dominican Republic: We remain overweight

Jamaica: We remain overweight

Belize: We remain overweight

Latin America FX:Brazil: Buy 6-month 1.74/1.62RKI 1.56 USD put/BRL call(indicative cost 272.4bp)

Mexico: Sell USD/MXN

Latin America ratesArgentina: Buy Bonar ’14

Brazil Linkers: Buy May’11inflation Breakeven (Buy NTN-BMay’11 vs. Pay Apr’11 DI + buy1-month USD/BRL NDF).Target: 6%, Stop 4.5%, last5.18%. 3-month carry: +0.78% a.r.

Brazil DI futures: ReceiveJan’13 (12.32%) vs. pay Jan’15(12.74%)—steepener

Chile: Receive 2-year UF swaps

Current spread -7bp; 3-year low: -103bp; 3-year high: +13bp. Almost flat carry; defensive trade. The skew of this pairis for a tighter (more negative) spread. Local specifics were a major drag for the Mexican economy in 2009, whileglobal drivers may dominate in 2010. For Colombia, the conflict with Venezuela, sub-par growth, and a heavypolitical calendar point to higher risks next year.

Current spread 50bp; 3-year low: 15bp; 3-year high: +134bp; 6-month carry = 6bp of spread (breakeven = 43bp) andpositive slide. Caveat is liquidity. We believe the 2s5s steepeners in Colombia offer the best risk-rewards amongpositive carry and roll, defensive trade in Latin America. The spread is near the bottom of the historical range, and inline with higher-rated countries like Mexico and Peru.

We remain overweight Argentina ahead of the debt swap, which we believe will generate a high participation rate.However, in October the spread difference between Boden ’12s and Boden ’15s widened 240bp. Thus, werecommend reducing all remaining exposure to Boden ’12, in favor of increasing exposure to Boden ’15s.

External debt underperformed in 2009 amid Mexico's numerous and well known challenges. With ratings actionsbehind, and many of these drags now fading or no longer existent, we see further room for spread compression. Westay overweight Mexico external debt in our EMBIG model portfolio but swap out of '13s and '14s into '19Ns in orderto take advantage of the relative steepness of the mid-part of the curve and extend duration. The move increasesour Mexico overweight, taking the beta to 1.0 from 0.4.

We believe the Dominican Republic’s proven resilience to external shocks (GDP grew an estimated 3.5% in 2009),improving fundamental prospects, ample multilateral support, and, despite its year-to-date rally, the still relativelyhigh yield of its global bonds, make it an attractive diversification play.

Despite further delays in negotiations with the IMF for a Stand-By Arrangement worth US$1.3 billion and lingeringinvestor concerns regarding a possible debt restructuring, Jamaica outperformed the broader market rally inDecember. Our base case is that an IMF agreement will indeed be reached and a near-term debt reprofiling, if any,would most likely be restricted to domestic debt.

Even after a 60%ytd rally, the BZ’29s with a low dollar price of US$55 have the widest spread in the EMBIG(1,200bp). The ongoing US recovery and high oil prices along with multilateral and bilateral loans should support adomestic recovery in 2010.

J.P. Morgan’s new forecast pencils in a BRL peak in 2Q10, but intervention risks warrant strategies with definedmaximum loss in our view. In the structure above, the maximum profit if knocked in is 740.7bp (2.72x leverage). Ifnot knocked in the maximum profit is 1,153.8bp (4.24x leverage). RKI cost 9.75bp more than vanilla spread but give413.1bp of more potential profit.

Target 12.25; stop: 13.50. The private sector flow of funds surplus should reach more than US$17 billion this yearfollowing a US$3 billion deficit in 2009. Mexico is emerging from its deepest multi-year recession, and the pesoseems undervalued and under-owned.

Badlar-linked paper offers the best carry trade among Argentina local instruments. We do not expect ARS to weakenfurther than 4% through midyear due to the favorable terms of trade and strong performance of its main tradingpartners. The 18% yield is in line with CER bonds (total yield) but does not carry the index stigma, and comparesfavorably to 12% (implied yield) in 1-year NDF.

The balance of risks have been shifting fast towards inflation, as the government's fiscal expansion drive continuesdespite the fact that we are past the worst of the economic slump and are fast approaching pre-crisis levels for aslew of activity indicators. While inflation expectations are just below the mid-point of target, we believe the skew ison the upside, and on today's communiqué, the CB seems to be willing to take that risk. From mid-2007 to 3Q of2008 the IPCA moved from 3% to 6%. The 2s5s slope of the DI curve anticipated a great part of that move, and iscurrently suggesting that the inflation risks are not negligible (chart below). We reckon that trying to predict turningpoints using yield curves is tricky for developed markets, let alone for EM countries, but the current 2s5s slope is toohigh to be ignored, in our view.

DV01 neutral. Current spread: +43bp; carry and roll in 6-month = 43bp. Breakeven spread + 0bp in 6-month. Besidespositive carry and slide, this spread offers potential for capital gain, as the Jan’13 continues to look cheap in the curve.

The 2-year inflation breakeven is below 2% versus the 3% central target. Near-term inflation carry is a drag for UFswaps (-7bp per month) as the market is pricing in deflation through February, but we think the level implied in the2-year tenor is overdone, as it extrapolates the deflation into a medium-term base scenario.

Source: J.P. Morgan



Felipe PianettiAC (1-212) 834-4043 Vladimir WerningAC (1-212) 834-4144


Banco J.P. Morgan S.A. J.P. Morgan Securities Inc.

Carlos CarranzaAC (54-11) 4348-3425 Ben RamseyAC (1-212) 834-4308


January 5, 2010 7

8 January 5, 2010

Article Title

J.P. Morgan Securities Inc., New York J.P. Morgan Securities Inc., New York



28.18

118.30117.90

99.4696.80

90.7981.11

75.3174.4972.40

67.9062.0960.70

46.9142.0941.41

36.6735.1232.75

28.1928.12

25.3624.8324.2124.1323.7522.21

16.7015.7313.0512.6312.2512.1312.0111.38

7.73

132.78147.39

EMBI GlobalPakistan

ArgentinaEcuadorUkraine

IraqGhana

Dominican RepGeorgia

Sri LankaSerbiaGabon

KazakhstanVenezuela

BelizeIndonesia

El SalvadorRussia

UruguayJamaicaVietnamBulgaria

LebanonPanama

South AfricaHungary

TurkeyThe Philippines

PeruColombia

TunisiaChile

MalaysiaMexico

EgyptPoland

BrazilChina

EMBI GlobalYTD total returns, %

37.49121.29

108.61101.58

82.7378.59

74.6673.56

56.4054.1552.9650.11

46.7444.73

38.3737.0335.8735.69

30.3328.4027.7025.7323.2521.8220.3019.6518.6516.3314.9713.40

6.41-16.08

CEMBI BroadUkraine

IndonesiaEgypt

TurkeyNigeriaRussia

TaiwanJamaica

ArgentinaChina

KazakhstanIndiaPeru

ThailandQatar

KoreaMexico

ColombiaBrazil

PanamaPhilippines

UAEHong KongSingapore

IsraelMalaysiaLebanonBahrain

ChileSaudi Arabia

Venezuela

-20 0 20 40 60

GBI-EM Global Div

Brazil Broad

Indonesia

Colombia

Peru

Egypt

Turkey

Chile

South Africa

Russia

Hungary

Mexico

Poland

Malaysia

Thailand

FX Return US$ Hedged

Article Title




Appendix: Review of 2009 EM performance



Joyce ChangAC (1-212) 834-4203 Gloria KimAC (1-212) 834-4153


Chart 4: Performance of key EM indices in 2009: EMBIG, CEMBI Broad and GBI-EM Global Div

GBI-EM Global DivYTD total returns, %

Source: J.P. Morgan

January 5, 2010 9

Article Title




Article Title






Joyce ChangAC (1-212) 834-4203 William OswaldAC (44-20) 7777-3020


Total EM sovereign requirements for 2010are modest at only US$67.5 billion

CEEMEA region accounts for nearly 60% ofsovereign financing needs

Only five countries—Argentina, Poland,Russia, Turkey and Venezuela—account for nearly 50% of total EM sovereignissuance needs

Table 2: EM gross sovereign external issuance requirements total only US$67.5 billion in 20102010 forecast

Country Gross issuance Cash flows Net issuanceChina 0 127 -127Indonesia 4,000 1,222 2,778Malaysia 1,500 131 1,369Pakistan 0 111 -111Philippines 2,000 3,456 -1,456Sri Lanka 750 69 681Thailand 0 3 -3Vietnam 1,000 52 948Asia subtotal 9,250 5,170 4,080Angola 1,000 0 1,000Belarus 750 0 750Bulgaria 1,000 197 803Croatia 2,500 1,048 1,452Egypt 0 88 -88Gabon 0 76 -76Georgia 500 38 463Ghana 0 64 -64Hungary 1,817 2,583 -766Iraq 0 157 -157Ivory Coast 0 276 -276Kazakhstan 500 0 500Latvia 0 25 -25Lebanon 1,000 2,268 -1,268Lithuania 1,500 346 1,154Morocco 500 40 460Nigeria 500 0 500Poland 7,200 4,653 2,547Romania 1,482 1,281 201Russia 9,000 4,118 4,882Serbia 741 144 597South Africa 3,000 524 2,476Turkey 5,500 5,818 -318Ukraine 0 324 -324CEEMEA subtotal 38,490 24,066 14,424Argentina 4,000 8,388 -4,388Bahamas 0 0 0Barbados 150 0 150Belize 0 28 -28Brazil 2,000 5,339 -3,339Chile 0 108 -108Colombia 1,500 1,493 7Costa Rica 0 0 0Dominican Republic 600 223 377Ecuador 0 372 -372El Salvador 1,000 257 743Guatemala 0 88 -88Jamaica 0 288 -288Mexico 3,000 4,686 -1,686Panama 500 604 -104Peru 1,500 789 711Trinidad and Tobago 500 33 467Uruguay 0 569 -569Venezuela 5,000 3,874 1,126Latin America subtotal 19,750 27,140 -7,390Total 67,490 56,423 11,067Source: J.P. Morgan

10 January 5, 2010

Article Title




Article Title




Article Title






Joyce ChangAC (1-212) 834-4203 Warren MarAC (1-212) 834-4274


J.P. Morgan Securities Ltd.

Victoria MilesAC (44-20) 7777-3582

[email protected]

Table 3: EM corporate bond and syndicated loan maturities for 2010 exceed US$200 billionUS$ millionCountry Loans Bonds 2010 TotalChina 7,698 1,056 8,754Hong Kong 4,324 4,059 8,383India 5,173 3,005 8,178Indonesia 3,692 870 4,562Korea 5,352 11,427 16,779Malaysia 2,556 500 3,056Philippines 1,825 150 1,975Singapore 3,539 1,033 4,572Taiwan 3,644 350 3,994Thailand 1,198 320 1,518Emerging Asia 39,754 22,948 62,702Russia 22,441 12,183 34,624Kazakhstan 2,383 1,548 3,931Ukraine 1,667 1,775 3,442Hungary 5,393 2,161 7,554Kuwait 2,958 500 3,458South Africa 4,767 423 5,189UAE 9,645 6,659 16,304CEEMEA 83,604 30,884 114,488Argentina 1,040 1,278 2,318Brazil 3,749 2,436 6,185Chile 3,485 300 3,785Colombia 348 43 390Mexico 7,261 3,483 10,744Latin America 17,262 7,771 25,033

Total Emerging Markets 140,620 61,603 202,223* Estimates external borrowings issued in foreign currencies.Source: Bloomberg, Dealogic, Bond Radar, and J.P.Morgan.

We forecast US$128 billion of newissuance from EM corporates for 2010

Quasi-sovereign issuance shoulddecline this year to less than 50% oftotal corporate issuance vs. 65% in 2009

Issuance will continue to beconcentrated in investment-gradecorporates, accounting for nearly 80%of our full year forecast

Heaviest refinancing needsconcentrated in the CEEMEA region,with Russia and UAE standing out

Article Title




Article Title




Article Title




Article Title




Table 4: High level of current and potential official creditor support to EM sovereignsCountry US$ billion % of GDP DetailsCurrent official support for the Latin America regionArgentina 3.3 1.2 New 3.5-year World Bank commitment, which implies net US$0.17 billion per

annum inflow versus net US$0.90 billion per annum outflows in past three years.Colombia 2.4 1.0 The bulk of the multilateral lending in government’s financing plan is from the

World Bank and IADB, and to a lesser degree CAF.Ecuador 1.0 1.8 Through October the government had received about half of the US$1.5 billion

it was targeting from regional multilaterals IADB, CAF, and FLAR, but this was supplemented with a US$1 billion oil-linked loan from PetroChina and the IMF SDR allocation (US$350 million).

Mexico 77.0 8.6 US$30 billion US Fed swap line and US$47 billion flexible credit line from IMF.Peru 0.6 0.4 World Bank lending is the largest component.Potential official support for the Latin America regionBrazil 30.0 2.1 US$30 billion US Fed swap line.Colombia 10.4 4.25 IMF FCL; the government has called this precautionary and it is not intended

for use.Peru n/a n/a The government does not rule out the IMFFCL as a possibility, but no formal

request has been made.Venezuela n/a n/a Multilaterals (mainly IADB and CAF) increased by US$300 million in 2009 to

US$3.2 billion, and this trend could increase in 2010.Current official support for the CEEMEA regionBelarus 2.9 4.2 US$2.5 billion from IMF, plus World Bank, EBRD, EIB, and IFC.Ghana 1.8 12.7 US$615 million from IMF, US$1.2 billion from World Bank.Hungary 25.8 19.0 EUR12.5 billion from IMF, EUR6.5 from EU, EUR1 billion from World Bank.Latvia 9.6 34.0 EUR1.7 billion from IMF, EUR3.1 billion from the EU + a total of EUR2.7 billion

from neighboring countries, EBRD, WB.Nigeria 0.5 0.3 US$500 million in budget support from the World Bank, within a portfolio of

around US$4 billion in total lending.Poland 21.8 5.5 Flexible Credit Line from the IMF (being treated as precautionary).Romania 26.0 15.5 EUR12.9 billion from IMF, EUR5.0 billion from EU, EUR1 billion from EBRD,

and EUR1 billion from World Bank.Serbia 3.2 10.0 US$2.0 billion from IMF, US$325 million from EU, and US$900 million from the

World Bank.Sub-Saharan 44.5 5.4 Loans outstanding include US$31 billion from the World Bank, US$10.3 billion Africa from the AfDB, and US$3.2 billion from the IMF.Ukraine 19.0 17.0 US$16.4 billion from IMF, plus World Bank, EBRD, EIB and IFC (about US$2.5

billion over the next two years).Potential official support for the CEEMEA regionTurkey 45.0 7.3 US$45 billion from multilateral institutions (IMF, World Bank, and EBRD).Bulgaria 7.6 15.0 EUR6 billion from IMF, the EU, EBRD, and World Bank.Lithuania 7.6 15.0 EUR6 billion from IMF, the EU, EBRD, and World Bank.Sub-Saharan 10+ 1.2+ The World Bank provided US$7.8 billion in interest-free credits and grants in Africa FY2009 and expects to match this in the current fiscal year. The AfDB has set

up a US$1.5 billion Emergency Liquidity Facility and US$1 billion Trade Finance Initiative, and stands ready to provide budget support too.

Current official support for the EM AsiaChina 7.0 0.2 US$7 billion Chiang Mai Initiative Bilateral Swap Agreement.Hong Kong 29.0 13.5 RMB200 billion PBoC swap line (US$29 billion).Indonesia 34.0 6.6 US$5.5 billion World Bank Public Expenditure Support Facility funded by WB

(US$2 billion), ADB (US$1 billion), Australia (US$1 billion), and Japan (US$1.5 billion); RMB100 billion PBoC swap line (US$15 billion); US$14 billion Chiang Mai Initiative Bilateral Swap Agreement.

Korea 74.0 8.0 US$30 billion Fed swap line; RMB180 billion PBoC swap line (US$ 26 billion); US$20 billion BoJ swap line; US$23 billion Chiang Mai Initiative Bilateral Swap Agreement.

Malaysia 18.0 8.1 RMB80 billion PBoC swap line (US$12 billion); US$6 billion Chiang Mai Initiative Bilateral Swap Agreement.

Philippines 11.5 6.8 US$11.5 billion Chiang Mai Initiative Bilateral Swap Agreement.Singapore 30.0 16.5 US$25 billion Fed swap line; US$5 billion Chiang Mai Initiative Bilateral Swap

Agreement.Thailand 11.0 4.1 US$11 billion Chiang Mai Initiative Bilateral Swap Agreement.Note: PBoC swap lines are intended for trade financing; the agreed swap line currency is Yuan, but the possibility to drawfinancing in reserve currencies is under consideration. Source: J.P. Morgan

Current and potential official support to EM sovereigns exceedsUS$500 billion

Total of 32 new IMF agreementsapproved for EM countries since 2008

IMF agreements mainly concluded inEM Europe and Latin America

January 5, 2010 11





J.P. Morgan Securities Ltd. JPMorgan Chase Bank N.A., Singapore Branch

Michael MarreseAC (1-212) 834-4876 David FernandezAC (65) 6882-2461


12 January 5, 2010



Joyce ChangAC (1-212) 834-4203 Felipe PianettiAC (1-212) 834-4043


Chart 6: Current/30-year average (Y-axis); Peak/30-year average (X-axis)

28.8 28.1 26.5 24.3 22.514.8 12.9 12.3 11.1 8.1 7.0 6.7 4.4 1.6 0.9 0.7

-0.2 -2.4 -5.8 -7.2 -8.6 -10.1 -10.4 -13.0

-28.3 -30.7

-53.7-60

-50

-40

-30

-20

-10

0

10

20

30

40

ARS BRL CLP COP MXN PEN AUD CAD CHF EUR GBP JPY NOK NZD SEK INR IDR KRW MYR PHP THB TWD TRY ZAR HUF PLN CZK

Chart 5: REER valuations for global currencies not back to the previous peak for most EM countriesREER: Percent deviation of current versus 30-year average (except for CEE3 - 12-year average)

Source: J.P. Morgan

EM FX currency appreciation has beenconcentrated in commodity currencies

Valuations have not reached their previouspeak

Mexico is the main underperformer in LatinAmerica, while TWD and KRW stand out inEM Asia

CLP

PENCHF

GBP

JPY

NZD

SEK

KRW

THB

TWD

CZKBRL

COP

MXN

AUD

CAD

EUR

NOK

IDR

MYR

PHPTRY

HUF PLN

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-40% -30% -20% -10% 0% 10% 20% 30% 40%Peak / Avg

Curre

nt / A

vg

Source: J.P.Morgan

January 5, 2010 13





J.P. Morgan Securities Inc. JPMorgan Chase Bank N.A., Singapore Branch



Fears of financial asset and propertybubbles, as well as a rise in inflation,have prompted EM central bankers toturn their focus to exit strategies

We forecast that 17 of 32 EM countrieswill move towards monetary policynormalization in 2010

But policymakers will be slow to moveand it will be difficult to bring interestrates up as long as central banksresist exchange rate appreciation

Table 5: Many EM countries likely to hike rates in 2010Policy stance Timing of End 2010

Current rate to end-2010 initial rate hike rate forecastDeveloped marketsUnited States 0.125 On hold - 0.125United Kingdom 0.50 Tightening 3Q10 1.00Euro area 1.00 On hold - 1.00Japan 0.10 On hold - 0.10Latin AmericaBrazil 8.75 Tightening 1Q10 11.75Chile 0.50 Tightening 3Q10 2.00Colombia 3.50 On hold - 3.50Mexico 4.50 Tightening 2Q10 5.25Peru 1.25 Tightening 3Q10 2.75CEEMEACzech Republic 1.00 Tightening 3Q10 2.25Hungary 6.25 Easing - 5.50Israel 1.25 Tightening 3Q09 4.00Poland 3.50 Tightening 3Q10 4.00Romania 7.50 Easing - 7.00Russia 4.00 Easing - 3.00South Africa 7.00 Tightening 4Q10 7.50Turkey 6.50 Tightening 3Q10 8.00Emerging AsiaChina 5.31 Tightening 3Q10 5.85India 4.75 Tightening 1Q10 5.50Indonesia 6.50 On hold - 6.50Korea 2.00 Tightening 1Q10 3.00Malaysia 2.00 Tightening 3Q10 2.50Philippines 4.00 Tightening 2Q10 5.00Taiwan 1.25 Tightening 4Q10 1.375Thailand 1.25 Tightening 3Q10 1.75Source: J.P. Morgan

14 January 5, 2010

Article Title











EM has contributed more to globalGDP growth than all of the developedmarkets for the past four years

We forecast 6.0% growth for EMcountries in 2010, above the estimated5.5% average potential growth rate

EM Asia will lead with 7.3% growth,Latin America will benefit from Brazil’s6.2% outperformance and also growabove potential

Table 6: 2010 Real GDP growth expected to exceed potentialPotential

%oya 2009 2010 2011 GDP growthDeveloped markets -3.4 2.7 2.8 1.6

United States -2.5 3.3 3.1 2.0Japan -5.3 1.9 1.9 1.7Euro area -3.9 2.5 2.6 0.8United Kingdom -4.8 1.7 3.1 1.5

Emerging Economies 1.0 6.0 5.7 5.5Latin America -3.2 4.3 3.4 3.4

Argentina -4.0 4.0 3.0 3.5Brazil 0.1 6.2 4.0 4.0Chile -1.7 5.0 5.0 4.2Colombia 0.3 3.0 4.1 4.5Ecuador -1.0 2.0 3.0 3.0Mexico -7.0 3.5 2.5 2.5Peru 1.0 5.5 6.0 6.0Venezuela -2.7 1.0 2.5 3.0

Emerging Asia 4.3 7.4 7.2 6.9China 8.6 9.5 9.3 9.0Hong Kong -3.3 4.5 4.1 4.1India 6.8 7.8 8.3 8.0Indonesia 4.4 5.5 6.0 5.0Korea 0.2 4.9 4.1 4.0Malaysia -2.4 5.0 5.0 5.5Philippines 1.0 5.0 4.3 4.5Singapore -2.1 6.5 5.0 4.5Taiwan -3.0 5.8 4.8 4.5Thailand -2.9 5.5 5.0 5.0

CEEMEA -3.2 4.3 4.8 4.6Bulgaria -5.8 -1.5 4.5 5.0Czech Republic -4.0 2.5 4.0 4.0Egypt 4.7 5.0 5.5 6.0GCC 1.7 4.9 4.5 4.4Hungary -6.5 1.0 4.0 3.5Israel 0.0 3.0 4.5 4.0Kazakhstan 0.1 2.5 3.0 7.0Nigeria 3.2 9.2 8.0 8.0Poland 1.7 3.5 4.2 4.5Romania -6.0 2.0 5.0 5.0Russia -8.5 5.0 5.0 4.0Serbia -4.0 1.0 2.0 6.0South Africa -1.9 3.0 3.5 3.2Turkey -5.3 5.0 5.5 5.5Ukraine -15.2 3.0 5.0 4.5

Source: J.P. Morgan

January 5, 2010 15

Article Title











EM policymakers will not tighten fiscalpolicy too much and have the resourcesto sustain counter-cyclical measures.

EM countries will run an averagedeficit equivalent to 3% of GDP, downfrom 4.0% of GDP in 2009, and sharplybelow the 8.5% of GDP deficit that J.P. Morgan is forecasting fordeveloped market countries

There will be fiscal consolidationacross all CEEMEA countries in 2010due in part to the constraints of IMFprograms or a desire to enter the Euro area

Table 7: Developed country fiscal deficits now more than double the level of EM countries% of GDP 2008 2009 2010Developed markets -3.3 -8.6 -8.5

United States -3.1 -9.9 -9.5Japan -6.6 -11.3 -10.4Euro area -2.0 -6.1 -7.1United Kingdom -6.2 -12.1 -11.2

Emerging Economies -0.9 -4.1 -3.2Latin America -0.8 -3.1 -2.8

Argentina 1.3 -1.5 -1.0Brazil -2.0 -4.3 -3.4Chile 8.7 -3.8 -1.6Colombia 0.1 -2.7 -3.7Ecuador -0.5 -3.5 -1.5Mexico -2.0 -2.1 -2.8Peru 2.1 -1.9 -1.8Venezuela -2.2 -3.5 -4.0

CEEMEA -0.1 -6.2 -4.9Czech Republic -2.1 -6.0 -4.0Hungary -3.8 -3.9 -3.8Israel -2.0 -5.0 -4.0Kazakhstan -2.5 -3.8 0.0Poland -3.6 -5.6 -5.5Romania -5.5 -8.0 -6.0Russia 4.1 -6.3 -5.5South Africa -1.0 -7.4 -6.2Turkey -1.8 -6.3 -3.7Ukraine -1.4 -7.5 -6.2

Emerging Asia -1.3 -3.8 -2.8China -0.4 -3.3 -2.1Hong Kong 0.1 -3.3 -1.0India -7.8 -7.3 -6.8Indonesia 0.1 -2.4 -1.5Korea 1.3 -2.7 -1.5Malaysia -4.8 -7.1 -5.0Philippines -0.9 -3.2 -2.5Singapore 5.0 1.0 2.5Taiwan -0.7 -3.6 -3.0Thailand -2.5 -3.9 -6.0Source: J.P. Morgan

16 January 5, 2010








Nearly 40% of the countries in theEMBIG by market capitalization areclassified as oil exporters and another24% are characterized as softcommodity or metals exporters

The majority of countries arebudgeting the price of oilconservatively at US$45-65/bbl, wellbelow J.P. Morgan’s 2010 forecast forWTI to average US$78.25/bbl

Table 8: Many EM Countries will benefit from an oil windfall at current 2010 oil priceassumptions

Impact of Impact of Oil Oil $1 change in $1 change 2010 Implicit WTI

exports1 imports fiscal accounts in exports oil price assumption inCountry % of total % of total (%GDP) %GDP US$ million budget 2010 budgetLatin AmericaColombia 28.4 3.3 0.02 0.05 140 75.2 88.2Ecuador 66.8 19.0 0.13 0.25 140 65.0 71.2Mexico2 13.5 8.2 0.10 0.23 500 59.0 61.2Venezuela 93.7 10.4 0.15 0.33 1,000 40.0 46.2CEEMEAAlgeria 98.1 0.0 0.70 0.84 1,130 37.0 37.0Angola 97.7 0.0 0.45 0.67 517 58.0 58.0Egypt 47.1 16.4 0.00 0.04 41 44.7 50.0Gabon 85.9 0.5 0.19 0.73 85 n/a n/aIraq 97.7 0.0 1.05 1.15 228 60.0 60.0Kazakhstan 65.5 0.0 0.14 0.36 420 50.0 52.0Nigeria 96.5 2.0 0.29 0.40 674 57.0 57.0Qatar 89.5 0.0 0.49 1.00 562 40.0 40.0Russia 61.0 0.0 0.15 0.18 3,250 58.0 60.0EM AsiaChina 1.1 10.2 0.00 0.00 236 n/a n/aIndia 17.0 30.0 0.15 0.03 300 70.0 –Indonesia 21.3 23.7 -0.01 0.06 307 70.0 –Korea 0.0 19.7 0.02 – – 63.0 –Malaysia 18.1 10.7 0.00 0.17 379 75.0 –Philippines 2.5 15.7 0.00 0.01 13 n/a n/aSingapore 24.2 28.6 0.00 0.50 859 n/a n/aTaiwan 5.6 15.5 0.00 0.06 196 n/a n/aThailand 5.4 21.7 0.00 0.04 101 80.0 –1. Including oil derivatives and in some cases natural gas.2. The impact of $1 change in fiscal accounts represents an estimate of how much goes to the stabilization fund for every $1above the oil price budget assumption. If the price is below the budget assumption, the price is offset by the oil hedge.Source: J.P. Morgan

Number sovereign upgrades to exceed downgrades in 2010, whileratings in DM countries will remainunder pressure

EMBIG average rating is expected tomove to investment grade in 2010 with60% of the index in the investmentgrade bucket

Chart 7: EM sovereign rating upgrades are expected to exceed downgrades once again in 2010

0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006 2007 2008 YTD2009

2010 F0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0Rating Upgrades Rating Downgrades Up/Down ratio

F

* The total number of upgrades and downgrades include both S&P and Moody’s actions.Source: J.P. Morgan

January 5, 2010 17



Joyce ChangAC (1-212) 834-4203 Juliet LimAC (1-212) 834-2516


18 January 5, 2010



Joyce ChangAC (1-212) 834-4203 Gloria KimAC (1-212) 834-4153


Assets under management for theexternal debt EMBI series increased toUS$217 billion at end-2009 compared toUS$200 billion at end-2008

GBI-EM assets managed against theindex series increased to US$55 billionfrom US$35.8 billion during the sametime period

Assets under management for the EMcorporate market have attracted a smallfollowing at US$6.4 billion

Table 9: AUM benchmarked against EM indices increased to US$280 billion during 2009AUM ($mm)EM Indices December 2008 December 2009Local Market DebtGBI-EM Global Diversified 14,120 29,626GBI-EM 9,045 11,913GBI-EM Diversified 4,775 8,193GBI-EM Broad Diversified 6,455 5,070GBI-EM Broad 50 105GBI-EM Global 1,420 150Total 35,865 55,056

External DebtEMBI Global Diversified 120,152 144,274EMBI Global 54,094 52,646EMBI+ 24,750 20,639Total 198,996 217,559

Corporate External DebtCEMBI Broad Diversified - 4,942CEMBI Diversified - 950CEMBI Broad - 500CEMBI - - Total 0 6,392

TOTAL AUM managed against EM indices 234,861 279,007Source: J.P. Morgan

29 elections scheduled in EMcountries between now and end-2011

Key elections to monitor in LatinAmerica: Colombia and Brazil

Key elections to monitor in CEEMEAregion: Ukraine and Latvia

Table 10: Heavy election calendar over the next two years in EMCountry Presidential Legislative/Parliamentary/MunicipalLatin America

Argentina October 2011Brazil First round: October 3, 2010 October 3, 2010

Second round: October 31, 2010Colombia First round: May 30, 2010 March 14, 2010

Second round: June 20, 2011Costa Rica February 07, 2010 February 07, 2010Dominican Republic May 16, 2010Guatemala August 2011 August 2011Mexico July 04, 2010Peru April 2011 October 03, 2010

April 2011Venezuela September 26, 2010

CEEMEABahrain November 2010Bulgaria October 2011Central African Republic First round: March 2010 First round: March 2010Croatia November 2011Czech Republic June 2010Egypt September 2011 May 2010

November 2010Gabon December 2011Hungary June 2010 April or May 2010Iraq January 16, 2010Latvia May 2011 October 02, 2010Nigeria April 2011 April 2011Poland First round: October 2010 Spring 2011 or October 2011Russia December 2011Turkey July 2011Ukraine First round: January 17, 2010

Second round: February 2010Emerging Asia

Philippines May 10, 2010 May 10, 2010Singapore May 2011Sri Lanka March 2010 March 2010

November 2011Thailand 2H10Vietnam June 2011

Source: www.electionguide.org

January 5, 2010 19








If you would like to be included on our distribution list, or if your e-mail address has changed, please contact Susan Christensen at

[email protected].

Please visit http://www.morganmarkets.com to view our archives and find a wide range of analytical tools.

J.P. Morgan Emerging Markets Research Contact InformationJoyce Chang

Global Head of Emerging Markets and Credit Research(1-212) 834-4203

[email protected]

GLOBAL STRATEGY AND QUANTITATIVE ANALYSIS

CENTRAL EASTERN EUROPE, MIDDLE EAST AND AFRICA (CEEMEA)

[email protected] MD, Strategy / Economics (Emerging Europe, (1-212) 834-4876Russia and Turkey)

[email protected] MD, Corporate Strategy (CEEMEA and (44-20) 7777-3582Latin American Banks)

[email protected] ED, Strategy (CEEMEA FX) (44-20) 7777-3246

[email protected] ED, Corporate Strategy (CEEMEA) (44-20) 7777-3843

[email protected] ED, Economics (Turkey, Bulgaria, (90-212) 319-8599and Baltics)

[email protected] ED, Corporate Strategy (CEEMEA) (971-4) 428-1740

[email protected] ED, Strategy / Economics (Kazakhstan (44-20) 7777-3430South Africa and Sub-Saharan Africa)

[email protected] VP, Economics (South Africa) (27-11) 507-0376

[email protected] VP, Economics (Czech Republic, Israel, (44-20) 7325-0745Slovakia and Romania)

[email protected] VP, Economics (GCC and North Africa) (44-20) 7777-1381

[email protected] VP, Economics (Poland, Hungary (44-20) 7777-3981and Iceland)

[email protected] VP, Strategy (CEEMEA Local Markets) (44-20) 7777-4356

[email protected] Assoc, Economics (Middle East and (44-20) 7777-4504North Africa, Ukraine and Serbia)

[email protected] Assoc, Economics (Russia) (7-495) 937-7321

[email protected] Analyst, Corporate Strategy (44-20) 7777-3475

LATIN AMERICA

[email protected] MD, Strategy / Economics (Latin America (1-212) 834-4326and Andean Region)

[email protected] ED, Economics (Brazil) (55-11) 3048-3634

[email protected] ED, Strategy (Latin America) (1-212) 834-4043

[email protected] ED, Strategy / Economics (Argentina and Chile) (1-212) 834-4144

[email protected] VP, Economics (Brazil, Colombia and Peru) (55-11) 3048-3369

[email protected] VP, Economics (Mexico) (52-55) 5540-9558

[email protected] VP, Strategy (Andean Region) (1-212) 834-4308

[email protected] VP, Corporate Strategy (1-212) 834-4066

[email protected] VP, Strategy (Central America and Caribbean) (1-305) 579-9415

[email protected] Assoc, Strategy (Latin America) (1-212) 834-4321

[email protected] Assoc, Corporate Strategy (1-212) 834-4317

[email protected] Assoc, Strategy (1-212) 834-8580

[email protected] Analyst, Strategy (Latin America) (54-11) 4348-3425

[email protected] Analyst, Corporate Strategy (1-212) 834-2516

[email protected] MD, EM Quantitative Strategy / (44-20) 7777-3020CEEMEA Strategy

[email protected] ED, Analytics (1-212) 834-7072

[email protected] ED, Index Management (1-212) 834-4153

[email protected] VP, Index Management (1-212) 834-7041

[email protected] Assoc, Analytics (1-212) 834-7037

[email protected] Assoc, Index Management (1-212) 834-4029

[email protected] Analyst, Index Management (1-212) 834-7139

[email protected] Analyst, Analytics (1-212) 834-7190

[email protected] Analyst, Analytics (1-212) 834-2475

EMERGING ASIA

[email protected] MD, Strategy / Economics (Emerging Asia) (65) 6882-2461

[email protected] MD, Corporate Strategy (1-212) 834-4274(Asia and Latin America Credit)

[email protected] ED, Economics (India) (91-22) 6719-8033

[email protected] ED, Corporate Strategy (852) 2800-8028

[email protected] ED, Economics (Korea) (82-2) 758-5509

[email protected] ED, Economics (China and Taiwan) (852) 2800-7002

[email protected] ED, Strategy (Asia FX Markets) (65) 6882-2218

[email protected] ED, Economics (China and Hong Kong) (852) 2800-7009

[email protected] VP, Corporate Strategy (852) 2800-8008

[email protected] VP, Corporate Strategy (852) 2800-8080

[email protected] VP, Strategy (Asia FX Markets) (65) 6882-2216

[email protected] Assoc, Economics (India) (91-22) 6639-3125

[email protected] Assoc, Economics (Singapore and Malaysia) (65) 6882-2253

[email protected] Analyst, Economics (Korea) (82-2) 758-5512

[email protected] Analyst, Local Markets (China) (86-21) 5200-2833

Analysts’ Compensation: The 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 factorsand overall firm revenues. The firm’s overall revenues include revenues from its investment banking and fixed income business units.Ratings System: J.P. Morgan uses the following sector/issuer portfolio weightings: Overweight (over the next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark),Neutral (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark), and Underweight (over the next three months, the recommended risk position isexpected to underperform the relevant index, sector, or benchmark). J.P. Morgan’s Emerging Market research uses a rating of Marketweight, which is equivalent to a Neutral rating.J.P. Morgan Credit Research Ratings Distribution, as of December 31, 2009

Overweight Marketweight UnderweightEEMEA Credit Research Universe 23% 52% 25%

IB clients* 69% 76% 65%Represents Ratings on the most liquid bond or 5-year CDS for all companies under coverage.* Percentage of investment banking clients in each rating category.Valuation and Methodology: In J.P. Morgan’s credit research, we assign a rating to each company (Overweight, Underweight or Neutral) based on our credit view of the company and the relative value of its financial instruments,taking into account the ratings assigned to the company by credit rating agencies and the market prices for the company’s securities. Our credit view of a company is based upon our opinion as to whether the company will be ableservice its debt obligations when they become due and payable. We assess this by analyzing, among other things, the company’s credit position using standard credit ratios such as cash flow to debt and fixed charge coverage(including and excluding capital investment). We also analyze the company’s ability to generate cash flow by reviewing standard operational measures for comparable companies in the sector, such as revenue and earnings growthrates, margins, and the composition of the company’s balance sheet relative to the operational leverage in its business.Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy ofthe Option Clearing Corporation’s Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC’s website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf.Legal Entities DisclosuresJ.P. Morgan is the global brand name for J.P. Morgan Securities Inc. (JPMSI) and its non-US affiliates worldwide. U.S.: JPMSI is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA.JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorizedand regulated by the Financial Services Authority. Registered in England and Wales No. 2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the JohannesburgSecurities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong.Korea: J.P. Morgan Securities (Far East) Ltd., Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC andJ.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P. Morgan Securities (Taiwan) Limited is a participant of the Taiwan StockExchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited is a member of the National Stock Exchange of India Limited and Bombay Stock Exchange Limited andis regulated by the Securities and Exchange Board of India. Thailand: J.P. Morgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities andExchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member ofthe Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil.Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission.Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 020/01/2010 and Co. Reg. No.: 199405335R] which is a member of the Singapore ExchangeSecurities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore Branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issuedand distributed in Malaysia by J.P. Morgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commissionin Malaysia. Pakistan: J.P. Morgan Pakistan Broking (Pvt.) Ltd. is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd.is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai FinancialServices Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.Country and Region Specific DisclosuresU.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance withJPMSL’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require that a firm to establish, implement and maintain such a policy. This reporthas been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as “relevant persons”).This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only withrelevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to“wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For thepurposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd.,Frankfurt Branch and JPMorgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfiesthe requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, thedisclosure may be based on the month-end data from two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan Structured Products B.V. and listed on theStock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk/prod/dw/Lp.htm. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the caseof share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, J.P. Morgan Securities Japan Co. Ltd. will be receiving a brokerage fee and consumption tax(shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between J.P. Morgan Securities Japan Co. Ltd. and the customer in advance. Financial Instruments Firms:J.P. Morgan Securities Japan Co. Ltd., Kanto Local Finance Bureau (kinsho) No. [82] Participating Association/Japan Securities Dealers Association, The Financial Futures Association of Japan. Korea: This report may havebeen edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd., Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report;for securities where the holding is 1% or greater, the specific holding is disclosed in the Legal Disclosures section above. India: For private circulation only not for sale. Pakistan: For private circulation only not for sale.New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habituallyinvest money. JPMSAL does not issue or distribute this material to members of “the public” as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third partyor outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offerto sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only underan exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from thedealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any provinceor territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a provinceor territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment uponthese materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offense.General: Additional information is available upon request. Information has been obtained from sources believed to be reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant itscompleteness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securitiesdiscussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intendedas an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended asrecommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein.JPMSI distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements,market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.Copyright 2010 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. Revised January 4, 2010.

J.P. Morgan Securities Incorporated270 Park Avenue

New York, NY 10017

J.P. Morgan Securities Limited125 London Wall

London EC2Y 5AJ

JPMorgan Bank S.A.Av Paseo DeLas Palmas

405 Col Lomas de Chapultepec, Mexico City, 11000

Mexico

Banco J.P. Morgan S.A.Av. Brigadeiro Faria Lima

Numero 3729São Paulo, 04538

Brazil

JPMorgan Chase Bank Buenos Aires

Av. Eduardo Madero 900, Piso 22 y 23, Buenos Aires,

C1408BRP Argentina

J.P. Morgan Securities (Asia Pacific) LimitedCharter House, 26/F

8 Connaught Road CentralHong Kong

JPMorgan Chase Bank, N.A.,Singapore Branch

168 Robinson RoadSingapore, 068912

Singapore

J.P. Morgan Securities(Far East) Ltd. Seoul Branch34-35 Jeong-dong, Jung-gu

SeoulRepublic of Korea

J.P. Morgan India Private LimitedNariman Point

Mumbai, 400 021India

J.P. Morgan Chase Bank (China) Co. Ltd.

No. 1601, Nanjing West Road,Jing’An District

Shanghai, 200040 China

J.P. Morgan Securities Japan Co. Limited

7-3, Marunouchi 2-chomeChiyoda-ku

Tokyo 100-6432, Japan

JPMorgan Chase Bank, N.A.,Istanbul Branch

Buyukdere Caddesi No. 185Kanyon Ofis Blogu Kat:8

Istanbul, 34394 Turkey

J.P. Morgan Bank International LLCPaveletskaya Square 2

Building 1Moscow, 115054

Russian Federation

JPMorgan Chase Bank, N.A.,Johannesburg Branch1 Fricker Road, IllovoJohannesburg, 2196

South Africa

JPMorgan Chase Bank, N.A., Dubai Branch

Dubai Int’l Financial CentreBuilding 3, Level 7,

PO Box 506551, Dubai, UAE

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report (or, where multiple research analysts are primarily responsible for this report or sections within,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’scompensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Conflict of Interest: This research contains the views, opinions and recommendations of J.P. Morgan credit research analysts and research strategists. Research analysts and strategists routinelyconsult with J.P. Morgan trading desk personnel in formulating views, opinions and recommendations in preparing research. Trading desks may trade, or have traded, as principal on the basisof the research analyst(s) and strategist(s) views and report(s). Therefore, this research may not be independent from the proprietary interests of J.P. Morgan trading desks which may conflictwith your interests. In addition, research analysts and strategists receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, trading desk and firm revenuesand competitive factors. As a general matter, J.P. Morgan and/or its affiliates normally make a market and trade as principal in fixed income securities discussed in research reports.

Documents

24869449 JPM Emerging Markets Outlook and Strategy 2010-01-06