PATHS TO OPPORTUNITY

U.S. industrial resurgence
We believe the industrial resurgence offers a compelling opportunity, and we see a number of ways to participate in this trend at an early stage. For example, in the United States, more than a dozen chemical makers are expanding, and several manufacturers are building new plants.

We see five key reasons behind this trend:

• An abundant supply of natural gas driving cheaper energy costs in the United States
• Significant wage inflation in China and other emerging markets
• Restrained U.S. labor costs
• Demographic trends among working age populations
• A weaker U.S. dollar

Cheaper energy comes courtesy of new horizontal drilling and hydraulic fracturing techniques. These have led to multi-year
lows in U.S. natural gas prices, and have caused electricity costs to fall. As a result, the resurgence has been concentrated in energy-dependent sectors such as metals, machinery, chemicals, plastics and autos. Meanwhile, wages in China have quadrupled in the last decade, eroding the competitive advantage emerging markets have enjoyed over developed nations. The result in the United States has been the highest manufacturing workweek in 40 years, and faster job growth in manufacturing versus services.³

Cheaper U.S. energy and rising labor costs in developing markets are driving the U.S. industrial resurgence.

Natural gas price differentials give the United States an advantage

USD per million metric British thermal units

Source: Bloomberg. As of March 31, 2012.
Past performance is not indicative of future results.

Manufacturing in China is experiencing ferocious wage growth

Source: National Bureau of Statistics, J.P. Morgan Private Bank. As of June 1, 2012.

Source: ISI Group. U.S. payroll employment percent change over 26-month period. As of March 2012.