Market volatility and Australian and international markets: a special presentation from BT for advis

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Market volatility and its impact on Australian
and international share markets
Prepared by BT Financial Group for the adviser
market Updated to 30 June 2008
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1. Whats contributing to current market
volatility?
2. How has volatility affected the Australian
market?
3. A quick look at international markets
4. Volatility in perspective
5. What this means for Australian investors
6. BTs approach to managing volatility
7. And insights for investors
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Many factors contributing to ongoing volatility
US sub-prime crisis and resulting global
credit-crunch slowing growth
Seven consecutive interest rate rises in two
years, over geared investors de-leverage
Market volatility
Strength of Aus and fears of US recession
Rising price of oil
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Inflation now a key contributor

• Early in 2008, there was concern the credit
  crunch and weakening US economy would lead to a
  significant slowdown in global growth.
• Outlook for global growth now appears better than
  anticipated, helped by continued strong
  commodities demand from emerging markets.
• However, strong demand for commodities
  (particularly oil) means strong commodity prices
  a key contributor to upward inflationary
  pressures.
• Combating rising inflation has now become a key
  concern for the worlds central banks.

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1. Whats contributing to current market
volatility?
2. How has volatility affected the Australian
market?
3. A quick look at international markets
4. Volatility in perspective
5. What this means for Australian investors
6. BTs approach to managing volatility
7. And insights for investors
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Rising market volatility has seen the Australian
share market fall 13 in the 12 months to 30 June
2008
SP/ASX300 Accumulation Index 12 months to 30
June 2008
Series Rebased 30th June 2007 100
Source BT Financial Group, Bloomberg
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but it remains at elevated levels over the
long-term, up 197 over the last 10 years!
SP/ASX300 Accumulation Index 10 years to 30
June 2008
Series Rebased 30th Jun 1998 100
Source BT Financial Group, Bloomberg
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1. Whats contributing to current market
volatility?
2. How has volatility affected the Australian
market?
3. A quick look at international markets
4. Volatility in perspective
5. What this means for Australian investors
6. BTs approach to managing volatility
7. And insights for investors
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Market volatility has affected all markets, not
just our domestic market.
Major international markets 12 months to 30
June 2008
SP500 (US) (-14.9)
FTSE 100 (UK) (-14.9)
DJ Euro Stoxx 50 (Europe) (-25.3)
Nikkei 225 (Japan) (-25.6)
Series Rebased 30th June 2007 100
Source BT Financial Group, Bloomberg
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And the global share market has fallen over 21
in the 12 months to 30 June 2008.
Global share markets 12 months to 30 June 2008
Series Rebased 30th June 2007 100
Source BT Financial Group, Bloomberg
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1. Whats contributing to current market
volatility?
2. How has volatility affected the Australian
market?
3. A quick look at international markets
4. Volatility in perspective
5. What this means for Australian investors
6. BTs approach to managing volatility
7. And insights for investors
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Growth assets delivered strong returns last year,
however, most affected by volatility this year
1-year returns ()
Source Bloomberg market benchmark returns
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Annual returns of Australian shares () All
Ords / ASX SP Accumulation Index (since 1956)
Volatility can hurt returns in the short term
Source Standard Poors
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Rolling 5 year returns of Australian shares (
annualised) All Ords / ASX SP Accumulation
Index (since 1960)
but its a different picture over the longer
term
Source Standard Poors
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Rolling 10 year returns of Australian shares (
annualised) All Ords / SP Accumulation Index
(since 1965)
And the longer the better!
Source Standard Poors
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1. Whats contributing to current market
volatility?
2. How has volatility affected the Australian
market?
3. A quick look at international markets
4. Volatility in perspective
5. What this means for Australian investors
6. BTs approach to managing volatility
7. And insights for investors
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What does this mean for Australian investors?

• Economy still robust with low unemployment, high
  commodity prices - we expect the Australian
  economy will hold its own in the near-term.
• Investors concerned the RBA may raise interest
  rates in the second half of 2008, which could
  impact on the Australian consumer.
• Weaker consumption could offset the growth were
  seeing in the stronger resources and
  infrastructure sectors.
• Interest rate rises also mean an increase in cost
  of capital. Re-evaluating and repricing the
  outlook for funding is contributing to short-term
  market movements.
• Short-term volatility to continue. The Australian
  market should start to recover when RBA is
  satisfied inflation has been contained, and
  commodity prices have stabilised.

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And what is the longer-term outlook?

• The threat of rising inflation and subsequent
  higher interest rates will remain a concern for
  central banks, and this will probably limit
  global growth over the next year or so.
• Australia continues to be influenced by global
  markets battling inflationary pressures, a
  slowdown in global economic growth, and a view
  that emerging markets growth may be
  unsustainable.
• However, we will continue to benefit from the
  continuing urbanisation in China and India,
  boosting the performance of our big miners and
  underpinning Australias growth rates.
• The income return from Australian shares is now
  much more attractive than that from bonds, which
  should provide an additional boost for share
  prices.

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1. Whats contributing to current market
volatility?
2. How has volatility affected the Australian
market?
3. A quick look at international markets
4. Volatility in perspective
5. What this means for Australian investors
6. BTs approach to managing volatility
7. And insights for investors
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Diversify, focus on risk, invest in quality

• One of BTs strengths is that we always focus on
  the right levels of diversification and risk
  within our portfolios, whether its Australian
  shares, listed property or fixed income.
• Our focus on diversification, risk management and
  investment insight is what prevents BTs
  portfolios from being damaged excessively in the
  sort of down market were seeing now.
• We continue to ensure we have the right valued
  stocks in our portfolios by investing in
  companies with secure cash flows, limited
  expectations in their valuations and sound
  management teams.
• At BT, were happy in our ability to sidestep
  some of the blow ups that have really triggered
  the downturn in the last six - nine months.

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1. Whats contributing to current market
volatility?
2. How has volatility affected the Australian
market?
3. A quick look at international markets
4. Volatility in perspective
5. What this means for Australian investors
6. BTs approach to managing volatility
7. And insights for investors
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Ten investing truths

• Insights into successful investing

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Dont panic invest for the long-term
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Maintain your composure and always keep the end
goal in sight
Impact of major market events on global shares
since 1986
Global shares measured by the MSCI World
ex-Australia (net dividends) Index in A to 30
June 2008. Source BT Financial Group, MSCI
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Understand risk
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All investing involves a trade-off between risk
and return
Australian shares, one year returns - Greater
volatility over the short-term
Australian shares, five year returns - Reduced
volatility over the long-term
1985
2005
2000
1995
1990
Source Datastream. SP/ASX 300 Accumulation
Index annualised returns to 30 June 2008 shown
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Diversify your investments
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The more you spread your investments, the less
chance you have of losing money
Shares
Property
Cash
Fixed interest
Individual securities
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Every asset class has time in the sun
Best performer each year ()
Source Australian Bank Bill 0 Index, SP/ASX
300 Accumulation Index, MSCI World ex-Australia
(net dividends) Index in A, SP/ASX 300 Property
Index, UBS Composite 0 years index, Citigroup
World Government Bond, Unhedged in A
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Diversification also applies to regions
World share market values ()
Japan
Asia (ex-Japan)
Australia
UK
US
Europe
Source MSCI World Index as at 30 June 2008
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Avoid chasing returns
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Can you pick next years winner?
One-year returns to 30 June ()
Best performing asset class for each year is
highlighted. Source Australian Bank Bill 0
Index, SP/ASX 300 Accumulation Index, MSCI World
ex-Australia (net dividends) Index in A, SP/ASX
300 Property Index, UBS Composite 0 years index,
Citigroup World Government Bond, Unhedged in A
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Dont forget time is on your side
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Enrol in a get rich slowly program the power of
compound interest
Assumptions 8 p.a. interest, all
reinvested Source BT Financial Group
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Time, not timing, is important
June 1998- June 2008
Full 2,609 trading days
Minus the 10 best days
Minus the 20 best days
Minus the 30 best days
Minus the 40 best days
Minus the 50 best days
Minus the 60 best days
Minus the 70 best days
-3.98
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What is dollar cost averaging?
Total value
Units purchased
Unit price
Investment
Month
100
10.0
10
100
January
Note No allowance made for inflation, taxation,
fees or expense Source BT Financial Group
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Find hidden value
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The best investment research processes unlock
hidden value
Research analysis
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Employ experts
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Even the smartest investors (including many
corporate investors) use managed funds

• A managed fund provides investors with
• More convenient investing
• Broader diversification with less investment
  dollars
• Professional fund managers who monitor and
  actively manage your portfolio
• Economic research and specific company
  information
• Assets not available to individual investors
• Alternative styles of investment strategies

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Seek professional advice
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What is your main information source for making
investment decisions?
Financial adviser/accountant
Magazines/newspapers
Why do senior executives, sports stars,
politicians and entertainers all get expert help
to manage their money?
Other family members
Spouse/partner
Internet
Friends
Other
None/dont know
Source BT Investor Poll, October 2004
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What you get from your financial adviser
1. A holistic approach
Expertise
2. Asset allocation
Efficiency
3. Security selection
4. An education
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Tax-effective investing
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Tax-effective investing

• Focus on the after-tax return, not the tax
• Prepay your interest it may be tax-effective
• Hold on to your investment for more than a year
• Invest through superannuation
• Invest in companies that offer franking credits
• and seek tax advice!

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Benefits of dividend imputation
Note Tax rates current as at 1 July 2007 Source
BT Financial Group
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Its all about income
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What defines asset value?

• What defines asset value?
• The present value of both current and future
  (expected) income
• Investing in value
• Asset prices move toward income-based value in
  the long-term
• Investors profit from buying assets priced below
  value and selling when prices rise above it

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• This presentation has been prepared by BT
  Financial Group Limited (ABN 63 002 916 458) BT
  and is for general information only.  Every
  effort has been made to ensure that it is
  accurate, however it is not intended to be a
  complete description of the matters described. 
  The presentation has been prepared without taking
  into account any personal objectives, financial
  situation or needs.  It does not contain and is
  not to be taken as containing any securities
  advice or securities recommendation. 
  Furthermore, it is not intended that it be relied
  on by recipients for the purpose of making
  investment decisions and is not a replacement of
  the requirement for individual research or
  professional tax advice.  BT does not give any
  warranty as to the accuracy, reliability or
  completeness of information which is contained in
  this presentation.  Except insofar as liability
  under any statute cannot be excluded, BT and its
  directors, employees and consultants do not
  accept any liability for any error or omission in
  this presentation or for any resulting loss or
  damage suffered by the recipient or any other
  person.  Unless otherwise noted, BT is the source
  of all charts and all performance figures are
  calculated using exit to exit prices and assume
  reinvestment of income, take into account all
  fees and charges but exclude the entry fee.  It
  is important to note that past performance is not
  a reliable indicator of future performance.
• This document was accompanied by an oral
  presentation, and is not a complete record of the
  discussion held.
• No part of this presentation should be used
  elsewhere without prior consent from the author.
• For more information, please call BT Customer
  Relations on 132 135 800am to 630pm (Sydney
  time)