ABN Correction? What Correction? Mr. James Dunn – Investment Journalist and Commentator - August 2005 ABN AFS Licence Number Presentation to clients of Goodman private wealth advisers

James Dunn Presentation

The Autumn Correction

The Autumn Correction  Market down 7.5% March 21-May 5  Floats rescheduled or postponed  Earnings downgrades – approximately 90 since end December 2004 to 1 May 2005  130 downgrades in total  Investor complacency shaken

Profit downgrades hit share prices  Pacifica down 50%*  PaperlinX down 35%*  PMP down 38%*  Wattyl down 36%*  Repco down 30%* *March peak-May low

Blink – and you missed it!  Market up 11.7% since May 5 – back at record highs  Profit season expectation of 15–25% earnings growth  Investor complacency back in town  But oil – and profit margins – still a worry

The last 12 months - what’s not to like?  S&P/ASX 300 Accumulation Index up 29% for 12 months to 31 July 05  Index up 52.5% July 2003 – July 2005  Strong earnings growth  Best back-to-back FY gains in 18 years

Warning signs that we noted  Many stocks were at record highs  PEs had expanded significantly  Opportunistic floats  Slump in retail spending  Building boom & house price bubble finished

How sustainable is China’s growth?  Measuring China’s economy is difficult  Infrastructure bottlenecks appearing  China trying to cool its economy  Can China do it with limited tools at its disposal?

What about the US?  Fed has raised rates 10 times in 14 months  Twin deficits still growing  US Dollar weakness persisting  Iraq better, but geo-political risk remains  Oil supply and price pressures

Reasons we were cautious…  Second largest current account deficit on record  Investors’ mood was buoyant  Some sectors of economy slowing  Many Industrial P/Es peaked at 20 times earnings  Not gloom but time for reality check

Australia’s strong economy  Record numbers in workforce  Budget surplus swelling  Exports gaining momentum  Business spending taking over from consumers

Company earnings drives shares  Earnings growth slowing  Some P/Es contracting  Market looking for more predictable earnings  Downside should be limited on stocks with good yields

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