Market volatility and its impact on Australian and international share markets

1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. What this means for Australian investors 5. Volatility in perspective

Many factors contributing to ongoing volatility High inflation A worsening of the global ‘credit crunch’ Market volatility Increasing fears of a global recession Deterioration of US & global financial systems

The global ‘credit crunch’ takes hold The global ‘credit crunch’ has worsened, with some major US and global financial institutions faltering The outlook for global growth has deteriorated and there are now genuine fears the global economy is headed for a recession High inflation is still a concern for the world’s central banks, particularly as they struggle to stimulate economic growth.

2. How has volatility affected the Australian market? 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. What this means for Australian investors 5. Volatility in perspective

S&P/ASX 300 Accumulation Index – 12 months to 30 September 2008 Rising market volatility has seen the Australian share market fall 33% in the past year S&P/ASX 300 Accumulation Index – 12 months to 30 September 2008

S&P/ASX 300 Accumulation Index – 10 years to 30 September 2008 …but it remains at elevated levels over the long-term, up 174% over the last 10 years! S&P/ASX 300 Accumulation Index – 10 years to 30 September 2008

3. A quick look at international markets 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. What this means for Australian investors 5. Volatility in perspective

Market volatility has affected all markets, not just our own… Major international markets – 12 months to 30 September 2008 S&P500 (US) (-23.6%) FTSE 100 (UK) (-24.2%) DJ Euro Stoxx 50 (Europe) (-30.7%) Nikkei 225 (Japan) (-32.9%)

The global share market has fallen over 19% in the past year… Global share markets – 12 months to 30 September 2008

4. What does this means for Australian investors? 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. What does this means for Australian investors? 5. Volatility in perspective

What does all this mean for Australian investors? Market volatility is expected to continue. Most asset classes other than cash look set to post a negative return this year From a valuation perspective, recent market declines are bringing some asset classes back to attractive levels We could begin to see signs of better market performance early in 2009 The Australian economy is likely to slow, reflecting conditions in the US and Europe. It has, however, held up well compared to its global counterparts

What about the longer-term outlook? Global economic outlook remains uncertain Global growth will continue to slow with the possibility of a lengthy recession Outlook for Australian economy is a little better, supported by a healthy government surplus, ongoing commodities demand from China and India, RBA’s move to lower interest

5. Volatility in perspective 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. What this means for Australian investors 5. Volatility in perspective

Growth assets delivered strong returns last year, however, most affected by volatility this year…

Volatility can hurt returns in the short term… Annual returns of Australian shares (%) – All Ords / ASX S&P Accumulation Index (since 1956) -30 -20 -10 10 20 30 40 50 60 70 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

…but it’s a different picture over the longer term Rolling 5 year returns of Australian shares (% annualised) – All Ords / ASX S&P Accumulation Index (since 1960) -10 -5 5 10 15 20 25 30 35 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

And the longer the better! Rolling 10 year returns of Australian shares (% annualised) – All Ords / S&P Accumulation Index (since 1965) -10 -5 5 10 15 20 25 30 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007