2. A Global Economic and Market Outlook August 2011 Presented by Dr Chris Caton

3. My first cartoon ever 3

4. 4 US Housing starts are bumping along the bottom Source: Datastream (Millions)

5. European government bond spreads (the trouble index!) 5

6. Government debt (% of GDP) 6

7. 7 2011 Growth Forecasts (%) Month of Forecast N-10D-10J-11F-11M-11A-11M-11J-11 Australia3.53.23.12.9 2.7 2.01.9 New Zealand 3.23.32.92.71.1 1.2 1.4 US2.42.73.2 3.12.92.72.5 Japan1.21.11.21.51.40.30.0-0.7 China9.1 9.29.39.49.3 9.2 Germany2.12.22.5 2.62.72.83.33.4 UK2.0 2.11.9 1.81.6 1.5 “World”3.13.23.43.5 3.33.2 Source: Consensus Economics

8. 8 2012 Growth Forecasts (%) Month of Forecast J-11F-11M-11A-11M-11J-11 Australia3.53.7 3.8 4.0 New Zealand 2.93.13.83.9 US3.3 3.23.13.0 Japan2.0 2.12.72.83.23.1 China8.9 9.08.9 8.8 Germany1.8 1.9 2.01.9 UK2.12.22.12.2 2.12.2 “World”3.6 3.73.6 Source: Consensus Economics

9. 9 Financial Market Forecasts Now (5 Aug) End-Dec 2011 End-June 2012 AUD/USD 1.047 1.000.92 Official cash rate (%) 4.75 10 Year Bond yield (%) 4.46 5.005.20 ASX 200 4110 45005000

10. 10 The Australian Dollar and US Trade Weighted Index Source: Datastream IndexAUD/USD US TWI inverted (LHS) AUD/USD (RHS)

11. The exchange rate and interest rate differential 11

12. 12 Australian Sharemarket Performance – ASX200 Source: Bloomberg

13. The Australian market is again cheap (forward P/E ratio) 13

14. The Australian market has underperformed 14

15. World markets are also cheap 15

16. 16 It makes a difference when you buy

17. 17 Real GDP growth in Australia and the US Source: Datastream Year to % change

18. It’s the developing world, stupid 18

19. What goes up... 19

20. 20 The Labour market has done well but employment growth has slowed Source: ABS 000’s% Employment (LHS) Unemployment Rate (RHS)

21. Retail spending has slowed 21

22. And here’s one reason..household saving has risen 22

23. 23 Australian Inflation Source: ABS % BT Forecasts GST Effect

24. Interest rate changes do make a difference! 24

25. House Prices - Australia v Sydney Source: ABS Index (1987 = 100)

26. Prices have fallen everywhere 26

27. 27 Gross Domestic Product Source: ABS % BT Forecasts GST Effect

28. Coal exports are recovering but still have a way to go 28

29. 29 Mining investment (share of GDP)

30. 30 Source: Consensus Economics GDPInflation Australia3.22.7 Norway2.92.3 United States2.82.2 New Zealand2.82.6 Canada2.52.1 Sweden2.42.1 United Kingdom2.22.6 Spain2.1 Switzerland2.01.4 Netherlands1.81.6 Germany1.71.8 France1.72.0 Eurozone1.62.1 Japan1.30.9 Italy1.12.0 Global Medium-Term Economic Growth and Inflation Prospects (2011-2021)

31. 31 Asia-Pacific Medium-Term Economic Growth and Inflation Prospects (2011-2021) GDPConsumer Prices India8.56.1 China7.83.5 Indonesia6.25.5 Malaysia5.13.1 Philippines5.04.7 Thailand4.83.4 Singapore4.62.8 Taiwan4.42.3 South Korea4.03.1 Hong Kong3.83.3 Australia3.22.7 New Zealand2.82.6 Japan1.30.9 Source: Consensus Economics

32. 32 Morgan Stanley Capital Indexes Source: Datastream Developed IndexAsian Emerging Markets Index Asian Emerging Markets Index (RHS) World Developed Index (LHS)

33. 33 Summary  The global economic recovery continues, albeit slowly. The threat of a double dip in the US is exaggerated. Eurozone debt is a serious issue, but unlikely to be a game-changer.  The Australian economy should resume strong growth, led by mining investment.  Rates may still eventually rise further.  The exchange rate is above fair value. The rest of the world is on sale for Australians.  Share markets are cheap.

34. 34 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 8:00am to 6:30pm (Sydney time)

35. 35 Australia’s public debt problem is complete fiction!

37. The Global Financial Asset Market Outlook Felix Stephen Manager Investment Strategy & Research Advance Investment Solutions Advance Asset Management August 2011

38. 38 Trends in Investor Risk Appetite Helps us make Asset Allocation Decisions between Growth and Defensive Assets Source: Credit Suisse & Advance Investment Solutions

39. Mutual Fund Investor Sentiment Surveys Helps us make Asset Allocation Decisions 39 Source: AAII, Advance Investment Solutions

40. 40 CitiGroup Global Economic Surprise Index Helps us Understand Economists/Analysts Biases Source: Bloomberg & Advance Investment Solutions

41. 41 The US Equity Market Appears to be controlled by Fast Money Investors and Technical Factors Source: Bloomberg & Advance Investment Solutions

42. 42 The Australian Equity Market Appears to be controlled by Fast Money Investors and Technical Factors Source: Bloomberg & Advance Investment Solutions

43. 43 Trends in Financial Market Volatility Helps us make Asset Allocation Decisions between Growth and Defensive Assets Source: Bloomberg & Advance Investment Solutions

44. 44 The Outlook for the US Dollar has changed in the Short, Medium and Long-Term....... Source: Bloomberg & Advance Investment Solutions

45. 45 The US Dollar 2 Year Swap / Euro 2 Year Swap spread indicates a strong correlation and a Trend that should benefit the US Dollar Vs the Euro Source: Bloomberg & Advance Investment Solutions

46. 46 The Australian Dollar looks Vulnerable to Move Lower in the Short-Term but Higher in the Long-Term Source: Bloomberg & Advance Investment Solutions

47. 47 The US Dollar 2 Year Swap / AUD 2 Year Swap spread indicates a strong correlation and a Trend that should benefit the US Dollar....However.... Source: Bloomberg & Advance Investment Solutions

48. 48 There continues to be a Bullish Fundamental Backdrop for Commodities as an Asset Class Source: Goldman Sachs & Advance Investment Solutions

49. 49 There continues to be a Bullish Fundamental Backdrop for Commodities as an Asset Class Source: Bloomberg & Advance Investment Solutions

50. 50 Growth of Commodity Exchange Traded Funds (ETF’s) Source: JP Morgan, Bloomberg & Advance Investment Solutions

51. 51 Gold - ETF Flows Source: JP Morgan, Bloomberg & Advance Investment Solutions

52. 52 Equity Vs Commodity Correlations are stable in the Long-term but very unstable in the Short-term Source: Bloomberg, Goldman Sachs & Advance Investment Solutions

53. 53 The US Equity Market is on a Steeper Uptrend Source: Bloomberg & Advance Investment Solutions

54. 54 The US Equity Market is on a Steeper Uptrend Source: Bloomberg & Advance Investment Solutions

55. 55 The superior Equity Earnings yield relative to Bond yield will support global Equity markets Source: Bloomberg & Advance Investment Solutions

56. 56 The superior Equity Earnings yield relative to Bond yield will support global Equity markets Source: Bloomberg & Advance Investment Solutions

57. 57 Forward Equity valuations remain relatively attractive Source: Bloomberg & Advance Investment Solutions

58. 58 The Australian Stock Market will resume its Gradual Uptrend once the Australian Dollar is more attractive Source: Bloomberg & Advance Investment Solutions

59. 59 The superior Equity Earnings yield relative to Bond yield will support Australian Equities Source: Bloomberg & Advance Investment Solutions

60. Forward Equity valuations remain relatively attractive 60 Source: Bloomberg & Advance Investment Solutions

61. 61 The Australian Stock Market will resume its Gradual Uptrend once the Australian Dollar is more attractive Source: Bloomberg & Advance Investment Solutions

62. 62 The Equity Risk Premium Vs. S&P 500 Price change Source: Bloomberg & Advance Investment Solutions

63. 63 Sovereign Bond Yields are expensive and should move higher in Yield in the Medium-Term (10 – Year US Bond chart) Source: Bloomberg & Advance Investment Solutions

64. 64 Although Sovereign Bond Yields are expensive the Australian Debt market should find support because of our credit rating and attractive Yield Source: Bloomberg & Advance Investment Solutions

65. 65 Sovereign Bond Yields are expensive and should move higher in Yield in the Medium-Term (10 – Year US Bond chart) Source: Bloomberg & Advance Investment Solutions

66. 66 Regime Change of Equity/Rate Correlations Occurred in 1997/98 Source: JP Morgan & Advance Investment Solutions

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