BT Monthly Markets Chart Pack – July 2008

An overview of movements in global financial markets

2

Global share markets mixed in July...

July was a mixed month for global share markets as a deteriorating outlook for the world economy and the re-emergence of problems in global credit markets were tempered by a significant drop in the price of crude oil.

For the second month in a row the Australian share market closed lower, with the S&P/ASX 200 Accumulation Index returning -4.6% in July thanks mainly to declines in the local Resources and Financials sectors. The deteriorating outlook for the global economy also contributed to the losses. So far this year the Australian market is down 19.8%, outpacing declines in the UK (-16.2%), Japan (-12.6%) and the US (-13.7%).

3

Global shares measured by the MSCI World ex-Australia (net dividends) Index in A$.Source: BT Financial Group, MSCI

Impact of major market events on global shares since 1986

…but continue to perform well over the long-term, despite some major market events

700

1,200

1,700

2,200

2,700

3,200

3,700

4,200

4,700

5,200

5,700

6,200

Jul-86 Jul-88 Jul-90 Jul-92 Jul-94 Jul-96 Jul-98 Jul-00 Jul-02 Jul-04 Jul-06 Jul-08

Jan 91Gulf War

Feb 94Bond Market Crash

Aug 97Asian Currency Crisis

Jul 98Russian Bond Crisis

Jul 01Tech Wreck

Sep 01Attack on Twin Towers

Jun 07US Sub-prime Crisis

Oct 87Wall Streetcrash

Nov 89Fall of the Berlin Wall Mar 03

Troops enter Iraq

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Source: BT Financial Group, Premium Data

S&P/ASX 200 Accumulation Index – 2008

The Australian share market closed July 4.6% lower

31,000

32,000

33,000

34,000

35,000

36,000

37,000

38,000

39,000

40,000

41,000

31/12/2007 31/01/2008 29/02/2008 31/03/2008 30/04/2008 31/05/2008 30/06/2008 31/07/2008

5

Key Australian economic news – July

The Reserve Bank of Australia (RBA) left interest rates on hold at 7.25% following its early August meeting. The RBA looks set to leave interest rates on hold for now as it tries to balance rising prices and a slowing economy, though an interest rate cut by the end of the year remains a possibility.

Retail trade fell 0.1% in June, it’s biggest drop in six years. The fall came after a revised rise of 0.9% in May. The market had expected a rise of 0.2%.

29,800 jobs were added in June, much more than had been expected, while the unemployment rate ticked down 0.1% (to 4.2%).

Australia’s trade balance was in surplus by $411 million in June, following a deficit of $253 million in May.

Headline inflation figures came in stronger than expected in the June quarter, up 1.5% versus an anticipated rise of 1.2% and continuing the pattern seen around the world in recent months.

Source: BT Financial Group

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The Australian dollar fell in July

The Australian dollar (A$) closed the month lower against the US dollar as the threat of any more domestic interest rate hikes began to fade. With commodity prices still at high levels, the trend in the A$ is likely to remain up in the near-term, though we can probably expect it to fall back eventually as the market moves to price in rate cuts either later this year or early next year.

At the end of July:

A$1 bought US$0.9417 -1.7%

€0.6039 -0.7%

¥101.54 flat

Source: BT Financial Group

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Currency markets – A$ per US dollar

Source: BT Financial Group. Figures at 31 July 2008.

0.6000

0.6500

0.7000

0.7500

0.8000

0.8500

0.9000

0.9500

1.0000

Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

The Australian dollar versus the US dollar…

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Currency markets – A$ per Euro

the Euro…

0.5600

0.5700

0.5800

0.5900

0.6000

0.6100

0.6200

0.6300

0.6400

0.6500

Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

Source: BT Financial Group. Figures at 31 July 2008.

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and the Yen

70

75

80

85

90

95

100

105

110

Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

Currency markets – A$ per Yen

Source: BT Financial Group. Figures at 31 July 2008.

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Official world interest rate movements – July

The European Central Bank raised interest rates a further 0.25% (to 4.25%) in July. It was the Bank’s first rate hike since June last year. Elsewhere, the Bank of England, the Bank of Japan and the Reserve Bank of Australia (in early August) left their benchmark interest rates on hold. The US Federal Reserve didn’t meet in July.

Current rate Last movedDirection of last move

Australia 7.25% Mar 2008

US 2.00% Apr 2008

Europe (ECB) 4.25% Jul 2008

Japan 0.50% Feb 2007

United Kingdom 5.00% Apr 2008

Source: BT Financial Group

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Source: BT Financial Group

31 July 2008

Global share market returns

1 year 3 years (pa) 5 years (pa)

Global

S&P 500 Index (US) -12.91% 0.89% 5.06%

Nasdaq (US Tech.) -8.67% 2.10% 6.03%

Nikkei 225 (Japan) -22.45% 3.98% 6.94%

Hang Seng (Hong Kong) -1.96% 15.17% 17.53%

DAX (Germany) -14.56% 9.86% 13.19%

CAC (France) -23.63% -0.45% 6.47%

FTSE 100 (UK) -14.91% 0.81% 5.42%

Australia

S&P/ASX 200 Accum. Ind. -15.60% 8.70% 14.44%

S&P/ASX Small Ordinaries -24.02% 9.50% 15.59%

S&P/ASX 300 Listed Prop. -37.93% -4.77% 4.08%

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Short-term asset class performance

Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

1-year rolling returns to 31 July 2008 (%) Best performing asset class for the year

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993

Australian cash

7.49 6.47 5.77 5.66 5.38 4.92 4.68 5.99 5.67 5.01 5.07 6.54 7.83 7.26 4.94 5.81

Australian bonds

5.58 4.60 3.03 7.82 3.67 7.71 6.86 7.84 5.47 3.29 8.72 16.01 13.33 10.50 -2.06 12.42

Australian property

-37.93 17.42 18.50 17.77 20.10 14.50 12.26 12.08 11.67 2.47 16.77 27.71 7.08 7.79 -0.09 22.52

Australian shares

-16.01 28.73 18.79 29.02 18.20 5.86 -3.82 5.70 14.49 15.22 3.09 31.05 6.00 7.82 13.02 17.45

International bonds

3.73 -6.04 0.61 -1.31 0.25 -5.98 4.62 15.37 11.64 -0.91 29.16 4.90 -2.38 17.92 -1.15 17.24

International shares

-18.90

6.95 12.63 8.04 8.67 -8.87 -26.95 -7.81 23.52 7.37 37.51 37.73 4.15 13.93 2.72 28.48

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Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

1-year returns to 31 July 2008 (%)

Short-term asset class performance (cont’d)

-18.9

3.7

-16.0

-37.9

5.6

7.0

-6.0

28.7

17.4

4.6

31 July 2007

31 July 2008

Australian bonds

Listed property

Australian shares

Global bonds

Global shares

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Long-term asset class performance

Note: Accumulated returns based on $1,000 invested in December 1984Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

31 July 2008

Australian bonds

Listed property

Australian shares

Cash

Global shares

$0

$1,500

$3,000

$4,500

$6,000

$7,500

$9,000

$10,500

$12,000

$13,500

$15,000

$16,500

$18,000

$19,500

$21,000

$22,500

$24,000

84 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

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Source: BT Financial Group. West Texas Intermediate oil price at 31 July 2008.

Oil prices – US$ per barrel

After spiking above US$147 a barrel early in July, oil prices closed the month lower at just over US$124.

$0

$15

$30

$45

$60

$75

$90

$105

$120

$135

$150

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

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Summary

The underlying strength of the Australian economy relative to its global counterparts looks set to continue in the near-term, though any significant deterioration in global growth will obviously have an adverse effect locally.

Though the RBA left interest rates on hold following its early August meeting, the Bank will no doubt be concerned by the high level of domestic inflation, which currently sits well outside its target band of 2-3%. However, if growth continues to slow as expected, it’s possible that we could see an interest rate cut by the end of the year.

The Australian dollar (A$) looks set to remain at high levels in the coming months, supported largely by high commodity prices. However, if interest rates here do start to fall, we should see the A$ start to slide as well.

Gains in global share markets, including here in Australia, are likely to remain under further pressure in the near-term as global growth continues to slow down.

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