Economic & Investment Update

July 2014James HoltZurich Investments

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General advice warning

This information is general in nature and does not take into account personal objectives, financial situations or needs of any person. It is not a personal recommendation about any securities or stocks mentioned.

This presentation has been prepared specifically for the exclusive use of financial advisers, researchers and trustees. It is not to be published without the prior written consent of Zurich Financial Services Australia Limited ABN 11 008 423 372.

Please consider the important information slide at the back of this presentation.

Any investment objectives do not represent a guarantee of performance, return or income. Past Performance is not a reliable indicator of future performance.

Zurich Investment Management Limited ABN 56 063 278 400 AFSL 2325115 Blue Street North Sydney NSW 2060 Phone 1800 500 655 (Zurich Investments)

PNOE–009109-2014

Agenda

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Macro Backdrop

Key economic developments

Investment considerations & Outlook

• Corporations are financially strong and continue to drive efficiency to protect and grow profits

• Global monetary policy remains highly accommodative; the cost of money is cheap

• The global financial system is on sturdier footing

• Commodity and labor inflation remain subdued

Macro backdrop - Environment supportive of future growth

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5

Global leading indicators still solid

Source: Bloomberg

1/06/2011 1/12/2011 1/06/2012 1/12/2012 1/06/2013 1/12/201340

42

44

46

48

50

52

54

56

58

Regional Manufacturing PMIs

US Eurozone Japan China Expansion

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How long will the expansion last?- We can look a previous expansions

• Current expansion 59 months (May)

• Last 3 expansions were:- 73 months (2001-2007)- 120 months (1991-2001)

- 92 months (1982-1990)

= average 95 months

Source: KKR

0 20 40 60 80 100 120 140

December 1900 - September 1902

August 1904 - May 1907

June 1908 - January 1910

January 1912 - January 1913

December 1914 - August 1918

March 1919 - January 1920

July 1921 - May 1923

July 1924 - October 1926

November 1927 - August 1929

March 1933 - May 1937

June 1938 - February 1945

October 1945 - November 1948

October 1949 - July 1953

May 1954 - August 1957

April 1958 - April 1960

February 1961 - December 1969

November 1970 to November 1973

March 1975 - January 1980

July 1980 - July 1981

Nov 1982 - July 1990

March 1991 - March 2001

Nov 2001 - Dec 2007

June 2009 to now

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USA - Still room for many sectors to grow

1959-01-01 1969-01-01 1979-01-01 1989-01-01 1999-01-01 2009-01-010

500

1000

1500

2000

2500

3000

US housing starts

55 year average

Housing normally peaks at 2 to 2.5

million units

Source: Federal Reserve of St Louis

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USA - Energy revolution

• Energy self sufficiency ahead?

• Huge competitive advantage• Energy prices• Feedstock• US industry to benefit

• “Onshoring”

Source: iStockphoto

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Europe - Righting the ship

• “Whatever it takes”• Core showing signs of life• Periphery accessing bond

markets

• BUT• Unemployment problems• Action recently taken to

address deflationary pressures• Geopolitical tensions

Source: Google images

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The ECB acts - But scope for further expansion

• Low core inflation provokes

ECB response

• Number of measures including cutting deposit rate to -0.1%

• Targeted LTRO over four years

• Additional QE very possible

ECB balance sheet

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Japan: Abenomics working..so far

Source: Bloomberg

• Prime Minister Abe’s second coming

• Three arrows• Aggressive monetary

policy• Public works spending• Private sector reforms

• Stock market up 57% in 2013, has been volatile – best since 1972

• Other nationalistic policiesJan 2009 to Mar 2014

Jan-

2009

May-2

009

Aug-2

009

Dec-2

009

Mar-2

010

Jul-2

010

Oct-2

010

Feb-

2011

May-2

011

Sep-

2011

Dec-2

011

Mar-2

012

Jul-2

012

Oct-2

012

Feb-

2013

May-2

013

Sep-

2013

Dec-2

013

6000

8000

10000

12000

14000

16000

18000

2013 marked best calendar year

return since 1972

Nikkei

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China: Challenges & Choices

Source: Bloomberg

• Third Plenum policies

• Crackdown on credit • “SHIBOR”

• Policy induced slowdown• Excess capacity still

needs addressing

• Labour costs increasing• Double edged sword

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Australia - Economic transition

From this… To this?

Source: iStockphoto

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Iron ore

Jun-

2009

Jan-

2010

Aug-

2010

Mar

-201

1

Oct-2

011

May

-201

2

Dec-2

012

Jul-2

013

Feb-

2014

50

70

90

110

130

150

170

190

Oreful

Iron ore spot

-

10

20

30

40

50

Australian Iron ore exports to China

mm tonnes, total volume

$dm

t

Source: Bloomberg

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Australia - East coast transition

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Budget recap - “Contribute and build”

• Increasing the retirement age to 70 by 2035• Bring back indexation of fuel excise• Cuts to welfare; From the “cargo net” to the safety net

– Reduce threshold for family benefits– Paid parental scheme stays, but at lower threshold

• Introduction of a Medicare co-payment• “Temporary” deficit levy on high income workers• Scythe through government agencies• $40 billion road building plan, plus additional state and private

sector funding

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How will confidence hold up? - Consumer confidence

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How will confidence hold up? - Business sentiment

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Recent and current environment•Equity & fixed income markets are being driven by policy developments•Monetary policy is encouraging rent-seeking, discouraging wealth creation

Manage risk

•Cannot outright dismiss possible unfavorable outcomes of extreme monetary policy:

•Focus on balance sheet strength

•Avoidance of investments predicated on the revival of a cycle based on borrowing, asset leverage and consumer spending•Avoidance of Europe (that are not global companies)

Position for long term wealth creation in a low growth world

•Digital technology shift in business models driving efficiency as a source of wealth creation rather than scale •Knowledge over capital

•Shale hydrocarbons in North America (also geopolitical risk diversifier)

•On-shoring in the US

Investment considerations

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Outlook

Europe Stuttering, but all four major economies expected to grow in 2014.Policy error remains a risk. Further action possible to counter deflationary threat.Tensions in Ukraine a clear concern, though recent developments more positive

USA Economic data improving following the winter freeze.Tapering progressing. How long until interest rates move?The energy revolution should not be underestimated in the US.

China Policy induced economic slowdown.Crackdown on shadow banking, watch corporate defaults and “WMPs”.Overcapacity in many industries unresolved.

Australia RBA removes easing bias on interest rates with upbeat assessment on economic progress and housing recovery on east coast. Watch for prolonged adverse impacts from budget announcement.Ongoing focus on cost control by Australian companies.

Source: Zurich Investments

Important information

This information, dated June 2014, is given in good faith and has been derived from sources believed to be accurate as at this date and is subject to change. However, it should not be considered as a comprehensive statement on, or study of, any matter and should not be relied on as such.

Neither Zurich Investments nor any related entities, or any of their employees or directors give any warranty of reliability or accuracy and to the fullest extent possible under law, accept no responsibility arising in any way whatsoever including by reason of negligence for errors or omissions.

Investors should consider the relevant Zurich Investments PDS when making financial decisions about an investment in any fund. The relevant PDS is available from your financial adviser or Zurich.

Zurich Investments Australia’s funds are not available for investment to US residents, US citizens or US nationals. They are not to be marketed, promoted and must not be offered in any way to US citizens, US nationals or US residents. The Funds are not regulated by the SEC under any U.S securities or US Insurance laws.

The issuer of the relevant Fund’s PDS is Zurich Investment Management Limited ABN 56 063 278 400 AFSL 232511, GIIN FVHHKJ.00012.ME.036 of 5 Blue Street North Sydney NSW 2060 Australia (Zurich Investments).