Craig JamesChief Economist, CommSec, March 2011

The New ‘Normal’ Opportunities in a post-GFC world

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Important information

This presentation has been prepared without taking account of the objectives, financial situation or needs of any particular individual. Before acting on the information in this seminar, you should consider its appropriateness to your circumstances and, if necessary, seek appropriate professional advice.

Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and a Participant of the ASX Group.

Examples used in this presentation are for illustrative purposes only.

New ‘Normal’

Ascent of ChinaImportance of commoditiesConsumer conservatismTight job marketsGlobal investment marketsHigher Australian dollarInterest rates under regular review

Issue: Global economySo What? Exchange rates, trade, sharemarket, interest rates

Drivers of world economy -Contribution to growth 2011

China 0.81%

United States 0.74%

India 0.18%

Japan 0.14%

Newly Industrialised Asia* 0.13%

Germany 0.13%

ASEAN 5 # 0.12%

Brazil 0.11%

Russia 0.10%

United Kingdom 0.08%

France 0.07%

Canada 0.05%

Other countries 1.70%

World 4.40%Source: IMF & CommSec* Newly industrialised Asia – Hong Kong, Taiwan, Singapore and South Korea# ASEAN 5 – Indonesia, Malaysia, Thailand, Philippines and Vietnam

Issue: InflationSo What? Interest rates, social stability, consumer spending

Issue: ClimateSo What? Retail, transport, agriculture, insurance, construction

Highest levels for theSouthern Oscillation Index

(SOI) August 1917 34.8April 1904 31.7November 1973 31.6December 2010 27.1June 1950 26.9Source: BOM & CommSec

Codrington, Stephen. Planet Geography 3rd Edition (2005)

Issue: Mining boomSo What? Interest rates, investment, economic policy

Drivers of the Australian economy 2007 – 2010, % contribution to the change in GDP

Mining 17.4%Professional, scientific and technical services 11.9%Construction 11.6%Financial and insurance services 10.8%Agriculture, forestry and fishing 10.8%Healthcare and social assistance 9.7%Education and training 5.1%Public administration and safety 5.1%Transport, postal and warehousing 3.8%Wholesale trade 3.5%Source: ABS & CommSec

More than just mining…

Mining, construction & transport grow…manufacturing, utilities, rural lose ground…

Issue: Job marketSo What? Interest rates, spending, costs, migration

Job creation 2010

Total 368,600 3.3%65+ 18,200 5.9%25-34 139,200 5.7%55-64 75,400 5.0%45-54 56,400 2.3%35-44 53,200 2.1%15-24 26,100 1.3%Source: ABS & CommSec

Issue: SpendingSo What? Winners/losers, interest rates, stock pickers

Relax at home with a good book –Selected sectors

December quarter 2010Inflation adjusted spending Quarter

changeNewspapers, books 6.1%Hardware, building & garden 5.4%Clothing retailing 4.2%Furniture, floor covering 3.2%All retail -0.3%Supermarkets -0.3%Sporting goods, toys -1.3%Cafes, restaurants -7.3%Footwear, jewellery -8.4%Source: ABS & CommSec

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Issue: HousingSo What? Builders, building materials, interest rates

Issue: Housing pricesSo What? Asset allocation, wealth, spending

Issue: Interest ratesSo What? Fixed/floating, asset allocation, returns

Issue: CurrencySo What? Asset allocation, budgeting, profitability, competition

Issue: SharesSo What? Returns, portfolios, investor education, active/passive

Issue: PortfoliosSo What? Risk versus return, diversification, history & view

CommSec forecasts

ForecastsEconomic growth 2.75-3.00% in 2010/11 3.50% in 2011/12

Inflation 2.75% in 2010/11 2.75%-3.00% in 2011/12

Unemployment 4.75-5.00%, mid 2011 4.25-4.50%, end 2011

Cash rate 5.00%, mid 2011 5.50%, end 2011

Sharemarket (Australian)

5,100 points, mid 2011 5,400 points, end 2011

Australian dollar US99c in June 2011 US92c in December 2011

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