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Investor Update

Investor Update. Justin Braitling Director May 2011. Snapshot of Global Economy. Real GDP quarterly % change. Source: IMF. Source: IMF. Source: IMF. Source: IMF. Real GDP quarterly % change. Real GDP quarterly % change. Source: IMF. Source: IMF. Developed World.

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Investor Update

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  1. Investor Update Justin Braitling Director May 2011

  2. Snapshot of Global Economy Real GDP quarterly % change Source: IMF Source: IMF Source: IMF Source: IMF Real GDP quarterly % change Real GDP quarterly % change Source: IMF Source: IMF

  3. Developed World Deleveraging trends continue. Source: IMF Source: IMF

  4. Developing World overheating Output Gaps – percent of potential GDP Source: IMF Source: IMF Capital inflows Source: IMF

  5. Global Economic Outlook • Expect uneven pace of expansion to continue, with soft activity in developed economies supported by robust growth in developing countries.Advanced countries: Following every financialcrisis a period of credit contraction ensures softgrowth for a period often equal in duration to the preceding credit expansion.Key risks to global economic outlook include: • Sovereign debt issues • Inflationary pressures • Banking and housing stability Source: M. Reinhart, “After the Fall”

  6. A Two Speed Australian Economy Record Nominal Growth Adding 4% to GDP

  7. Australian Household Sector Household Savings the highest in 25 years Source RBA Source RBA

  8. Summary: Australian Economy • Australian households continue to act cautiously, curtailing spending and reducing debt. • Soft household spending is impacting broader economic activity, particularly in retail spending. • High Australian dollar weighing on manufacturing and exporters. • Weak balance sheet growth and poor residential property markets creating headwinds for the banking industry. • Overall economic activity is underpinned by strong demand for Australian commodities and resurgent business investment. • Nominal GDP surging, unemployment at 5% and business investment set to take off  all adding pressure to RBA to increase interest rates further.

  9. Sector Highlights Sectors exposed to household deleveraging are struggling: • Retail • Housing Construction • Media Sectors exposed to the high $A are under pressure: • Manufacturing/General industry • Tourism • Exporters Sectors exposed to mining investment are well positioned: • Contractors • Mining services • Resource companies Sectors exposed to buoyant commodity prices are outperforming: • Oil and Gas • Resources

  10. Sector Outlook Banks: Outlook is weak • Weaker credit growth trends continue. • Weak residential property market/household’s deleveraging. • Margins better with benign competitive environment post-GFC. Industrials: Outlook is weak • Delayed recovery in household spending. • $A hampering competitiveness of domestic operations. • Poor productivity trend. • Disruptive industrial relations environment. Resources: Outlook is strong • Strong demand for commodities to continue. • Project delays and increasing costs are risks to be monitored. • Commodity prices have peaked for the time being. • Resource shares in consolidation phase whilst emerging markets tighten. Defensives: Should outperform in challenging environment • Telecommunications; Telstra better placed post NBN deal. SingTel has strong organic growth. • Utilities; Regulated earnings growth. • Life Science; Exciting prospects for emerging companies. • Insurance; Improving premium and participation trends following recent catastrophe losses.

  11. Some solid domestic industrials to consider General Insurance: IAG • Unprecedented catastrophe losses • Strong premium growth • Global insurance cycle hardening Lend Lease: • Company turnaround • Strong contract pipeline • Solid capital management -Valemus deal Life Science: • Mesoblast • QRxPharma • Bionomics

  12. Basic Industries look oversold PaperlinX Preference securities Qantas BlueScope Steel CSR

  13. Source: JBWere Listed Investment Companies, April 2011

  14. Source: JBWere Listed Investment Companies, April 2011

  15. Attribution Long/Short Contribution (3 years)

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