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Adrian Harrington April 2001

Spinning the Globe - International Investing. Adrian Harrington April 2001. Deutsche Asset Management (Australia) Limited ABN 11 076 098 596 Licensed Dealer in Securities Past performance is not indicative of or a guarantee of future results.

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Adrian Harrington April 2001

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  1. Spinning the Globe - International Investing Adrian Harrington April 2001 Deutsche Asset Management (Australia) Limited ABN 11 076 098 596 Licensed Dealer in Securities Past performance is not indicative of or a guarantee of future results. Any performance forecasts contained in this presentation are not promises of future performance and are not guaranteed. This presentation is intended to provide a general outline only and is not intended to be a definitive statement on the subject matter. The presentation does not constitute investment advice and should not be relied upon as such.

  2. Deutsche Asset Management Why international? Australia - a tiny part of the pie …. Deutsche Bank Group

  3. Why international? Access to global brands

  4. Access to different sectors Why international? Source: JP Morgan

  5. Why international? Performance Returns in $A Source: IRESS

  6. Why international? Risk/return benefits 50% All Ordinaries50% MSCI World

  7. International exposure Average Balanced Fund Asset Allocation - April 2001 Australian Shares 39.1 Australian Fixed Interest 17.6 Australian Property 8.7 Australian Cash 4.3 Other 0.4 International Shares 24.5 International Bonds 5.4 Source: Intech - Asset Weighted Averages Survey

  8. International performance Returns in Local Currency Source: IRESS

  9. International performance Returns in $A Source: IRESS

  10. Watch the currency Currency movements impact on your returns Reducesforeign market returns in $A terms Aust Dollarrises Investment returns in $US US return buys less $A Increasesforeign market returns in $A terms AustDollarfalls Investmentreturn in $US US return buys more $A

  11. Watch the currency Currency hedging - options • Don’t hedge, ie. buy offshore equities without taking a view on currencies • Fully hedge, ie. buy overseas equities and completely eliminate currency movements from returns • Hedge sometimes - when it is appropriate (which is the position of most funds in Australia)

  12. Risk management Active vs passive investments Risk Outperformance Target%* Active Funds 3 - 8% Medium/High Enhanced Index Funds 1 - 1.5% Low/medium Index Funds Index Low * outperformance relative to a benchmark

  13. Investing internationally • global equity funds • global emerging market funds • global regional funds • global sector funds • global style funds - small or large cap Global investing - the opportunity set is large

  14. Investing internationally Global Equity Funds • generally invest in a broad cross section of developed markets:- Japan, North America, Europe, UK • generally focus on companies with global brands • some use currency hedging

  15. Investing internationally Global Emerging Market Funds • invest in a broad cross section of emerging markets:- Eastern Europe, Asia, Latin America • offer potential of higher rates of economic growth than developed markets • generally higher risk (i.e. more volatile) than global equity funds • some use currency hedging

  16. Investing internationally Global Regional/Country Funds • Focus on specific regions:- Asia- Europe- USA- Japan- EAFA - Europe, Australia and Far East Asia • some use currency hedging

  17. Investing internationally Global Large or Small Cap Funds • focus on large or small companies - the leaders of today vs leaders of tomorrow • generally used as part of a global portfolio allocation rather than the core allocation

  18. Investing internationally Global Sector Funds • popular sector funds: - TMT (telecommunications, Media, technology)- Biotech/Healthcare- Energy and Resources • rapid growth in recent years - 47% p.a. • research and invest on a sector rather than country basis • believe correlations among sectors more important than country correlations

  19. Blending managers

  20. Blending managers

  21. Blending managers

  22. The golden and eternalrules of global investing 1. Invest for the medium and long-term, not the next few months

  23. The golden and eternalrules of global investing 2. Reasonable diversification - by manager- by style- by type of fund Reduces risk and avoids style bias

  24. The golden and eternalrules of global investing 3. Remember that the cycle lives on

  25. The golden and eternalrules of global investing 4. Hold a selection of assets which include international assets

  26. The golden and eternalrules of global investing 5. Take good advice

  27. The golden and eternalrules of global investing 6. Avoid fads

  28. Global Market Outlook

  29. Where have we been? The schizophrenic year Yr to March Yr to March 2000 (%) 2001 (%) World growth * 3.1 2.1 Australian property trusts 1.0 13.0 Australian fixed income 1.8 11.8 Australian equities 9.5 3.5 US equities 11.6 -10.0 Nasdaq 85.7 -58.7 US fixed interest 2.8 11.9 * consensus forecast at the date

  30. World growth has slowed... • Oil prices • Interest rates • Tech wreck …and will slow more

  31. US manufacturing on the skids The NAPM Index and IP Growth Ann % Change Index 65.0 8.0 NAPM 7.0 Industrial Production (RHS) 60.0 6.0 5.0 55.0 4.0 50.0 3.0 2.0 45.0 1.0 40.0 0.0 06/93 06/94 06/95 06/96 06/97 06/98 06/99 06/00 Source: Federal Reserve

  32. Reserve Banks riding to the rescue

  33. Risks to a global soft landing • US consumers • Profit squeeze and capex cycle • Japan - still struggling

  34. Bond markets - eye on the ball • Bond market predicted downturn well ahead of equity market • Central banks continues rate cuts • impact on short-end of curve • Yield curve started to steepen (signal of recovery) • watch for bond sell-off - will impact negatively on bond returns

  35. Equity market have bounced • Equity market looking to ‘V’ shape recovery • Most bad news already priced in • Capital now flowing into selective cyclical stocks • Markets will continue to be volatile - expect wild swings on a daily basis

  36. Where’s the value? Equity Market Weighting Comment US overweight investors looking through to recovery on back of rate cuts Europe overweight interest rates cuts, earnings resilience remains intact Japan neutral currency weakness, corporate balance sheets & economy weak UK neutral a defensive market which will underperform cyclical recovery Emerging markets overweight look cheap & should benefit from turn in global growth

  37. The bottom line • Australia in better shape than US • Profits will be squeezed but not across the board • Central banks aggressively cutting interest rates • Bonds now pricing in recovery • Equity investors slowly moving to cyclical stocks

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