Market volatility and its impact on the Australian share market

1. Market volatility and its impact on the Australian share market A presentation prepared by BT Financial Group for the adviser market 31 March 2008

2. Rising market volatility has seen the Australian share market fall nearly 16% so far this year S&P/ASX All Ordinaries Index – three months to 31 March 2008 Source: BT Financial Group, Datastream

3. …but it remains at elevated levels over the long-term, up 101% over the last 10 years S&P/ASX All Ordinaries Index – 10 years to 31 March 2008 Source: BT Financial Group, Datastream

4. …and 218% over the last 15 years S&P/ASX All Ordinaries Index – 15 years to 31 March 2008 Source: BT Financial Group, Datastream

5. It’s worth keeping in mind that market volatility has affected all markets, not just ours Major international markets – six months to 31 March 2008 US, UK and European stocks hit record highs FTSE 100 (UK) -20% (12/10 – 17/3) S&P 500 (US) -18% (9/10 – 17/3) DJ EuroStoxx 50 (Europe) -23% (12/10 – 17/3) Nikkei 225 (Japan) -35% (9/7 – 17/3) Source: BT Financial Group, Datastream

6. So what’s been driving the global market volatility we’ve seen lately? • The source of recent market volatility goes back to 2007 and the collapse of the US housing market • Problems arising from defaults in the sub-prime mortgage component of the US housing market spread to global asset markets in the latter half of 2007 and this has continued into 2008 • The ripple effect of those problems on the US and global economy is what’s behind the market conditions we’re seeing at the moment, with some global share markets having fallen as much as 35% from last year’s record highs

7. What’s behind the falls we’re seeing in the Australian market? • Leveraged investments have played a big role in the run-up in share markets in recent years, both here and overseas • Earlier this year we saw a number of highly leveraged players forced out of positions amid deteriorating global credit conditions and fears of a US recession • Some of these leveraged players – both companies and individual investors – were forced to sell, pushing the Australian share market lower • Individual investors who had over-leveraged were forced to sell because of margin calls or, in many cases, plain fear as they reacted to the impact that falling markets were having on their portfolio • The Reserve Bank of Australia has also raised interest rates twice so far this year – in February and in March – in a bid to bring inflation under control and this has exacerbated the downtrend

8. What does this market volatility mean for the Australian market? • Investors need to get used to higher levels of market volatility. In recent years, Australian investors have benefited from high double-digit returns and relatively few hiccups, but this is unlikely to be repeated in 2008 • However, there are a number of positives for investors over the long-term: 1. We’ve seen a lot of short-selling in the local market which will have to be undone if market conditions improve, leading to a potential bounce in share prices 2. Australia will continue to benefit from the continuing urbanisation in China and India. That’s driving productivity increases throughout the region, boosting the performance of our big miners, such as BHP Billiton and Rio Tinto, and underpinning Australia’s growth rates 3. The income return from Australian shares is now much more attractive than that from bonds, which should provide an additional boost for share prices

9. What steps is BT taking to address the impact of this market volatility? • One of BT’s strengths is that we always focus on the right levels of diversification and risk within our portfolios, whether its Australian shares, listed property or fixed income, so nothing’s really changed from our perspective • This focus on diversification and risk management, as well as our investment insight, is what prevents BT’s portfolios from being damaged excessively in the sort of down market we’re seeing now • We’ll also continue to ensure that we have the right valued stocks in our portfolios by investing in companies with secure cash flows, limited expectations in their valuations and sound management teams • At BT, we’re happy in our ability to sidestep some of the blow ups that have really triggered the downturn in the last six months or so

10. What can investors do in this type of market environment to help protect their own portfolio? There are a number of investment strategies that investors can employ to help manage and protect their own portfolio • Don’t panic – invest for the long-term • Understand risk • Diversify your investments • Avoid chasing returns • Don’t forget – time is on your side • Find hidden value • Employ experts • Seek professional advice

11. Don’t panic – invest for the long-term

12. It’s easy to get caught up in short-term market movements. Keep the end goal in sight Impact of major market events on global shares since 1990 Jun 07 US Sub-prime Crisis Jul 98 Russian Bond Crisis Jul 01 Tech Wreck Aug 97 Asian Currency Crisis Sep 01 Attack on Twin Towers Feb 94 Bond Market Crash Jan 91 Gulf War Source: BT Financial Group, Datastream. Global shares measured by the MSCI World (Price) Index to 31 January 2008

13. Long-term asset class performance 31 March 2008 Australian shares Listed property Global shares Australian bonds Cash Note: Accumulated returns based on $1,000 invested in December 1984 Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

14. Understand risk

15. All investing involves a trade-off between risk and return Australian shares, one year returns - Greater volatility over the short-term Australian shares, five year returns - Reduced volatility over the long-term 1985 1990 1995 2000 2005 Source: Datastream. S&P/ASX 200 Accumulation Index annualised returns to 30 November 2007 shown

16. Diversify your investments

17. Asset classes Regions Investment managers (or styles) The more you spread your investments, the less chance you have of losing money Shares Property Cash Fixed interest Individual securities

18. Every asset class has its day in the sun Best performer each year (%) Australian shares Australian bonds International shares Cash International bonds Listed property 60 50 40 30 20 10 0 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Source: MSCI World ex-Australia index. Net Dividends reinvested in A$, S&P/ASX 300 Property Trusts Accum. Index, S&P/ASX 300 ex-LPT Accum. Index, UBS Composite Bond Index (all matures), UBS Bank Bill Index. Figures are as at 30 June 2007.

19. Diversification also applies to regions World sharemarket values (%) Japan Asia (ex-Japan) Australia U.K. US Europe Source: MSCI World Index as at 30 June 2007

20. Avoid chasing returns

21. Can you pick next year’s winner? Best performing asset class for each year is highlighted.Indices: Liquids Index (Cash), UBS Composite 0+ years index (Australian Fixed Interest), S&P/ASX 300 Property Index(Australian Listed Property), S&P/ASX 300 Accumulation Index (Australian Shares), Citigroup World Government BondIndex unhedged in $A (International Fixed Interest), MSCI World ex-Aust (net divs) Index in $A(International Shares)

22. Don’t forget – time is on your side

23. Sally Matt 21 $5,000 - 39 44,943 19,891 22 6,400 - 40 48,583 22,483 23 7,912 - 41 52,421 25,281 24 9,545 - 42 56,615 28,304 25 11,309 - 43 61,144 31,568 26 13,213 - 44 66,036 35,093 27 15,270 - 45 71,319 38,901 28 17,492 - 46 77,024 43,013 29 19,891 - 47 83,186 47,454 30 22,486 - 48 89,841 52,250 31 24,281 $5,000 49 97,028 57,430 32 26,224 6,400 50 104,790 63,025 33 28,322 7,912 51 113,174 69,067 34 30,587 9,545 52 122,227 75,592 35 33,034 11,309 53 132,006 82,639 36 35,677 13,213 54 142,566 90,251 37 38,531 15,270 55 $153,971 $98,471 38 41,614 17,492 Enrol in a get rich slowly program – the power of compound interest Assumptions: 8% p.a. interest, all reinvested Source: BT Financial Group

24. Time, not timing, is important June 1997- June 2007 Full 2,609 trading days Minus the 10 best days Minus the 20 best days Minus the 30 best days Minus the 40 best days Minus the 50 best days Minus the 60 best days Minus the 70 best days

25. February $100 $8 12.5 $180 March $100 $5 20.0 $213 April $100 $8 12.5 $440 May $100 $10 10.0 $650 Total $500 65.0 $650 What is dollar cost averaging? Month Investment Unit price Units purchased Total value January $100 $10 10.0 $100 Note: No allowance made more inflation, taxation, fees or expenses Source: BT Financial Group

26. Find hidden value

27. $ Industry trends $ Economic trends $ Company analysis $ Supplier/competitor environment The best investment research processes unlock hidden value Research analysis

28. Employ experts

29. Even the smartest investors (including many corporate investors) use managed funds A managed fund provides investors with: • More convenient investing • Broader diversification with less investment dollars • Professional fund managers who monitor and actively manage your portfolio • Economic research and specific company information • Assets not available to individual investors • Alternative styles of investment strategies “The methodical, systematic approach taken by most fund managers helps them avoid many of the mistakes individual investors are prone to”

30. Seek professional advice

31. 38% Financial adviser/accountant 13% Magazines/newspapers 12% Other family members Spouse/partner 10% 5% Internet Friends 4% Other 7% None/don’t know 10% “What is your main information source for making investment decisions?” Source: BT Investor Poll, October 2004

32. 1. A holistic approach Expertise 2. Asset allocation Efficiency 3. Security selection 4. An education What you get from your financial adviser

33. This presentation has been prepared by BT Financial Group Limited (ABN 63 002 916 458) ‘BT’ and is for general information only.  Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described.  The presentation has been prepared without taking into account any personal objectives, financial situation or needs.  It does not contain and is not to be taken as containing any securities advice or securities recommendation.  Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice.  BT does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation.  Except insofar as liability under any statute cannot be excluded, BT and its directors, employees and consultants do not accept any liability for any error or omission in this presentation or for any resulting loss or damage suffered by the recipient or any other person.  Unless otherwise noted, BT is the source of all charts; and all performance figures are calculated using exit to exit prices and assume reinvestment of income, take into account all fees and charges but exclude the entry fee.  It is important to note that past performance is not a reliable indicator of future performance. This document was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author. For more information, please call BT Customer Relations on 132 135 8:00am to 6:30pm (Sydney time)