Transcript Slide 1

Market volatility and its
impact on the Australian
share market
A presentation prepared by BT Financial Group for the
adviser market
31 January 2008
1
Rising market volatility has seen the Australian
share market fall 11% so far this year…
S&P/ASX All Ordinaries Index – six months to 31 January 2008
7,000
6,850
6,700
6,550
6,400
6,250
6,100
5,950
5,800
5,650
5,500
5,350
5,200
31/07/07
31/08/07
Source: BT Financial Group, Datastream
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30/09/07
31/10/07
30/11/07
31/12/07
31/01/08
…but it remains at elevated levels over the longterm, up 118% over the last 10 years…
S&P/ASX All Ordinaries Index – 10 years to 31 January 2008
7,000
6,600
6,200
5,800
5,400
5,000
4,600
4,200
3,800
3,400
3,000
2,600
2,200
Jan-98
Jan-99
Jan-00
Jan-01
Source: BT Financial Group, Datastream
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Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
…and 265% over the last 15 years
S&P/ASX All Ordinaries Index – 15 years to 31 January 2008
6,900
6,400
5,900
5,400
4,900
4,400
3,900
3,400
2,900
2,400
1,900
1,400
Jan-93 Apr-94
Jul-95
Oct-96 Jan-98 Apr-99 Jul-00
Source: BT Financial Group, Datastream
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Oct-01 Jan-03 Apr-04 Jul-05
Oct-06 Jan-08
It’s worth keeping in mind that market volatility
has affected all markets, not just ours
Major international markets – six months to 31 January 2008
US, UK and European
stocks hit record highs
110
105
100
S&P 500 (US)
-16% (9/10 - 22/1)
FTSE 100 (UK)
-17% (12/10 - 21/1)
DJ EuroStoxx 50
(Europe)
-17% (12/10 - 21/1)
95
90
85
80
Nikkei 225 (Japan)
-31% (17/7 - 22/1)
75
70
31/07/2007
31/08/2007
30/09/2007
Source: BT Financial Group, Datastream
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31/10/2007
30/11/2007
31/12/2007
31/01/2008
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 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 last year
 The ripple effect of those problems on the US and global economy is what’s
behind the market conditions we’ve seen recently, with global share markets
falling as much as 25% in January on concerns that we’re headed for a global
recession
6
What’s behind the falls we’ve seen lately in the
Australian market?
 Leveraged investments have played a big role in the run-up in share markets,
both here and overseas
 Every 10-15 years, when we get this generalised fear of recession, we end up
having what we call ‘Leveraged Players’ being forced out of their positions
 Recently, we’ve seen some of these leveraged players – both companies and
individual investors – forced to sell, pushing the market lower
 Individual investors who had over-leveraged have been forced to sell either
because of margin calls or, in many cases, because of fear as they react to the
impact that current uncertainty is having on their portfolio
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What does this market volatility mean for the
Australian market in the near-term?
 Investors need to get used to higher levels of market volatility. From 2002-2006
we had steady returns and few hiccups, but this is unlikely to be repeated in
the next 2-3 years
 How the Australian market performs in the near-term will rest on the underlying
fundamentals, which from BT’s perspective represent the corporate profits and
associated dividends paid to shareholders, and whether or not a global
slowdown will spill into the local economy and undermine those fundamentals
 We think that question is yet to be answered, but we would expect global
growth this year to be positive and the Australian economy to remain relatively
robust despite this growing volatility
 We’ve not actually had an extended down market like we’ve seen recently
since 1994/95, but it’s generally after a week or two of forced selling that longterm investors re-enter the market. When this happens, we normally get a
reasonable bounce and a period of market stability
8
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
sorts of down markets we’ve seen recently
 We’ve also stepped up our focus on ensuring that we have the right valued
stocks in our portfolios. We continue to invest 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 8-10 weeks
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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
10
Don’t panic – invest for the
long-term
11
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
1,300
Jun 07
1,200
1,100
1,000
Russian Bond
Crisis
Tech Wreck
Asian Currency
Crisis
US Sub-prime
Crisis
Sep 01
Attack on
Twin Towers
800
700
500
Jul 01
Aug 97
900
600
Jul 98
Feb 94
Bond Market Crash
Jan 91
Gulf War
400
300
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Source: BT Financial Group, Datastream. Global shares measured by the MSCI World (Price) Index to 31 January 2008
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Long-term asset class performance
31 January 2008
$24,000
$22,500
$21,000
Australian shares
$19,500
$18,000
$16,500
$15,000
Listed property
$13,500
$12,000
Global shares
$10,500
Australian bonds
$9,000
$7,500
Cash
$6,000
$4,500
$3,000
$1,500
$0
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
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$
13
Understand risk
14
All investing involves a trade-off between risk
and return
Australian shares, one year returns - Greater volatility over the short-term
100%
80%
60%
40%
20%
0%
-20%
-40%
Australian shares, five year returns - Reduced volatility over the long-term
100%
80%
60%
40%
20%
0%
-20%
-40%
1985
1990
1995
2000
Source: Datastream. S&P/ASX 200 Accumulation Index annualised returns to 30 November 2007 shown
15
2005
Diversify your investments
16
The more you spread your investments, the less
chance you have of losing money
Asset
classes
Shares
Property
Cash
Fixed
interest
Individual
securities
17
Regions
Investment
managers
(or styles)
Every asset class has its day in the sun
Best performer each year (%)
60
50
40
Australian shares
Australian bonds
International shares
Cash
International bonds
Listed property
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.
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Diversification also applies to regions
World sharemarket values (%)
Japan
Asia (ex-Japan)
Australia
3
U.K.
1
10
11
52
23
Europe
Source: MSCI World Index as at 30 June 2007
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US
Avoid chasing returns
20
Can you pick next year’s winner?
One-year returns to 30 June 2007 (%)
Australian
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Cash
7.78
6.61
5.15
4.96
5.34
5.96
4.62
4.85
5.20
5.49
5.80
6.42
Fixed interest
9.40
16.81
10.88
3.33
6.18
7.44
6.23
9.71
2.43
7.76
6.79
3.99
Property
3.70
29.21
9.74
3.96
15.62
13.91
15.24
12.17
17.21
18.40
17.42
26.32
Shares
14.62
27.16
1.63
15.13
18.49
9.11
-4.54
-1.61
21.73
26.03
23.08
29.21
International
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Fixed interest
-9.60
9.13
26.19
-2.57
13.73
14.54
3.14
-2.46
1.71
-1.66
1.52
-9.93
6.66
28.56
42.16
8.17
23.81
-6.01
-23.50
-18.53
19.37
0.06
20.97
7.77
Shares
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 Bond Index unhedged in $A (International Fixed Interest), MSCI World ex-Aust
(net divs) Index in $A (International Shares)
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Don’t forget – time is on
your side
22
Enrol in a get rich slowly program – the power of
compound interest
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22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Sally
Matt
$5,000
6,400
7,912
9,545
11,309
13,213
15,270
17,492
19,891
22,486
24,281
26,224
28,322
30,587
33,034
35,677
38,531
41,614
$5,000
6,400
7,912
9,545
11,309
13,213
15,270
17,492
Assumptions: 8% p.a. interest, all reinvested
Source: BT Financial Group
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39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
44,943
48,583
52,421
56,615
61,144
66,036
71,319
77,024
83,186
89,841
97,028
104,790
113,174
122,227
132,006
142,566
$153,971
19,891
22,483
25,281
28,304
31,568
35,093
38,901
43,013
47,454
52,250
57,430
63,025
69,067
75,592
82,639
90,251
$98,471
Time, not timing, is important
June 1997- June 2007
All ordinaries index, annualised returns (%)
Full 2,609 trading days
13.07
Minus the 10 best days
9.84
Minus the 20 best days
7.62
Minus the 30 best days
5.59
Minus the 40 best days
3.73
Minus the 50 best days
2.02
Minus the 60 best days
Minus the 70 best days
0.42
-1.11
Note: The returns are shown as historical, investment returns are volatile and past performance is not necessarily
indicative of future returns
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What is dollar cost averaging?
Month
Unit
Investment price
Units
purchased
Total value
January
$100
$10
10.0
$100
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
Note: No allowance made more inflation, taxation, fees or expenses
Source: BT Financial Group
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Find hidden value
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The best investment research processes unlock
hidden value
Research
analysis
27
$
$
$
$
Industry trends
Economic trends
Company analysis
Supplier/competitor
environment
Employ experts
28
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”
29
Seek professional advice
30
“What is your main information source for making
investment decisions?”
Financial adviser/accountant
38%
Magazines/newspapers
13%
Other family members
12%
Spouse/partner
Internet
Friends
Other
None/don’t know
Source: BT Investor Poll, October 2004
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10%
5%
4%
7%
10%
What you get from your financial adviser
1. A holistic approach
2. Asset allocation
Expertise
3. Security selection
Efficiency
4. An education
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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)
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