Transcript Quarterly Annual Investor Review Superannuation 30 June 2012

Investment news
2013: another year of living dangerously?
March 2013
Written by Brian Parker, Senior Investment Strategist, MLC
‘After a year of economic and political cliff-hangers, the global environment remains very
uncertain – we’re not out of the woods yet.’
In 2012, serious economic and political challenges kept financial markets on edge for much of the year. It
was only the actions of central banks to pump massive amounts of cash into banking systems that
eventually calmed market nerves and led to strong investment returns in 2012.
What’s ahead for 2013?
The outlook for the world economy and financial markets remains very uncertain. There are many paths
the world economy could take.
Overall, it’s likely that the world will continue to muddle through – that decisions on the most difficult
economic issues will keep being put off and central bankers will keep taking extraordinary measures to
keep up the appearance of economic and financial health.
However, the risk of another sharp downturn in global activity and more instability is higher than usual.
The potential concerns aren’t just economic issues; geopolitical risks (like developments in the Middle
East and political transition in China) could also make markets unstable. Perhaps the most worrying thing
is how much the future of the world economy depends on policy makers taking sensible decisions, as it’s
not clear they’ll do this.
In the US, political negotiations about government spending and tax will continue to be a drag on US
growth in 2013 and are a significant risk to the outlook.
The eurozone crisis is nowhere near resolved and much of it remains in recession. There’s a significant
risk that forecasts of a eurozone economic recovery in the next year or two won’t be met. Government
debt levels in much of Europe are far too high, and further defaults and debt restructurings are likely. As
chart 1 shows, GDP and business confidence in the eurozone are still falling.
Investment news
2013: another year of living dangerously?
Chart 1: Eurozone GDP growth and business sentiment are still declining
What about Australia?
Australia’s economic performance during and since the global financial crisis has been impressive.
However, the picture is very mixed across our economy and there are still risks. We're heavily exposed to
developments in China. If growth in China slowed sharply, there would be significant impacts on
Australian exports, investment, employment and the financial markets.
In those circumstances, it’s likely the Australian dollar would fall considerably and policy makers would
act to soften the economic impact. However, there’s a risk our economy could stall if our dollar doesn’t
fall far or fast enough, or policy makers don’t act.
What does the uncertain outlook mean for you?
In such an uncertain investment environment, your investment portfolio needs to be able to withstand a
wide range of possible market conditions. MLC assesses the paths economies and markets could take,
identifies both risks and opportunities and positions its portfolios to manage the risks and capture the
potential returns.
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