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Market volatility and its impact on the Australian share market A presentation prepared by BT Financial Group for the adviser market

31 January 2008

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Source: BT Financial Group, Datastream

S&P/ASX All Ordinaries Index – six months to 31 January 2008

Rising market volatility has seen the Australian share market fall 11% so far this year…

5,200

5,350

5,500

5,650

5,800

5,950

6,100

6,250

6,400

6,550

6,700

6,850

7,000

31/07/07 31/08/07 30/09/07 31/10/07 30/11/07 31/12/07 31/01/08

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Source: BT Financial Group, Datastream

S&P/ASX All Ordinaries Index – 10 years to 31 January 2008

…but it remains at elevated levels over the long-term, up 118% over the last 10 years…

2,200

2,600

3,000

3,400

3,800

4,200

4,600

5,000

5,400

5,800

6,200

6,600

7,000

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

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Source: BT Financial Group, Datastream

S&P/ASX All Ordinaries Index – 15 years to 31 January 2008

…and 265% over the last 15 years

1,400

1,900

2,400

2,900

3,400

3,900

4,400

4,900

5,400

5,900

6,400

6,900

Jan-93 Apr-94 Jul-95 Oct-96 Jan-98 Apr-99 Jul-00 Oct-01 Jan-03 Apr-04 Jul-05 Oct-06 Jan-08

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Source: BT Financial Group, Datastream

Major international markets – six months to 31 January 2008

It’s worth keeping in mind that market volatility has affected all markets, not just ours

70

75

80

85

90

95

100

105

110

31/07/2007 31/08/2007 30/09/2007 31/10/2007 30/11/2007 31/12/2007 31/01/2008

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)

Nikkei 225 (Japan)-31% (17/7 - 22/1)

US, UK and European stocks hit record highs

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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

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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 long-term investors re-enter the market. When this happens, we normally get a reasonable bounce and a period of market stability

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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?

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

There are a number of investment strategies that investors can employ to help manage and protect their own portfolio

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Don’t panic – invest for the long-term

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Source: BT Financial Group, Datastream. Global shares measured by the MSCI World (Price) Index to 31 January 2008

It’s easy to get caught up in short-term market movements. Keep the end goal in sight

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Bond Market Crash

Aug 97

Asian Currency Crisis

Jul 98

Russian Bond Crisis

Jul 01

Tech Wreck

Sep 01

Attack on Twin Towers

Jun 07

US Sub-prime Crisis

Jan 91

Gulf War

Impact of major market events on global shares since 1990

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Long-term asset class performance

Note: Accumulated returns based on $1,000 invested in December 1984Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

31 January 2008

Australian bonds

Listed property

Australian shares

Cash

Global shares

$0

$1,500

$3,000

$4,500

$6,000

$7,500

$9,000

$10,500

$12,000

$13,500

$15,000

$16,500

$18,000

$19,500

$21,000

$22,500

$24,000

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

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Understand risk

15

-40%

-20%

0%

20%

40%

60%

80%

100%

All investing involves a trade-off between risk and return

Australian shares, one year returns - Greater volatility over the short-term

Source: Datastream. S&P/ASX 200 Accumulation Index annualised returns to 30 November 2007 shown

Australian shares, five year returns - Reduced volatility over the long-term

-40%

-20%

0%

20%

40%

60%

80%

100%

1985 2005200019951990

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Diversify your investments

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The more you spread your investments, the less chance you have of losing money

Cash

Fixed interest

Individual securities

Property

Shares

Investment managers (or styles)

RegionsAsset classes

18

0

10

20

30

40

50

60

0788 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Every asset class has its day in the sun

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.

Best performer each year (%)

Australian sharesAustralian bondsInternational sharesCashInternational bondsListed property

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Diversification also applies to regions

Source: MSCI World Index as at 30 June 2007

World sharemarket values (%)

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3

52

11

101

US

Europe

U.K.

Australia

Asia (ex-Japan)

Japan

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Avoid chasing returns

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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

Shares 6.66 28.56 42.16 8.17 23.81 -6.01 -23.50 -18.53 19.37 0.06 20.97 7.77

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

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Enrol in a get rich slowly program – the power of compound interest

$153,971

142,566

132,006

122,227

113,174

104,790

97,028

89,841

83,186

77,024

71,319

66,036

61,144

56,615

52,421

48,583

44,943

55

54

53

52

51

50

49

48

47

46

45

44

43

42

41

40

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Assumptions: 8% p.a. interest, all reinvestedSource: BT Financial Group

$98,471

90,251

82,639

75,592

69,067

63,025

57,430

52,250

47,454

43,013

38,901

35,093

31,568

28,304

25,281

22,483

19,891

41,61438

38,53137

35,67736

33,03435

30,58734

28,32233

26,22432

24,28131

22,48630

19,89129

17,49228

15,27027

13,21326

11,30925

9,54524

7,91223

6,40022

$5,00021

Sally

17,492

15,270

13,213

11,309

9,545

7,912

6,400

$5,000

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-

-

-

-

-

-

-

-

-

Matt

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Time, not timing, is important

All ordinaries index, annualised returns (%)

Note: The returns are shown as historical, investment returns are volatile and past performance is not necessarily indicative of future returns

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

Full 2,609 trading days

June 1997- June 2007

-1.11

0.42

2.02

3.73

5.59

7.62

9.84

13.07

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What is dollar cost averaging?

$10010.0$10$100January

Total valueUnits purchased

Unit price InvestmentMonth

$65065.0$500Total

$65010.0$10$100May

$44012.5$8$100April

$21320.0$5$100March

$18012.5$8$100February

Note: No allowance made more inflation, taxation, fees or expensesSource: BT Financial Group

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Find hidden value

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Economic trends$

The best investment research processes unlock hidden value

Research analysis Industry trends$

Company analysis$Supplier/competitor environment$

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Employ experts

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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”

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Seek professional advice

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“What is your main information source for making investment decisions?”

Source: BT Investor Poll, October 2004

Financial adviser/accountant

Magazines/newspapers

Other family members

Spouse/partner

Internet

Friends

Other

None/don’t know 10%

7%

4%

5%

10%

12%

13%

38%

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What you get from your financial adviser

Expertise

Efficiency

1. A holistic approach

2. Asset allocation

3. Security selection

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)