client economic & investment update - march 2014

Slide 1

Economic and

Investment Markets Update

20th March 2014

Slide 2

This presentation and the associated discussion is general

in nature and does not take your individual situation into

account. You should not act on anything contained

herein, or discussed as a consequence of the contents of

this document, without receiving personal financial

advice from a suitably qualified person such as a

financial advisor.

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A look at the global economic environment

&

Australia: the State of the Nation

&

An update on investment markets

Slide 4

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The US economy has continued to improve, despite a very cold winter and cuts to government spending

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The start of the Reagan years

The end of Obama’s first term

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US Government Debt as a Percentage of US GDP

US Government Debt is projected to reach World War II levels

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How will the US Federal

Reserve manage its

gradual withdrawal of

monetary stimulus?

Slide 10

China is growing quickly, but US economic dominance is expected to last for some time

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Significant growth in US gas and oil production

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The cost of a gallon of petrol in US$

Cheap

Expensive

Neither cheap nor expensive

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No change

in 5 years

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Europe’s problems primarily stem from:

• Too much government debt (still)

• Inflexible labour market (compared to the US)

• High energy and labour costs

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“Dangerous” level of debt

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China US

Europe

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China has been the

primary driver of the

commodities boom

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Canada, Brazil, Saudi Arabia

and Australia –key mining investment destinations

for China

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The US, Brazil, and Australia –

key agricultural investment destinations

for China

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The global economy is recovering, but progress is slower than usual

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Overall GDP

Contribution to GDP Growth

Mining investment

Non- Mining investment

Housing

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Housing interest rates

RBA Cash Rate

Slide 26

First home buyers are priced out of the market

Demand is largely from investors and existing homeowners

Loan approvals and housing

credit are improving

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Outside of Sydney and

Melbourne, house price growth is only average

at best

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The ‘GFC’Households

are still focused on

debt reduction and are

reluctant to spend

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A slight improvement in retail sales

growth figures

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Unemployment in an upward trend

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Housing construction Unemployment

Interest rates Mining slowdown

Retail sector China

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US Fed ‘taper’

Emerging market concerns

Russia & the Ukraine

ASX All Ordinaries Index

Slide 34

1987 crash

‘Dot com’ bubble

Pre-GFC peak

Market low –Mar 2009

“The recession we had to have”

Slide 35

ASX All Ordinaries Index

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• Australian economic growth will be weak for the next 12 to 18 months (although exports may be high)

• Interest rates steady until late 2014 or early 2015 as housing construction increases pace

• The global economy is improving, but further easing in China will impact Australia (no more ‘ghost cities’ likely to be built)

• Our investment approach remains focused on:- Companies with sound balance sheets and reliable dividends (WOW, WES, TLS)- Conservatively-geared property trusts (BWP, GPT)- Selective exposure to ‘unloved’ cyclicals (TOL, LEI, QBE)

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