Australia Through The Looking Glass

Craig JamesChief Equities Economist, CommSec, July 2009

pictures courtesy of www.alice-in-wonderland.net

Important information

This presentation has been prepared without taking account of the objectives,

financial situation or needs of any particular individual. Before acting on the

information in this seminar, you should consider its appropriateness to your

circumstances and, if necessary, seek appropriate professional advice.

Commonwealth Securities Limited ABN 60 067 254 399

AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary

of Commonwealth Bank of Australia ABN 48 123 123 124 and a Participant of

the ASX Group.

Examples used in this presentation are for illustrative purposes only.

An alternate world of surprises, challenges and rewards…

Global recession…but healing process begins

China lifts, US stabilises, Australia more confident

Inventories, tighter terms, cash-flow issues

Winners & challenges

Winners…home buyers, building trades

Challenges…finance-dependent firms

Still hurdles to clear

Global recession…hits Australia

One moment boom, next moment bust…hope rests with emerging nations…especially China

…but encouraging signs

Boom to bust…then recovery…major hopes rest with China

www.novinite.com

Australia…on the mend

Aggressive stimulus

Recession avoided

Confidence improves

Housing stronger

And unemployment?

www.fugrospatial.com

Housing & infrastructure lead the way…

Home building set to rebound…China, population & stimulus drive infrastructure

Conservative consumersHOUSEHOLD SPENDING

Year to March 2009, real change, percent

Selected goods & services21.9Motor vehicle insurance15.9Chemist goods15.0Recreational equipment10.3Computers7.1Tools & equipment5.5Books, newspapers4.6Communications

1.6TOTAL SPENDING-0.4Cafes & restaurants-2.0Petrol-2.3Audio visual equipment-4.5Doctors-5.2Health insurance

-6.3Cars-7.3Gambling

Source: CommSec, based on ABS data

All eyes on the job market

Companies flexible on hours & pay …not hiring, not firing…… Gen Y reaction

www.matthewferrara.com

So where to for interest rates?

Longer-term rates lift, highlighting confidence……but at what point does policy respond?

Aussie dollar…winners & losers

‘Parity parties’ one moment……into the barrel but out the other side

Optimism or exuberance?

Perception that the worst is over…but have investors got too excited?…

Shares: Fate in others hands

Tight correlation with US…but doesn’t exist forever

Important signposts

Sharemarket turns before economy…jobs in focus

Recovery watchlist

US housing over-supply

US banking system

Commercial property

Rising fuel prices

Inflation/deflation

US dollar & debt

Geopolitical – North Korea

CommSec forecasts

www.uml.edu

FORECASTS

'small fall' in 2009Economic growth2.0-2.5% in 20102.0-2.5% ave in 2009Inflation2.50-2.75% ave in 20107.00% end-2009Unemployment6.50% end-20102.75-3.00% end-2009Cash rate3.25% end-20104250 by DecemberSharemarket4650 by June 2010US84c in DecemberAustralian dollarUS89c in June 2010