1. Poli%calriskoutlookinvestorpack March2014www.politicalmonitor.com.au!

2. OUTLINE! This presentation provides a summary of Political Monitors monthly Risk Outlook report. It includes Political Monitors proprietary risk scores and indices including the Australian Political Risk Index and the Asia Political Risk Index.! ! To nd out more about subscribing to the monthly pack please contact:! ! Damian Karmelich ! ! ! ! Partner Sydney ! ! ! ! p. 0407 772 548 ! ! ! ! e. karmelichd@politicalmonitor.com,au! ! ! !! ! ! !!Steve Cusworth! !Partner - Melbourne! !p. 0417 178 697! !e. cusworths@politicalmonitor.com.au ! 3. CONTENTS! Australian Political Risk Outlook p. 4!Asia Political Risk Outlook .. p. 7! Country in focus: Malaysia ... ....... p. 11!Country in focus: Thailand ..... p. 12!Country in focus: Vietnam ...... p. 13!Global issues ........ p. 14!Latest reports .... p. 18!Appendix 1 Australian Political Risk Index methodology..... p. 21!Appendix 2 - Asia Political Risk Index methodology ......... p. 22!Appendix 3 - Economic & investment impact of political and social instability ... p. 23!! !!!!!Political risk outlook!3! 4. AUSTRALIANPOLITICALRISKOUTLOOK 5. AUSTRALIAN POLITICAL RISK INDEX political uncertainty hit a 4 week high in February with no sign of respite!TheAbbo7Governmentsresponsetothecrisis atQantasrevealedahighlypoli%calPrime MinisterwillingtobeatoddswithhisTreasurer ifitadvanceshiscauseagainsttheOpposi%on. Thishasintroducedagreatdealofuncertainty forpolicymakinggenerallyandforrmsthatare heavilyregulatedbygovernmentspecically. TheannouncementofadatefortheSenatere- runinWesternAustraliaputthespotlightback ontheGovernmentschallengesintheUpper Houseandremindedmarketsoftheuncertainty surroundingthecarbon&miningtaxesandthe riskofadouble-dissolu%onelec%on. Marketsarepreparingfortheelec%onofnew governmentsinbothSouthAustralia& Tasmaniabutwithli7leunderstandingofthe priori%esandpoliciesofeither.AustralianPoli7calRiskIndex 1210Poli%calUncertaintyScore86420Globaleventscon%nuetoweighondomes%c markets. Political risk outlook!5! 6. AUSTRALIAN POLITICAL RISK INDEX & ASX200 political & policy uncertainty continues to weight on key indices! AustralianPoli7calRiskIndexvs.ASX200 125500 5400 530085200 6 5100 4ASX200Poli%calUncertaintyScore1050002490004800PRIASX200Political risk outlook!6! 7. ASIAPOLITICALRISKOUTLOOK 8. ASIAPOLITICALRISKINDEXrisingyouthunemploymentis emergingasapoli%calriskinanumberofalreadyvola%le markets WhileyouthunemploymentintheAsiaregionis compara%velylowerthantherestoftheworldit hasbeenrisinginrecentyearsandisforecastto con%nuedoingsoovercomingyears.Youthunemployment(%) 13.5Therisingrateofyouthunemploymentisbecoming asignicantfactorinanumberofimportant economiesincludingIndia,Indonesiaandthe Philippines. InIndonesiatheyouthunemploymentrateis approaching30%providingafer%lehun%ngground forreligiousextremistsandisakeycontributorto thegapbetweenpoten%alandactualGDP. InIndiatheyouthunemploymentrateof10.5%is rela%velylowbutitobscurestherawnumberof youngpeopleunemployed,whichisinthetensof millions. Whencombinedwithpopula%onswithahigh propor%onofpeopleundertheageof30theriskof socialdiscordbeginstorisepu[ngpressureon economies.12.511.510.59.58.57.5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 WorldEastAsiaSouthAsia Political risk outlook!8! 9. ASIAPOLITICALRISKINDEXweakenedcurrencieshave pushedupfuelpricesincreasingtheriskofsocial&poli%cal discord IndonesiathepriceofBrentcrudehas increasednearly26%inlocalcurrencyterms overthelast8months.Risingpriceswasone factorintheGovernmentsdecisiontowind backfuelsubsidies,whichasaresulthave jumped44%sincethemiddleof2013causing considerableangstontheground. India,Malaysia,Philippines&Thailand haveallexperiencedpricerisesexceeding 10%addingtopoli%calpressuresineachof thosecountries. Australia&Japanthesedeveloped economieshavealsoexperiencedpricerises exceeding10%.InthecaseofJapanthejump inoilandgaspricesandtheresultant deteriora%oninthecurrentaccountdecit arelargefactorsinPrimeMinisterAbes proposalstoturnJapansnuclearreactors backon.PercentageincreaseinICEBrentcrude (localcurrency) 1July2013-24February2014 302520151050%increaseinlocalcurrency%ICEBrentCrudeIncrease Political risk outlook!9! 10. ASIAPOLITICALRISKINDEXmeanwhilekeyeconomies areforecasttoexperienceslowerorstagnantratesof growth IndonesiaGDPconstantprices- %change(IMF)ChinaGDPconstantprices %change(IMF) 10796.58675.565 201120122013201420152016201720182011MalaysiaGDPconstantprice- %change(IMF)2012201320142015201620172018PhilippinesGDPconstantprices- %change(IMF)685.56544.5240 201120122013201420152016201720182011Political risk outlook!201220132014201520162017201810! 11. COUNTRYINFOCUS Malaysia:MODERATE29/100 Malaysiaratesasarela%velygoodriskgivenlowlevels ofcorrup%on,lowlevelsofpovertyandrela%velylow levelsofexternaldebtasapropor%onofGNI.Furthermore,lessthan15%ofhouseholdnancesare dedicatedtofoodlimi%ngtheimpactofanysudden vola%lityinprices.Thecountryalsorateswellonfood securityindices.3.4 3.35 3.3 3.25 3.2 3.15 3.1 3.05 3However,itsweakenedcurrencyhasaddedtothe priceoffuel(seeslide9).USD:MYRTheprimarychallengeconfron%ngthecountryisahigh levelofyouthunemploymentatover17%.Thisisexacerbatedbyalargepropor%onofthetotal popula%onbeingundertheageof30.Atnearly30% Malaysiahasoneofthehighestpropor%onsofyoung peopleintheregion.MalaysiaGDPconstantprice- %change(IMF) 6 5.5 5 4.5 4 2011Political risk outlook!201220132014201520162017201811! 12. COUNTRYINFOCUS Thailand:LOWRISK13/100 Thailandranksasoneofthesafestcountriesfor investorsontheAsiaPoli1calRiskIndex,whichhas surprisedsomeanalystsgivenrecentevents.However,thecountryhasanumberofunderlying strengthstherstofwhichisatrackrecordofnot allowingpoli%calcrisestointerferewithbusiness havingexperienced18coupssincebecominga cons%tu%onalmonarchyinthe1930s.USD:THB 33.5 33 32.5 32 31.5 31 30.5 30 29.5Mostimportantlyforthecountryisaverylowlevel ofyouthunemploymentandrela%velylowlevelsof poverty.Thefactthatsuchalargepropor%onofthe countrysyouthareengagedinemploymentlimits theriskofpoli%caldiscordbecomingsocialdiscord.Thailandalsohasrela%velyhighlevelsofdomes%c investmentsignalinglocalcondenceinthe businessoutlook.Nonetheless,recenteventswillactasadragon Thailandseconomybutthelongertermoutlook remainsrobust.ThailandGDPconstantprices %change(IMF) 7.5 6.5 5.5 4.5 3.5 2.5 1.5 0.5Political risk outlook!2011201220132014201520162017201812! 13. COUNTRYINFOCUS Vietnam:VERYHIGHRISK-61/100 Vietnamisexperiencingincreasinglevelsofsocial discord.Whilethecountryhasrela%velylowlevelsof youthunemploymentatunder5%itdoeshave rela%velyhighlevelsofpovertywithmorethan 20%ofthepopula%onlivingbelowthepoverty line.Ithasalsoalargepropor%onofitstotal popula%onundertheageof30at25%.USD:VND 21400 21300 21200 21100 21000 20900 20800Vietnamesehouseholdsdedicateoneofthe largestsharesofincometofoodatnearly40%, whichmeansvola%lityinfoodpriceshasa signicanteect.Poorrankingsonfoodsecurityindicesandan absenceofopportunityforci%zenstoexpress grievancesaddstoVietnamsrela%velypoor ra%ng.VietnamGDPconstantprices %change(IMF) 6.5 6 5.5 5 2011Political risk outlook!201220132014201520162017201813! 14. GLOBALISSUES 15. CRISISINTHEUKRAINELOTSOFNOISEBUTLITTLE ACTIONWhileEuropehasexperiencedarela%velymild winterandhasgreaterstockpilesthanduringthe Georgiancrisisitnonethelessremainsthecasethat acoldsnaporextendedcrisiswouldimpact Europesenergysupplychain.3/03/20141/03/201427/02/201425/02/201423/02/201421/02/201419/02/201417/02/201415/02/201413/02/2014Europesresponseinpar%cularwillbelargelyguided bygassupplyandpriceconsidera%onsratherthan concernsabouttheUkrainessovereignty.Russia hashistoricallysuppliedthecon%nentwith30%of itstotalgasrequirements.11/02/20149/02/2014ThestrengthofUSandEUcallsforPu%ntoback downareinverselyrelatedtotheircapacitytodo anythingaboutit.112 110 108 106 104 1027/02/2014ICEBrentcrudeoilfutures5/02/2014EventsintheUkrainehaveillustratedtheprimacyof geopoli%csasVladimirPu%ndismissestheeconomic costsofhisdecisiontoeec%velyannextheCrimea infavourofensuringcontroloftheregionand accesstotheBlackSea.3/02/2014Naturalgasfutures 7 6 5 4 3 2 1 0! !!!!!Political risk outlook!15! 16. THEBATTLEFORAFRICAAUSTRALIANINVESTMENT ONANINCREASINGLYRISKYCONTINENT AustraliahasconsiderableexposuretoAfrica.Intheminingsectorthereisaround200 Australiancompaniesinvolvedinover700 projectsacross37Africancountries.Onein20Australiancompanieslistedonthe AustralianSecuri%esExchange(ASX)hasan investmentinAfrica,andAfricahoststhe largestnumberofAustralianminingprojectsin anyregionoutsideAustralia,ataround40%of alloverseasminingprojects.Furthermore,AustralianFDIinAfricahas grown75percentsince2006.Butpoli%calrisksareontheriseresul%ngin increasingconictacrossthecon%nent.! ! Political risk outlook!16! 17. THEBATTLEFORAFRICAAUSTRALIANINVESTMENT ONANINCREASINGLYRISKYCONTINENT Theincreaseinconictandtherisktoinvestorsis aconsequenceoffourbroadpoli%caltrends.Extremismthereturnofextremistgroupswaging warandengaginginterrorismhavehitattheheart ofsomeofAfricasmostimportanteconomies includingKenyaandNigeria.Weakbordershavefacilitatedtheeasy movementofextremistgroupsandweapons.The a7ackonaKenyanshoppingmallin2013was commi7edbygroupsbasedinSomalia.Inter-state&ethnicconictisretardingthe growthofanumberofeconomiesincludingoilrich SouthSudan.Weakgovernanceallowsrampantcorrup%on, whichaddstosocialdiscordinaregionwhere70% ofthepopula%onliveonlessthan$2perday.This alsoretardsthegrowthofanemergingmiddle class.! !Political risk outlook!17! 18. LATESTREPORTS !!!AustralianPoli7calRiskIndex Weeklyupdatesonourproprietaryindextrackingpoli%calandpolicy uncertaintyinAustralia.USsettoshakeupenergymarkets?Inuential voices within America are calling for a relaxation of the !! !! !!prohibition on crude oil exports in a move that could shake up global !energy markets.!Chinasoilconundrum Chinasemergenceastheworldslargestoilimportermakesitdependent upontheveryna%onagainstwhichitisseekingtobalance. ! ! !!! !Political risk outlook!18! 19. Detailed analysis on these and other political risks confronting investors can be found at www.politicalmonitor.com.au! ! To nd out more contact:! ! DamianKarmelich Partner-Sydney p.0407772548 e.karmelichd@poli%calmonitor.com,au SteveCusworth Partner-Melbourne p.0417178697 e.cusworths@poli%calmonitor.com.au!! About Political Monitor! Political Monitor is a political risk research and advisory rm. Our analysis provides insight into the implications of political risk for commercial valuations, asset selection, investment decisions, strategic planning and operational decisions. !! Political risk outlook!19! 20. DISCLAIMER & COPYRIGHT! Disclaimer! Information in this document is subject to change without notice and does not represent a commitment on the part of Seller.! Seller does not warrant the accuracy, completeness or timeliness of any of the data and/or programs (Information) available within the report. The Information is provided as is without warranty of any kind, express or implied, including, but not limited to, implied warranties of merchantability, tness for a particular purpose, title or non-infringement.! 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Intellectual property rights associated with the methodology applied in arriving at this document, including templates and models contained there in, reside with Political Monitor Pty Ltd, excepting client information it contains that is demonstrably proprietary to the client or covered by an agreement or contract dening it as such.! No part of this report may be reproduced, transmitted, stored in a retrieval system, or translated into any language in any form by any means, without the written permission of Political Monitor Pty Ltd.!! Political Monitor Pty Ltd 2014. All Rights Reserved . ACN 166 162 572.Political risk outlook!20! 21. APPENDIX1-AUSTRALIANPOLITICALRISKINDEX METHODOLOGY ThePoli%calMonitorAustralianPoli1calRiskIndexisadynamicindexthattracksthe levelofpolicyuncertaintyinAustraliarelyingonanumberofvariablesincluding marketvola%lityandthedispersionofprivatesectoreconomicforecasts.Theindexis refresheddailyprovidinganuptodategaugeofpoli%calandpolicyuncertainty. ! ! ! ! !Political risk outlook!21! 22. APPENDIX2-ASIAPOLITICALRISKINDEX METHODOLOGY ThePoli%calMonitorAsiaPoli1calRiskIndextracksninekeyvariablesthatgotothe coreofpoli%calriskinacountry.Thevariablesprovideanindica%onofeconomicand socialinequality,par%cularlyamongkeydemographics,andtheriskofpoli%caland socialturmoil.Thosevariablesincludethelevelofyouthunemployment,corrup%on, elas%cityofdemandforfood,thepercentageofthepopula%onlivingbelowthe povertyline,andthepropor%onofforeigndebttoGrossNa%onalIncome(GNI). Theindexprovidesarela%vescoreforeachcountry.Accordingly,alow(par%cularly nega%ve)rawscoresignalslowerrela%veriskwhileahighrawscoresignalshigher rela%verisk.Scoreshavethenbeenscaledfrom0100.Ascoreof50signalsaverage riskrela%vetoothercountries. ! ! ! Political risk outlook!22! 23. APPENDIX3-ECONOMIC&INVESTMENTIMPACTOF POLITICAL&SOCIALINSTABILITYDOESITMATTER? Poli%calriskisthesecondrankedconcernforpubliclytradedcompanies"Lookingahead,investors con%nuetobewaryabouttheeectsofsystemicrisk,poli%csandregula%onontheworld'smarketsand howthey'llperform.(BNYMellon,GlobalTrendsinInvestorRela1ons,2014).Ingeneralpoli%calinstabilityresultsin: (a)lowereconomicgrowth(Aisen&Veiga,2013)(b)reducedprivatesectorinvestment(Alesina&PeroK)(c)increasedina%onlevels&vola%lity(Aisen&Veiga,2008).Theeconomiceectsofpoli%cal&socialinstabilityremainforanobservableperiodof23years.Thekey determinantofwhethertheeectofinstabilityceasesatthatpointisthespeedwithwhichcountries implementreforms&improvegovernance(Bernal-Verdugo,Furceri&Guillaume,IMFWorkingPaper, 2013).Anincreaseineconomicpolicyuncertaintyforeshadowsadeclineineconomicgrowthandemploymentin thefollowingmonths(Baker,Bloom&Davis,EPU).TheInterna%onalMonetaryFund(IMF)es%matestheeconomiclosstoLibya,Egypt,Tunisia,Syria,Yemen, andBahrainin2011atUSD$20.56billionasaresultofpoli%calandsocialconict.! !!!!!Political risk outlook!23!