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Market volatility and its impact on Australian and international share markets Prepared by BT Financial Group for the adviser market Updated to 30 June.

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Presentation on theme: "Market volatility and its impact on Australian and international share markets Prepared by BT Financial Group for the adviser market Updated to 30 June."— Presentation transcript:

1 Market volatility and its impact on Australian and international share markets Prepared by BT Financial Group for the adviser market Updated to 30 June 2008

2 5.What this means for Australian investors 3.A quick look at international markets 1.What’s contributing to current market volatility? 6.BT’s approach to managing volatility 7.And insights for investors 2.How has volatility affected the Australian market? 4.Volatility in perspective

3 Many factors contributing to ongoing volatility Seven consecutive interest rate rises in two years, over geared investors de-leverage Strength of $Aus and fears of US recession Market volatility Rising price of oil US sub-prime crisis and resulting global ‘credit-crunch’ slowing growth 3

4 4 Inflation now a key contributor  Early in 2008, there was concern the ‘credit crunch’ and weakening US economy would lead to a significant slowdown in global growth.  Outlook for global growth now appears better than anticipated, helped by continued strong commodities demand from emerging markets.  However, strong demand for commodities (particularly oil) means strong commodity prices – a key contributor to upward inflationary pressures.  Combating rising inflation has now become a key concern for the worlds’ central banks.

5 5.What this means for Australian investors 3.A quick look at international markets 1.What’s contributing to current market volatility? 6.BT’s approach to managing volatility 7.And insights for investors 2.How has volatility affected the Australian market? 4.Volatility in perspective

6 6 Source: BT Financial Group, Bloomberg S&P/ASX300 Accumulation Index – 12 months to 30 June 2008 Rising market volatility has seen the Australian share market fall 13% in the 12 months to 30 June 2008 Series Rebased: 30 th June 2007 = 100

7 7 Source: BT Financial Group, Bloomberg S&P/ASX300 Accumulation Index – 10 years to 30 June 2008 …but it remains at elevated levels over the long- term, up 197% over the last 10 years! Series Rebased: 30 th Jun 1998 = 100

8 5.What this means for Australian investors 3.A quick look at international markets 1.What’s contributing to current market volatility? 6.BT’s approach to managing volatility 7.And insights for investors 2.How has volatility affected the Australian market? 4.Volatility in perspective

9 9 Source: BT Financial Group, Bloomberg Major international markets – 12 months to 30 June 2008 Market volatility has affected all markets, not just our domestic market…. Series Rebased: 30 th June 2007 = 100 DJ Euro Stoxx 50 (Europe) (-25.3%) Nikkei 225 (Japan) (-25.6%) S&P500 (US) (-14.9%) FTSE 100 (UK) (-14.9%)

10 10 Source: BT Financial Group, Bloomberg Global share markets – 12 months to 30 June 2008 And the global share market has fallen over 21% in the 12 months to 30 June 2008…. Series Rebased: 30 th June 2007 = 100

11 5.What this means for Australian investors 3.A quick look at international markets 1.What’s contributing to current market volatility? 6.BT’s approach to managing volatility 7.And insights for investors 2.How has volatility affected the Australian market? 4.Volatility in perspective

12 1-year returns (%) Growth assets delivered strong returns last year, however, most affected by volatility this year… Source: Bloomberg market benchmark returns to 30 June 2007 to 30 June 2008

13 Annual returns of Australian shares (%) – All Ords / ASX S&P Accumulation Index (since 1956) Source: Standard & Poor’s Volatility can hurt returns in the short term… 13

14 Rolling 5 year returns of Australian shares (% annualised) – All Ords / ASX S&P Accumulation Index (since 1960) Source: Standard & Poor’s … but it’s a different picture over the longer term 14

15 Rolling 10 year returns of Australian shares (% annualised) – All Ords / S&P Accumulation Index (since 1965) Source: Standard & Poor’s And the longer the better!

16 5.What this means for Australian investors 3.A quick look at international markets 1.What’s contributing to current market volatility? 6.BT’s approach to managing volatility 7.And insights for investors 2.How has volatility affected the Australian market? 4.Volatility in perspective

17 17 What does this mean for Australian investors?  Economy still robust with low unemployment, high commodity prices - we expect the Australian economy will hold its own in the near-term.  Investors concerned the RBA may raise interest rates in the second half of 2008, which could impact on the Australian consumer.  Weaker consumption could offset the growth we’re seeing in the stronger resources and infrastructure sectors.  Interest rate rises also mean an increase in cost of capital. Re- evaluating and repricing the outlook for funding is contributing to short- term market movements.  Short-term volatility to continue. The Australian market should start to recover when RBA is satisfied inflation has been contained, and commodity prices have stabilised.

18 18 And what is the longer-term outlook?  The threat of rising inflation and subsequent higher interest rates will remain a concern for central banks, and this will probably limit global growth over the next year or so.  Australia continues to be influenced by global markets battling inflationary pressures, a slowdown in global economic growth, and a view that emerging markets growth may be unsustainable.  However, we will continue to benefit from the continuing urbanisation in China and India, boosting the performance of our big miners and underpinning Australia’s growth rates.  The income return from Australian shares is now much more attractive than that from bonds, which should provide an additional boost for share prices.

19 5.What this means for Australian investors 3.A quick look at international markets 1.What’s contributing to current market volatility? 6.BT’s approach to managing volatility 7.And insights for investors 2.How has volatility affected the Australian market? 4.Volatility in perspective

20 20 Diversify, focus on risk, invest in quality  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.  Our focus on diversification, risk management and investment insight is what prevents BT’s portfolios from being damaged excessively in the sort of down market we’re seeing now.  We continue to ensure we have the right valued stocks in our portfolios by investing 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 six - nine months.

21 5.What this means for Australian investors 3.A quick look at international markets 1.What’s contributing to current market volatility? 6.BT’s approach to managing volatility 7.And insights for investors 2.How has volatility affected the Australian market? 4.Volatility in perspective

22 Ten investing truths Insights into successful investing

23 Don’t panic – invest for the long-term

24 Global shares measured by the MSCI World ex-Australia (net dividends) Index in A$ to 30 June Source: BT Financial Group, MSCI Impact of major market events on global shares since 1986 Maintain your composure and always keep the end goal in sight Jan 91 Gulf War Feb 94 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 Oct 87 Wall Street crash Nov 89 Fall of the Berlin Wall Mar 03 Troops enter Iraq

25 Understand risk

26 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 300 Accumulation Index annualised returns to 30 June 2008 shown Australian shares, five year returns - Reduced volatility over the long-term

27 Diversify your investments

28 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

29 Source: Australian Bank Bill 0+ Index, S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$ Every asset class has time in the sun Best performer each year (%)

30 Diversification also applies to regions Source: MSCI World Index as at 30 June 2008 World share market values (%) US Europe UK Australia Asia (ex-Japan) Japan

31 Avoid chasing returns

32 Can you pick next year’s winner? Best performing asset class for each year is highlighted. Source: Australian Bank Bill 0+ Index, S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$ One-year returns to 30 June (%) Australian Cash Fixed Interest Listed Property Shares International Fixed Interest Shares

33 Don’t forget – time is on your side

34 Enrol in a get rich slowly program – the power of compound interest $153, , , , , ,790 97,028 89,841 83,186 77,024 71,319 66,036 61,144 56,615 52,421 48,583 44, Assumptions: 8% p.a. interest, all reinvested Source: 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, , , , , , , , , , , , , , , , ,40022 $5,00021 Sally 17,492 15,270 13,213 11,309 9,545 7,912 6,400 $5, Matt

35 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 June

36 What is dollar cost averaging? $ $10$100January Total value Units purchased Unit priceInvestmentMonth $ $500Total $ $10$100May $ $8$100April $ $5$100March $ $8$100February Note: No allowance made for inflation, taxation, fees or expense Source: BT Financial Group

37 Find hidden value

38 Economic trends $ The best investment research processes unlock hidden value Research analysis Industry trends $ Company analysis $ Supplier/competitor environment $

39 Employ experts

40 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

41 Seek professional advice

42 “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 Why do senior executives, sports stars, politicians and entertainers all get expert help to manage their money?

43 Expertise Efficiency What you get from your financial adviser 1. A holistic approach 2. Asset allocation 3. Security selection 4. An education

44 Tax-effective investing

45  Focus on the after-tax return, not the tax  Prepay your interest – it may be tax-effective  Hold on to your investment for more than a year  Invest through superannuation  Invest in companies that offer franking credits … and seek tax advice!

46 Benefits of dividend imputation Individual (marginal tax rate 46.5%) Individual (marginal tax rate 16.5%) Franked dividend received (cash)$ Gross up (imputation credit)$ Taxable income$ Tax payable$332.14$ Franking credit offset$(214.29) Tax payable/(refundable)$117.86$(96.43) Effective Tax Rate16.5%-13.5% After tax cash received$382.14$ Note: Tax rates current as at 1 July 2007 Source: BT Financial Group

47 It’s all about income

48 What defines asset value?  The present value of both current and future (expected) income Investing in value  Asset prices move toward income-based value in the long-term  Investors profit from buying assets priced below value and selling when prices rise above it

49 49 This presentation has been prepared by BT Financial Group Limited (ABN ) ‘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 :00am to 6:30pm (Sydney time)


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