Back to a new kind of normal: investment prospects for 2010 and beyond Brian Parker CFA, Investment Strategist MLC Investment Management April 2010

2 This information has been provided by MLC Investments Limited (ABN ), a member of the National Group, Miller Street, North Sydney This material was prepared for advisers only, and should not be distributed to clients. Any opinions expressed in this presentation constitute our judgement at the time of issue and are subject to change. We believe that the information contained in this presentation is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice) or other information contained in this presentation. To the maximum extent permitted by law, we disclaim all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient through relying on anything contained in or omitted from this presentation. Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market. Please note that all return figures reported are before management fees and taxes, unless otherwise specified. This presentation contains general information and may constitute general advice. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. It should not be relied upon as a substitute for financial or other specialist advice. Before making any decisions on the basis of this presentation, you should consider the appropriateness of its content having regard to your particular investment objectives, financial situation or individual needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited (ABN ) and MLC Nominees Pty Ltd (ABN ) as trustee of The Universal Super Scheme (ABN ), and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on or on our website at mlc.com.au. General advice warning and disclaimer – adviser audiences

3 This information has been provided by MLC Investments Limited (ABN ), a member of the National Group, Miller Street, North Sydney Any opinions expressed in this presentation constitute our judgement at the time of issue and are subject to change. We believe that the information contained in this presentation is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice) or other information contained in this presentation. To the maximum extent permitted by law, we disclaim all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient through relying on anything contained in or omitted from this presentation. Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market. Please note that all return figures reported are before management fees and taxes, unless otherwise stated. This presentation contains general information and may constitute general advice. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. It should not be relied upon as a substitute for financial or other specialist advice. Before making any decisions on the basis of this presentation, you should consider the appropriateness of its content having regard to your particular investment objectives, financial situation or individual needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited (ABN ) and MLC Nominees Pty Ltd (ABN ) as trustee of The Universal Super Scheme (ABN ), and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on or on our website at mlc.com.au. General advice warning and disclaimer – client audiences

4 The new ‘normal’ Slower rates of developed world growth (de-leveraging process) A more conservative investment environment (transparency, liquidity) Modest investment returns Emerging markets drive global growth (many EMs had a good GFC!)

5 The post-Lehman environment was particularly harsh on trade dependant economies Aggressive de-stocking, trade finance difficulties had a major impact on the world’s most open economies (e.g. Asia) The bounce in exports and production has been significant, but how sustainable is it? Source: Datastream, MLC Investment Management.. Open economies are a simple Average of data for Japan, Germany, Singapore,Taiwan. Less open economies are An average of India, UK, and US.

6 Manufacturing, consumer surveys looking better Source: Datastream, MLC Investment Management

7 Early stage recovery in consumer and business spending? Source: Datastream, MLC Investment Management

8 US wage and salary incomes are rising.. Rising wage and salary payments are a crucial indication that consumers have more to rely on that just hand-outs and temporary incentives to sustain spending growth Source: Datastream, MLC Investment Management

9..as the US working week lengthens and jobs start to re-appear Source: Datastream

10 Problem: It’s a de-leveraging cycle, stupid....and we have little way of knowing how far it needs to go, nor how long it will take. Source: Datastream, ABS

11 However, the emerging world appears to have few such issues Periods of high stress for emerging markets explain poor absolute and relative economic performance vs the developed world. The Stress index is based on external debt, budget deficit, credit growth vs GDP, and the current A/c balance.

12 Are we really bullet-proof? Source: Datastream, Bloomberg

13 Much of the debate about Australia’s public finances is over-the-top Source: Datastream, OECD

Market developments and prospects

15 Recovery, as Armageddon is taken off the table Source: Datastream

16 Recovery, as Armageddon is taken off the table Last observation is 5 April 2010 Source: Datastream

17 US Corporate debt spreads have narrowed dramatically... Source: Datastream. Last observation is 5 April 2010

The easy gains have been made; it gets tougher from here