BT Monthly Markets Chart Pack – July 2008 An overview of movements in global financial markets

2 Global share markets mixed in July...  July was a mixed month for global share markets as a deteriorating outlook for the world economy and the re- emergence of problems in global credit markets were tempered by a significant drop in the price of crude oil.  For the second month in a row the Australian share market closed lower, with the S&P/ASX 200 Accumulation Index returning -4.6% in July thanks mainly to declines in the local Resources and Financials sectors. The deteriorating outlook for the global economy also contributed to the losses. So far this year the Australian market is down 19.8%, outpacing declines in the UK (- 16.2%), Japan (-12.6%) and the US (-13.7%).

3 Global shares measured by the MSCI World ex-Australia (net dividends) Index in A$. Source: BT Financial Group, MSCI Impact of major market events on global shares since 1986 …but continue to perform well over the long-term, despite some major market events 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

4 Source: BT Financial Group, Premium Data S&P/ASX 200 Accumulation Index – 2008 The Australian share market closed July 4.6% lower

5 Key Australian economic news – July  The Reserve Bank of Australia (RBA) left interest rates on hold at 7.25% following its early August meeting. The RBA looks set to leave interest rates on hold for now as it tries to balance rising prices and a slowing economy, though an interest rate cut by the end of the year remains a possibility.  Retail trade fell 0.1% in June, it’s biggest drop in six years. The fall came after a revised rise of 0.9% in May. The market had expected a rise of 0.2%.  29,800 jobs were added in June, much more than had been expected, while the unemployment rate ticked down 0.1% (to 4.2%).  Australia’s trade balance was in surplus by $411 million in June, following a deficit of $253 million in May.  Headline inflation figures came in stronger than expected in the June quarter, up 1.5% versus an anticipated rise of 1.2% and continuing the pattern seen around the world in recent months. Source: BT Financial Group

6 The Australian dollar fell in July  The Australian dollar (A$) closed the month lower against the US dollar as the threat of any more domestic interest rate hikes began to fade. With commodity prices still at high levels, the trend in the A$ is likely to remain up in the near- term, though we can probably expect it to fall back eventually as the market moves to price in rate cuts either later this year or early next year.  At the end of July: A$1 boughtUS$ % € % ¥101.54flat Source: BT Financial Group

7 Currency markets – A$ per US dollar Source: BT Financial Group. Figures at 31 July The Australian dollar versus the US dollar…

8 Currency markets – A$ per Euro the Euro… Source: BT Financial Group. Figures at 31 July 2008.

9 and the Yen Currency markets – A$ per Yen Source: BT Financial Group. Figures at 31 July 2008.

10 Official world interest rate movements – July  The European Central Bank raised interest rates a further 0.25% (to 4.25%) in July. It was the Bank’s first rate hike since June last year. Elsewhere, the Bank of England, the Bank of Japan and the Reserve Bank of Australia (in early August) left their benchmark interest rates on hold. The US Federal Reserve didn’t meet in July. Current rateLast moved Direction of last move Australia7.25%Mar 2008 US2.00%Apr 2008 Europe (ECB)4.25%Jul 2008 Japan0.50%Feb 2007 United Kingdom5.00%Apr 2008 Source: BT Financial Group

11 Source: BT Financial Group 31 July 2008 Global share market returns 1 year3 years (pa)5 years (pa) Global S&P 500 Index (US)-12.91%0.89%5.06% Nasdaq (US Tech.)-8.67%2.10%6.03% Nikkei 225 (Japan)-22.45%3.98%6.94% Hang Seng (Hong Kong)-1.96%15.17%17.53% DAX (Germany)-14.56%9.86%13.19% CAC (France)-23.63%-0.45%6.47% FTSE 100 (UK)-14.91%0.81%5.42% Australia S&P/ASX 200 Accum. Ind %8.70%14.44% S&P/ASX Small Ordinaries-24.02%9.50%15.59% S&P/ASX 300 Listed Prop %-4.77%4.08%

12 Short-term asset class performance Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$ 1-year rolling returns to 31 July 2008 (%) Best performing asset class for the year Australian cash Australian bonds Australian property Australian shares International bonds International shares

13 Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$ 1-year returns to 31 July 2008 (%) Short-term asset class performance (cont’d) 31 July July 2008 Australian bonds Listed property Australian shares Global bonds Global shares

14 Long-term asset class performance Note: Accumulated returns based on $1,000 invested in December 1984 Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$ 31 July 2008 Australian bonds Listed property Australian shares Cash Global shares

15 Source: BT Financial Group. West Texas Intermediate oil price at 31 July Oil prices – US$ per barrel After spiking above US$147 a barrel early in July, oil prices closed the month lower at just over US$124.

16 Summary  The underlying strength of the Australian economy relative to its global counterparts looks set to continue in the near-term, though any significant deterioration in global growth will obviously have an adverse effect locally.  Though the RBA left interest rates on hold following its early August meeting, the Bank will no doubt be concerned by the high level of domestic inflation, which currently sits well outside its target band of 2-3%. However, if growth continues to slow as expected, it’s possible that we could see an interest rate cut by the end of the year.  The Australian dollar (A$) looks set to remain at high levels in the coming months, supported largely by high commodity prices. However, if interest rates here do start to fall, we should see the A$ start to slide as well.  Gains in global share markets, including here in Australia, are likely to remain under further pressure in the near-term as global growth continues to slow down.

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