1. Stephen Halmarick Head of Economic and Market Research Colonial First State Global Asset Management Adviser Use Only GLOBAL ECONOMIC OUTLOOK SHOW ME THE WAY

2. 2 Disclaimer Adviser Use Only This presentation is given by a representative of Colonial First State Investments Limited AFS Licence 232468, ABN 98 002 348 352 (Colonial First State). Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale Pension and FirstChoice Employer Super from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and interests in the Rollover & Superannuation Fund and the Personal Pension Plan from the Colonial First State Rollover & Superannuation Fund ABN 88 854 638 840 and interests in the Colonial First State Pooled Superannuation Trust ABN 51 982 884 624. The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our Investor Service Centre on 13 13 36. All products are issued by Colonial First State Investments Limited. Product Disclosure Statements (PDSs) describing the products are available from Colonial First State. The relevant PDS should be considered before making a decision about any product. Stocks referred to in this presentation are not a recommendation of any securities. The information is taken from sources which are believed to be accurate but Colonial First State accepts no liability of any kind to any person who relies on the information contained in the presentation. This presentation is for adviser training purposes only and must not be made available to any client. This presentation cannot be used or copied in whole or part without our express written consent. © Colonial First State Investments Limited 2011.

3. 3 Markets: A wild ride Adviser Use Only The start of monetary policy normalisation in the US was always going to be a challenge for markets Monetary policy among major central banks now diverging Concerns over China slowdown But this is an equity market event – not GFC Mark II

4. 4 Adviser Use Only US unemployment rate was 5.3% as at July 2015 (August data due tonight) Enough to meet the “some further improvement” requirement for a September rate hike Fed expects to reach full- employment projection of 5% this year Inflation 1.2% for Core PCE – Fed expects a steady rise in coming years Further declines in oil and commodity prices could delay the Fed US: The Fed’s report card, lift off coming

5. 5 US: Fed funds rate and bond yields Adviser Use Only Bond market continues to under-price expected Fed rate profile Fed guiding the market to the first rate hike before year-end 2015 Vice-Chair Fischer says September still open – rate decision is finely balanced Boston Fed President suggests going in September – but emphasising caution Expect some upward movement in bond yields But gradual nature of tightening could limit extent of bond sell-off

6. 6 China: Three challenges Adviser Use Only China has three challenges: 1.A slowing economy 2.Equity market volatility 3.Capital outflow and currency depreciation Chinese Premier Li once remarked that China’s GDP data was ‘man made’; He preferred to look at the change in bank lending, rail freight, and electricity consumption This clearly shows a slowing economy. But job creation remains strong – 10m+ per year Average GDP growth of 6.5% required to reach goal of doubling China’s real GDP by 2020 Further stimulus measures will be needed

7. 7 China: Asset market volatility Adviser Use Only Chinese equity markets have traded with volatility due to margin financing, valuations and changing regulation But the impact on the real economy should be limited Authorities unlikely to focus too much on the level of the equity market Property markets are recovering

8. 8 China: A range of easing measures have been deployed Adviser Use Only Chinese financial conditions remain tight despite recent devaluation, interest rate cuts and RRR cuts Expect more stimulus to come to boost growth One off devaluation aimed at improving exchange flexibility, but also to pre- empt Fed moves and help weakening export sector

9. 9 Europe and Japan: More stimulus coming Adviser Use Only Both the US Fed and Bank of England have finished QE Bank of Japan accelerated its QQE program in October 2014 and likely to do more ECB sovereign bond QE started March 2015 at €60bn a month Will continue to at least September 2016 or when inflation is forecast at 2% Total amount of central bank liquidity will continue to rise

10. 10 EU: Growth starting to improve, but significant divergence Adviser Use Only Signs of some economic improvement Unemployment rates now falling Less fiscal austerity, weaker EUR and more stability in banking system is helping Headline Eurozone growth hides significant divergence between countries Ireland and Spain, early adopters of economic reform, now leading growth Greece a clear area of ongoing concern, elections on 20 September

11. 11 Australia: Economic growth rate below trend and income growth flat Adviser Use Only Q2 2015 GDP data for Australia showed annual growth down at 2.0%/yr Growing largely below trend since 2007 Real Income in the economy very weak Falling commodity prices, flat profits and low wages growth Partly offset by a lower AUD – expect more depreciation Negative impact on government revenue and Budgets

12. 12 Australia: Business and consumer confidence close to average – households saving less Adviser Use Only Business confidence now a little above average – helped by lower AUD and NSW growth Consumer confidence has been volatile Retail sales doing a little better But consumers saving less to maintain consumption given weak income growth

13. 13 Australia: Trade is still a source of economic growth Adviser Use Only China still no. 1 export destination but has fallen with weaker commodity prices Japan is no. 2. India and US to pick up share Free Trade Agreements signed with Korea, Japan and China... India to come Resource exports still dominate Improvements in rural (beef) and services (education and tourism)

14. 14 Australia: Unemployment rate lower than expected, AUD below long-term average Adviser Use Only RBA cut rates in February and May 2015 – as the unemployment rate continued to drift higher Unemployment rate back to its peak of 6.3% in July Still lower-than-expected and suggests Australia’s potential growth rate has declined RBA expected to be on hold now Lower AUD has helped and should move lower with Fed lift-off

15. 15 Australia: Housing market very strong – debt burden is rising, but repayments still affordable Adviser Use Only House prices getting very expensive Demand coming from: low interest rates, local investors, SMSF and foreign investors Household debt to income hitting new highs around 160% But low interest rates mean repayments are still affordable

16. 16 Australia: Infrastructure and housing supply are critical Adviser Use Only Infrastructure critical to housing affordability, jobs and productivity improvement Coming (mostly) from NSW Residential approvals growing strongly High-rise residential approvals now very similar to detached housing

17. 17 Australia: Potential economic growth will be lower Adviser Use Only Australia’s potential economic growth rate could have fallen to around 2.5%–2.75%, from 3.25% Ageing population Unchanged labour force participation Productivity challenges are critical Real GDP per person set to fall Real GDP growth potential set to fall without productivity enhancing and participation enhancing policies

18. 18 Outlook: Next 12 months Adviser Use Only First rate rise in US still underestimated by markets Equity market volatility and lift in short-end bond yields More debate over impact on longer-term bond yields China – going through an important adjustment. Slower growth, more financial market reforms but a government who still wants control Europe – third bailout package for Greece, growth divergence and a future of stronger institutional frameworks Australia – slower growth, need for infrastructure and government to promote growth, lower interest rates unlikely

19. 19 Outlook: Issues surrounding lower potential growth Adviser Use Only

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