Craig James, Chief Savanth Sebastian,

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1 Craig James, Chief Savanth Sebastian,

2 This presentation has been prepared without taking account of the objectives, financial situation or needs of any particular individual. Before acting on the information in this seminar, you should consider its appropriateness to your circumstances and, if necessary, seek appropriate professional advice. Commonwealth Securities Limited ABN AFSL (CommSec) is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN and a Participant of the ASX Group. Examples used in this presentation are for illustrative purposes only.

3 It is probably best to describe 2014 as another year of disappointment. In January, the International Monetary Fund projected 3.7% growth for the global economy. Now it expects growth closer to 3.3%. Still, while growth was a little below the long-term average, 2014 wasn t much different to The US economy is performing well; China is managing the transition from production to consumption; Europe is weak; and the falling oil price is stemming growth of energy producers. In February, the Reserve Bank tipped average growth in 2014 at 2 ¼ - 3 1/4 %; in November the forecast was exactly the same. In other words, a little below average. The net effect has been to cause unemployment to drift higher from 5.9% to 6.3% but keep inflation under control between 2-3%. The economy continued its transition from growth driven by mining investment to one driven by home building and mining exports.

4 Home prices rose by 7.9% in 2014 after lifting 9.8% in Returns on residential property outperformed government bonds, shares and cash in The Aussie dollar drifted higher from the late US80c area to the low US90c in the first half of 2014 but finally succumbed to lower commodity prices particularly the slump in oil prices from September. The Aussie dollar lost US7.5 cents against the greenback over 2014 and fell against the $NZ dollar, but rose against the Euro and Japanese yen. The Reserve Bank left the cash rate at 2.50% over Bond yields ended 2014 lower in response to lower inflation risks. The ASX 200 rose by just 1.1% in 2014 after being up 5.7% in September. The World sharemarket (MSCI less Australia) rose by 3.3% in 2014.

6 Key financial indicators 2014: At a Glance Dec High Low Dec % change ASX 200 5, , , , % US Dow Jones 16, , , , % AUD/USD, US cents % 90 day bank bills 2.64% 2.79% 2.58% 2.77% - 10 year bond yields 4.23% 4.34% 2.82% 2.82% - Oil, US$ per barrel % Gold, US$ per ounce %

16 1.6% 2.1% HOME PRICES December % Annual % change -0.6% 12.4% 4.3% 7.6% Source: CoreLogic RP Data, CommSec 3.5%

24 Influences on ASX 200 index in 2014 (ASX 200 rose by 60 points or 1.1%) Index points change Index points change

34 Global Economy: Over the past 40 years, world economic growth has averaged 3.5%. Growth in 2013 was estimated at 3.3%. The IMF expects 3.8% growth in Emerging & developing nations in Asia are the key engines of growth. United States: The US economy is effectively back to normal with growth in 2014 likely to be 2.6%; above the 2.5% long-term average. The US Federal Reserve is expected to lift official interest rates around mid year but only when it believes that inflation is set to rise. China: The transition from production to consumption is still evolving. The economy will likely grow between % over 2015 and it will still contribute around a quarter of global economic growth. Europe: The sick man of the global economy will struggle over 2015 but weaker oil prices and stronger US economic growth will support recovery.

35 Australia: We expect economic growth in a % range in 2015, suggesting near normal economic growth. Inflation should hold between %. Unemployment should improve to between % in the second half of 2015 as economic growth picks up pace. Australian dollar: Over the past 20 years, the Aussie dollar has, on average, tracked in a US13.7 cent range. If normal volatility persists in 2015 then a range of US71-85c could be assumed. In 2014 we said businesses must work on the premise that the Aussie dollar is likely to come under pressure and downside risks still remain with the US Federal Reserve poised to lift rates. Interest rates: Over 2014, the cash rate has averaged 2.50 per cent the lowest calendar year average since A weaker oil price and lower Aussie dollar will stay the Reserve Bank hands from lifting rates further.

36 The Reserve Bank is likely to remain on the interest rate sidelines over the first half of While we expect the normalisation of rates to start in the second half of the year, if inflation remains under control then rates will be lower for longer. A likely range for cash rates in 2013 is per cent. Sharemarket: Last year we expected the ASX 200 to be between 5,400-5,700 by end But weakness in the resources sector restrained the sharemarket late in the year. After under-performing in 2014, we tip the ASX 200 to end 2015 between 5,900-6,200 with total returns around 15%. As a result 10-year and 15-year average returns on shares will be around 10%. The sharemarket will be supported by favourable valuations, strong corporate balance sheets, solid US economic growth, a switch of investor affections from property to shares and on-going maturation of the Chinese economy.

37 In 2015 we don t expect the sharemarket to face the same sort of headwinds it felt from lower iron ore and oil prices in The key risks for Australian investors in 2015 are the health of oil-producing economies following the fall of oil prices; deflationary tendencies in developed economies; health of the European economies; and the US correctly picking the timing of the start of rate hikes. Housing: Growth of home prices will ease to the 4-7% range over 2015 as more homes are built and add to market supply. Slower population growth and increased supply will be balanced by low interest rates.

Craig James, Chief Savanth Sebastian, Senior

Craig James, Chief Savanth Sebastian, Senior Craig James, Chief Economist, @CommSec Savanth Sebastian, Senior Economist, @CommSec http://hellasfrappe.blogspot.com.au/2013_07_25_archive.html Important Information This presentation has been prepared