March Economic Health Check Savanth Sebastian Economist The New - - PowerPoint PPT Presentation

March Economic Health Check

Savanth Sebastian

Economist

Savanth Sebastian

Economist, CommSec, March 2011

The New ‘Normal’

Opportunities in a post-GFC world

ediscoveryconsulting.blogspot.com

Important information

This presentation has been prepared without taking account of the

• bjectives, 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 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and a Participant of the ASX Group. Examples used in this presentation are for illustrative purposes only.

• US recovers…

but China dominates

• Australia struggles…

Budget under pressure

• Aussie consumers..

Conservatism reigns

• Tight job markets…

but seniors win

• Interest rates on hold
• Aussie dollar strength

State of Play

Issue: Global economy

So What? Exchange rates, trade, sharemarket, int. rates

Drivers of world economy - Contribution to growth 2011

China 0.81% United States 0.74% India 0.18% Japan 0.14% Newly Industrialised Asia* 0.13% Germany 0.13% ASEAN 5 # 0.12% Brazil 0.11% Russia 0.10% United Kingdom 0.08% France 0.07% Canada 0.05% Other countries 1.70% World 4.40%

Source: IMF & CommSec * Newly industrialised Asia – Hong Kong, Taiwan, Singapore and South Korea # ASEAN 5 – Indonesia, Malaysia, Thailand, Philippines and Vietnam

Issue: Inflation

So What? Interest rates, social stability, consumer spending

Issue: Climate

So What? Retail, transport, agriculture, insurance, construction

Highest levels for the Southern Oscillation Index (SOI)

August 1917 34.8 April 1904 31.7 November 1973 31.6 December 2010 27.1 June 1950 26.9

Source: BOM & CommSec

Codrington, Stephen. Planet Geography 3rd Edition (2005)

Issue: Mining boom

So What? Interest rates, investment, economic policy

Drivers of the Australian economy 2007 – 2010, % contribution to the change in GDP

Mining 17.4% Professional, scientific and technical services 11.9% Construction 11.6% Financial and insurance services 10.8% Agriculture, forestry and fishing 10.8% Healthcare and social assistance 9.7% Education and training 5.1% Public administration and safety 5.1% Transport, postal and warehousing 3.8% Wholesale trade 3.5%

Source: ABS & CommSec

Issue: Job market

So What? Interest rates, spending, costs, migration

Job creation 2010

Total 368,600 3.3% 65+ 18,200 5.9% 25-34 139,200 5.7% 55-64 75,400 5.0% 45-54 56,400 2.3% 35-44 53,200 2.1% 15-24 26,100 1.3%

Source: ABS & CommSec

Issue: Spending

So What? Winners/losers, interest rates, stock pickers

Relax at home with a good book – Selected sectors December quarter 2010

Inflation adjusted spending Quarter change Newspapers, books 6.1% Hardware, building & garden 5.4% Clothing retailing 4.2% Furniture, floor covering 3.2% All retail

• 0.3%

Supermarkets

• 0.3%

Sporting goods, toys

• 1.3%

Cafes, restaurants

• 7.3%

Footwear, jewellery

• 8.4%

Source: ABS & CommSec

Conservatism reigns

Housing issues

• So rental market still tight but home prices ease…

So What? Home prices to rise 5% in 2011

Issue: Interest rates

So What? Fixed/floating, asset allocation, returns

Issue: Currency

So What? Asset allocation, budgeting, profitability, competition

Issue: Shares

So What? Returns, portfolios, investor education, active/passive

CommSec forecasts

Forecasts

Economic growth 2.75-3.00% in 2010/11 3.50% in 2011/12 Inflation 2.75% in 2010/11 2.75%-3.00% in 2011/12 Unemployment 4.75-5.00%, mid 2011 4.25-4.50%, end 2011 Cash rate 5.00%, mid 2011 5.50%, end 2011 Sharemarket (Australian) 5,100 points, mid 2011 5,400 points, end 2011 Australian dollar US99c in June 2011 US92c in December 2011

Kaliopy Kadlec

Bankwest Markets

• Important Information and Disclaimer: This information is produced by Bank of Western

Australia Ltd ABN 22 050 494 454 (“BankWest”). Bankwest is a wholly owned, non-guaranteed, subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 (“CBA”). The information and products discussed herein are only available to wholesale clients or sophisticated investors as defined in the Corporations Act 2001. It has not been prepared for, and must not be distributed to

• r replicated in any form, to anyone who is not a wholesale client or sophisticated investor in
• Australia. Unless specifically indicated, this document does not constitute formal advice or

commitment by the sender or the CBA group. Any rates provided are purely indicative and provided for illustrative and discussion purposes only and in no way bind CBA. For firm rates please contact your Global Markets Specialist or your Relationship Manager. BankWest has not taken into account the objectives, financial situation or needs of any counterparty. Before you enter into any transaction you must ensure that you understand the risks and rewards and determine that it is suitable for you and your circumstances and is consistent with your investment objectives, as set out in your constitutional documents. CBA group and/or any of its affiliates or its employees may also own or build positions or trade in any such securities and derivatives thereon and may also sell them whenever considered appropriate. This information is confidential and no part of this document may be reproduced or distributed in any manner without the express permission of

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recommendations contained in this document are reasonably held or made as at the time of its compilation, but we make no warranty as to the accuracy, reliability or completeness of that

• information. Except to the extent that any liability under any law cannot be excluded, no liability for

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Important information

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Kaliopy Kadlec Global Markets Specialist NSW T: 02 9117 0371 M: 0437 883 740 Kaliopy.kadlec@bankwest.com.au

Katie Gills

Business Wealth Management

Capital Series Cornerstone

S& P Information Services, Structured Product Rating – STRONG

March 2011

Capital Series Cornerstone

1. Capital Series Cornerstone is issued by Commonwealth Bank of Australia ABN 48 123 123 124 (Commonwealth Bank) administered by its wholly

• wned but non-guaranteed subsidiary Commonwealth Securities Limited ABN 60 067 254 399 (CommSec). A PDS for Capital Series Cornerstone is

available by calling 13 15 20 and should be considered before making any decision about this product. Investments in Capital Series are not deposits with Commonwealth Bank. They are contracts entered into between Investors and Commonwealth Bank on the terms set out in the Terms of Sale as contained in the PDS. Capitalised terms in this document have equal meaning to the capitalised terms in the PDS. Potential investors should refer to the PDS for risks and costs involved with an investment in Capital Series Cornerstone. Commonwealth Bank and its subsidiaries, including CommSec, do not guarantee the performance of Capital Series Cornerstone. 2. The information in this document should not be taken as a recommendation to invest in Capital Series Cornerstone. As the information has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information in this document, consider its appropriateness to your circumstances. Past performance is not a reliable indicator of future performance. The Capital Investment Loan and the Interest in Advance Loan are provided by Commonwealth Bank and are subject to the Bank’s normal credit approval. 3. We believe that the information herein is correct and any opinions, conclusions or recommendations contained in this document are reasonably held

• r made as at the time of its compilation, but we make no warranty as to the accuracy, reliability or completeness of that information. Except to the extent

that any liability under any law cannot be excluded, no liability for any loss or damage which may be suffered by any person, directly or indirectly, through relying upon any information or statement in this document is accepted by the Commonwealth Bank or CommSec or any of their directors, employees or agents, whether that loss or damage is caused by any fault or negligence on their part or otherwise. Potential investors should consult their professional tax adviser about the tax implications of this product with regard to their own particular circumstances. 4. Standard & Poor’s Information Services (Australia) Pty Ltd (ABN: 17 096 167 556, Australian Financial Services Licence Number: 258896) (“Standard & Poor’s) Fund Awards are determined using proprietary methodologies. Fund Awards and ratings are solely statements of opinion and do not represent recommendations to purchase, hold, or sell any securities or make any other investment decisions. Ratings are subject to change. For the latest ratings information please copy the following URL into your web browser www. standardandpoors.com.au

Important information

• Why Capital Series?
• What is the offer?
• How does it work?
• Key dates

Overview

• Offers exposure to the Australian sharemarket
• Downside limited through capital protection
• Choice of two strategies;

Strategy 1 – Income and growth Strategy 2 – Growth only with a multiplier effect (outperform the market)

• Transparent structure, low cost with no MER
• No risk of deleverage/cash lock
• Door opener to get in front of new or existing clients

Why Capital Series?

Capital protection 100% at maturity Underlying Portfolio 20 of the largest listed companies on the ASX Coupon payments 5%pa guaranteed (starting from yr 1.5 and paid annually thereafter – coupons total 25%) Capital grow th potential Up to 45% (paid at maturity) Investment Risk Profile (if held to maturity) Investment term 5.5 years Maturity Date 25 October 2016 Minimum investment amount $10,000

Strategy 1 – Guaranteed Income plus Growth

ASX Code Company Market Cap (billions)* AMP AMP Ltd $10.9 ANZ ANZ Banking Group Limited $59.2 BHP BHP Billiton Limited $149.6 BXB Brambles Limited $10.6 CBA Commonwealth Bank of Australia $77.9 CSL CSL limited $19.6 FGL Foster's Group Limited $10.7 MQG Macquarie Group Limited $13.0 NAB National Australia Bank Limited $51.8 NCM Newcrest Mining Limited $29.4 ORG Origin Energy Limited $14.3 QBE QBE Insurance Group Limited $19.1 RIO Rio Tinto Limited $36.6 SUN Suncorp-Metway Limited $10.4 TLS Telstra Corporation Limited $35.4 WBC Westpac Banking Corporation $66.2 WDC Westfield Group $22.2 WES Wesfarmers Limited $31.5 WOW Woolworths Limited $32.5 WPL Woodside Petroleum Limited $33.8

*As at 20 January 2011

Strategy 1: Underlying Portfolio

• S&P Research Report – STRONG rating

– 70% probability of the structure outperforming 5yr TD rates – Expected return based on historical analysis 8.3% in ‘average’ market

Strategy 1 – potential returns at maturity

70% Maximum Return = 70% Fixed & Guaranteed Income = 25% 25% Potential Capital Growth = 45%

Capital protection 100% at maturity Underlying Portfolio S&P/ASX200 price index Coupon payments Nil Capital grow th potential Up to 82.5% above the Initial Reference Level. 165% participation in any index growth up to 50% [50% x 1.65 = 82.5%] Investment Risk Profile (if held to maturity) Investment term 5.5 years Maturity Date 25 October 2016 Minimum investment amount $10,000

Strategy 2 – Enhanced Participation in Growth

10 20 30 40 50 60 70 80 90 100 110 Performance %

S& P/ASX200 vs Strategy II

S& P/ASX200 Index Performance Strategy II performance Strategy II outperforms S&P/ASX200 up to an 82.5% growth in the Index over the 5.5 year term S&P/ASX200 outperforms Strategy II if the index grows by more than 82.5 % over the 5.5 year term This diagram is for illustrative purposes only and is not to be relied upon for predictions of future performance of the S&P ASX200 index.

How does 165% Participation work?

• S&P Research Report – STRONG rating

– 50% probability of hitting the maximum return of 82.5% – Will outperform index in low-moderate growth environments

ASX200 Performance Maturity Value Am I outperforming the market?

• 10%

0% Yes 0% 0% No 30% 49.5% Yes 50% 82.5% Yes 70% 82.5% Yes 90% 82.5% No

Strategy 2 – potential returns at maturity

• “Set and forget” medium term investment timeframe (5.5 years) and

does not need to access the invested funds during this time

• Investors who have cash and want exposure to the Australian share

market

• Relatively conservative investors who require 100% capital protection

at maturity (pre-retirees/SMSFs)

• Investors who require the security of guaranteed income (strategy 1)

but would like the potential capital growth

• Investors who want to enhance their exposure to the market without

borrowing (strategy 2)

• Current clients you may have who would like to utilise a capital

protected exposure as the core of their portfolio.

Which investors may it suit?

*There may be circumstances where the Delivery Asset may be substituted for another security. Refer to the Capital Series PDS for more information.

Offer opens 14 February 2011 Offer closes 11 April 2011 Start date 18 April 2011 Maturity Date 25 October 2016

The key dates for Capital Series Cornerstone are:

What are the key dates?

• Strategy 1 – Fixed income and potential growth upside
• Strategy 2 – Outperform the market with a ‘multiplier’
• All with the safety net of capital protection at maturity
• Education/meetings with RMs, Referral Partners and clients

Wrap up

Katie Gill Business Development Executive Structured Investments P: (02) 9118 1467 M: 0424 188 163 E: katherine.gill@cba.com.au Level 23, DP Tower 1 201 Sussex Street, Sydney, NSW 2000

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