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Market volatility and its impact on Australian and international share markets

Market volatility and its impact on Australian and international share markets. Prepared by BT Financial Group for the adviser market Updated to 30 June 2008. 1. What’s contributing to current market volatility?. 2. How has volatility affected the Australian market?.

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Market volatility and its impact on Australian and international share markets

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  1. Market volatility and its impact on Australian and international share markets Prepared by BT Financial Group for the adviser market Updated to 30 June 2008

  2. 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. Volatility in perspective 5. What this means for Australian investors 6. BT’s approach to managing volatility 7. And insights for investors

  3. Many factors contributing to ongoing volatility US sub-prime crisis and resulting global ‘credit-crunch’ slowing growth Seven consecutive interest rate rises in two years, over geared investors de-leverage Market volatility Strength of $Aus and fears of US recession Rising price of oil 3

  4. Inflation now a key contributor Early in 2008, there was concern the ‘credit crunch’ and weakening US economy would lead to a significant slowdown in global growth. Outlook for global growth now appears better than anticipated, helped by continued strong commodities demand from emerging markets. However, strong demand for commodities (particularly oil) means strong commodity prices – a key contributor to upward inflationary pressures. Combating rising inflation has now become a key concern for the worlds’ central banks. 4

  5. 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. Volatility in perspective 5. What this means for Australian investors 6. BT’s approach to managing volatility 7. And insights for investors

  6. Rising market volatility has seen the Australian share market fall 13% in the 12 months to 30 June 2008 S&P/ASX300 Accumulation Index – 12 months to 30 June 2008 Series Rebased: 30th June 2007 = 100 Source: BT Financial Group, Bloomberg 6

  7. …but it remains at elevated levels over the long-term, up 197% over the last 10 years! S&P/ASX300 Accumulation Index – 10 years to 30 June 2008 Series Rebased: 30th Jun 1998 = 100 Source: BT Financial Group, Bloomberg 7

  8. 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. Volatility in perspective 5. What this means for Australian investors 6. BT’s approach to managing volatility 7. And insights for investors

  9. Market volatility has affected all markets, not just our domestic market…. Major international markets – 12 months to 30 June 2008 S&P500 (US) (-14.9%) FTSE 100 (UK) (-14.9%) DJ Euro Stoxx 50 (Europe) (-25.3%) Nikkei 225 (Japan) (-25.6%) Series Rebased: 30th June 2007 = 100 Source: BT Financial Group, Bloomberg 9

  10. And the global share market has fallen over 21% in the 12 months to 30 June 2008…. Global share markets – 12 months to 30 June 2008 Series Rebased: 30th June 2007 = 100 Source: BT Financial Group, Bloomberg 10

  11. 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. Volatility in perspective 5. What this means for Australian investors 6. BT’s approach to managing volatility 7. And insights for investors

  12. Growth assets delivered strong returns last year, however, most affected by volatility this year… to 30 June 2007 to 30 June 2008 1-year returns (%) Source: Bloomberg market benchmark returns

  13. Annual returns of Australian shares (%) – All Ords / ASX S&P Accumulation Index (since 1956) 70 60 50 40 30 20 10 0 -10 -20 -30 1974 1977 1980 1983 1986 1989 1992 2004 2007 1956 1959 1962 1965 1968 1971 1995 1998 2001 Volatility can hurt returns in the short term… Source: Standard & Poor’s 13

  14. Rolling 5 year returns of Australian shares (% annualised) – All Ords / ASX S&P Accumulation Index (since 1960) 35 30 25 20 15 10 5 0 -5 -10 1975 1978 1981 1984 1987 1990 1993 2005 1960 1963 1966 1969 1972 1996 1999 2002 … but it’s a different picture over the longer term Source: Standard & Poor’s 14

  15. Rolling 10 year returns of Australian shares (% annualised) – All Ords / S&P Accumulation Index (since 1965) 30 25 20 15 10 5 0 -5 -10 1980 1983 1986 1989 1992 1995 2004 2007 1965 1968 1971 1974 1977 1998 2001 And the longer the better! Source: Standard & Poor’s 15

  16. 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. Volatility in perspective 5. What this means for Australian investors 6. BT’s approach to managing volatility 7. And insights for investors

  17. What does this mean for Australian investors? Economy still robust with low unemployment, high commodity prices - we expect the Australian economy will hold its own in the near-term. Investors concerned the RBA may raise interest rates in the second half of 2008, which could impact on the Australian consumer. Weaker consumption could offset the growth we’re seeing in the stronger resources and infrastructure sectors. Interest rate rises also mean an increase in cost of capital. Re-evaluating and repricing the outlook for funding is contributing to short-term market movements. Short-term volatility to continue. The Australian market should start to recover when RBA is satisfied inflation has been contained, and commodity prices have stabilised. 17

  18. And what is the longer-term outlook? The threat of rising inflation and subsequent higher interest rates will remain a concern for central banks, and this will probably limit global growth over the next year or so. Australia continues to be influenced by global markets battling inflationary pressures, a slowdown in global economic growth, and a view that emerging markets growth may be unsustainable. However, we will continue to benefit from the continuing urbanisation in China and India, boosting the performance of our big miners and underpinning Australia’s growth rates. The income return from Australian shares is now much more attractive than that from bonds, which should provide an additional boost for share prices. 18

  19. 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. Volatility in perspective 5. What this means for Australian investors 6. BT’s approach to managing volatility 7. And insights for investors

  20. Diversify, focus on risk, invest in quality • One of BT’s strengths is that we always focus on the right levels of diversification and risk within our portfolios, whether its Australian shares, listed property or fixed income. • Our focus on diversification, risk management and investment insight is what prevents BT’s portfolios from being damaged excessively in the sort of down market we’re seeing now. • We continue to ensure we have the right valued stocks in our portfolios by investing in companies with secure cash flows, limited expectations in their valuations and sound management teams. • At BT, we’re happy in our ability to sidestep some of the blow ups that have really triggered the downturn in the last six - nine months.

  21. 1. What’s contributing to current market volatility? 2. How has volatility affected the Australian market? 3. A quick look at international markets 4. Volatility in perspective 5. What this means for Australian investors 6. BT’s approach to managing volatility 7. And insights for investors

  22. Ten investing truths Insights into successful investing

  23. Don’t panic – invest for the long-term

  24. Maintain your composure and always keep the end goal in sight Impact of major market events on global shares since 1986 Jul 01 Tech Wreck Jun 07 US Sub-prime Crisis Sep 01 Attack on Twin Towers Jul 98 Russian Bond Crisis Aug 97 Asian Currency Crisis Nov 89 Fall of the Berlin Wall Feb 94 Bond Market Crash Mar 03 Troops enter Iraq Oct 87 Wall Street crash Jan 91 Gulf War Global shares measured by the MSCI World ex-Australia (net dividends) Index in A$ to 30 June 2008. Source: BT Financial Group, MSCI

  25. Understand risk

  26. All investing involves a trade-off between risk and return Australian shares, one year returns - Greater volatility over the short-term Australian shares, five year returns - Reduced volatility over the long-term 1985 1990 1995 2000 2005 Source: Datastream. S&P/ASX 300 Accumulation Index annualised returns to 30 June 2008 shown

  27. Diversify your investments

  28. The more you spread your investments, the less chance you have of losing money Asset classes Regions Investment managers (or styles) Shares Property Cash Fixed interest Individual securities

  29. Every asset class has time in the sun Best performer each year (%) Source: Australian Bank Bill 0+ Index, S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

  30. Diversification also applies to regions World share market values (%) Japan Asia (ex-Japan) Australia UK US Europe Source: MSCI World Index as at 30 June 2008

  31. Avoid chasing returns

  32. Can you pick next year’s winner? One-year returns to 30 June (%) Best performing asset class for each year is highlighted. Source: Australian Bank Bill 0+ Index, S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

  33. Don’t forget – time is on your side

  34. Enrol in a get rich slowly program – the power of compound interest Sally Matt 21 $5,000 - 39 44,943 19,891 22 6,400 - 40 48,583 22,483 23 7,912 - 41 52,421 25,281 24 9,545 - 42 56,615 28,304 25 11,309 - 43 61,144 31,568 26 13,213 - 44 66,036 35,093 27 15,270 - 45 71,319 38,901 28 17,492 - 46 77,024 43,013 29 19,891 - 47 83,186 47,454 30 22,486 - 48 89,841 52,250 31 24,281 $5,000 49 97,028 57,430 32 26,224 6,400 50 104,790 63,025 33 28,322 7,912 51 113,174 69,067 34 30,587 9,545 52 122,227 75,592 35 33,034 11,309 53 132,006 82,639 36 35,677 13,213 54 142,566 90,251 37 38,531 15,270 55 $153,971 $98,471 38 41,614 17,492 Assumptions: 8% p.a. interest, all reinvested Source: BT Financial Group

  35. Time, not timing, is important June 1998- June 2008 Full 2,609 trading days Minus the 10 best days Minus the 20 best days Minus the 30 best days Minus the 40 best days Minus the 50 best days Minus the 60 best days -3.98 Minus the 70 best days

  36. What is dollar cost averaging? February $100 $8 12.5 $180 March $100 $5 20.0 $213 April $100 $8 12.5 $440 May $100 $10 10.0 $650 Total $500 65.0 $650 Month Investment Unit price Units purchased Total value January $100 $10 10.0 $100 Note: No allowance made for inflation, taxation, fees or expense Source: BT Financial Group

  37. Find hidden value

  38. The best investment research processes unlock hidden value $ Industry trends $ Economic trends $ Company analysis $ Supplier/competitor environment Research analysis

  39. Employ experts

  40. Even the smartest investors (including many corporate investors) use managed funds A managed fund provides investors with: • More convenient investing • Broader diversification with less investment dollars • Professional fund managers who monitor and actively manage your portfolio • Economic research and specific company information • Assets not available to individual investors • Alternative styles of investment strategies

  41. Seek professional advice

  42. “What is your main information source for making investment decisions?” 38.0 13.0 12.0 10.0 5.0 4.0 7.0 10.0 Financial adviser/accountant Magazines/newspapers Why do senior executives, sports stars, politicians and entertainers all get expert help to manage their money? Other family members Spouse/partner Internet Friends Other None/don’t know Source: BT Investor Poll, October 2004

  43. What you get from your financial adviser 1. A holistic approach Expertise 2. Asset allocation Efficiency 3. Security selection 4. An education

  44. Tax-effective investing

  45. Tax-effective investing Focus on the after-tax return, not the tax Prepay your interest – it may be tax-effective Hold on to your investment for more than a year Invest through superannuation Invest in companies that offer franking credits … and seek tax advice!

  46. Benefits of dividend imputation Note: Tax rates current as at 1 July 2007 Source: BT Financial Group

  47. It’s all about income

  48. What defines asset value? What defines asset value? • The present value of both current and future (expected) income Investing in value • Asset prices move toward income-based value in the long-term • Investors profit from buying assets priced below value and selling when prices rise above it

  49. This presentation has been prepared by BT Financial Group Limited (ABN 63 002 916 458) ‘BT’ and is for general information only.  Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described.  The presentation has been prepared without taking into account any personal objectives, financial situation or needs.  It does not contain and is not to be taken as containing any securities advice or securities recommendation.  Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice.  BT does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation.  Except insofar as liability under any statute cannot be excluded, BT and its directors, employees and consultants do not accept any liability for any error or omission in this presentation or for any resulting loss or damage suffered by the recipient or any other person.  Unless otherwise noted, BT is the source of all charts; and all performance figures are calculated using exit to exit prices and assume reinvestment of income, take into account all fees and charges but exclude the entry fee.  It is important to note that past performance is not a reliable indicator of future performance. This document was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author. For more information, please call BT Customer Relations on 132 135 8:00am to 6:30pm (Sydney time)

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