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March Economic Health Check
Savanth SebastianEconomist
Savanth SebastianEconomist, 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 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 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 economySo 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: InflationSo What?Interest rates, social stability, consumer spending
Issue: ClimateSo What?Retail, transport, agriculture, insurance, construction
Highest levels for theSouthern Oscillation Index
(SOI) August 1917 34.8April 1904 31.7November 1973 31.6December 2010 27.1June 1950 26.9Source: BOM & CommSec
Codrington, Stephen. Planet Geography 3rd Edition (2005)
Issue: Mining boomSo 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 marketSo 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: SpendingSo What?Winners/losers, interest rates, stock pickers
Relax at home with a good book –Selected sectors
December quarter 2010Inflation adjusted spending Quarter
changeNewspapers, 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 ratesSo What?Fixed/floating, asset allocation, returns
Issue: CurrencySo What?Asset allocation, budgeting, profitability, competition
Issue: SharesSo What?Returns, portfolios, investor education, active/passive
CommSec forecasts
ForecastsEconomic 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 KadlecBankwest 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 or 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 Bankwest. We believe that the information herein is correct and any opinions, conclusions or 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 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 BankWest or CBA 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.
Important information
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Managing Currency Exposures
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Kaliopy KadlecGlobal Markets Specialist NSWT: 02 9117 0371M: 0437 883 [email protected]
Katie GillsBusiness Wealth Management
Capital Series CornerstoneS&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 owned 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 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 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 growthStrategy 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 growth 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 $10.9ANZ ANZ Banking Group Limited $59.2BHP BHP Billiton Limited $149.6BXB Brambles Limited $10.6CBA Commonwealth Bank of Australia $77.9CSL CSL limited $19.6FGL Foster's Group Limited $10.7MQG Macquarie Group Limited $13.0NAB National Australia Bank Limited $51.8NCM Newcrest Mining Limited $29.4ORG Origin Energy Limited $14.3QBE QBE Insurance Group Limited $19.1RIO Rio Tinto Limited $36.6SUN Suncorp-Metway Limited $10.4TLS Telstra Corporation Limited $35.4WBC Westpac Banking Corporation $66.2WDC Westfield Group $22.2WES 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 growth 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
0
10
20
30
40
50
60
70
80
90
100
110
Per
form
ance
%
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
ASX200Performance
MaturityValue
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 1467M: 0424 188 163E: [email protected]
Level 23, DP Tower 1201 Sussex Street, Sydney, NSW 2000
Contact us
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