BT Monthly Markets Chart Pack – December 2007

An overview of movements in global financial markets

2

Global share markets mixed in December

December was a mixed month for global share markets as investors continued to worry about the usual suspects – weakness in the US housing market, the fallout from the global credit crisis, and the threat of a recession in the US. Bourses in the US and Japan were weaker, while share markets in Europe, the UK and China made positive gains.

In Australia, the S&P/ASX 300 Accumulation Index closed the month down 2.64%. The local market was dragged lower by the listed property sector after Centro Properties became the first major (local) casualty of the global credit crisis. Weakness in mining stocks also affected performance as a softer outlook for global growth weighed on commodity prices.

3

Source: BT Financial Group, Datastream

S&P/ASX 300 Accumulation Index – year to 31 December 2007

The Australian share market closed the year on a weaker note

34,000

35,000

36,000

37,000

38,000

39,000

40,000

41,000

42,000

43,000

31/12/06 28/02/07 30/04/07 30/06/07 31/08/07 31/10/07 31/12/07

4

Key Australian economic news – December

The Reserve Bank of Australia (RBA) left interest rates on hold at 6.75% following its December meeting, though their decision came as no real surprise in light of recent financial market turmoil. Rates are widely expected to remain on hold again when the RBA next meets in February, unless the latest CPI data on 24 January comes in on the high side.

Employment figures were surprisingly weaker in November. The unemployment rate came in at 4.5%, while October unemployment was revised up from 4.3% to 4.4%. This brought the unemployment rate up 0.3% from its September low of 4.2%, putting it back to where it was in March of this year.

After unexpected weakness in October, retail sales rebounded strongly in November, up 0.8%. This took annual retail sales growth to 8.1%; the fastest growth since mid-2004.

November building approvals came in well above market expectations, rising by almost 9% over the month.

Source: BT Financial Group

5

The Australian dollar slightly weaker in December

The Australian dollar (A$) was slightly weaker against the major currencies in December amid ongoing concerns over the global economic outlook and the impact that slower growth would have on commodity prices.

At the end of December:

A$1 bought US$0.8751 -1.1%

€0.5999 -0.7%

¥97.77 -0.6%

Source: BT Financial Group

6

Currency markets – A$ per US dollar

Source: BT Financial Group. Figures at 31 December 2007.

0.5000

0.5500

0.6000

0.6500

0.7000

0.7500

0.8000

0.8500

0.9000

0.9500

1.0000

Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07

The Australian dollar versus the US dollar…

7

Currency markets – A$ per Euro

Source: BT Financial Group. Figures at 31 December 2007.

the Euro…

0.5300

0.5450

0.5600

0.5750

0.5900

0.6050

0.6200

0.6350

0.6500

Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07

8

and the Yen

60

65

70

75

80

85

90

95

100

105

110

Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07

Currency markets – A$ per Yen

Source: BT Financial Group. Figures at 31 December 2007.

9

Official world interest rate movements – December

Both the US Federal Reserve and the Bank of England cut interest rates in December, while the European Central Bank and the Bank of Japan decided to leave rates on hold.

Current rate Last movedDirection of last move

Australia 6.75% Nov 2007

US 4.25% Dec 2007

Europe (ECB) 4.00% Jun 2007

Japan 0.50% Feb 2007

United Kingdom 5.50% Dec 2007

Source: BT Financial Group

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World growth is expected to be 3.7% this year, and a further 3.2% in 2008

Source: Consensus Economics

2008 world growth estimates

Month of estimate

May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07

Australia 3.5% 3.5% 3.5% 3.6% 3.6% 3.7% 3.7% 3.6%

US 2.8% 2.9% 2.8% 2.6% 2.4% 2.4% 2.3% 2.1%

Japan 2.2% 2.2% 2.2% 2.1% 2.1% 1.9% 1.8% 1.5%

China 9.8% 9.8% 9.9% 10.6% 10.6% 10.7% 10.5% 10.5%

Germany 2.3% 2.3% 2.4% 2.4% 2.3% 2.2% 2.1% 1.9%

UK 2.3% 2.3% 2.2% 2.2% 2.1% 2.0% 1.9% 1.9%

World 3.4% 3.4% 3.4% 3.4% 3.5% 3.4% 3.4% 3.2%

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Source: BT Financial Group

31 December 2007

Global share market returns

1 year 3 years (pa) 5 years (pa)

Global

S&P 500 Index (US) 3.53% 6.61% 10.79%

Nasdaq (US Tech.) 9.81% 6.83% 14.71%

Nikkei 225 (Japan) -11.13% 10.04% 12.28%

Hang Seng (Hong Kong) 39.31% 25.03% 24.44%

DAX (Germany) 22.29% 23.76% 22.77%

CAC (France) 1.31% 13.68% 12.88%

FTSE 100 (UK) 3.80% 10.28% 10.38%

Australia

S&P/ASX 300 Accum. Ind. 16.22% 21.01% 21.11%

S&P/ASX Small Ordinaries 17.05% 23.39% 25.77%

S&P/ASX 300 Listed Prop. -8.36% 11.45% 14.77%

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Short-term asset class performance

Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

1-year rolling returns to 31 December 2007 (%) Best performing asset class for the year

2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992

Australian cash

6.73 6.02 5.74 5.62 4.90 4.77 5.24 6.27 5.01 5.14 5.63 7.57 8.06 5.34 5.39 6.92

Australian bonds

3.46 3.14 5.80 6.96 3.05 8.81 5.45 12.08 -1.22 9.54 12.23 11.87 18.63 -4.66 16.32 10.41

Australian property

-8.36 34.05 12.70 32.18 8.81 11.85 14.99 18.79 -4.20 18.37 21.76 14.24 14.28 -6.32 29.97 6.59

Australian shares 16.22 24.51 22.45 27.92 14.96 -8.64 10.49 6.31 19.52 9.75 12.15 14.54 20.75 -8.82 40.61 -2.88

International bonds

-0.40 -1.24 -0.48 6.05 -14.11 8.63 7.48 19.63 -10.26 22.49 22.18 -2.96 24.13 -10.81 15.27 16.54

International shares

-2.60 11.49 16.84 9.94 -0.76 -27.44 -9.96 2.19 17.20 32.34 41.63 6.24 26.05 -8.43 24.47 4.78

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Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

1-year returns to 31 December 2007 (%)

Short-term asset class performance (cont’d)

-2.6

-0.4

16.2

-8.4

3.5

11.5

-1.2

24.5

34.1

3.1

31 December 2006

31 December 2007

Australian bonds

Listed property

Australian shares

Global bonds

Global shares

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Long-term asset class performance

Note: Accumulated returns based on $1,000 invested in December 1984Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$

31 December 2007

Australian bonds

Listed property

Australian shares

Cash

Global shares

$0

$1,500

$3,000

$4,500

$6,000

$7,500

$9,000

$10,500

$12,000

$13,500

$15,000

$16,500

$18,000

$19,500

$21,000

$22,500

$24,000

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

15

Source: BT Financial Group. West Texas Intermediate oil price at 31 December 2007.

Oil prices – US$ per barrel

Oil closed the year 57.1% higher at US$95.99 a barrel, before going on to hit US$100 in early January

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

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Summary

We expect global growth to hold up, though the threat of a recession in the US has obviously increased recently and this will pose a significant risk to future growth.

The underlying strength of the Australian economy looks set to continue, though any significant deterioration in global growth will obviously have an adverse effect locally.

Despite the RBA’s decision to leave interest rates on hold in December, the Bank clearly retains a tightening bias. Whether the RBA pulls the trigger on another rate hike in February will depend largely on the next round of inflation data due out in late January.

The threat of a slowdown in global growth will mean a rougher ride for the Australian dollar in the near-term, though it looks set to remain at high levels.

Gains in global share markets, including here in Australia, are likely to slow in the first half of 2008.

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