BT Monthly Markets Chart Pack – January 2009

An overview of movements in global financial markets

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Global share markets finished weaker in the first month of 2009...

Global share markets got off to a rocky start in 2009, with all the major indices taking a hit in January amid further evidence that the world economy is undergoing a significant slowdown. In the US, the benchmark S&P 500 Index fell 8.6% while markets in Europe (-8.7%), the UK (-6.4%) and Japan (-9.8%) also closed significantly in the red.

The Australian share market fell for the fifth month in a row in January, with the S&P/ASX 200 Accumulation Index closing 4.9% lower amid rising unemployment and concerns that the economy is headed for its first recession since 1991.

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Global shares measured by the MSCI World ex-Australia (net dividends) Index in A$.Source: BT Financial Group, MSCI

Impact of major market events on global shares since 1986

…but continue to perform well over the long-term, despite some major market events

700

1,200

1,700

2,200

2,700

3,200

3,700

4,200

4,700

5,200

5,700

6,200

Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

Jan 91Gulf War

Feb 94Bond Market Crash

Aug 97Asian Currency Crisis

Jul 98Russian Bond Crisis

Jul 01Tech Wreck

Sep 01Attack on Twin Towers

Jun 07US Sub-prime Crisis

Oct 87Wall Streetcrash

Nov 89Fall of the Berlin Wall Mar 03

Troops enter Iraq

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Source: BT Financial Group, Premium Data

S&P/ASX 200 Accumulation Index – year to 31 January 2008

The Australian share market closed 4.9% lower in January

21,000

23,000

25,000

27,000

29,000

31,000

33,000

35,000

37,000

39,000

31/01/2008 31/03/2008 31/05/2008 31/07/2008 30/09/2008 30/11/2008 31/01/2009

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Key Australian economic news – January

The Reserve Bank of Australia cut interest rates by a full 1.00% at its February meeting, taking the official cash rate to just 3.25% - it’s lowest level since early 1964.

The Westpac/Melbourne Institute’s consumer confidence survey fell by 2.2% in January to be 12.8% lower for the year.

The unemployment rate moved slightly higher again in December, this time to 4.5% (was 4.4% in November).

After falling 12% in November, newspaper job advertisements fell even further in December, this time by 13.9%. It was the third consecutive month in which newspaper job advertisements have fallen by more than 10%.

Australia’s trade balance came in below market expectations in November, narrowing to A$1.45bn on the back of falling exports.

Source: BT Financial Group

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The Australian dollar loses ground against all the major currencies

The Australian dollar (A$) fell 10% against the US dollar (US$) in January, giving up all of last month’s gains as weaker commodity prices and a resurgent US$ combined to push our own currency lower. Since its high of US$0.9849 cents back in July last year, the A$ has now fallen 36% against the US$ and it’s difficult to imagine any sort of sustained recovery in the near-term if global growth remains weak and commodity prices continue to trend lower.

At the end of January:

A$1 bought US$0.6347 -10.1%

€0.4971 -1.8%

¥57.07 -11.0%

Source: BT Financial Group

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Currency markets – A$ per US dollar

Source: BT Financial Group. Figures at 31 January 2009

0.6300

0.6600

0.6900

0.7200

0.7500

0.7800

0.8100

0.8400

0.8700

0.9000

0.9300

0.9600

0.9900

Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

The Australian dollar versus the US dollar…

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Currency markets – A$ per Euro

the Euro…

0.4900

0.5050

0.5200

0.5350

0.5500

0.5650

0.5800

0.5950

0.6100

0.6250

0.6400

0.6550

Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

Source: BT Financial Group. Figures at 31 January 2009

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and the Yen

55

60

65

70

75

80

85

90

95

100

105

110

Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

Currency markets – A$ per Yen

Source: BT Financial Group. Figures at 31 January 2009

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Official world interest rate movements – January

Both the European Central Bank and the Bank of England cut their official interest rates in January while the US Federal Reserve and the Bank of Japan left their rates on hold. Here in Australia, the Reserve Bank cut the official cash rate by 1.00% at its early February meeting.

Current rate Last movedDirection of last move

Australia 3.25% Feb 2009

US 0% - 0.25% Dec 2008

Europe (ECB) 2.00% Jan 2009

Japan 0.10% Dec 2008

United Kingdom 1.50% Jan 2009

Source: BT Financial Group

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Source: BT Financial Group

31 January 2009

Global share market returns

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

Global

S&P 500 Index (US) -40.09% -13.59% -6.10%

Nasdaq (US Tech.) -38.22% -13.81% -6.50%

Nikkei 225 (Japan) -41.19% -21.70% -5.81%

Hang Seng (Hong Kong) -43.39% -5.54% -0.02%

DAX (Germany) -36.68% -8.56% 1.34%

CAC (France) -38.93% -15.61% -3.95%

FTSE 100 (UK) -29.43% -10.36% -1.12%

Australia

S&P/ASX 200 Accum. Ind. -34.32% -6.56% 6.00%

S&P/ASX Small Ordinaries -47.86% -12.24% 1.20%

S&P/ASX 300 Listed Prop. -52.85% -20.52% -5.92%

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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, Barclays Capital Global Aggregate Bond Index hedged to $A

1-year rolling returns to 31 January 2009 (%) Best performing asset class for the year

2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994

Australian cash

7.39 6.78 6.09 5.77 5.62 4.95 4.82 5.05 6.32 5.09 5.13 5.54 7.45 7.96 5.66 5.30

Australian bonds

15.16 4.24 3.45 5.91 7.23 2.44 9.20 3.94 14.02 -1.09 8.86 12.72 11.29 20.10 -6.19 16.06

Australian property

-52.85 -23.30 38.86 10.62 32.67 8.75 13.86 15.18 20.12 -6.51 12.91 27.10 10.63 20.93 -10.48 32.61

Australian shares

-34.70 1.53 22.50 25.02 30.79 15.95 -11.28 7.28 11.94 15.72 10.84 13.45 10.86 29.98 -17.58 52.18

International bonds

6.64 8.51 4.42 5.59 8.99 6.83 11.64 7.56 11.50 -1.10 9.95 11.27 9.09 19.82 -1.53 12.41

International shares

-17.28

-14.01 13.41 19.71 7.96 7.33 -31.04 -14.50 8.97 13.65 35.12 31.07 10.29 26.91 -8.68 23.84

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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, Barclays Capital Global Aggregate Bond Index hedged to $A

1-year returns to 31 January 2009 (%)

Short-term asset class performance (cont’d)

-17.3

6.6

-34.7

-52.9

15.2

-14.0

8.5

1.5

-23.3

4.2

31 January 2008

31 January 2009

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, UBS Bank Bill 0+ years

31 January 2009

Australian bonds

Listed property

Australian shares

Cash

Global shares

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Source: BT Financial Group. West Texas Intermediate oil price at 31 January 2009

Oil prices – US$ per barrel

Oil prices fell for the seventh consecutive month in January amid rising stockpiles and weaker demand

$0

$15

$30

$45

$60

$75

$90

$105

$120

$135

$150

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

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Summary

There is mounting evidence that the Australian economy is on the brink of its first since recession since 1991, particularly with unemployment now at its highest level in almost two years. That said, the Rudd government has shown that it’s ready to act by way of additional stimulus measures should economic conditions continue to deteriorate.

In terms of interest rates, it would seem that inflation is no longer as much of a concern as it was last year for the RBA, meaning the Bank has some scope to cut the official cash rate even further in the coming months should the need arise.

With global growth set to slow even further and with commodity prices likely to remain under pressure in the months ahead, it’s hard to see a sustained recovery in the Australian dollar in the near-term.

Gains in global share markets, including here in Australia, are likely to remain under pressure in the near-term, particularly as global growth continues to slow down.

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