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october 2010 highlightsAsset class winners and losers (in AUD terms)

Commodities were the biggest gainers in October, with the Dow Jones UBS Commodity Index up 3.2%. Gold was also up, gaining 2.2%.

Equities were next best. For a change, developed world equities were the winners, up 2.1%, with US stocks posting their best October in four years. Australian equities were next, up 1.8%, and emerging markets lagged, up 1.2%.

Bonds were mixed, with 1-year government bond yields down 14 bps while 5-year bond yields were up 12 basis points and ten-year bond yields were up 24 bps.

The Australian dollar was also mixed, gaining 1.7% against the US dollar but losing against the euro, yen, and pound.

Key investment market newsThe Australian economy continues to power ahead, as evidenced by a very strong jobs report. At the same time, inflation appears under control for the time being.

Quantitative easing enters the next phase. Japan announced the most radical QE measures so far, not in size but in the scope of the Bank of Japan’s asset purchase menu. The US Federal Reserve expected to announce further quantitative easing measures on 3 November.

Rising prices for agriculture commodities are raising fears of a repeat of the 2007-08 food crisis; meanwhile rising gold prices are doing little to dampen demand.

Stocks in the news: RIO, BHP, QRN, ASX, TAH, PPT, TEN, STO and WOW.

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market review – october 2010S&P/ASX 200The benchmark S&P/ASX 200 Index (ASX 200) posted its second month of consecutive gains, advancing 1.7% for October. The local market was buoyed by a pick-up in corporate activity, stronger commodity prices and reports that domestic business conditions had improved on the back of export growth. Both locally and globally, investors’ attention remains focused on the US Federal Reserve’s decision on whether to undertake an aggressive wave of quantitative easing – increasing the money supply – to support the flagging US economy.

The materials sector led gains for a second consecutive month (+5.6%) amid renewed momentum in commodity prices and a languishing US dollar. Other sectors remained mixed with gains seen across information technology (+3.4%), energy (+1.5%), consumer discretionary stocks (+1.3%) and utilities (+1.1%), and losses seen in healthcare (-0.8%), A-REITs (-0.6%) and consumer staples (-0.5%). Financials remained flat for the month.

S&P/ASX 200 - OCTOBER 2010 BIGGEST WINNERS AND LOSERS

RANK WINNERS % LOSERS %

1 Nufarm Ltd 26.0% MacMahon Holdings Ltd -27.2%2 Extract Resources Ltd 25.2% Isoft Group Ltd -23.2%3 Perpetual Ltd 24.6% Kingsgate Consolidated Ltd -13.5%4 Karoon Gas Australia Ltd 24.0% Panoramic Resources Ltd -13.3%5 Fortescue Metals Group Ltd 20.0% Bow Energy Ltd -12.8%6 Cudeco Ltd 18.3% Harvey Norman Holdings Ltd -11.7%7 Independence Group Nl 17.7% Primary Health Care Ltd -11.4%8 Kangara Ltd 16.9% Eldorado Gold Corp-Cdi -11.3%

9 Sundance Resources Ltd 16.0% Ausenco Ltd -10.2%

10 Sandfire Resources Nl 15.6% Bluescope Steel Ltd -9.3%

Source: Bloomberg

stock newsAustralia’s two largest mining companies, Rio Tinto Limited (RIO) and BHP Billiton Limited (BHP) have abandoned their proposed Pilbara iron ore joint venture following global regulatory opposition to the project. RIO and BHP had claimed the combination of their iron ore production facilities would have increased global iron ore production; however competition regulators and steelmakers worldwide have expressed fears that the joint venture could create a monopolistic pricing structure in the iron ore market. Following the announcement of the scrapped joint venture, RIO has announced plans to spend US$3.1 billion expanding its iron ore port and rail infrastructure in the Pilbara region in Western Australia, while another US$10 billion is forecast to be spent to increase iron ore production from 220 million tonnes per annum (Mtpa) to 330 Mtpa. BHP and RIO both closed up 7.7% for the month.

QR National (QRN) this month published the prospectus for its initial public offering (IPO), in which the Queensland government will sell between 60% and 75% of the company to both retail and institutional investors. Initial reactions to the IPO have been mixed, with some brokers disquieted by a modest unfranked dividend and optimistic future earnings growth assumptions that make the company appear expensive at the indicative float prices of $2.50 - $3.00 per share. Retail demand for the IPO is currently around 30% of the offer base, with the Queensland Government hoping this will edge close to the 40% level before the institutional book build is undertaken in November. QR is slated to be listed on the ASX in late November and is expected to be one of Australia’s top 50 companies by market capitalisation. Adding further pressure to the IPO, QR’s main competitor Asciano Group (AIO) released lower than expected coal-haulage volumes for the quarter ending 30 September, making it more cautious on its full-year outlook. AIO shares closed down 5.2% for the month.

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News emerged late in the month of a merger between the Singapore Exchange (SGX) and ASX Limited (ASX), the manager of the Australian Securities Exchange. The $8.4 billion offer from SGX seeks to position Australia and Singapore as the financial centres of the Asia-Pacific region and comes at a 37.3% premium to ASX’s closing price as at Friday 22 October. Synergies from the merger are anticipated from reduced costs and maintaining market share in the face of growing competition, including from the Chi-X exchange platform. Despite the ACCC having no opposition to the deal on competitive grounds, strong resistance to the merger has already emerged on the political front with Tony Abbott citing ‘legitimate concerns’ about the deal with the Greens and Independent MP Bob Katter indicating they are opposed to the deal. Prime Minister Julia Gillard has indicated that any decision regarding the merger will be based on grounds of national interest and will require the approval of the Foreign Investment Review Board (FIRB), the Reserve Bank and ASIC. The deal is scheduled to close in the second quarter of 2011. ASX shares jumped 13.9% for the month.

Tabcorp Holdings (TAH) announced that it will undergo a radical revamp, including a demerger of its casino operations from its wagering, gaming and keno businesses; a $430 million capital raising; and the departure next year of its chief executive. TAH said that the demerger would create two entities listed on the ASX, each able to pursue individual investment programs and growth opportunities. The wagering, gaming and keno businesses will retain the Tabcorp name and the proceeds from the equity raising will go towards renovating the Star City Casino in Sydney as well as Jupiters on the Gold Coast. The current demerger timeline indicated the company wishes to have the process completed by 1 July 2011. Investors seemingly welcomed the move with TAH shares closing up 6.7% for the month.

US private equity firm Kohlberg Kravis Roberts & Co (KKR) unveiled a $1.75 billion takeover bid for asset manager Perpetual Limited (PPT) in October. In subsequent days, reports have claimed that Perpetual is looking for a rival bid from a firm that is more culturally and strategically aligned to the company or that will provide price competition to KKR’s bid, which many analysts see as undervalued. The board of PPT is set to continue to assess the offer from KKR, which presently has no set deadline. PPT rallied 24.6% for the month.

In a surprise move, media mogul James Packer acquired 17.9% of the shares in Ten Network Holdings Limited (TEN) to become the company’s largest shareholder. Packer bought the shares with the help of investment bank UBS, spending $280 million to secure the shares at a premium to market price. The previous largest shareholder in TEN, Bruce Gordon, has increased his stake in the company from 12% to 13% following Packer’s move. It is likely that Packer will seek to obtain seats on the board, however the board has indicated that for this to happen Packer must give assurances that his pay television interests will not conflict with the interests of the station. The ACCC has also indicated that it was looking into the purchase to see if there are any competition concerns regarding Packer’s stake in Foxtel. TEN shares closed up 7.4% for the month.

Santos (STO), Australia’s third-largest oil and gas producer, said it priced an additional $422 million of hybrid notes to help fund its Gladstone liquefied natural gas (GLNG) project. The notes, which follow on from a sale of 700 million euros of hybrid notes last month, were issued at an implied yield of about 8.1%. STO fell 1.5% for the month as investors remain cautious that STO will still require an equity raising to meet the significant funding gap required for the GLNG project.

Woolworths (WOW) has completed a $704 million off-market share buy-back. The overwhelming shareholder support for the buy back meant that offers were only accepted from shareholders who tendered their shares at a 14% discount and/or as final price tenders. The final buy-back price was $25.62 per share for the 27.5 million shares that were purchased from shareholders. The final buy-back price was above the minimum prices set in the original tender form, Woolworths said. The shares purchased represent 2.2% of Woolworths’ issued capital. Woolworths bought 210 shares from each shareholder before scaling back tenders. Shareholders who held 306 shares or fewer and successfully tendered all their shares had their entire shareholding bought back, Woolworths said in a statement. WOW shares closed the month lower losing 1.7%.

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economic dataThe Reserve Bank of Australia (RBA) held the cash rate unchanged at 4.5% at its October board meeting (click here for RBA statement). The decision was somewhat of a surprise, with 18 out of 25 economists looking for a 25 basis points (bps) hike. This was the fifth consecutive month that the RBA held cash rates steady. However, the RBA continued in its hawkish bias, stating that while rates were “appropriate for the time being … it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.”

Boosting the likelihood of an early resumption of rate hikes, September jobs surged by 49.500, up 3.3% year on year and the strongest pace of growth since May 2007 (click here for Australian Bureau of Statistics labour force release). The figure was much stronger than market expectations of 20,000. The composition of the jobs report was also strong, with full-time jumping by 55,800 after 56,700 last month – the second highest ever rise in a two month period. Unemployment held steady at 5.1%.

Balancing the jobs report’s hawkish implications was a lower than expected headline consumer price index (CPI) rise of 0.7% quarter on quarter, or 2.8% year-on-year (y/y) versus market expectations of 2.9% and slower than the previous 3.1% (click here for ABS report). Further, core CPI was also below expectations, with the trimmed mean at 0.6% (2.4% y/y and the equal lowest since the first quarter of 2001) versus market expectations of 0.7% and the weighted median at 0.5% versus market expectations of 0.7%.

As at the end of the month, markets were pricing in a 22% probability of a rate rise in November.

global equity marketsGlobal equity markets, as measured by the MSCI All Country World Index, rose by 3.6% (in US dollars) led by the developed regions (+3.8%) on the back of the US Federal Reserve’s (Fed) expected quantitative easing program aimed at kick-starting the economy. Fed watchers now view it as a virtual certainty that the Fed will announce on 3 November that it is re-engaging in “unconventional policies”. Despite the risks and uncertainties of more quantitative easing, given the headwinds the US economy continues to face the Fed clearly feels compelled to act (more in Market musings).

Emerging markets posted a 2.9% return during the month led by Eastern Europe (+4.7%), which was the best performing region globally in October. Developed Europe also had a strong month (+4.6%), with the above-expectations rise in the euro-zone economic sentiment indicator helping to support positive market momentum. On the policy front, European Union leaders have backed a Franco-German proposal to create a permanent financial rescue fund in place of the 750 billion euro emergency bailout fund put in place during the Greek debt crisis in May which is due to expire in 2013. However, while agreeing to create the rescue system, there were sharp differences over whether private investors should share the burden of future bailouts, with Germany and France arguing for the inclusion of moral hazard principles that would see bondholders shoulder some of the costs of future bailouts and financially weaker countries such as Spain as well as the European Central Bank arguing that such a system would scare away investors and drive up borrowing costs for weaker nations (click here for full article).

Japanese equity markets rose by 1.4%, but Japan has lagged the other regions in recent months despite the Bank of Japan’s new monetary easing policy which includes both a reduction in the interest rate from 0.1% to “around 0 and 0.1%” and, more radically, the establishment of a 5,000 billion yen or $60 billion asset purchase program. The Bank of Japan is being very unorthodox in its efforts to stimulate the economy, and it has allowed for the possibility of purchasing commercial paper, exchange-traded funds and real estate investment trusts – something no other central bank has been doing (click here for full article). However, there are continuing fears that despite the recent intervention, Japan’s economic recovery is losing momentum. Economic data released late in the month showed that factory output dropped 1.9% from the previous month and core consumer prices fell 1.1% from a year earlier while the jobless rate fell only marginally to 5% from 5.1% in August (click here for full article).

Asian markets were more muted than in recent months but still rose by 2.6%. During the month it was reported that the Chinese economy grew by 9.6% (y/y) in the third quarter, and Chinese equity markets reacted well to this news with the domestic A-Share market (+12.2% in local currency) registering the

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highest return in Asia. The Chinese H-Share market (+6.1%) in Hong Kong also did well, boosted by robust earnings for Agricultural Bank of China and Bank of China, while Hong Kong markets were up 3.3%.

The People’s Bank of China (PBoC) raised its policy lending rate by 25 bps effective on 20 October, its first rate rise since 2007. This signifies a change from the PBoC’s previous tactic of attempting to drain liquidity out of the credit system by raising the Reserve Rate Requirement. The PBoC also raised long term deposit rates by more than short term rates in an attempt to prevent outflows of deposits to other asst classes in order to manage asset price inflation. The authorities are determined to control inflation as data earlier in October showed that the official Purchasing Managers Index had risen to a four month high of 53.8, 2.1% higher than in August.

Outside China, the Philippines (+4.1%) and Indonesia (+3.8%) have led Asia in terms of performance in 2010, and in October they continued this trend. The continued strong performance of Indonesian markets is starting to make policymakers nervous there, as like many emerging economies Indonesia has attracted a flood of capital this year. According to Singaporean bank DBS Group, capital has been flowing into emerging Asia to the tune of US$2 billion per day. Indonesian authorities plan to add to controls enacted earlier this year to, in the words of Deputy Governor Budi Mulya, “reduce the harmful potential for capital inflows to reverse” (click here for full article).

Third quarter economic growth data in both Korea (+0.7%) and Singapore (+1.5%) showed a contraction from second quarter rates as both markets move towards a more sustainable pace of growth. Singapore’s third quarter gross domestic product (GDP) rose 10.3% (y/y) down from the cracking 18.8% pace set in the second quarter. Korean economic growth slowed to 4.5% (y/y) from 7.2% in the second quarter, and it was the strength of private consumption and investment which made up for a fall in net exports on weak global demand. India (-0.8%) was the laggard in Asia despite the scramble to buy shares in Coal India, which was India’s biggest ever IPO during the month (click here for full article). IPO momentum is building in Asia with AIA Group Ltd’s debut in Hong Kong also representing that market’s biggest IPO. The US will receive proceeds from the IPO of AIA, which was part of the American Insurance Group (AIG), as part of the plan announced by AIG to exit government ownership (click here for full article).

gold and commoditiesCommodities had a strong month, outperforming both equity and fixed income markets, with the Dow Jones UBS Commodity Index posting a 5% gain (in US dollars). Agriculture commodities and gold continued to lead gains.

In agriculture, a hot US summer, droughts in Russia and Brazil, and heavy rains in Canada and Europe have hit many grain and oilseed crops, raising concerns of a squeeze in food supplies and a repeat of the 2007-08 food crisis (click here for full article). A closely watched report by the US Department of Agriculture released in October predicted that US stocks of corn would halve to their lowest levels in 14 years, further stoking rises in agriculture commodities and sending many commodities up so sharply that they hit their limits on daily movements in Chicago’s commodity exchanges, the biggest in the world. The Financial Times has now set up a special section on their website called “Rising cost of food” (click here for link to section, subscription required). Some of the headlines: Russia warns over winter grain crop; Traders warn of further sugar volatility; G20 members asked to increase aid for food.

Gold continued to trade higher during the month, aided by expectations of a further round of quantitative easing from the US. Gold closed at US$1,359 per ounce, up 3.9% for the month. Yet despite record high prices, demand for gold continues largely unabated. For example, India’s October gold imports are forecast to rise by 14.6% from a year ago.

residential real estateAustralian property prices were flat in September, according to RP Data-Rismark’s Home Value Index (click here for press release). Capital city prices were up just 0.1% seasonally adjusted and ‘rest-of-state’ markets fell by 0.9% seasonally adjusted. Capital city prices have not increased since May, while rest-of-state prices have not increased since December 2009. Over the 12 months to September, capital city home values have increased by 8% while rest-of-state home prices have increased 2.7%.

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For investors, the rental yield on property continues to offer solid returns, with gross apartment yields rising to 4.9% while house yields remained unchanged at 4.0%. The highest yielding markets for apartments are Darwin at 5.7%, Canberra at 5.3%, Sydney at 5.0%, and Brisbane at 5.0%. The weakest market is Melbourne at 4.1%.

interest ratesThe government bond yield curve steepened somewhat during the month, with 3-month bills and 1-year bonds tightening by 13 and 14 bps, respectively, while 3-year, 5-year, and 10-year rates widened by 11, 12, and 24 bps, respectively. Five-year government bonds are now just under 5% while 10-years are at 5.2%.

Swap spreads were generally tighter, with 3 to 10-year swaps coming in by approximately 10 bps. 3-year swap rates are now 5.2% while 5-years are 5.5%.

Australian credit marketsCredit spreads, as measured by the Bloomberg Australian 3 Year Corporate Bond Indices, were marginally wider, with the biggest move an 11 bps increase in the AAA spread to swaps. Overall, corporate bond rates were largely unchanged, with 3-year BBBs yielding 7.1% and AAAs yielding 5.5%.

There was $4.3 billion of new issuance during the month, including four non-financial corporate bond issues totalling $1.5 billion: GE Capital issued $750 million of 5-year bonds at 175 bps spread to swaps, CFS Retail Property Trust issued $450 million of 4- and 6-year bonds at 160 and 185 bps over swaps, Adelaide Airport issued $50 million of 5-year bonds at 204 bps over swaps, and Dexus Property Group issued $250 million of 5-year bonds at 185 bps over swaps. With swap rates where they are, this meant that these new issues were being done at rates just north of 7%.

Despite the tightening of spreads in higher investment grade corporate bonds we believe there are attractive opportunities in areas of the fixed income space. This month, Dixon Advisory launched the Australian Masters Yield Fund No 1, which is targeting a yield to maturity of around 8% or greater on the underlying investments in the portfolio, with investments in the 3 – 6 year maturity range.

Australia dollar and currency marketsThe Australian dollar continued its rise, culminating on 15 October, when the Aussie hit parity with the US dollar for 10 seconds before retreating and finishing the month at 98.35, up 1.7%.

However, while the Aussie was boosted by some solid fundamentals, in particular a strong jobs report, the story in currency markets was more one of US dollar weakness, as the Australian dollar was actually weaker against the other major currencies. The Aussie fell 0.4% against the British pound, 0.5% against the euro, and 2.1% against the Japanese yen.

Overall, our sense is that the Australian dollar is likely to continue to rise in the near term, given the hawkish stance of the RBA and continued rounds of quantitative easing around the world. However, the high Australian dollar is also increasing the attractiveness of international investments. Currently, Dixon Advisory recommends that investors seeking international exposure do so in Asian equity markets and in the global resources sector, both in equities and in physical commodities. We continue to recommend against US and European equities – which leads us to Market musings.

market musingsUS economy – views from the expertsDuring the month, Max Walsh, Alex MacLachlan and Nirav Desai had the opportunity to hear the views of many of the world’s leading politicians, central bankers, economists, and investors at a global conference in Boston. So for this month, we will focus the Musings section on insights from the conference.

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Among the long and highly credentialed list of speakers were former Labor Leader Kim Beazley, currently Australian Ambassador to the US, former US Vice President Dick Cheney, and Paul Volker, former Chairman of the US Federal Reserve and current Chairman of President Obama’s Economic Advisory Board.

Unsurprisingly, the current state and outlook for the US economy featured prominently in many speakers’ presentations. Below are some of the interesting points raised during the conference.

Professor Raghuram Rajan, former Chief Economist of the International Monetary Fund and

current University of Chicago Professor of Finance

Income inequality has been rising in the US:

US met industrialisation by increasing secondary education; in the 1920s the US was the best educated country in the world

Education has failed to keep up with the move towards more high technology.

Growth in the credit markets filled the gap in education:

Allowed lower income earners to buy housing in a rising market, allowing capital gains to substitute for income growth.

Greenspan’s low interest rates allowed bubbles to form:

Reason Greenspan kept rates low was to encourage investment which in turn would lead to lower unemployment

This never materialised; instead low rates encouraged consumption and credit growth.

Emerging markets will be the next drivers of growth in demand:

China has run an export led growth model – companies retain profits while households get a very small share of income; this will change and a consumer market will develop

However, it will be a different consumer market to the developed world and companies will need to adjust

‘Frugal engineering’ will be important to allow low income emerging market consumers to purchase goods; example used was a battery powered refrigerator for the rural Indian market.

Dr Peter Orszag, former member of US President Obama’s Cabinet and former Director of

the Office of Management and Budget and the Congressional Budget Office

The current state of play in the US economy:

Private borrowing growth went from +28% in 2007 to -16% in 2009, a tremendous shift

In crises of this nature, expect housing to remain down 15 to 20%, debt to GDP to rise above 90%, and median unemployment to stay 5% above pre-crisis levels and remain elevated for 10 years.

Some positives in recent data:

Real exports have been growing at 10-20% for the last few quarters

Equipment and software investment is rising

Corporate profits have recovered to 11% of GDP, up from 9% during the crisis and nearly back to pre-crisis levels of 12%.

However, not much doubt growth will now start to slow:

Inventory cycle will now begin to turn

The Recovery Act will start to decline

State and local government spending will be cut back to cut deficits

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All of the above had been adding 4% to GDP, they will now begin to detract 2% from GDP

Expect next 12 months to have no or sluggish growth.

The US fiscal deficit is not capable of being brought under control barring a radical overhaul:

In 2015 fiscal deficit still forecast to be 5% under very favourable assumptions – the sustainable rate is 3%

Of the 2% gap, at best only 0.5% is capable of being reigned in, even including drastic social security reform

The vast majority of the budget deficit is off limits – Medicare/Medicaid, defence (some scope on weapons but not people), net interest expense

Only 4% of the budget is discretionary, non-defence spending – even if you saved 5% there (a big number in politics) that’s only 0.2% of the 2% gap.

The relationship between the Obama administration and business is ‘toxic’ (and this from a former Obama Cabinet member).

Markets have high expectations for quantitative easing but will be disappointed with the reality.

Xenophobia in the US will likely increase as unemployment stays high.

Professor Martin Feldstein, member of President Obama’s Economic Advisory Board,

Harvard University Economic Professor, former Chairman of President Reagan’s Council of

Economic Advisors

US economy has been expanding for five quarters, but the growth rate has been slowing, from 5% in the fourth quarter of 2009, to 3.7% in the first quarter, to 1.7% in the second quarter (note post the conference US third quarter GDP came in at 2%).

Industrial production, housing permits, earnings, net exports, consumer confidence, capacity utilisation are all deteriorating.

Expects GDP growth to be between 1% to 2% for next 18 months.

Believes there is a 1 in 3 chance of a double-dip recession.

Consumer spending is growing less than GDP as savings is rising; with household net wealth still down 17%, expect savings rate to continue to climb, presenting a steady headwind to growth.

The US faces three critical problems:

Housing: 30% of owners are underwater, 1 in 10 mortgages is delinquent, 50% of home equity has been wiped out, and the situation is not improving, e.g. ‘foreclosure-gate’ where banks have been forced to halt foreclosures due to poor record keeping and improper process

Small business lending: there are 7,000 small banks in the US that lend to local businesses. Right now, they are not lending, as they are heavily exposed to commercial real estate and need all their capital to cover potential and emerging losses

Fiscal position: 2009 stimulus added $400 billion to the economy, this year it will be just $135 billion, state and local governments are cutting spending, and Bush tax cuts are due to expire – all driving a significant cut in stimulus; meanwhile US debt to GDP was 40% pre-crisis, now 60%, and going to 100% by 2020.

Believes quantitative easing (QE) is a mistake:

In the first round of QE, the Fed substituted for credit markets, buying mortgages and credit instruments

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In the likely second round, the Fed will be directly buying Treasuries

The benefits of lower bond yields will be minimal, as bond rates are already very low

The extra liquidity to the large money-centre banks is not needed; the liquidity is needed at the 7,000 small banks

The portfolio rebalancing effect – where investors are expected to purchase equities as there will be $1 trillion less Treasuries to buy post the Fed intervention – is questionable and even if it did lead to a rise in equity prices the impact on unemployment would be only 10 bps

Risk of creating new bubbles is not insignificant

Destroys value of the US dollar, making it harder for the US to argue with countries such as China that they are manipulating their currency

Increases the risks to the Fed successfully exiting without disrupting markets and causing inflation.

Many of the speakers offered their thoughts on policy measures that could be implemented that would address the current issues holding back US economic growth. Unfortunately, from our perspective very few of the proposals had any real chance of ever getting through the legislature.

Our overall view was that there remain serious issues in both the US and other developed markets. We continue to recommend avoiding US and European equity markets, even with the historically high Australian dollar. Our preferred international exposures remain in Asia and in global resources.

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52 WEEK RANGE

INDEX CLOSEMONTH

AGOYEAR AGO YTD CHANGE LOW HIGH

Major Country Stock Indices (Local)

Asia-Pacific

S&P/ASX 200 (Australia) 4,662 4,583 4,744 -4.3% 4,222 5,002

Shanghai Composite (China) 2,979 2,656 2,779 -9.1% 2,364 3,339

Hang Seng (Hong Kong) 23,096 22,358 20,955 5.6% 18,986 23,852

BSE Sensex (India) 20,032 20,069 17,127 14.7% 15,405 20,688

Nikkei 225 (Japan) 9,202 9,369 10,133 -12.7% 8,824 11,339

TAIEX (Taiwan) 8,287 8,238 7,509 1.2% 7,072 8,357

Europe

CAC 40 (France) 3,834 3,715 3,795 -2.6% 3,331 4,066

DAX (Germany) 6,601 6,229 5,675 10.8% 5,353 6,639

MICEX (Russia) 1,523 1,440 1,197 11.2% 1,197 1,531

FTSE 100 (UK) 5,675 5,549 5,134 4.8% 4,806 5,825

Americas

Dow Jones Industrials (USA) 11,118 10,788 9,712 6.6% 9,686 11,205

S&P 500 (USA) 1,183 1,141 1,057 6.1% 1,023 1,217

NASDAQ (USA) 2,507 2,369 2,122 10.5% 2,045 2,530

S&P/TSX (Canada) 12,676 12,369 11,395 7.9% 10,878 12,685

Bovespa (Brazil) 70,673 69,430 61,518 3.0% 58,192 71,830

Residential Property Indices (Local)1

ABS Home Price Index (Aus) 153 148 129 7.5% 142 153

HBOS (UK) 525 544 529 -4.0% 525 549

Case Shiller (USA) 147 147 145 0.8% 145 148

Australian Interest Rates

RBA Cash Rate 4.50% 4.50% 3.00% 20.0% 3.25% 4.50%

3 Month Bills 4.76% 4.89% 3.38% 15.0% 3.89% 4.98%

3 Year Swap Rate 5.23% 5.26% 5.40% -2.6% 4.67% 5.71%

5 Year Swap Rate 5.50% 5.46% 5.83% -5.9% 4.94% 6.07%

10 Year Swap Rate 5.68% 5.54% 6.02% -9.2% 5.20% 6.36%

Australian Corporate Bond Rates (Bloomberg Domestic 3 Year)2

AAA 5.47% 5.39% 5.73% -5.2% 4.89% 6.00%

AA 6.04% 6.07% 6.09% -3.2% 5.57% 6.43%

A 6.83% 6.79% 6.60% 2.6% 6.37% 7.09%

BBB 7.10% 7.08% 7.92% -8.6% 6.48% 8.14%

Key Commodities

DJ UBS Index (USD) 296 282 256 5.9% 245 296

Crude Oil (US$/bbl) 81 81 76 -3.2% 73 93

Gold (US$/oz) 1,359 1,308 1,008 23.9% 1,045 1,381

Copper (USc/lbs) 373 365 282 10.4% 281 387

Wheat (USc/bushel) 717 674 543 18.9% 475 815

Foreign Exchange

US Dollar 0.9835 0.9671 0.8828 9.6% 0.8104 0.9942

Euro 0.7052 0.7089 0.6030 12.6% 0.6047 0.7308

Japanese Yen 0.7908 0.8077 0.7919 -5.3% 0.7329 0.8754

British Pound 0.6131 0.6154 0.5524 10.4% 0.5468 0.6300

Source: Bloomberg

1. ABS data quarterly only; ABS data as at June 2010, HBOS data as at September 2010, Case Shiller data as at August 2010

2. Based on Bloomberg Fair Value AUD Australia Domestic 3 Year Index Series

market data – october 2010

| monthlym

arketcomm

entary | october 2010 |

11

CHRIS BROWN Managing Director, Strategy BChem Eng Hons (Sydney), BCom (Sydney)

ALEX MACLACHLAN Managing Director, Funds Management BA (Cornell) MBA (Wharton)

This article should not be considered personal financial advice as it is intended to provide general information only. The article has been prepared by Dixon Advisory & Superannuation Services Limited without taking into account your personal objectives, financial situations or needs.The information contained in the article may not be appropriate to your individual needs therefore you should seek personal financial advice before making any financial or investment decisions. Where the article refers to a particular financial product, you should obtain a copy of the relevant product disclosure statement or offer document before making any decision in relation to the product.While the information provided by Dixon Advisory & Superannuation Services Limited is believed to be accurate, Dixon Advisory & Superannuation Services Limited does not accept responsibility for any inaccuracy or any actions taken in reliance upon this information.

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