Craig James, Chief Economist, @CommSecSavanth Sebastian, Economist, @CommSec

2

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.

3

Year in Review

� The year is best summed up by the Reserve Bank Governor. In testimony delivered in September, Glenn Stevens noted that the economy was growing, “but not as fast as we would like.” Still, indicators released late in the year provide promise that economic momentum is lifting, with the hope that this will be carried through into 2016.

� The economy probably grew around 2.25 per cent in 2015, down from the decade average of 2.8 per cent. In the September quarter the economy was 2.5 per cent higher than a year ago.

� The annual inflation rate stands at 1.5 per cent. But once volatile factors are removed, underlying inflation is around 2.25 per cent.

4

Year in Review� The unemployment rate stands at 5.8 per cent, down from 6.1 per cent at the

end of 2014. In the year to November, 344,200 jobs were created – the most in almost eight years.

� Wages grew by 2.26 per cent in the year to September, a record (18-year) low.

� The Federal Government now expects a budget deficit of $37.4 billion in 2015/16 (2.3 per cent of GDP), up from the earlier estimate of $35.1 billion.

� Australia’s population grew by 1.35 per cent in the year to June, the slowest annual rate in nine years.

� Retail trade rose by 3.9 per cent in the year to October, above the 5-year average of 3.7 per cent.

� Consumer confidence and business confidence and conditions are holding above long-term averages.

5

Year in Review� Annual new car sales and building approvals are both holding at record

highs.

� Australian home prices grew by around 8.5 per cent in 2015 after lifting by 7.9 per cent in 2014.

� The Reserve Bank cut the cash rate by 25 basis points (quarter of a per cent) in both February and May. The cash rate stands at 2.00 per cent.

� The Aussie dollar started the year at US82 cents and ended 2015 just above US73 cents.

� The Australian sharemarket (ASX 200) ended 2015 down 2.1 per cent (All Ordinaries down 0.8 per cent). The US Dow Jones fell by 2.2 per cent in 2015 with the US S&P 500 index down 0.7 per cent.

6

Year in Review

� Total returns on Australian shares (share prices plus dividends) grew by 3.8 per cent in 2015 after lifting 5.0 per cent in 2014. Returns on government bonds lifted 2.3 per cent.

� The global economy probably grew by 3.1 per cent in 2015, below the 40-year average of 3.5 per cent.

� The US Federal Reserve lifted interest rates in December for the first time in almost a decade.

7

8

Year in Review

Key financial indicators 2015: At a Glance

Dec 31 2014 High Low Dec 31 2015 % change

ASX 200 5,411.0 5,996.9 4,909.6 5,295.9 -2.1%

US Dow Jones 17,823.1 18,351.4 15,370.3 17,425.0 -2.2%

AUD/USD, US cents 82.02 82.95 68.93 73.06 -10.9%

90 day bank bills 2.77% 2.75% 2.10% 2.38% -

10 year bond yields 2.82% 3.15% 2.32% 2.89% -

Oil, US$ per barrel 53.27 62.58 33.98 37.04 -30.5%

Gold, US$ per ounce 1,183.20 1303.50 1,046.20 1,060.20 -10.4%

9

Year in Review

10

Global Economy

11

United States

12

China

13

Australia

14

15

Prices and Wages

16

Job Market

17

Home Prices

18

Global Comparisons

19

Global Sharemarkets

20

Australian Sharemarket

21

Australian Shares

22

Australian Industry Sectors

23

Australian Industry Sectors

24

Australian Industry Sectors

25

Australian Stocks

26

Large versus small stocks

27

Australian Returns

28

Australian Interest Rates

29

Australian Interest Rates

30

Australian Dollar

31

Australian Dollar

32

Commodity Prices

33

Oil & Gold Prices

34

Iron Ore & Coal Prices

35

Outlook for 2016� Global Economy: The International Monetary Fund tips global economic

growth to lift from 3.1 per cent in 2015 to 3.6 per cent in 2016.

� United States: The US economy is on more solid ground. But with inflation still low, the Federal Reserve won’t be in a rush to lift interest rates. We expect the Fed to raise rates three times over 2016. Employment and inflation trends will determine the timing of rate rises.

� China: The transition from production to consumption continues. However just as the strength of demand for raw materials surprised many (especially miners) from 2007-2009, the strength of Chinese consumer spending could surprise over the next few years. The economy will likely grow between 6.5-7.0 per cent over 2016 and China will still contribute around a quarter of global economic growth.

36

Outlook for 2016� Europe & Japan: Constrained by flat/negative population growth and

deflationary forces, European and Japanese economies are likely to face ongoing challenges in 2016.

� Oil producers: The countries to watch are the major oil producers. While oil production is economic even at current low prices, government budgets of the major producers remain under pressure.

� Australia: We expect economic growth in a 2.50-3.00 per cent range in 2016, suggesting a move to near “normal” economic growth. Inflation should hold between 2.0-3.0 per cent, with a narrower 2.00-2.50 per cent range seen as likely. Unemployment should consolidate between 5.50-6.00 per cent with potential to move towards 5.50 per cent as economic growth picks up pace.

37

Outlook for 2016

� Australian dollar: Last year we noted: “Over the past 20 years, the Aussie dollar has, on average, tracked in a US13.7 cent range. If normal volatility persists in 2015, then a range of US71-85c could be assumed.” The actual range was US68.93c to US82.95c. We currently see the risk of the Aussie dollar falling to US65 cents early in 2016 and ending the year around US70 cents. Using the same methodology as last year, a possible range for the Aussie dollar would be US63-77 cents.

� Interest rates: Over 2015, the cash rate has averaged 2.11 per cent – a record low. We expect the cash rate to remain unchanged at 2.00 per cent in 2016 with inflationary pressures well contained. A likely range for the cash rate in 2015 is 1.75-2.25 per cent. The Reserve Bank currently maintains an “easing bias”. In other words, should the economy falter, rates could be cut further.

38

Outlook for 2016

� Sharemarket: In 2015, almost everything that could go wrong for sharemarket investors did go wrong. Commodity prices slumped, especially oil and gold. The Chinese sharemarket soared then slumped. Investors were surprised by a devaluation of the Chinese Yuan. The US Federal Reserve delayed hiking interest rates. And global and domestic economic growth disappointed.

� In 2016 the sharemarket will continue to experience headwinds. Iron ore and oil prices are expected to remain low; there is likely to be ongoing uncertainty about US rate hikes; transition of the Chinese economy will continue; and domestic economic growth will only gradually lift back to more “normal” growth rates. The All Ordinaries is expected to end 2016 between 5,500-5,700 points.

39

Outlook for 2016� Over the past two years, we, like other forecasters such as the Reserve

Bank have been too optimistic. We have adopted more conservative forecasts this year, acknowledging that downside risks still tend to dominate.

� The key risks for Australian investors in 2016 are ongoing softness of commodity prices; a perception that Australia is an ‘old economy, relying on commodities; disinflationary tendencies across the globe; risk of a ‘hard landing’ in China; US interest rate uncertainty.

� Housing: Growth of home prices will ease to the 2-5 per cent range over 2016 as more homes are built and add to market supply. Slower population growth and increased supply will be balanced by ongoing low interest rates.

40

Outlook for 2016

FORECASTS20162015

2.50-3.00%2.00-2.50%Economic Growth2.50-3.00%2.25-2.75%Underlying inflation5.50-6.00%5.50-6.00%Unemploymentend 2016mid 2016

1.75-2.00%1.75-2.00%Cash rate5,500-5,7005,200-5,400Sharemarket (All Ords)US68-75cUS64-72cAustralian dollar