ANZ 2016 GLOBAL MARKET OUTLOOK - superinsights.anz… · ANZ 2016 GLOBAL MARKET OUTLOOK INVESTORS...

ANZ 2016 GLOBAL MARKET OUTLOOK


Letter to investors

Economic overview: More of the same

Economic Spotlight: China and its transition twin

Asset allocation overview

Shares overview: Short-term challenges

Shares Spotlight: Tug of war

Fixed Income overview: End of the line

Currencies overview: Policy divergences

Currencies Spotlight: Central bank domination

Commodities overview: Continued adjustment

Commodities Spotlight: Steel and iron ore prices under pressure

Disclaimer

Fixed Income Spotlight: What is credit telling us?

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Contents

CONTENTS


INVESTORSLETTER TO

2015 proved to be a mixed year for both economies and markets. While US growth remained steady, and the euro zone continued to improve as Greece secured a new bailout, concerns emerged over disappointing growth from China and emerging markets more generally. These concerns drove an increase in volatility, which weighed on most share markets. By contrast, fixed income markets held up as yields remained low on expectations of further easing by central banks in Europe and Japan, and delayed interest rate rises in the US.

While global economic growth is forecast to remain around its recent pace in 2016, the risks are that growth will be lower. Share market returns will likely remain lower and more volatile than in recent years as strength in the US economy is expected to see the US Federal Reserve (Fed) gradually move interest rates higher after a very long period of near zero rates.

WHAT DO WE EXPECT AT A COUNTRY LEVEL?

We expect the US economy will continue to drive growth. However, with the US economy close to hitting its employment target late in 2015, rates are expected to gradually rise in 2016, bringing further volatility across markets in the short term.

Europe should continue its recovery as fresh stimulatory measures by the European Central Bank (ECB) support the region. The Bank of Japan (BoJ) may also extend further stimulus if required to support growth and help lift inflation.

Chinese growth should slow from its 2015 pace as the economy continues to transition away from its reliance on investment towards consumption. We expect growth to stabilise and be less of a driver of market volatility as the year progresses.

The Australian economy is more closely tied to the sectors of the Chinese economy that are slowing, with domestic activity staying weak as a result. The transition of the Australian economy away from mining is a slow process and isn’t expected to be enough to lift aggregate growth. This may see the Reserve Bank of Australia (RBA) ease rates later in 2016 to support spending. Meanwhile, poor weather conditions appear set to weigh on the New Zealand economy.

With global trade remaining soft, emerging markets are likely to bear the brunt of US interest rate rises as these economies have borrowed heavily in recent years to support growth. These debts, often denominated in foreign currencies, may prove problematic as higher US rates and softening currencies push up servicing costs, and reduce the value of exports.

We expect concerns over slower global growth to set the tone for 2016. Expected rate rises in the US should also bring

about challenges for market returns.

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WHICH ASSET CLASSES DO WE PREFER?

Overall, we believe valuations continue to favour shares over defensive assets, with fixed income looking expensive. However, our expectation is for the pace of growth to be consistent with weak earnings growth. While the market has somewhat factored in this environment, shares face some short-term challenges which may constrain performance in the near term.

Within shares, we continue to prefer international developed markets. Japanese shares look positive as the weaker yen improves profit margins for exporters. Europe is another favoured share market as the earnings trend is positive, and there is the potential for further easing by the ECB.

We believe Australian and New Zealand shares will be impacted by weaker earnings due to softer local growth, with expensive valuations also weighing on New Zealand returns.

For fixed income, our expectation of gradual rate rises in the US should drive bond yields higher (prices decline), though continued easy monetary policy in Europe and Japan may limit the rise in yields. We prefer Australian fixed income as the potential for further rate cuts by the RBA should help Australian bond yields disengage to a degree from the expected rise in global yields. We are cautious towards New Zealand fixed income despite its higher yield and potential for further rate cuts.

WHAT IS THE OUTLOOK FOR CURRENCIES?

We expect rate rises in the US, combined with easy monetary policy in Europe and Japan, to keep the US dollar (USD) strong relative to other major currencies. That said, the largest gains in the USD are likely now behind us. Closer to home, the Australian and New Zealand dollars may continue to feel the pressure, especially against the USD, as interest rate differentials are expected to narrow and commodity prices remain low.

Overall, while we believe the current up cycle in shares has further to run over the medium term, we are more cautious of potential downside risks heading into 2016, and are conscious that it may be a bumpier ride for investors. Rest assured we will exercise due care in managing our customers’ assets to ensure a smoother journey.

On behalf of ANZ, I take this opportunity to wish you good health and happiness in the year ahead. We thank you for your continued support.

Stewart Brentnall CHIEF INVESTMENT OFFICER

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GDP GROWTH FORECASTS (%)

2015F 2016F

World 3.3 3.5

US 2.5 2.3

Euro zone 1.5 1.5

Japan 0.8 1.1

China 6.8 6.4

Source: ANZ Economics & Markets Research. December 2015.

US: GRADUAL NORMALISATION

The US economy continued to grow above its potential in 2015, despite a weaker global backdrop. Strong domestic spending drove the unemployment rate down to 5% in November 2015 (around the Fed’s target).

We expect growth in Gross Domestic Product (GDP) to hold around 2015’s pace. We expect this to be led again by domestic demand, as exports are held back by a relatively high US dollar and weaker global demand.

We believe consumer spending will remain the cornerstone of growth, supported by robust employment, low energy prices and low interest rates. Wages growth should also strengthen, reflecting low unemployment, providing additional support. A rise in household formation after the weakness of recent years should assist an ongoing recovery in housing construction, with this likely to remain dominated by apartments. The strength in domestic

spending should in turn provide support to business investment, though excess capacity in the manufacturing sector globally appears set to remain a constraint.

With unemployment expected to fall below 5%, some pickup in wages and inflation appears likely, which should mean the Fed will gradually raise rates back towards more normal levels. This should see growth slow in the second half of the year towards the economy’s long-run potential rate, which we judge is now below 2%.

EURO ZONE: CONTINUED RECOVERY

At the end of 2014 we cited several reasons for optimism regarding the euro zone in 2015. That optimism turned out to be justified, as the European Central Bank’s (ECB) success in driving the euro lower along with efforts to repair the banking sector helped support growth, especially across peripheral economies.

We expect the recovery to continue throughout 2016 as reform efforts and lower oil prices underpin solid growth in domestic spending. A lower euro should also help support exports compared to the US, though the relatively larger exposure to emerging markets may provide a challenge.

With growth expected to remain above the region’s potential, we expect the unemployment rate to fall. Over the past 12 months, the unemployment rate has declined by more than 0.5%, but at 10.7% at the end of October 2015, it remains high. With inflation remaining low, we expect the ECB, for now, to continue to err on the side of providing more stimulus to help keep the euro down and safeguard the expansion in the face of increased risks from emerging markets and Fed rate rises.

ECONOMIC OVERVIEW:

Global growth disappointed in 2015 by slowing from the pace of previous years, led by China and other emerging markets. While forecast growth is to remain around this pace, the risks are that growth will likely be weaker as the US Federal Reserve (Fed) gradually raises interest rates.

MORE OF THE SAME

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JAPAN: CAN ABENOMICS SUCCEED?

Japanese growth disappointed again in 2015. Activity stalled mid-year as industrial production and investment fell in response to weak emerging market demand. This raised fresh concerns over whether ‘Abenomics’ will be successful in driving the economy out of sustained deflation, even though core inflation rose to an 18-year high of 0.8% in October 2015.

We expect these concerns will remain throughout 2016. Critical will be Prime Minister Abe’s ability to keep optimism among the public, and his own party, to allow him to finally deliver on the third arrow of labour market reforms.

Japan is more heavily exposed to emerging markets due to its close proximity to emerging Asia and its relative reliance on exports as a source of demand. With inflation remaining below the Bank of Japan’s (BoJ) target, the BoJ may provide additional stimulus to support demand for Japanese goods.

CHINA: ALL EYES ON REFORMS

We expect China’s growth to slow further in 2016 as the economy continues its transition from a capital-intensive, export-oriented economy to one that is more focused on consumption and services. Although China’s services sector has risen to account for slightly more than 50% of aggregate GDP, the weaker growth in the industrial sector cannot be ignored given it still accounts for a substantial share of the Chinese economy.

The mild rebound in property prices in tier one and tier two cities in 2015 should continue on the back of supportive government policies and easier financing conditions. However, overall property construction is not expected to provide any significant boost to growth, given the high levels of housing inventory still residing in the smaller cities. On the other hand, the government has the flexibility to provide further fiscal stimulus, if required, to stabilise the economy. Given elevated deflationary risks, further cuts to the reserve requirement ratio and interest rates cannot be ruled out in 2016. A weak yuan is also expected to help keep financial conditions easy.

The progress of State Owned Enterprise (SOE) reforms will be important to watch in 2016. The latest proposed reforms aim to create better corporate governance for SOEs. If successful, this would encourage greater private sector participation and allow market forces to play a decisive role in resource allocation, helping unlock economic value.

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ASIA: DOMESTIC RESILIENCE

Asian exports may stabilise in 2016, but they are expected to remain relatively lacklustre. Besides the slowdown in China, the nature of the recovery in the US economy – which is more biased towards the services sector – is expected to continue to suppress Asian trade. Given different trade exposures, these pressures will not be felt evenly across Asia.

Going forward, the resilience of domestic demand should become an important differentiating factor across Asian economies. Economies which have relatively high domestic demand as a share of GDP, such as Vietnam and Philippines, may be less vulnerable to poor trade dynamics.

Expected weak commodity prices should be negative for commodity exporters but positive for commodity consumers. Lower energy subsidies could also support government spending and a number of governments have large investment pipelines which are expected to be realised over 2016. Finally, there is scope for further monetary easing in selected economies as inflation stays subdued.

AUSTRALIA: DEALING WITH THE INVESTMENT CLIFF

As a commodity producing nation, China’s transition away from investment towards lower and more balanced growth has been challenging for Australia. Growth remained below its long-run average in 2015 as lower commodity prices held down national income and with it spending.

2016 offers more of the same, as the economy continues to deal with the sharp fall in mining investment in response to weak commodity prices. An added challenge for the economy is that housing construction, a strong contributor to growth during 2015, appears set to soften as new approvals decline from record levels. Measures to forestall an emerging bubble in the Sydney and Melbourne property markets appear to be working, which may see housing construction soften further.

Against this, we expect continued progress to be made in transitioning the domestic economy to more balanced growth, assisted by low interest rates and a weaker Australian dollar (AUD). However, it is unlikely that this will be sufficient to drive growth above its recent pace. In this environment, the Reserve Bank of Australia is likely to at least retain interest rates at a record low level, with the risks skewed towards further cuts to ensure the AUD remains low.

NEW ZEALAND: SOFT LANDING DEPENDS ON DAIRY

With economic growth slowing, and given the absence of inflationary pressures, the Reserve Bank of New Zealand in 2015 returned monetary policy to its most expansionary ever setting. However, policy has been less supportive of the Auckland housing market, which has been targeted by specific macro-prudential policies.

We expect a ‘soft landing’ with growth around 2% given the Christchurch rebuild has now peaked, dairy prices remain relatively low and a potential damaging El Niño weather event threatens the rural sector. More positively, the building pipeline in Auckland is robust, the weaker New Zealand dollar (NZD) is driving better times for tourism and exporters, and inward migration continues at record levels.

Should this soft landing prove to be a good outcome relative to other economies, there is a risk that the NZD continues its recent strength as other central banks ease further to support growth.

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ASIA PACIFIC (EX JAPAN) GDP GROWTH FORECAST (%)

2015F 2016F

Australia 2.30 2.70

China 6.80 6.40

Hong Kong 2.30 2.50

India 7.60 7.80

Indonesia 4.60 5.00

Malaysia 4.80 4.60

New Zealand 2.10 2.20

Philippines 5.70 6.10

Singapore 2.00 2.30

South Korea 2.60 2.90

Taiwan 1.00 2.00

Thailand 2.60 3.50


CENTRAL BANK’S POLICY RATE FORECASTS (%)

Current Dec-16

US 0.25 1.25

Euro zone 0.05 0.05

Japan 0.10 0.10

UK 0.50 1.00

Australia 2.00 1.50

New Zealand 2.50 2.50

Emerging Asia

China (1Y deposit rate)

1.50 1.25

Hong Kong 0.50 1.50

Indonesia 7.50 7.00

India 6.75 6.75

Malaysia 3.25 3.50

Philippines 4.00 4.50

South Korea 1.50 1.00

Taiwan 1.750 1.500

Thailand 1.50 1.75


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In 2015, financial markets became nervous about China’s future as these traditional sectors slowed. In our view, the current slowdown is simply part of China walking down the path of modernisation. The experience from other economies is that growth slows after the peak share of investment in the economy, as consumer demand grows to represent a larger share of the economy.

China too will ultimately need to anchor its long-term growth to reflect this dynamic. The rising representation of services in China’s economy suggests it is beginning to embrace these ‘new’ growth drivers. Using consumer patterns in Taiwan and Hong Kong for instance, it is likely that Chinese consumers will spend more in the future on services such as telecommunications, education, recreation and medical services.

Higher growth in service sectors should help partially make up for the slowdown in the industrial sector, preventing a hard landing.

For Australia, the problem in the near term is that its growth has become entwined with the sectors of the Chinese economy that are slowing. As fixed asset investment growth in China has more than halved since 2010, commodity prices have dropped sharply. This has crimped growth in Australia in two ways:

1. Australian investment expectations have crumbled, with the latest data pointing to a more than 30% drop in mining investment over the coming year; and

2. A drop in Australia’s national purchasing power has constrained household spending.

While the transition of the Chinese economy means Australia has its own transition to undertake, over the longer term, significant opportunities still exist in China for the Australian economy. The challenge is that these will not be in traditional sectors. Instead, opportunities reside in the provision of food as well as services such as tourism, health care, education and financial services.

ANNUAL AUSTRALIAN AND CHINESE GROWTH (%)

Source: Thomson Reuters Datastream, ANZ Global Wealth.

ECONOMIC SPOTLIGHT:

Over the past 30 years, China’s growth model has relied heavily on investment and the manufacturing and exporting of goods. This model has worked well, generating 10% average growth throughout the 1990s

and 2000s. However China has now outgrown this model.

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CHINA AND ITS TRANSITION TWIN

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We consider the medium-term outlook continues to favour shares over defensive assets. While the consensus forecast for growth remains solid, when investing, we need to be aware of risks. In our view, risks are that growth will clearly be slower than consensus, consistent with weak earnings momentum. While the market has partially factored in a lower growth environment, we expect shares may be challenged over coming months, reflecting:

• unrealistically high market expectations for company earnings;

• the potential impact to market valuations as the US Federal Reserve (Fed) is expected to further raise rates in response to the strength in its economy; and

• our assessment that the risks are skewed to a further slowing in growth, which would mean even weaker earnings.

For these reasons, our current asset allocation strategy is underweight shares. Should share markets decline to the point where we see an improvement in valuations, we would look to raise our share allocation at least back towards neutral. However, if risks to the growth outlook remain, we are likely to take advantage of any further meaningful rise in share markets to further reduce our allocation in order to protect portfolios against these risks.

SHARES

Our preference continues to be in global developed markets shares, which are likely to benefit from the relative resilience of developed market activity. Continued quantitative easing in Europe and Japan is likely to support earnings growth, and with it share valuations, compared with other markets.

We are underweight Australian shares which continue to face headwinds from the combination of China’s economic transition, weaker commodity prices and increased regulatory requirements for the banking sector. While the defensive earnings profile of New Zealand shares appears attractive in 2016’s more uncertain environment, we consider New Zealand shares to be overvalued and are underweight as a result.

While the valuation of emerging markets appears attractive on balance after their poor performance in 2015, we remain concerned over the fundamental backdrop given the relative dependence of these markets on global trade, which remains anaemic. The sector is also vulnerable to rising US interest rates given the significant issuance of US dollar debts since the global financial crisis.

Overall valuations continue to favour shares over defensive assets as fixed income valuations remain expensive. However we see

reasons to be cautious in the near term.

ASSET ALLOCATION

OVERVIEW

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FIXED INCOME

We are also currently underweight in fixed income given our expectation of further rate rises in the US, which we believe will drive bond yields higher (prices decline). While continued easing in Europe and Japan should limit the rise in yields, we still see the risks skewed towards international fixed income underperforming other defensive assets.

We prefer Australian fixed income as the potential for further rate cuts by the Reserve Bank of Australia may help Australian bond yields disengage to a degree from the expected rise in global yields. We also prefer New Zealand fixed income to global fixed income given its higher yields and potential for further rate cuts, though we are currently underweight in an absolute sense.

Though non-investment grade bonds should post positive returns in 2016, poor liquidity and risks to growth mean we prefer shares for our growth exposure.

CURRENCIES

We remain underweight the Australian dollar (AUD). Even after the sharp drop over the past year, our view is that the AUD remains overvalued as lower commodity

prices have pushed down our fair value estimate to around US65c. We also see the risks being slanted towards the New Zealand dollar falling further versus the USD over the coming year, though a rebound in dairy prices suggests it could move higher in the short term.

Asset class Outlook

Growth assets Underweight

- Global developed market shares Overweight

- Emerging market shares Underweight

- Australian shares Underweight

- New Zealand shares Underweight

- Non-investment grade bonds Underweight

Defensive assets Overweight

- Investment grade bonds Underweight

- Cash Overweight

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2015 REGIONAL SHARE MARKET RETURNS

Source: Bloomberg, ANZ Global Wealth. MSCI Indices. Returns are as at 30 November 2015 and are unhedged, in AUD terms. Past performance is not a guarantee of future performance.

US: HEADWINDS ON THE FINAL LEG

US shares performed relatively well in 2015 given the slightly lower exposure of US firms to China and emerging markets compared to other major markets. Furthermore, the delay in the expected timing of the start of the US tightening cycle saw the US dollar (USD) fall back from the high level that had been expected to be a headwind for earnings growth.

In the coming year, we expect consumer-related sectors to continue to deliver positive returns as low interest rates and energy prices, along with rising house prices, support confidence and spending. However, we are concerned that analyst expectations for earnings growth are still too high, despite these being revised down significantly from their initial level. Moreover, a further improvement in labour market conditions and associated rise in wages appears likely to bring a gradual tightening in monetary policy. History suggests that market valuations are likely to be impacted in the near term, especially in light of the current soft pace of earnings growth.

As 2016 progresses, we expect some improvement in earnings momentum following the weakness seen in the second half of 2015. We also expect more certainty over the pace and extent of Fed rate rises, which should mean rate rises do not stand in the way of the share market rising over the medium term.

Share markets performed poorly in 2015 in local currency terms though the fall in the Australian dollar has supported returns for investors. We expect 2016 to remain volatile as global growth concerns and

expected US Federal Reserve (Fed) rate rises temper markets.

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SHARES OVERVIEW:

SHORT-TERM CHALLENGES

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That said, the combination of expected tightening in financial conditions – in the form of rising interest rates and a higher USD – along with faster wages growth is likely to be associated with some pressure on US profit margins. We thus expect gains to be more moderate than seen in previous years, and we believe that better opportunities reside outside of the US.

EUROPE: MORE “WHATEVER IT TAKES” PLEASE

The financial situation has improved in Europe with better economic growth in most of the region. The success of the European Central Bank (ECB) in pushing the euro lower has also supported earnings and the market.

The recovery in financial conditions and economic growth have assisted the banking sector and companies focused on domestic markets. That said, major share markets in the region are heavily exposed to the energy and resources sectors, which are likely to remain under pressure as China transitions from an investment led economy to consumption. We expect this to remain a headwind for European share markets in 2016. Moreover, history suggests that the start of US rate rises is likely to impact valuations of all markets in the near term, not just the US.

While the market remains over valued on trailing metrics, the fall in the euro in late 2015, on expectations that the ECB will step up monetary support, should provide a boost to multi-national corporates in the region. This provides an opportunity for a pickup in the market as 2016 progresses. Greater financial and economic stability in China may also be uplifting for companies in the region, though this transition will likely also be a source of volatility.

JAPAN: BACKING THE BOJ TO DELIVER

Japanese shares have performed well over the past year compared to their global counterparts, thanks largely to the Bank of Japan’s (BoJ) earlier success in pushing the yen sharply lower.

However, the boost from this appears to be wearing off and another dose of quantitative easing may be required for the market to regain sizeable traction. The yen has held at relatively low levels, but without further depreciation the BoJ may fail to meet its inflation objectives. While the official comment has been that further stimulus is not necessarily helpful, the BoJ Governor has left the door open to further easing to assist companies increase wages. In opinion polls Prime Minister Abe continues to lose popularity and his position would likely weaken if key policy objectives are not achieved.

The Japanese share market is well placed to benefit from the government and the BoJ’s willingness and ability to implement additional stimulus. Japanese shares are relatively attractive in terms of valuations and we see upside potential here relative to other major regions.

We have also seen some structural reforms take effect in 2015. The strong performance of the new Nikkei 400 Index increased the transparency of Japanese corporate governance structures, which has encouraged improvements in this area. Further improvement and reforms are expected to boost greater share market participation in 2016.

AUSTRALIA: CHALLENGES PERSIST

The Australian share market underperformed its global counterparts during 2015 following softer global growth, led by the slowdown in China. This has constrained the performance of the resources sector which continues to remain under pressure from lower commodity prices. The banking sector also came under pressure as regulatory changes required an increase in capital.

We believe the global backdrop remains a challenging one for Australian companies. While the market has largely priced in these themes, we remain cautious over the outlook as weak external demand, low commodity prices and uncertainty in the domestic economy’s transition towards non-mining sectors put further pressure on earnings. While the lower Australian dollar has helped boost export competitiveness, current valuations are still suggestive of further downside, with better opportunities remaining offshore for share investors.

NEW ZEALAND: CHALLENGING VALUATIONS

On the surface, analyst expectations for earnings growth of 7% for the NZX50 index in 2016 would typically be considered a robust indicator of good performance, especially when combined with the 6.5% dividend yield currently on offer. However, the fundamentals underpinning these expectations are less compelling. The New Zealand share market is trading around 19 times trailing earnings, a lofty level that is very rarely held for an extended period of time.

We expect New Zealand’s economic growth to slow to a below-trend pace which threatens the rosy earnings outlook. Moreover, despite the easing in monetary policy and decline in the NZ dollar, the risk remains to the downside for 2016, especially if dairy prices fail to stabilise. This could see earnings disappoint.

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Still, we shouldn’t get overly bearish on the market which we believe will deliver an attractive dividend yield in 2016 and beyond, sustained by companies with strong balance sheets and dominant market positions.

EMERGING MARKETS: UNDER STRESS

While emerging market shares look cheap, the sector is likely to face continued headwinds and increased volatility from Fed rate rises, weak commodity prices and uncertainty surrounding the global growth outlook. Possible additional easing in Japan and Europe could result in a stronger USD, and increase the vulnerability of highly indebted emerging market economies and companies. The level of the region’s corporate debt is about 90% of emerging market GDP, of which 18% is denominated in foreign currencies, largely in USD.

Depreciating currencies, weak activity and softer profits form a challenging backdrop for many emerging market companies. That said, this does not rule out the probability of short-lived rallies in selected markets on the back of supportive fiscal and monetary policies. Investor sentiment is currently negative towards this sector and exposure to emerging market shares is at its lowest levels in history.

A sustainable rally in emerging markets would require signs of stabilisation in China’s economy, progress on government reforms and greater confidence on the global growth outlook. A slower-than-expected Fed rate hike

trajectory, if it were to eventuate, could also lift investor risk appetite. Nevertheless, a reassessment of these factors should only take place some months following the Fed’s first rate hike, which is expected to trigger significant volatility within the region.

2016 SHARE MARKET OUTLOOK*

Market Outlook

Global Positive

United States Positive

Europe Positive

Japan Positive

Australia Positive

New Zealand Neutral

Emerging markets Negative

*Outlook refers to expected absolute returns.

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Not only has this resulted in corporate earnings improving, underpinning an improvement in global share markets, but the significant expansion in liquidity has also supported an increase in price-to-earnings ratios for most share markets, further supporting returns.

After double-digit annual returns from 2012-2014, the outlook now appears more challenging. Share markets are no longer trading below fair value. Meanwhile, the earnings outlook appears more challenging, with the Fed lifting interest rates and the risk of weaker global economic growth in 2016. Thus the two key pillars of support for share markets over recent years now look to be fading.

On the flipside, central banks outside of the US are continuing to provide further stimulus to support growth. In particular, the ECB and BoJ are both undertaking significant quantitative easing programs, despite the expected withdrawal of stimulus in the US.

The coming year is likely to see an increasing tug-of-war between below-average global activity and earnings growth on one hand, and the willingness of central banks to do “whatever it takes” to maintain economic and financial stability on the other.

Our current positioning highlights a degree of caution, reflecting our expectation for weaker earnings momentum and downside risks to global activity. On the other side, if data continues to suggest that inflation will fall short of targets – or if economic growth or financial stability in emerging markets threatens the recovery – both the ECB and BoJ are able to provide more stimulus, while the Fed may halt rate rises. The People’s Bank of China is also well

placed to stimulate its economy if financial conditions in the region continue to slide.

While the economic merits of central bank quantitative easing are debatable, history indicates such measures can, and most likely will, support market valuations. This warns against being overly bearish on share markets.

US SHARE MARKET & FEDERAL RESERVE QUANTITATIVE EASING

Source: Bloomberg, ANZ Global Wealth.

Extremely stimulatory monetary policy, most notably in the form of increased liquidity from zero interest rates and quantitative easing by the world’s major central banks, has been an important factor supporting the

recovery in global growth since the global financial crisis.

SHARES SPOTLIGHT:

TUG OF WAR

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2015 GLOBAL BOND MARKET RETURNS

Source: Bloomberg, ANZ Global Wealth. Returns are as at 30 November 2015 and are hedged, AUD terms. Past performance is not a guarantee of future performance.

US: SLOW AND STEADY

US bond yields fell around the middle of 2015 across the long end (more than seven years) due to weaker global growth dynamics. At the same time, leading indicators continue to show a broad-based expansion in the domestic economy. This has seen sufficient progress made in the labour market to levels where the US Federal Reserve (Fed) has started the process of raising interest rates to more normal levels. As was the case in September 2015, it would seem the only hurdle to further rate rises would be a shock that significantly unsettled financial markets and raised uncertainty over the continued expansion of the US economy.

Our expectation is for the Fed to raise rates as further improvement in the labour market may give rise to wage inflation. We expect the move up in rates to be slow and steady as growth outside of the US remains below average. Meanwhile, policy action across other central banks is still slanted towards easing policy. This should see yields in an aggregate sense remaining much lower than previous periods of higher growth and inflation. That said, relative to market expectations, which are currently pricing less than three rate rises in total by the end of 2016, we see the risks as skewed towards greater tightening.

While we expect to see long-end rates rise, we expect the yield curve to flatten as shorter term (less than three years) rates rise quicker.

Fixed income held up in 2015. With global growth likely to remain low, high-quality bonds may be in demand by investors. However, Fed rate

raises should see yields rise somewhat from current levels.

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FIXED INCOME OVERVIEW:

END OF THE LINE

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EUROPE AND JAPAN: CONTINUING PROGRESS

Policy divergence is set to continue to favour European and Japanese fixed income markets in 2016 relative to the US. With the macroeconomic landscape still more in the early stages of recovery, and the European Central Bank (ECB) and Bank of Japan (BoJ) providing ample liquidity in the form of continued bond purchases, bond yields are likely to remain low in the coming year.

While the potential for further easing in Europe and Japan can cap bond yields in both regions, the Fed sets the tone for global fixed income markets. The current large differential between US and European/Japanese yields suggests it is likely that rising US rates will see some movement higher in yields elsewhere.

That said, peripheral European bonds should remain supported given the ECB’s bond purchase program.

AUSTRALIA: NOT OUT OF THE WOODS

Slower growth in the Australian economy prompted the Reserve Bank of Australia (RBA) to cut interest rates in 2015 to a record low. This has come at a time when the lower Australian dollar (AUD) is providing a broad-based lift to competitiveness. While these measures further aid the economy’s transition to new growth sectors outside of mining, a number of factors suggest the risks are towards the RBA providing further stimulus over the coming year:

• Weaker commodity demand from China is likely to see commodity prices remain under pressure, restricting domestic spending;

• 2016 is set to see an even more significant decline in mining investment spending than seen to date; and

• Housing construction, which contributed significantly to growth in 2015, is set to slow as dwelling approvals ease from their record highs.

Add to this the downside risks to global growth, current weak inflation readings and the out-of-cycle rate rises by the major banks in October 2015, and the possibility for further action by the RBA in 2016 is clear.

Uncertainty in the domestic economy is likely to see short-term rates anchored to current levels with attractive carry characteristics holding long-term rates down. For these reasons, there is a reasonable expectation that Australian yields can disengage to an extent from the expected rise in global yields. We expect moderate positive returns in the year ahead.

NEW ZEALAND: IN SYNC

Over 2015, the Reserve Bank of New Zealand (RBNZ) got back in sync with the majority of developed market central banks by cutting interest rates back to its record low. With inflation remaining outside the RBNZ’s target range (to the low side), the potential exists in 2016 for a further cut to the official cash rate to a new record low.

The prospect for further rates cuts should see the short end of the curve be well supported. For longer-term bonds, while some rise can be expected as the Fed raises rates, there appears little chance of yields rising very far very quickly. Fundamentally, New Zealand government bonds, with positive real and nominal yields, stand out favourably compared to other global government debt. Continued strong demand for high quality yield should work to prevent a major rise in longer-term rates.

HIGH YIELD: CONTINUED CONCERNS

High yield spreads widened over the course of 2015, reflecting slower global growth and with it, weaker commodity prices, increased market volatility and tighter liquidity conditions associated with ongoing speculation regarding the Fed raising interest rates. Though the sell-off in yields was broad based, it was most prevalent in the energy and materials sector where spreads rose over 400 basis points (bps) following the decline in commodity prices.

High yield issuance has stalled in an environment of rising risks and quality has deteriorated as renewed concerns over global growth pushed up expected default rates, albeit to a still low level by historical standards. Though spreads at current levels are likely to compensate investors for current levels of default risk, downside risks to growth and commodity prices, and poor liquidity characteristics suggest there is likely to be better value in growth assets elsewhere.

EMERGING MARKET DEBT: BUBBLING RISKS

Emerging market debt struggled to maintain the pace of returns compared to the prior year but still performed well in 2015. Credit default spreads across Brazil and Russia rose sharply given declining commodity prices, although lower oil prices have improved external balances across energy importing nations.

That said, internal imbalances are likely to persist as emerging economies undergo a period of structural change, debt reduction and reform. High levels of external debt liabilities add vulnerability to this asset class, especially at a time when the Fed is set to normalise rates. Despite its attractive yield, potential capital outflows are likely to weigh on the sector. Given liquidity concerns, we prefer growth exposure via shares.

18


Credit spreads widened in 2015 across both investment grade and high yield bonds. This has taken place in an environment where policy is still highly accommodative in the developed world. We view the widening in spreads to be reflective of some fundamental themes that are likely to persist into 2016.

One of the main factors contributing to the widening in credit spreads has been the ongoing decline in commodity prices. This was most prevalent in the high yield sector, where energy and commodity-related issuance make up around 20% of the market. Energy spreads have widened by over 400bps and commodities have struggled to find a base in an environment of lower global growth. With global growth expected to remain constrained, this sector of the market is likely to continue to experience headwinds.

The widening in spreads also reflects deterioration in the growth outlook relative to expectations at the start of 2015. Rather than accelerate as was expected, global

growth momentum slowed during the year, raising the risk of financial stress and default. To an extent, this reflects a reassessment that potential growth in many economies, including the US, is lower.

At the same time, this widening in spreads will also work itself to constrain the growth outlook. Higher spreads represent a rising cost of financing for companies, lowering investment activity and putting pressure on company profitability. Based on history, the widening in US investment grade spreads over the year to September 2015 points to growth across developed economies clearly slowing from its recent resilient pace.

These snapshots illustrate some of the broader themes embedded in credit markets and highlight some additional headwinds confronting investors in the year ahead.

With government bond yields at low levels in an environment of softer growth, many investors have flocked to credit markets in search of higher returns. While this strategy has worked in the past to deliver strong performance, we find the case for continued outperformance more difficult as credit markets adjust to a new trend.

FIXED INCOME SPOTLIGHT:

WHAT IS CREDIT TELLING US?

19


DEVELOPED MARKET GROWTH AND THE CREDIT MARKET

Source: Thomson Reuters Datastream and ANZ Global Wealth.

2016 FIXED INCOME OUTLOOK*

Market Outlook

Global Neutral

United States Negative

Europe Positive

Japan Positive

Australia Positive

New Zealand Positive

Emerging Markets** Positive

High yield Positive

*Outlook refers to expected absolute returns in hedged AUD terms ** In unhedged USD terms.

-6

-4

-2

0

2

4

6

8

2000

2003

2006

2009

2012

2015

-400

-300

-200

-100

0

100

200

300

400

500

Developed market growth (yoy %, lhs)

US investment grade spreads (yoy change in bps, 3qtr lead, rhs)

20


2015 MAJOR DEVELOPED MARKET CURRENCY RETURNS

Source: Bloomberg, ANZ Global Wealth. Returns are as at 30 November 2015 and against the USD. Past performance is not a guarantee of future returns.

US DOLLAR INDEX

Source: Bloomberg, ANZ Global Wealth. Data as at 30 November 2015.

Central bank policy divergence has been the main driver behind a strong US dollar (USD) versus other major currencies. The Australian and New Zealand

dollars will likely be under more pressure due to lower commodity prices.

0%

-2%

-4%

-6%

-8%

-10%

-12%

-14%

-16%

-18%-15.6 -15.0

-12.7-11.6

-3.3-2.8

-1.0 -0.7

NZD

AUD

CAD

EUR

GBP JP

Y

76

80

84

88

92

96

100

104

Jan

– 20

14

Apr

– 2

014

Jul –

201

4

Oct

– 2

014

Apr

– 20

15

Jan–

201

5

July

– 2

015

Oct

– 2

015

CURRENCIES OVERVIEW:

POLICY DIVERGENCES

21


USD: ALMOST DONE

We retain a mild positive bias towards the USD for 2016 based on the relative strength of the US economy compared to other major regions. This view largely hinges on our perspectives that central banks in Japan and Europe may err on the side of further stimulus to support growth. By contrast, with unemployment near its target and inflation likely to rise to some extent, the US Federal Reserve (Fed) should gradually move rates toward more normal levels. However, we do not expect to see the USD appreciating at the same pace as we did in 2014/15 due to the dampening impact on the US economy from a much stronger USD and higher US rates.

EURO: “WHATEVER IT TAKES”

With the risk of deflation still elevated, the European Central Bank (ECB) increased the size of its asset purchases in December 2015. The risk for now remains for further stimulus.

Diverging monetary policies between the Fed and the ECB will work to continue to undermine the euro. The ECB’s negative deposit rate may also weigh on the euro. However the market has been positioned for a weaker euro. Any delay to the Fed’s tightening cycle, along with the euro zone’s large current account surplus may limit the downside.

JPY: BOJ IN PLAY?

The risks are that the Bank of Japan (BoJ) announces further easing in 2016, which may lead to further yen depreciation. At the very least, the prospect of further BoJ action may prevent any material yen appreciation. Keeping a lid on any yen appreciation is an essential component in Prime Minister Abe’s plan to finally “end deflation”. It may take a generation to change the ingrained perception of a nation that would rather save than spend on the basis that goods and services will be cheaper in the future than they are today.

Any further decline in the yen is unlikely to be significant given the fall seen already and given markets are expecting further BoJ action. Movements in the yen may come in fits and starts as markets look to the BoJ for more servings of liquidity.

AUD: REFLECTING REALITY

The Australian dollar (AUD) continued to decline in 2015 against the USD as fundamental drivers such as lower commodity prices (reflecting weaker demand and rising supply) and interest rate differentials pointed to a downward trend. The outlook for gradual rate rises in the US in 2016 will also increasingly place further downward pressure on the AUD. The AUD is likely to be relatively supported against the euro and the yen as central bank stimulus in Europe and Japan work to hold down their currencies. The Reserve Bank of Australia is likely to cut rates further in 2016 as it supports the transition towards a more balanced economy.

NZD: UNDER THE PUMP

The Reserve Bank of New Zealand has completely reversed 2014’s interest rate rises. Rate cuts in 2015 have led to a sharp depreciation in the New Zealand dollar (NZD). The fall in the currency was also driven by a sharp decline in dairy prices. While most of the drop in the NZD is expected to be behind us, a further gradual depreciation against the USD is on the cards as economic growth and narrowing interest rate differentials favour the US. Still, we should not get too bearish on the outlook for the NZD; it has already fallen significantly, and a lot of negativity has been priced in at current levels.

2016 CURRENCY OUTLOOK*

Market Outlook

USD Positive

Euro Neutral

Yen Neutral

AUD Negative

NZD Negative

Asian currencies index (ADXY) Negative

*Outlook refers to expected absolute returns. The ADXY is a trade and liquidity weighted index of Asian currencies.

22


ASIAN CURRENCIES: LOSS OF AN ANCHOR

A strong USD is expected to weigh on Asian currencies in 2016. Meanwhile, an important anchor for the region’s currencies in the past, the Chinese yuan (CNY), is expected to shift towards a managed floating exchange rate regime. It is expected this could see the CNY depreciate moderately. This would have a negative spill over effect on other Asian currencies.

Although the Indian rupee is not immune to a stronger USD environment, it is expected to outperform other Asian currencies, aided by India’s large foreign exchange reserves as well as its low exposure to China and to exports in general. Low commodity prices are also positive for India’s current account balance.

2015 ASIAN CURRENCY RETURNS

Source: Bloomberg, ANZ Global Wealth. Returns are as at 30 November 2015 and against the USD. Past performance is not a guarantee of future returns.

-21.8

-11.8

-8.8

-6.4 -6.1 -5.7 -5.6

-3.3 -3.1

INR

MYR ID

R

THB

SGD

PHP

KRW

TWD

CNY

HKD

3%

0%

-3%

-6%

-9%

-12%

-15%

-18%

-21%

-24%

0.0

23


The Fed raised rates in December 2015, the first in nine years. In contrast, the ECB has announced additional quantitative easing, with potentially more to come, setting up a distinct contrast between the euro and the USD. Markets are also looking at the BoJ for additional easing. This divergence in policies, which is likely to continue for some time, should result in continued longer-term USD strength.

While we agree with the view that central banks are getting diminishing returns to successive rounds of additional quantitative easing, it is important not to downplay the potential volatility that may surround these

EURO AND YEN EXCHANGE RATES

Source: Bloomberg, ANZ Global Wealth.

policy events. Indeed, the shifting, timing and signaling of policy will make currency risk more difficult to manage going forward. The exchange rate remains an important element of the monetary policy debate for most central banks today.

In 2015, the Fed effectively incentivised central banks around the globe to ease further. Any delay to further Fed rate rises relative to market expectations could put downward pressure on rates globally, including both Australia and New Zealand. Central bank communication and actions will continue to be a major factor in the volatility and direction of currencies in 2016.

While the Fed kept rates unchanged well into 2015, the delay reflected a shorter-term issue regarding the emerging market tumult rather than

weakness in the US economy.

70

80

90

100

110

120

130

1.5

1.4

1.3

1.2

1.1

1.0

EUR/USD (lhs)USD/JPY (inverse scale, rhs)

Jan – 2012 Jul – 2012 Jan – 2013 Jul – 2013 Jan – 2014 Jul – 2014 Jan – 2015 Jul – 2015

Appreciation

Depreciation

Sep 2012 - BoJ increase QE by JPY 10trn

Oct 2014 - BoJ increasesQE by further JPY 10trn

Aug 2014 - Draghi signalsappetite for additional easing

Sept 2014 - ECB cuts depositrates into negative territory

Jan 2015 - ECB launchesopen-ended QE

CURRENCIES SPOTLIGHT:

CENTRAL BANK DOMINATION

24


2015 COMMODITY RETURNS

Source: Bloomberg, ANZ Global Wealth. Returns are as at 30 November 2015 in USD. Past performance is not a guarantee of future returns.

The structural bull market in most hard commodities and energy that drove a surge in supply is over. Through 2015 the sustained slowing in demand, particularly from China, and continued excess supply have seen prices for most commodities tumble. To some extent lower prices have been partly offset by lower production costs (partly due to lower oil and steel prices), while supply has largely been maintained across many commodities.

For 2016, we consider global growth should remain below-average and demand for most commodities to remain weak as supply continues to meet or outpace demand. While production costs are likely to fall further, for most commodities we consider the adjustment through 2016 to shift more from lower production costs to actual supply cuts.

Overall, base metal markets have likely made most progress in cutting supply through 2015, while oil, steel and bulk commodities (iron ore and coal) have primarily relied on reducing production costs, with less progress than other commodity markets in trimming supply. Chinese steel producers have maintained output with excess production spilling into a surge in exports. Iron ore producers are expected to continue to add supply through 2016, with further cuts to production costs likely.

We will likely remain in an extended period of below-average global growth and weak demand for most commodities. Therefore, we expect supply will again meet or exceed demand across many commodity markets in 2016. We consider

supply cuts will be required to stabilise most commodity markets.

0%

-5%

-10%

-15%

-20%

-25%

-30%

-35%

AN

Z Bu

lks

S&P

GSC

I E

nerg

y

S&P

GSC

I In

dust

rial M

etal

s

S&P

GSC

I A

gric

ultu

re

Gol

d Bu

llion

-31.8 -31.0

-26.9

-15.9

-10.1

COMMODITIES OVERVIEW:

CONTINUED ADJUSTMENT

25


BASE METALS: FLAT DEMAND, SUPPLY CUTS RESTORING BALANCE

The RBA Base Metal Index in US dollars was sharply weaker through 2015 with prices tumbling around 20%, although lead was somewhat more resilient. Looking into 2016, we see limited scope for demand to meaningfully strengthen. However, supply cuts have commenced and scope exists for markets such as copper to move back towards balance in 2016, potentially supporting prices.

PRECIOUS METALS: CONSOLIDATION WITH USD AND FED KEY

The gold market should remain in a broad holding pattern until greater clarity emerges regarding the growth trajectory of the US economy and the path of US Federal Reserve (Fed) tightening. That said, lower prices have resulted in demand improving in both China and India.

BULK COMMODITIES: DOWNSIDE RISKS ON CONTINUED SUPPLY GROWTH

With continued excess supply across the global steel market, and Chinese demand likely flat in 2016, we see limited scope for excess steel capacity to be absorbed for the foreseeable future. With almost all of iron ore output absorbed by steel production, we expect demand for iron ore to be flat in 2016. However, as we expect iron ore supply to continue to ramp up, reflecting the rapid investment in new capacity in recent years, the iron ore market should remain in considerable excess capacity with continued downward pressure on prices. Therefore, the burden of adjustment should remain on reducing production costs.

ENERGY AND OIL: LOWER COSTS BUT LIMITED SUPPLY CUTS

Crude oil prices are expected to remain under pressure for the foreseeable future until greater progress is made to cut supply. To date, the adjustment has been primarily by cutting production costs. Globally, the supply/demand balance should remain in surplus for the foreseeable future, although excess supply is being gradually absorbed as US shale oil is cut back and may support prices at the back end of the year.

SOFT COMMODITIES: SOFT PRICES, EL NIÑO RISK

We expect that global grain prices will remain subdued for the foreseeable future, although the developing El Niño weather event may reduce supply through 2016. Wheat supply from the northern hemisphere is solid, while the US corn and soybean crops appear to be tracking close to average. As a result, Australian wheat prices have fallen to the lowest level in 12 months with strong production and prices hovering only marginally above breakeven for some producers.

DAIRY: THE SWING FACTOR FOR NEW ZEALAND

The record dairy pay out of 2014 triggered a worldwide production surge led by Europe and, more recently, the US. Prices have subsequently fallen and are now below the cost of production across most regions. The market is sensitive to New Zealand supply conditions and the season has started slowly.

The recent lift in the global dairy trade price has been partly due to smaller offerings, a situation that will extend into the 2015/16 season. Despite this recent price bounce, many growers will be in a negative cash position for a couple of seasons. El Niño may place greater pressure on around 40% of the New Zealand herd, contributing to a possible supply fall of 10-15%.

Expectations for whole milk powder prices back towards the low USD3,000 per tonne by the end of 2016 seem reasonable, with a NZD5/kg milk solids price possible for the 2015/16 season should Chinese demand continue to normalise.

2016 COMMODITIES OUTLOOK*

Commodity Outlook

Base metals Neutral

Precious metals Neutral

Bulk commodities Negative

Energy and oil Neutral

Soft commodities Neutral

Dairy Neutral

*Outlook refers to expected absolute prices.

26


Global steel output is the prime driver of iron ore demand, with some 98% of iron ore production consumed by steel production. Global steel production is dominated by China, which produces around 50% of all output. Since 2013, growth in Chinese steel output has slowed sharply after a decade where output grew by 14%. Over the first nine months of 2015, steel production declined slightly.

Meanwhile, Chinese steel demand declined through 2015, primarily reflecting a fall in Chinese property construction, which consumes around 35% of Chinese steel production. Although the outlook for the Chinese property market has started to improve modestly, we expect a lift in demand to initially be met from the inventory of unsold property, with new construction, and with it steel demand, likely only garnering support through the latter part of 2016.

Over the past decade, capacity utilisation of Chinese steel mills has fallen from around 85% to around 74% in 2015. While Chinese steel production has declined modestly in 2015, there remains a reluctance to cut capacity more significantly given the perceived importance of the sector to the broader economy. Instead, Chinese producers have responded to excess supply and weaker domestic demand by lifting exports.

We expect the reluctance of Chinese producers to cut steel production to continue in 2016. Thus strong Chinese steel exports will likely continue through the year, adding to excess capacity that already exists across most other regions. This should see pressure continue to build to cut steel capacity outside of China, though overall we expect global steel output to be flat during the year.

Against a backdrop of continued weak demand for steel, we would expect this environment to continue to exert downward pressure on steel and iron ore prices. With the supply of iron ore likely to lift further as new mines come on-line, the likely adjustment of iron ore producers will be by further reducing production costs. This should allow further downward pressure on steel prices.

CHINESE STEEL AND IRON ORE PRICES

Source: Bloomberg and ANZ Global Wealth. Steel prices are for rebar (25mm diameter) while the iron ore price is the Qingdao port price for iron ore with a 62% ferrous content.

Along with oil, no other major commodity markets have characterised the recent change in the economic landscape more than iron ore and steel. Having risen sharply over the 2000s on the back of strong Chinese demand and limited supply, iron ore prices have dropped more than 75% from their early 2011 peak.

200

180

160

140

120

100

80

60

40

USD/tonneRMB/tonne

Chinese steel prices (lhs)

Iron ore price (rhs)

5500

5000

4500

4000

3500

3000

2500

2000

2010

2011

2012

2013

2014

2015

COMMODITIES SPOTLIGHT:

STEEL AND IRON ORE PRICES UNDER PRESSURE

27


DISCLAIMER

This ANZ 2016 Annual Outlook (this “document”) is current as at 17 December 2015 and has been prepared by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 or its affiliates (“ANZ”).

This document contains factual information and may also contain professional opinions which are given in good faith and based on information and assumptions believed to be reliable as at the date of this document. The views expressed in this document accurately reflect the authors’ personal views, however the authors make no representation as to its accuracy or completeness and the information should not be relied upon as such. Any opinions, estimates and forecasts herein reflect the authors’ judgments on the date of this document and are subject to change without notice.

Any prices or values herein are as of the date indicated and no representation whatsoever is made that any transaction can be effected at such prices or values or that any prices or values may be provided at a later date. The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and an investor may get back less than invested. Foreign-currency denominated securities and financial instruments are subject to fluctuation in exchange rates that could have a positive or adverse effect on the value, price or income of such securities and financial instruments.

In preparing this document ANZ may have also relied on information supplied by third parties and whilst ANZ has no reason to doubt the accuracy of information used to prepare this document, ANZ makes no representation and gives no warranty as to the accuracy, timeliness or completeness of any information contained in this document or its relevance to the recipient. Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged.

This document is issued on the basis that it is only for the information of the particular person to whom it is provided. This document contains confidential information and it is not to be reproduced, distributed or published by any recipient for any purpose without the prior written consent of ANZ.

Nothing in this document constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation and it does not take into account the specific investment objectives, requirements, personal needs or financial circumstances or tax position of any recipient. This document does not contain and should not be relied upon as containing investment recommendations or advice and does not constitute an offer or an invitation to deal in, or a recommendation to acquire or sell any product or subscribe to any service. The recipient should seek its own independent financial, legal, credit, tax and other relevant professional advice and should independently verify the accuracy and appropriateness of the information contained in this document having regard to its objectives, financial situation and needs.

Changes may be made to products and services at any time without prior notice to you.

While the information in this document is based on sources believed to be reliable, ANZ (together with its directors and employees) makes no representations or warranties, express or implied, as to the accuracy, completeness or timeliness of any of such information. ANZ shall not be liable for any loss, damage, claim, liability, proceedings, cost or expense (“Liability”) arising directly or indirectly (and whether in tort (including negligence), contract, equity or otherwise) out of or in connection with the recipient relying on, in any way, the contents of and/or any statements, representations or omissions made in this document (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof except where a Liability is made non excludable by relevant legislation.

Past performance is not indicative of future performance. The value of investments may rise or fall and the repayment of subscribed capital is not guaranteed.

Australia and N

ew Zealand Banking G

roup Limited (A

NZ) A

BN 11 005 357 522.

01/16 20780

anz.com

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