March 2018 Investment Update

1. Slide 1
Baiocchi Griffin Private Wealth
Economic and
Investment Markets Update
13th April March 2018

2. Slide 2
General Advice Warning
This presentation and the associated discussion is
general in nature and does not take your individual
situation into account. You should not act on
anything contained herein, or discussed as a
consequence of the contents of this document,
without receiving personal financial advice from a
suitably qualified person such as a financial advisor.

3. Slide 3
What will be covered
Key Global Issues
&
The Banking Royal Commission
&
The Stock Market

4. Slide 4
Current global issues
One of the key global issues which is impacting markets is the prospect of a trade war
between the United States and China

5. Slide 5
Why is there such a large trade disparity?
There are a number of reasons why the US has a large trade deficit with China:
• Lower wages in China (this is changing but very slowly)
- China GDP per capita $8,123 compared to US GDP per capita $57,444
• Higher levels of income and consumption in the US
• Stronger US dollar makes imports cheaper
• Economic progress (‘making things’ gets done in cheaper countries)

6. Slide 6
Manufacturing jobs in the US
Significant loss of
manufacturing
jobs, unlikely to
return to 1950’s
era levels

7. Slide 7
Why tariffs don’t work
• Pushes up costs of goods domestically
• Retaliatory measures
• Lessens choice for consumers
• Misallocation of capital
(we keep spending money making things we shouldn’t be doing)
• Global instability (trade ties help avert wars)
That said, there are valid criticisms that the US has in regard to China around:
- Intellectual property theft
- Forced transfer of technology

8. Slide 8
An example of the global nature of trade
German cars, made in the US, sold in China

9. Slide 9
IP theft is a real issue

10. Slide 10
Anybody using Binbows on your home PC?

11. Slide 11
Other global issues – a short summary
• US interest rates (still rising, but slowly)
• Brexit
• Europe
• Geo-political issues
• South China Sea
• Middle East
• Mexico/NAFTA

12. Slide 12
Bank Royal Commission
‘Royal Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry’
Potential outcomes from the commission:
• Greater oversight and regulation
• The end of ‘vertical integration’?
• Reforms to the mortgage broking industry (liar loans)
• Potentially leading to greater costs (higher loan application fees, higher
interest rates)
• Some impact on bank profitability/dividends but no reason for panic

13. Slide 13
The stock market over the past year

14. Slide 14
The All Ordinaries – past 12 months
5,400
5,500
5,600
5,700
5,800
5,900
6,000
6,100
6,200
6,300
Apr Apr May May May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Nov Dec Dec Jan Jan Feb Feb Mar Mar Apr
ASX All Ords Index - 5 April 2017 to 5 April 2018
‘Trade war’ weakness
All Ordinaries Index: -0.49% loss
Flat/weak market through much 2017
Strong growth through year end

15. Slide 15
The long term picture
1987 crash
1994 bond
market
crisis
Pre-GFC
peak
Greek debt
crisis (Part 1)
ASX All Ords Index – 1 Jan 1985 to 6 Apr 2018

16. Slide 16
A quick look at Australia

17. Slide 17
Business conditions have improved

18. Slide 18
Key economic data
RBA Cash Rate 1.50%
Inflation 1.90% (Dec)
GDP growth rate 2.4% (Year-ended Dec)
Unemployment 5.6% (Feb)
Net government debt to GDP 18.9% (2016/17)

19. Slide 19
How banks make money

20. Slide 20
Direct property update
• Office block in Tweed Heads settled on 20 December 2017
• First net rent payments have been received
• Currently assessing a number of properties in locations such as
Shepparton, Newcastle, Tamworth and other large regional
centres
• Any investment must meet our criteria, which includes:
• Commercial office building
• Minimum population size
• Diversity of local economy
• Lease terms and yield

21. Slide 21
Looking ahead
What we said in March 2017:
• We expect further increases in interest
rates in the United States, although the
rate of increase will be slow.
• We consider the Australian stock market
to be reasonably priced, although noting
that geo-political risks are extremely
elevated and the US market looks over-
stretched.
• Overall we believe a more conservative
investment approach than usual is
warranted, given the rising global risks.
Our thoughts on the rest of 2018:
• We expect further increases in interest
rates in the United States, although the
rate of increase will be slow.
• We consider the Australian stock market
to be reasonably priced, although noting
that geo-political risks are extremely
elevated and the US market looks over-
stretched.
• Overall we believe a more conservative
investment approach than usual is
warranted, given the rising global risks.

22. Slide 22
?
Thank you
Please join us for morning tea