RESEARCH REPORT

RREEF Infrastructure
Australian Infrastructure Market Update

First Quarter 2012

RREEF Infrastructure
www.rreef.com

Contacts:

Table of Contents
1. Executive Summary .................................................................... 1 2. Global economy .......................................................................... 3 3. Australian economy .................................................................... 6 4. Australian drivers and challenges ............................................. 8 5. Infrastructure investment trends ............................................. 15 6. Scenarios ................................................................................... 16 7. Important Notes......................................................................... 18

Nadir Maruf Managing Director Head of RREEF Infrastructure Asia Pacific + 61 (2) 8258 2012 nadir.maruf@db.com Jeremy Don Director Chief Operating Officer + 61 (2) 8258 1223 jeremy.don@db.com Irina Johnstone Director Head of Investor Relations + 44 (0) 207 545 0254 irina.johnstone@rreef.com Simon Durkin Director Head of European Research simon.durkin@rreef.com

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

1.
Global

Executive Summary
Cautious optimism returned to the global economic outlook in Q1 2012.1 The world economy is set to expand at a below-trend pace in 2012 as it regains momentum.2 The global economys positive turn in the first quarter is not without obstacles in the months ahead. Labour and housing markets still face structural adjustments in many countries, and governments and households continue struggling to rebalance their budgets.3 The European economy remains vulnerable. 4 IHS/Global Insight forecasts the overall Eurozones economy to contract by 0.4 per cent in 2012, a slightly better outlook than had been expected three months earlier.5 The continents two-speed path continues, with economic growth in the core European countries forecast to be relatively flat in 2012 even as most peripheral economies are now mired in recession.6 European banks and peripheral sovereigns face daunting challenges that require long-term solutions.7 Though it is indirectly impacted, Australias direct exposure to the Eurozone crisis is limited.8 Upbeat indicators in the US provide hopeful signals for the year ahead.9 IHS/Global Insight forecasts U.S. economic growth of 2.1 per cent in 2012, with momentum continuing to build through 2014.10 Chinas economic growth has decelerated in recent months amid weaker external demand and a slowdown in the property sector.11 Commodity prices have stabilised at relatively high levels.12 The Reserve Bank of Australia (RBA) index for commodity prices has held near or above 100 since early 2011.13

Australia The Australian economy was on track for 3.6 per cent year-over-year (y-o-y) growth in Q1 2012 according to private sector consensus forecasts for the period.14 Australian economic growth will continue this year at close to trend according to the RBA. 15 Despite encouraging headline indicators, deeper worries persist of two-tier Australian economy split across industries and geography.16 The RBA expects inflation to hold within the 2-3 per cent target range over the next two years.17 A lower headline inflation rate in the first half of 2012 will rise in the latter half of the year as a new carbon tax is implemented.18

1 2 3 4 5 6 7 8 9

Reserve Bank of Australia, Financial Stability Review, 27 March 2012, p. 1. Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. Monthly Bulletin, European Central Bank, 7 March 2012, p. 7. Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. IHS Global Insight, Current Forecast, 16 March 2012. IHS Global Insight, Current Forecast, 16 March 2012. Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 91-98. Reserve Bank of Australia, Financial Stability Review, 27 March 2012, p. 1. IHS Global Insight, Current Forecast, 16 March 2012. Monthly Bulletin, European Central Bank, 7 March 2012, p. 12.

10 11 12

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. Reserve Bank of Australia, Index of Commodity Prices (Table G5), 2 April 2012. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, pp. 4-5.

13 14 15

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. National Australia Bank, Global & Australian Forecasts, 13 March 2012, pp. 8-19. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 37.

16 17 18

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

High levels of household debt continue to impact savings and spending patterns.19 Uncertainty regarding interest rates for variable-rate home mortgages has reduced Australian consumers motivation to spend.20 Australias industry sectors continue to undergo structural change.21 As recently as 2005, mining accounted for less than 20 per cent of private sector investment, but by Q4 2011, the mining sector alone accounted for just over half of all new capital expenditures. 22 New capital expenditures in other sectors of the economy have remained relatively stagnant in recent years.23 Declining employment in the retail sector has been attributed to the high value of the Australian dollar (AUD), which has driven Australian consumers online to find better prices from foreign retailers.24 A favourable interest rate differential and strong terms of trade have been among the factors pushing up the value of the AUD. 25 A modest easing of both of these factorsthe value of the AUD and the terms of tradeis anticipated over the next two years.26 The Australian housing market has stabilised but remains relatively soft. 27 Australias population growth carries significant upside economic implications.28 In the short term, this includes a boost to domestic demand, including the housing sector.29 Longer term, foreign immigrants can help ease anticipated skill shortages in the labour market as aging workers retire.30

19 20 21

IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 31. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 5.

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 79-84. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 39-40.

22 23 24 25 26

Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012; IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 31. Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. Westpac, Market Insights, March 2012, p. 12. Westpac, Market Insights, March 2012, p. 12. Westpac, Market Insights, March 2012, p. 12.

27

28 29 30

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

2.

Global economy

Overview: Cautious optimism returned to the global economic outlook in Q1 2012. 31 Following a period of uncertainty and downgraded forecasts in the latter half of 2011, hopeful signs emerged in the early months of 2012, including upbeat indicators in the US and progress toward more predictable fiscal governance in Europe. 32 Business and consumer sentiment have improved broadly across advanced economies in recent months.33 The global edition of the Purchasing Managers Index (PMI) signalled firstquarter improvements in all-industry output and new orders.34 These positive developments will still not be enough to stave off a mild recession in the Eurozone. IHS/Global Insight forecasts the overall Eurozones economy to contract by 0.4 per cent in 2012, a slightly better outlook than had been expected three months earlier.35 Elsewhere in Europe, the UKs economy will continue to sputter in 2012, as austerity measures undertaken by the British government delay a full-blown recovery until later in 2013.

Exhibit 1: Real GDP growth

Outlook for selected countries
Real GDP % growth 10 9 8 7 6 5 4 3 2 1 0 -1 -2 2011p 2012f 2013f

United Kingdom

South Af rica

Australia

Indonesia

Japan

World

Russia

Canada

Eurozone

United States

Germany

Sources: IHS Global Insight, forecast series GDPR_A p = preliminary; f = forecast As of March 2012

Outside of Europe, many advanced economies will experience improving momentum during the year ahead. IHS/Global Insight forecasts Japan, the US, New Zealand, and Australia to experience a solid uptick in economic momentum in 2012. 36 Of these countries, however, Australia is the only one expected to surpass global economic growth in 2012. Many emerging markets will continue to outpace world economic growth, although the momentum in early 2012 has begun to soften in China, Hong Kong, and Singapore.37

31 32 33 34 35 36 37

Reserve Bank of Australia, Financial Stability Review, 27 March 2012, p.1. Reserve Bank of Australia, Financial Stability Review, 27 March 2012, p.1. Monthly Bulletin, European Central Bank, 7 March 2012, p. 7. Monthly Bulletin, European Central Bank, 7 March 2012, p. 7. IHS Global Insight, Current Forecast, 16 March 2012. IHS Global Insight, Current Forecast, 16 March 2012. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012.

New Zealand

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

China

Brazil

India

The global economys positive turn in the first quarter is not without obstacles in the months ahead. Labour and housing markets still face structural adjustments in many countries, and governments and households continue struggling to rebalance their budgets.38

Exhibit 2: Current fiscal balance vs. long-term growth

Outlook for selected countries
0.0 Germany
Fiscal Balance (average 2011-2013F)

world average long-term GDP growth 3.6% Indonesia China Australia Russia Brazil

-2.0 Eurozone 3% deficit limit

-4.0

South Af rica New Zealand India

-6.0 Canada -8.0 Japan United States United Kingdom

-10.0

-12.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Long-term economic growth (average 2015F-2040F)
Notes: f = forecast Sources: IHS Global Insight, forecast series GDPR_A and GBAL%GDP_A As of March 2012

Europe: Economic growth in the core European countries is forecast to be relatively flat in 2012, with most peripheral economies now in recession. 39 The Eurozone crisis challenged policymakers in 2011 with its unprecedented complexity and diversity of stakeholders. 40 Long-term policy measures unveiled by the European Central Bank (ECB) in late 2011 met with initial success in the first months of 2012.41 Sporadic but gradual progress toward a workable solution continues, with financial markets slowly gaining confidence in the process as it moves forward.42 Still, the overall risks to success remain high, with peripheral countries like Greece, Portugal, and Spain facing daunting challenges in the months ahead.43 US: The US economy exhibited signs of improvement in recent months across a range of indicators, including consumer spending, income growth, and employment.44 Lingering impediments to economic growth include rising petrol prices and a sluggish recovery in the housing market.45 In January, the US Federal Reserve announced baseline plans to hold interest rates at very low levels until late 2014.46 IHS/Global Insight forecasts U.S.

38 39 40 41 42 43

Monthly Bulletin, European Central Bank, 7 March 2012, p. 7. IHS Global Insight, Current Forecast, 16 March 2012. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90. Monthly Bulletin, European Central Bank, 7 March 2012, pp. 5-6. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90.

Westpac, Market Insights, March 2012, p. 14; and ANZ, Research Quarterly: Economics, Commodities, and Markets, Issue 7, Q1 2012, 21 March 2012, pp. 8-9.
44 45

Monthly Bulletin, European Central Bank, 7 March 2012, pp. 8-9. ANZ, Research Quarterly: Economics, Commodities, and Markets, Issue 7, Q1 2012, 21 March 2012, pp. 6Deutsche Bank, Global Economic Perspectives, 14 March 2012.

7.
46

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

economic growth of 2.1 per cent in 2012, with momentum continuing to build through 2014.47 China: Weaker external demand and a slowdown in the property sector have pushed Chinas economic growth into a path of deceleration in recent months.48 During Q1 2012, China announced plans to lower its official target growth rate to 7.5 per cent, the lowest level since 2005.49 The move signalled a tacit acknowledgement by the government that the rapid pace of growth in recent years is not expected to continue.50 Slower growth in China in the first half of 2012 is expected to remove some pressure from global commodity prices, at least in the short term.51 Longer term, Chinas economic growth should stabilise as the global outlook improves and as recent monetary easingincluding looser reserve requirementstake hold.52 Japan: The Great Tohuku Earthquake in March 2011 pushed Japan into recession for the rest of the year. While economic growth is expected to return in 2012, any initial signs of turnaround in the first quarter were faint. 53 Prices remain relatively flat, leaving the country on the cusp of deflation despite rising oil and electricity prices.54 At its February meeting the Bank of Japan (BOJ) set a target rate for inflation of 1%.55 Negative or mixed signals in the first quarter could also be seen in household spending, industrial production, exports, and the labour market.56 Stimulative spending on reconstruction is expected to provide a much needed boost to the economy in 2012.57 The BOJ also announced plans in February to expand its bond purchasing program by an additional JPY 10 trillion.58 India: Elevated consumer prices and interest rates squeezed y-o-y economic growth in India in Q4 2011 to 6.1 per cent, the lowest level in three years.59 Caught in a tough position, the Reserve Bank of India (RBI) faces a choice between a stimulative rate cut or an inflation-hedging wait-and-see policy.60 As of March, the RBI opted for the latter.61 A few signs began emerging in the first quarter that the countrys economic deceleration was easing and that business sentiment was improving.62

47 48 49 50 51 52

IHS Global Insight, Current Forecast, 16 March 2012. Monthly Bulletin, European Central Bank, 7 March 2012, p. 12. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, pp. 6-7. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, pp. 6-7. Westpac, Market Insights, March 2012, p. 14.

ANZ, Research Quarterly: Economics, Commodities, and Markets, Issue 7, Q1 2012, 21 March 2012, pp. 12-13. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, pp. 14-15. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, pp. 14-15. Monthly Bulletin, European Central Bank, 7 March 2012, pp. 9-10. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, pp. 14-15. Monthly Bulletin, European Central Bank, 7 March 2012, pp. 9-10. Monthly Bulletin, European Central Bank, 7 March 2012, pp. 9-10. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, pp. 10-11. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, pp. 10-11. Levine, Glenn, Rates on Hold in India, Moodys Analytics, 15 March 2012. Deutsche Bank, Global Economic Perspectives, 14 March 2012.

53 54 55 56 57 58 59 60 61 62

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

3.

Australian economy

Q1 2012 performance: Natural disasters put a dent in Australias export capacity in early 2011.63 A year later in Q1 2012 the economy was on track for 3.6 per cent y-o-y growth according to private sector consensus forecasts for the period.64 Headline indicators for business investment, industrial production, and exports have risen in recent months, providing hopeful signs for the year ahead. 65 Yet less sanguine indicators have also emerged. The most recent Westpac-Melbourne Institute index of leading indicators rose at a sub-trend rate of 2.6 per cent.66 Outside the mining industry, many other sectors of the economy remained weak, including residential real estate, tourism-related activities, and retail trade.67 Other downside risks loom large. External threats include the Eurozone crisis and economic deceleration in China.68 Australia is also experiencing structural changes in household spending and the housing market.69 In evaluating these developments, the RBA, chose to leave interest rates unchanged at its April 3 meeting.70 Outlook: All things considered, IHS/Global Insight forecasts GDP growth of 3.1 per cent in Australia for 2012, up from 2.0 per cent in 2011.71 The improving growth is attributed largely to Australian coal exports and to the base effects of post-disaster reconstruction.72 IHS/Global Insight also points out that the forecast would have been even stronger had external global conditions been more robust.73

Exhibit 3: Consensus forecast for Australian economic growth

Per cent change over same quarter of previous year
Real GDP % growth 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Q3 Q4 2010
Notes: f = forecast Sources: Consensus Economics, Asia Pacific Consensus Forecasts. As of March 2012

Q1

Q2

Q3 2011

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

2012f

2013f

In its March report, the global staffing firm Manpower reported that 24 per cent of Australian employers plan to hire workers in the second quarter of 2012 compared to just 11 per cent that plan to downsize.74 The seasonally adjusted net balance of +13 per cent was unchanged from the Q1 2012, but it is lower than levels reported in previous quarters

63 64 65 66 67 68 69 70

IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 34. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, p. 4-5. Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012, p. 4-5. Westpac, Bulletin, Leading Index points to lacklustre growth, 21 March 2012. National Australia Bank, Global & Australian Forecasts, 13 March 2012, pp. 8-19. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90.

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. IHS Global Insight, Current Forecast, 16 March 2012. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 31. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 31. Manpower, Employment Outlook Survey: Australia, Q2 2012

71 72 73 74

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

of 2011.75 Recent business confidence surveys and job advertisement volumes have also pointed to weak labour conditions in the first half of 2012.76

Exhibit 4: Outlook for hiring by Australian employers

Net balance of employers planning to increase hiring versus those planning to decrease

Net Balance Period Increase Decrease Actual Seasonally Adjusted

2012 2011

Q2 Q1 Q4 Q3 Q2

24% 23% 25% 26% 29%

11% 10% 9% 9% 6%

+13 +13 +16 +17 +23

+13 +13 +15 +18 +22

Notes: Seasonally adjusted and based on a representative national sample of 2,251 employers in the most recent quarter. Sources: Manpower Employment Outlook Survey: Australia, Q2 2012 As of March 2012

75 76

Manpower, Employment Outlook Survey: Australia, Q2 2012 IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 36.

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

4.

Australian drivers and challenges

Inflation: Australias consumer prices have decelerated in recent quarters following a spike in food prices in early 2011.77 The base effect of this spike is likely to bring the headline inflation rate lower in the first half of 2012, but the introduction of a carbon tax in mid-2012 will boost the rate again in the latter half of the year. 78 The RBA expects inflation to hold within the 2-3 per cent target range over the next two years.79 According to the RBA, a key aspect of Australias consumer inflation is the difference between tradables and non-tradables.80 The price of non-traded goods and services has risen briskly while the price of traded items has held more constant due to exchange rates.81 Any depreciation of the Australian dollar could thus add pressure to consumer prices.82 Credit and lending: Australian banks are in a relatively strong position, with limited direct exposure to the Eurozone crisis.83 Banks are well capitalised with generally conservative lending practices.84 With global funding conditions improving in early 2012, Australias larger banks have recently issued significantly more bonds.85 Banks have been eager to compete for deposits.86 Deposit growth has recently outpaced credit growth.87 Non-performing business loans remain a problem for some banks, and this is due largely to struggling sectors of the Australian economy that have benefited less from the resource boom.88 As Australian households have pulled back on spending, they have been quick to repay loans and increase their savings rate.89 An unexpected hike in lending rates in February impacted variable-rate home mortgages. 90 Any uncertainty with regard to interest rates is likely to exacerbate consumers recent hesitation to spend.91 Resources demand: In August 2011, the RBAs index of commodity prices reached its highest level since late 2008. 92 The index then receded through the next six months before turning upward again in March 2012.93 The index has held near or above 100 since early 2011.94

77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94

Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 37. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 85-90. Reserve Bank of Australia, Financial Stability Review, 27 March 2012, p. 2. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 32. Reserve Bank of Australia, Financial Stability Review, 27 March 2012, p. 2. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 37-43. Reserve Bank of Australia, Financial Stability Review, 27 March 2012, p. 2. Reserve Bank of Australia, Financial Stability Review, 27 March 2012, p. 2. Reserve Bank of Australia, Financial Stability Review, 27 March 2012, p. 2. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 5. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 5. Reserve Bank of Australia, Index of Commodity Prices (Table G5), 2 April 2012. Reserve Bank of Australia, Index of Commodity Prices (Table G5), 2 April 2012. Reserve Bank of Australia, Index of Commodity Prices (Table G5), 2 April 2012.

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

Exhibit 5: RBA index of commodity prices

Indexed to 140 2008/2009 = 100 120 100 80 60 40 20 2010-2012
Commodity prices recover in 2010 but plateau in 2011 as global economic outlook moderates

2008
Commodity prices spike, then collapse as the global economy falters

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Notes: index based on monthly averages; 2008/09 = 100 Sources: Reserve Bank of Australia (Table G5) As of March 2012

Rising prices and demand for commodities has driven investment in Australias mining sector. New capital expenditures for mining have been rising as a share of total private sector business investment for years.95 As recently as 2005, mining accounted for less than 20 per cent of private sector investment, but by the Q4 2011, the mining sector alone accounted for just over half of all new capital expenditures.96

Exhibit 6: Actual private new capital expenditures, mining as a share of total

Percent of total (%) 60% 50% 40% 30% 20% 10% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2005 2006 2007 2008 2009 2010 2011

Notes: Based on seasonally adjusted current prices. Sources: Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition As of December 2011

Since 2007, new private capital expenditures in the mining sector have nearly tripled.97 New capital expenditures in other sectors have remained relatively stagnant. 98 Businesses outside the mining sector have become increasingly reluctant to invest due to recent uncertainty about global economic conditions.99 The value of the Australian dollar has also put many of the trade-exposed non-mining industriesespecially manufacturing and tourismin a defensive position.100

95 96 97 98 99

Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 32. Hume, Neil, Boom in mineral wealth exploitation fails to mask Australias problems, Financial Times, 22

100

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

Exhibit 7: Actual private new capital expenditure, 2007 = 100

Indexed to 2007 = 100 350 300 250 200 150 100 50 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2005 2006 2007 2008 2009 2010 2011 Mining industry All industries except mining

Notes: index based on seasonally adjusted current prices indexed to 2007. Sources: Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition As of December 2011

Geographic divergence: The tilt toward mining investment at the expense of other industries also has a geographic aspect. Australia added 22,300 jobs over the 12 months ending in February 2012, according to the Australian Bureau of Statistics.101 This net gain masked a stark difference across states.102 Resource-rich Western Australia and Queensland added 53,400 and 25,500 jobs, respectively. 103 New South Wales and Victoria together shed more than 64,000 jobs over the same period.104

Exhibit 8: Australian employment by industry

Seasonally adjusted employment level as of February 2012
Change in the past 12 months Total (000s) Net (000s) Per cent (%)

New South Wales Victoria Queensland Western Australia South Australia Other states & territories Australia
Notes: Seasonally adjusted

3,598.4 2,848.0 2,340.7 1,266.9 819.0 571.0 11,444.0

-31.2 -33.6 +25.5 +53.4 +4.5 +3.7 +22.3

-0.9% -1.2% +1.1% +4.4% +0.6% +0.7% +0.2%

Sources: Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition As of February 2012

Foreign exchange: In Q1 2012, the AUD traded well above its historical rate for all major currencies. 105 This pattern has been consistent for some time across all major currencies except the Japanese yen.106 A favourable interest rate differential and strong terms of trade have been among the factors pushing up the value of the AUD.107

March 2012, p. 6.
101 102

Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition.

ANZ, Research Quarterly: Economics, Commodities, and Markets, Issue 7, Q1 2012, 21 March 2012, pp. 10-11.
103 104 105 106 107

Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Reserve Bank of Australia, Exchange Rates, (Table F11), 30 March 2012. Reserve Bank of Australia, Exchange Rates, (Table F11), 30 March 2012. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 39-40.

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

10

Exhibit 9: Comparative exchange rates

Units of foreign currency per A$
average monthly exchange rate since January 2011 long-term average since January 2000
USD / AUD CNY / AUD JPY / AUD EUR / AUD GBP / AUD

1.20 1.00 0.80 0.60 0.40 0.20 0.00

8 7 6 5 4 3 2 1

90 85 80 75 70 65

0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00

0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00

Apr-2011

Apr-2011

Oct-2011

Jan-2012

Oct-2011

Jul-2011

Jul-2011

Jan-2011

Oct-2011

Apr-2011

Jan-2012

Jan-2012

Jan-2011

Jan-2011

Jul-2011

Apr-2011

Apr-2011

Oct-2011

Jan-2011

Jan-2012

Jan-2011

Oct-2011

Jul-2011

Jul-2011

Notes: AUD (A$); USD (US$); JPY (); EUR (); GBP (), CNY (renminbi). Sources: Reserve Bank of Australia (Table F11) As of March 2012

The mining sector accounts for about two-thirds of Australian exports.108 While demand from Asia encourages investment in Australias resource sector, it also contributes to a skewed exchange rate which holds back much of the rest of the economy.109 The value of the AUD has proven especially sensitive to demand from China. In March, when BHP Billiton announced an anticipated slowdown in Chinese demand for iron ore, the AUD fell A gradual by 1 per cent in a single day against the US dollar and the euro. 110 111 depreciation of the AUD is widely expected over the short to medium term. Monetary policy: Uncertainty about interest rates in recent months has rattled Australian mortgage holders. Global economic conditions in late 2011 compelled the RBA to cut policy rates by a total of 50 basis points in November and December, but major banks were initially slow to pass this cut along to customers.112 Another cut in the policy rate was widely expected in February, but the RBA held steady at 4.25 per cent as global conditions improved. This time major banks, squeezed by wholesale funding costs and deposit competition, lifted interest rates a few basis points on variable-rate mortgages, even as the RBA left its policy rate unchanged.113 The RBA again left rates unchanged at its meeting in early April.114 IHS/Global Insight forecasts that the RBA will wait until the latter half of 2013 before starting a series of incremental hikes to adjust to a changing economic environment.115

108 109

IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 50.

Hume, Neil, Boom in mineral wealth exploitation fails to mask Australias problems, Financial Times, 22 March 2012, p. 6.
110 111 112 113 114

Keohane, David, Aussie comes under pressure, Financial Times, 21 March 2012, p. 22. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 38-39. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 41-42. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 41-42.

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012.
115

IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 40-41.

Jan-2012

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

11

Exhibit 10: Policy rates and inflation

Outlook for selected countries
Bank rates Inflation, % yoy

Banks Rates 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0

Inf lation % yoy 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0

2011

2011

2011

2011

2012F

2013F

2014F

2012F

2013F

2014F

2012F

2013F

2014F

2012F

2013F

2014F

2011

2012F

2013F

US
f = forecast As of March 2012

Eurozone

UK

Japan

Australia

Sources: IHS Global Insight, forecast series RMP_A and CPI_A

Retail trade: The Australian labour market displayed marked differences across sectors for the 12 months ending in February 2012.116 The mining sector added nearly as many jobs as the healthcare sector during this period, despite being less than one-fifth as large in terms of total employment.117 Other sectors experienced outright declines.118 One of The RBA recently these was retail, which lost 23,800 jobs during the period. 119 acknowledged that structural changes are underway across labour market sectors, and retail trade is clearly an area where this is occurring.120

Exhibit 11: Australian employment by industry

Seasonally adjusted employment level as of February 2012
Change in the past 12 months Total (000s) Net (000s) Per cent (%)

Health Care & Social Assistance Retail Trade Construction Manufacturing Professional, Scientific & Technical Services Education & Training Accommodation & Food Services Public Administration & Safety Transport, Postal & Warehousing Other Services Financial & Insurance Services Administrative & Support Services Wholesale Trade Agriculture, Forestry & Fishing Mining Rental, Hiring & Real Estate Services Information Media & Telecommunications Arts & Recreation Services Electricity, Gas, Water & Waste Services
Notes: Seasonally adjusted

1,349.5 1,208.6 1,019.9 971.2 888.4 863.9 745.7 742.1 549.9 474.8 423.1 404.4 397.5 334.3 249.7 225.0 224.0 200.0 153.8

+49.1 -35.4 -1.4 -23.8 +1.9 +19.3 -59.2 +34.6 -46.1 +28.6 +14.0 -5.1 -30.0 +7.8 +44.6 +23.2 +7.1 -8.1 +1.5

2014F

+3.8% -2.8% -0.1% -2.4% +0.2% +2.3% -7.4% +4.9% -7.7% +6.4% +3.4% -1.2% -7.0% +2.4% +21.7% +11.5% +3.3% -3.9% +1.0%

Sources: Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition As of February 2012

116 117 118 119 120

Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition.

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012; and Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 79-84. RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

12

At the surface, part of the decline in retail jobs seems to be broad changes in consumer behaviour, as high household debt burdens have encouraged consumers to save more and spend less.121 And in fact, the Westpac-Melbourne Institutes consumer sentiment index did fall sharply in March 2012 to a level below its long-term average.122 Looking at retail spending patterns over a longer period of time, however, a more complex picture emerges. Total retail sales volumes have actually risen steadily since 2009, but a few retail formats like department stores and clothing and footwear stores have fared poorly during this period.123 The RBA attributes the format-specific declines to the internet.124 At current exchange rates, Australian consumers can find better prices online from foreign retailers.125

Exhibit 12: Retail sales trends compared with foreign exchange trends
Monthly retail turnover by format (2009 = 100) vs. the USD / AUD exchange rate
2009 retail turnover index = 100 108 107 106 105 104 103 102 101 100 99 98 97 96 95 94

USD / AUD 1.15 1.10 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 0.45 USD / AUD (RHS)

Clothing, f ootwear, & personal accessory retailing (LHS) Department stores (LHS)

Jul-2009

Jul-2010

May-2009

May-2010

May-2011

Jan-2009

Jan-2010

Jan-2011

Jul-2011

Sep-2009

Sep-2010

Sep-2011

Nov-2009

Nov-2010

Notes: Exchange rate expressed as US dollars per A$; retail sales index based on monthly trend data Sources: Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition; Reserve Bank of Australia, Exchange Rates (Table F11) As of January 2012

Population & labour force trends: Since 2006, the natural increase of Australias populationthis is essentially the net difference between birth certificates and death certificateshas lagged immigration in total volume.126 For the year ending in June 2011, Australia added about 150,000 new residents through natural increase and another 170,000 through immigration.127 This trend carries significant economic implications.128 In the short term, it gives the countrys domestic demand an added boost, especially in the housing sector. 129 There are long term implications as well. Foreign students have contributed heavily to the surge in immigration over the past decade. 130 Meanwhile, structural shifts in Australias labour market have led to surplus labour in industrial sectors with labour deficits in high-skilled service occupations.131 Matching changing employer requirements with skilled foreign immigrants has potential to boost the economy in the long run. 132 This will be important since population projections indicate that aging
121 122 123

IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 35. Westpac, Bulletin, Consumer sentiment tumbles, 14 March 2012.

Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition; Reserve Bank of Australia, Exchange Rates (Table F11), 30 March 2012.
124 125 126 127 128 129 130 131 132

Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 79-84. Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 79-84. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition. Westpac, Market Insights, March 2012, p. 12. Westpac, Market Insights, March 2012, p. 12. Westpac, Market Insights, March 2012, p. 12. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 46-47. Westpac, Market Insights, March 2012, p. 12.

Nov-2011

Mar-2009

Mar-2010

Mar-2011

Jan-2012

Total retail turnover (LHS)

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

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Australian workers will need to be replaced by an ample supply of skilled labour in the years ahead.133

Exhibit 13: Annual components of population change

Net annual population change +500 +450 +400 +350 +300 +250 +200 +150 +100 +50 +0 Net immigration Natural increase (births minus deaths)

Notes: Based on summary of the four quarters ending in June of the stated year Sources: Australian Bureau of Statistics, Australian Economic Indicators, April 2012 edition As of June 2011

133

IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 46-47.

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

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5.

Infrastructure investment trends

For the year ending in Q1 2012, the total transaction volume for Australian infrastructure rose significantly over the same period ending in Q1 2012.134 According to Infrastructure Journals transaction database, closed transactions rose from a total of AUD 23.6 billion in the year ending Q1 2011 to a preliminary total of AUD 32.0 billion for the year ending Q1 2012.135 On a sector level, the deal market continued to be dominated by the transport and mining sectors. As of Q1 2012, these sectorseither alone or in combination accounted for 56.4 per cent of the infrastructure market, down from 66.2 per cent in the previous year.136

Exhibit 14: Distribution of closed infrastructure transactions by sector

Summary for the years ending 31 March 2012 and 2011.

Other 4% Power Mining 3% 4% Renewables 6% Oil & Gas 11%

Transport / Mining 29%

Other 6% Telecoms 1% Mining 23%

Transport / Mining 13%

Year to Q1 2012
Transport 24%

Year to Q1 2011
Power 15%

Transport 31%

Social & Defence 19%

Oil & Gas 7% Social & Renewables Defence 3% 1%

Notes: Infrastructure-related transactions attributed to Australia with status of financial close as of the dates shown; transactions include both project and nonproject finance Sources: Infrastructure Journal, transaction database As of 31 March 2012

134 135 136

Infrastructure Journal, transaction database as of 31 March 2011. Infrastructure Journal, transaction database as of 31 March 2011. Infrastructure Journal, transaction database as of 31 March 2011.

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

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6.

Scenarios
The global economy grows at a below-trend pace in 2012 but continues to improve.137 The European economy remains vulnerable in 2012.138 The US economy steadily improves in 2012.139 The Chinese economy moderates to a more sustainable growth rate in 2012 and beyond.140 Commodity prices stabilise at relatively high levels.141 European banks and peripheral sovereigns present challenges that require long-term solutions.142 Australias direct exposure is limited.143 Australian economic growth continues at close to trend.144 The AUD value weakens gradually and incrementally through 2013.145 Australias terms of trade ease modestly from relatively high levels.146 The Australian inflation rate stabilises in the target 2-3 per cent range through 2013.147 Interest rates for Australian borrowers hold steady.148 Australias industry sectors continue to undergo structural change.149 Australias unemployment rate remains stable, despite underlying changes in the labour market.150 Australias high levels of household debt continue to impact savings and spending patterns.151 The Australian housing market stabilises but remains relatively soft.152

Baseline

137 Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. 138 Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. 139 Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. 140 Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. 141 Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. 142 Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. 143 144

Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 91-98.

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012.
145 146 147

Consensus Economics, Asia Pacific Consensus Forecasts, 12 March 2012. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 31.

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012.
148 Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012.

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012.
150 Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012; and IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 31. 151 152

149

IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 31.

Reserve Bank of Australia, Statement by Glenn Stevens, Governor: Monetary Policy Decision, 3 April 2012. RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

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Downside A worsening of the Eurozone crisis impacts Australian banks by increasing the cost of funding in global markets.153 Weaker external demand for Australias commodity exports reduces the short-term economic outlook.154 High levels of household debt along with uncertainty about interest rates for variablerate mortgages further dampens Australias consumer spending.155 Over the long term, the Australian economy lacks the skilled labour it needs to sustain trend economic growth.156 Increasing frequency of natural disasters becomes a concern for business investors.157

Upside Inflation remains well under control, giving the RBA considerable flexibility with monetary policy.158 A boost in labour productivity offsets age-related turnover in the workforce and also counters the high value of the AUD.159 Labour force participation gets a boost from creative government policies to encourage more workers and to reduce structural unemployment.160 Substantive education reforms pave the way for a higher skilled labour force over the longer term.161 Greater market competition for infrastructure services raises economic growth prospects.162 Ongoing tax reforms bring the corporate tax rate more in line with peers in advanced countries, thus encouraging greater foreign investment across economic sectors.163 Ongoing tax reforms include tax incentives to boost household savings, adding a degree of permanence to recent shifts in saving and spending patterns.164 Ongoing tax reforms focus heavily on the financial sector, with aims to (1) reduce bank funding costs; (2) phase out withholding taxes for foreign banks; and (3) simplify cross-border transactions.165 As a result, Australia emerges as a more competitive financial hub for Asia.166 Interest rates abroad surge, reducing Australias differential advantage. The AUD loses value somewhat faster than expected, allowing other sectors of the Australian economy to rebalance and become more competitive.167 A looming capacity shortage in the power sectors of some states is met by creative investments in renewable energy.168 Australia strengthens and deepens its integration with emerging Asia.169

153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169

Reserve Bank of Australia, 2012 Q1 Bulletin, 15 March 2012, pp. 91-98. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 2. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 5 and 51-52. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 36. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 10. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp.13 and 51. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 52. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 52. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 52. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 52. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, pp. 9 and 54. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 43. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 43. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 43. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 13. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 49. IHS Global Insight, Australia: Country Intelligence Report, 22 March 2012, p. 51.

RREEF Infrastructure Australian Infrastructure Market Update | First Quarter 2012

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7.

Important Notes

2012. All rights reserved. RREEF Infrastructure is part of RREEF Alternatives, the alternative investments business of Deutsche Asset Management, the asset management division of Deutsche Bank AG offers a range of real estate investment strategies, including: core and value-added and opportunistic real estate, real estate debt, and real estate and infrastructure securities. In the United States RREEF Infrastructure relates to the asset management activities of RREEF America L.L.C., and Deutsche Investment Management Americas Inc.; in Germany: RREEF Investment GmbH, RREEF Management GmbH and RREEF Spezial Invest GmbH; in Australia: Deutsche Asset Management (Australia) Limited (ABN 63 116 232 154) an Australian financial services license holder; in Japan: Deutsche Securities Inc. (For DSI, financial advisory (not investment advisory) and distribution services only); in Hong Kong: Deutsche Bank Aktiengesellschaft, Hong Kong Branch (for RREEF Real Estates direct real estate business), and Deutsche Asset Management (Hong Kong) Limited (for RREEF Real Estates real estate securities business); in Singapore: Deutsche Asset Management (Asia) Limited (Company Reg. No. 198701485N); in the United Kingdom: Deutsche Alternative Asset Management (UK) Limited, Deutsche Alternative Asset Management (Global) Limited and Deutsche Asset Management (UK) Limited; in Italy: RREEF Fondimmobiliari SGR S.p.A.; and in Denmark, Finland, Norway and Sweden: Deutsche Alternative Asset Management (UK) Limited and Deutsche Alternative Asset Management (Global) Limited; in addition to other regional entities in the Deutsche Bank Group. Issued and approved in the United Kingdom by Deutsche Alternative Asset Management (UK) Limited, Deutsche Alternative Asset Management (Global) Limited, and Deutsche Asset Management (UK) Limited of One Appold Street, London, EC2A 2UU. Authorised and regulated by the Financial Services Authority. Key RREEF research personnel are voting members of various RREEF Infrastructure investment committees. Members of the investment committees vote with respect to underlying investments and/or transactions and certain other matters subjected to a vote of such investment committee. Additionally, research personnel receive, and may in the future receive incentive compensation based on the performance of a certain investment accounts and investment vehicles managed by RREEF Infrastructure and its affiliates. This material was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. It is intended for informational purposes only. It does not constitute investment advice, a recommendation, an offer, solicitation, the basis for any contract to purchase or sell any security or other instrument, or for Deutsche Bank AG or its affiliates to enter into or arrange any type of transaction as a consequence of any information contained herein. Neither Deutsche Bank AG nor any of its affiliates gives any warranty as to the accuracy, reliability or completeness of information which is contained in this document. Except insofar as liability under any statute cannot be excluded, no member of the Deutsche Bank Group, the Issuer or any officer, employee or associate of them accepts any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage whether direct, indirect, consequential or otherwise suffered by the recipient of this document or any other person. The views expressed in this document constitute Deutsche Bank AG or its affiliates judgment at the time of issue and are subject to change. This document is only for professional investors. This document was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. No further distribution is allowed without prior written consent of the Issuer. An investment in infrastructure involves a high degree of risk, including possible loss of principal amount invested, and is suitable only for sophisticated investors who can bear such losses. The value of shares/ units and their derived income may fall or rise. Any forecasts provided herein are based upon RREEFs opinion of the market at this date and are subject to change dependent on the market. Past performance or any prediction, projection or forecast on the economy or markets is not indicative of future performance. The forecasts provided are based upon our opinion of the market as at this date and are subject to change, dependent on future changes in the market. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. Certain RREEF investment strategies may not be available in every region or country for legal or other reasons, and information about these strategies is not directed to those investors residing or located in any such region or country.

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