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Reeling market to post 26-year record slump -

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ELEANOR HALL: Today is the last day of what has been a turbulent financial year. And when the
sharemarket closes this afternoon, few investors will be celebrating.

The Australian market is set to post its worst slump in 26 years as it continues to reel from the
global credit crunch and the spiralling oil price. Business editor Peter Ryan has our report.

PETER RYAN: By the time the sharemarket closes this afternoon the index of Australia's top 200
companies, known as the ASX 200, will have lost around 16.5 per cent, adding up to the worst year
since 1982.

The month of June will also rewrite history with the biggest slump since 1940, not quite as bad as
in the United States, where it's the worst June since the Great Depression.

So not surprisingly fund managers who are paid big money to make big money have no choice but to
tell it as it is.

SHANE OLIVER: Well effectively we've had what might be likened to a perfect storm for the

PETER RYAN: Shane Oliver, chief economist at AMP Capital Investors, is making no excuses.

But like everyone else in the business, he's been riding a wave of global volatility, and some of
the waves have been dumping.

SHANE OLIVER: We've had the subprime mortgage crisis in the US, which has turned into a credit
crunch, which of course is still continuing. On top of that we've had the huge surge in oil prices.
And of course locally we've had an underlying rise in inflation as well, which has led to much
higher interest rates.

So, we've had this worst of all possible combinations for shares of slowing growth, worries about
profits, but at the same time, high inflation and higher interest rates.

PETER RYAN: The credit crisis, which almost claimed the Wall Street bank Bear Stearns, has led to
months of fear and suspicion, with banks too scared to lend to each other.

And Australian banks haven't escaped. They responded with interest rate hikes independent of the
Reserve Bank to cover the higher cost of money.

But while bank shares have suffered the most, Shane Oliver says it's not all bad news.

SHANE OLIVER: The strongest performing sector has of course been the resources sector with huge
gains in many of the resources stocks. In fact, overall, the resources index is up by more than 20
per cent and of course that contrasts with banking and financial stocks which are down about 35 per
cent, and consumer discretionary stocks which are down by over 40 per cent. So a huge divergence
between the resources sector on the one hand, and the financial and consumer-related stocks on the
other hand.

PETER RYAN: While professional investors have been burnt, ordinary Australians with an indirect
sharemarket exposure through superannuation funds, also face negative returns - the worst since
1987-88 in the wake that particular sharemarket crash.

ANDREW BOAL: This year's going to be a year of quite bad returns. For the month of June, which
isn't quite over yet, it's looking like the Australian sharemarket is going to be returning about
minus seven per cent, and that means for many superannuation funds, the return is going to be
somewhere between minus six or seven, and even minus 10 per cent in some cases.

PETER RYAN: Andrew Boal is the Australian managing director of the global superannuation advisor,
Watson Wyatt.

With retirement incomes in the hands of stockpickers, there's the question of: how good are they?
With an admission from AMP's Shane Oliver that most failed to predict the market carnage.

SHANE OLIVER: The slump in superannuation returns that we have seen over the last 12 months has
come as a surprise to most commentators. If you go back a year ago, most commentators thought that
super returns would certainly slow down after four very, very strong years. That's certainly the
bulk of them weren't anticipating a slump of this magnitude.

PETER RYAN: The upside is that many shares are now seen as attractively cheap, with losses pushed
higher by end of year tax loss selling.

But those predictions are made in the context of more rough and uncertain times ahead, increasingly
bleak economic news and dozens of earnings downgrades expected in the new financial year.

ELEANOR HALL: Business editor Peter Ryan.