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 The fund invests primarily in Australian equities.
 
•
 Investors may suffer substantial loss of their investments in the fund.
 
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The fund may be subject to concentration risks of investing in a single or in a limited number of
market(s) or sector(s).
 
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The investment decision is yours. Before you decide to invest, you should make sure the intermediary has explained to you that the fund is suitable to you.
 
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Investor should not invest in the fund solely based on the information provided in this document and should read the prospectus for details (including potential risks involved).
     
   
 
Optimism For Australia

At a time of global recession and risk aversion, Australia appears poised to emerge in a position of relative strength as one of the world’s bestperforming markets in the worldwide downturn, as shown in diagram 1. Australia outperformed both the developed markets and the emerging markets over the last 10 years, and is the only developed market that has not recorded a negative year-end growth rate or drop in export volume as a result of the worldwide financial tsunami.
 
     
  Diagram 1 :
Australia vs. Developed World vs. Emerging Market Performance over 10 years to 31 October 2009		  
   
     
 

Strong financial position amongst developed markets around the world

Australia maintained an advantage during the worldwide financial crisis due to its government’s net cash position and large budget surplus, virtually unique in a developed market where deficits are the norm. This allowed the government to stimulate the economy by reducing taxes without taking on debt. Apart from this, Australia’s interest rate was as high as 7% before the crisis. That allowed room for the Reserve Bank of Australia to significantly reduce rates to around 3% in early 2009. Since 70% of Australians are home owners1, the reduction of interest rates brought further stimulus by effectively increasing disposable incomes. This has helped to enhance Australians’ willingness to spend.

Another contributor to Australia’s positive economic outlook is its growing trade links with Asia. As shown in diagram 2, over the past 12 months, 55% of Australia’s total exports have gone to its four main Asian trading partners, China, Japan, South Korea and India (the US placed fifth, after ranking second just six years ago), and Asia as a whole accounted for around 70% of Australia’s exports2.

  
     
  Diagram 2: Merchandise Exports by Destination*  
   
 

Economic Drivers

Structural underpinnings are crucial to Australia’s economic resilience, and are the main reason for the stable and consistent return the Australian market offers to investors. Australia’s outperformance can be attributed to three key drivers:

Population growth
Markets that do well in the long-term tend to be “new world” countries with strong population growth. Over the past year, it is estimated that the Australian population increased by 2.1% mainly due to immigration and high birth rates. This is a stark contrast to almost all of the advanced economies where population growth has averaged around 0.5% over recent years. This population growth drives demand for homes, education and domestic consumer goods, and is expected to continue over the next 10 years.

  
     
 
An excellent natural resource base
Australia benefits from mineral resources that are both plentiful and low in cost. Australia’s iron ore, for example, can be pulled out of the ground at a cost of USD20 per ton, compared with USD100-150 in India or China . Economies of scale, logistical efficiency and access to coastal transport further enhance profit margins, and allow Australia’s mining companies to maintain production whether the price of iron ore is high or low.
  
 
 
 
Quality companies with excellent dividend yield
Australian market is nearly double that of other markets, thanks to its tax system that eliminates the double taxation of dividends, thereby significantly reducing the amount of tax paid by investors. Since margins are building up very quickly again as revenues increase well ahead of costs now, it is expected that the profitable Australia companies will be able to maintain high-dividend yields that are particularly attractive in a low-interest rate environment.
  
     
 

Fidelity Funds – Australia Fund

Fidelity Funds - Australia Fund has outperformed the benchmark over various periods since its inception in 1991, as shown in diagram 3. Since the current portfolio manager – Paul Taylor took over management of the fund in December 2004, the fund has outperformed the benchmark by 14.2%.

In an environment of higher interest rates and the possibility of slowing global growth, emphasis is placed on stocks that demonstrate structural rather than cyclical growth through solid, quality, strong cash-flow businesses and strong corporate fundamentals. Given the current economic environment, Mr Taylor favours the retail sector and resource stocks, along with non-residential construction, firms servicing resource companies, diversified financials and healthcare stocks.

  
     
  Diagram 3 : Fidelity Funds – Australia Fund performance  
   
 
Conclusion
While there is still much uncertainty about how the world economy will evolve over the coming years, Australia finds itself in a better position than most of the other developed markets. This reflects not only a record of sound macroeconomic management, but also its considerable endowment of natural resources. With economic prospects more closely linked with those of Asia than ever before, as well as high levels of population growth and quality companies, Australia appears to have all the ingredients to help sustain its strong relative performance potential in the year ahead.
  
     
 
1
 Source: Australia Bureau of Statistics, June 2009.
2
 “The Growth of Asia and Some Implications for Australia,” a talk by Philip Lowe, Assistant Governor (Financial System) of the Reserve Bank of Australia, at the Citi Australia Inaugural Australian Investment
Conference in Sydney on 19 October 2009.
 
     
 
FIL Limited, established in Bermuda, and its subsidiaries are commonly referred to as Fidelity or Fidelity International. Fidelity only gives information about its products and services. Any person considering an investment should seek independent advice on the suitability or otherwise of the particular investment. Investment involves risks. Past performance is not indicative of future performancePlease refer to the Fidelity Prospectus for Hong Kong Investors for further information including the risk factors. If investment returns not denominated in HKD or USD, US/HK dollar-based investors are exposed to exchange rate fl uctuations. This material is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Futures Commission (“SFC”). Fidelity, Fidelity International, and Fidelity International and Pyramid Logo are trademarks of FIL Limited.
 
     

 
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