Global equity markets enjoyed their biggest gain of the year so far with the MSCI $ World Index rising 3.4% in July. Solid economic data from the US, strong company earnings reports, further M&A activity, a revaluation of the Chinese currency combined to offset investor concerns over terrorist attacks in London and crude oil prices hitting record highs.

Equity markets rose for a third consecutive month despite crude oil hitting new record highs and terrorist bombings in London on 7 th July. These potentially market damaging events were largely ignored by investors who chose instead to focus on a set of generally strong earnings results, ongoing M&A activity, positive economic data from the US and Europe, and a revaluation of the Chinese currency.

Over the month the MSCI $ World index rose 3.4%, its best monthly performance since last December, with the Emerging Markets the strongest region with a gain of 6.6% in US $ terms. Japan was the weakest region for a second consecutive month with a 1% gain in US $ terms. This relatively poor performance came after a number of earnings warnings from bellwethers such as Canon and Sony, and on uncertainty as to the future of Prime Minister Koizumi.

In the foreign exchange markets the US dollar continued its recent strong run against sterling and the yen, but was barely moved versus the euro. Against this backdrop the ABSA International fund underperformed its benchmark, the rand adjusted MSCI World Index, with a return of 1.3% versus 1.8%.

Despite some negative developments such as terrorism and high Oil prices the key drivers of equities continue to be supportive and with the Global PE ratio at a 20 year low we remain confident that there is more steam left in this equity market rally.

Equity markets were weaker for a second consecutive month as investors became increasingly nervous on the prospects of future economic growth. A number of high profile earnings warnings, predominantly from US companies, added to the sense of unease. The MSCI $ World Index fell 2.4% in April.

Amidst the turmoil in the equity markets it came as no surprise that fixed interest markets performed well with the 10 Year US treasury climbing 2.7% over the month and the Citigroup World Government Bond Index adding 1.5%.

In terms of regional performance, Continental Europe was the worst performing major market with a fall of 4% in US $ terms, while the relatively defensive UK was the best performer with a 1.2% fall, also in US $ terms.

There was little excitement in the foreign exchange markets with the US dollar falling 1.9% versus the yen and 1.1% against sterling. Against this backdrop the ABSA International Fund underperformed its benchmark, the rand adjusted MSCI World Index, falling 5.8% versus a drop of 4.2%.

On a longer term view we still see equities as the most attractive asset class with the ability to generate good real returns, especially from these valuation levels. However, the summer months are traditionally the weaker period of the year and investors may well sit on the sidelines until there is more clarity on the questions of growth, Oil and interest rates.

Equity markets were weaker in March with the MSCI $ World Index falling 2.2% over the month as investor perception of risk appeared to change significantly over the month. Fear of inflation was the main reason for the increase in risk perception, but there were other additional contributing factors including record oil prices, General Motors/credit market contagion fears, and a sharp rise in bond yields.

One of the related key themes over the month was the unwinding of the US dollar carry trade which had resulted from the recent US expansionary monetary policy. Investors had been able to take advantage of low nominal interest rates and the outlook for a weakening US dollar to borrow in the US and put the funds to work in European and emerging market equities, commodities and distressed debt. However, as credit spreads have fallen and risky assets have risen, carry traders have had to take on increasing risk for diminishing potential returns. Against this backdrop the ABSA International Fund outperformed its benchmark, the rand adjusted MSCI World Index, falling 0.2% versus a drop of 0.6%.

US equity markets were weaker as the threat of higher inflation and the rise in oil prices dampened investor enthusiasm. However, towards the end of the month stocks rallied to record their best one-day performance of the year as falling crude prices and as some positive corporate news bolstered the bulls in the lead up to the end of the first quarter.

Elsewhere in the Dow, American International Group was another notable casualty. Shares in the world's biggest insurer fell after its Chief Executive Maurice "Hank" Greenberg retired from his post at the beginning of the month amid an increase in regulatory scrutiny. Shares in AIG fell 17% in March.

Equity markets bounced back in February with the MSCI $ World Index rising 3%. The rally came about despite a surge in oil prices, with late cyclical stocks outperforming on the back of a perceived pickup in global economic growth

In terms of regional performance, the Emerging Markets were the best performing major region with a gain of 8.6% in US $ terms. The US was the worst performing major region with a gain of only 1.9%.

In the foreign exchange markets, the US dollar's performance was mixed. The currency fell 2% versus sterling and 1.8% versus the euro, but strengthened 0.8% against the yen.

Against this backdrop the ABSA International Fund slightly underperformed its benchmark, the rand adjusted MSCI World Index, falling 0.1% versus a gain of 0.4%.

Global equities were stronger in February as investors returned to markets, buoyed by the prospect of further economic growth. Emerging Markets was the best performer over the month with a return of 8.6% while the US brought up the rear with a gain of only 1.9%

In our view, on a historic price earnings ratio of 17.5X, equities still have upside in 2005, even allowing for higher bond yields. Companies are generating surplus cash flow at a record rate and we expect this to lead to higher capex, higher dividend growth, share buybacks and a continuation of the recent pick-up in mergers and acquisitions. These are all positive influences on the market.

Equity markets started the year on a weak note with the MSCI $ World Index falling 2.3% in January, the first negative monthly return since July last year. Investor malaise was attributed to profit taking after the strong market close in 2004, and a sharply higher oil price also revived fears of a global economic slowdown.

In terms of regional performance, Asia Pacific was the best major performer with a gain of 0.5% in US $ terms. The worst performing major regions were the US and Continental Europe which both fell 2.6% in US $ terms over the month. However, in local currency terms Continental Europe enjoyed a strong performance with the MSCI Europe excluding UK Index rising 1.7% in euro terms.

In the foreign exchange markets, the recent US dollar weakness came to an end with the currency climbing 4% versus the euro, 1.8% versus sterling and 1% against the yen.

Against this backdrop the ABSA International Fund outperformed its benchmark, the rand adjusted MSCI World Index, gaining 4.7% versus 3.2%.

In the short term, economic news will dominate the markets. The ECB and the Federal Reserve will meet in the first week of February to decide whether to change interest rates and on Friday 4 th the January employment report will be published. The bond and currency markets will be especially sensitive to these events as well as the G7 meeting of Finance Ministers and Central Bankers. As ever we endeavour to guide the fund through the short term variations in markets whilst keeping an eye on the important longer term drivers.

Equity markets ended the year on a strong note with the MSCI $ World Index rising 3.7% in December and 13% for the year. The Boxing Day earthquake and subsequent tsunami in Asia was viewed as primarily a human disaster and equity markets were largely unaffected by the tragic event. The other main influences over the month were the continuing slide in oil prices, further weakness in the US dollar and a marked increase in M&A activity.

A year-end rally in global financial markets ensured 2004 closed on a high note. A 12% slump in oil prices helped lubricate the equity markets over the month and even the tragic events in Asia towards the end of the month were unable to de-rail the surge. The MSCI $ World Index rose 3.7% in December, its second-best monthly performance of the year after November's 5% gain.

For 2004, the MSCI $ World Index rose 13%, the second best performance in the last five years.

In terms of regional performance, Japan was the best performer in both US $ terms and local currency terms, up 5.1% in US $ and 4.8% in yen respectively over the month. The worst performing major region was the UK which still managed to rise 3.1% in US $ terms over the month.

In the foreign exchange markets, the US dollar weakness continued over the month, with the currency falling 2.3% versus the euro. Sterling was the other main casualty on the back of weak housing data and the pound slipped 1.8% against the euro.

Against this backdrop, the ABSA International Fund outperformed its benchmark, the rand adjusted MSCI World Index, not moving over the month versus a drop of 0.9%.

We remain positive on equity markets going forward into 2005. Valuation levels are reasonable and economic data, whilst slowing from the heady growth rates of 2004, are likely to remain solid. The fund has an underweight position in the US and, although the US Dollar may bounce short-term from oversold consensus positions, we believe the downtrend remains intact and therefore retain our cautious stance on the region for the time being.