Equity markets bounced back in the third quarter of 2012, led by a strong rally in Europe. The MSCI World Index returned 6.8% over the quarter, effectively eliminating the losses posted in the second quarter. The catalyst for this rise was the anticipation of continued government and central bank intervention which was confirmed toward the end of the quarter. In the USA, the Federal Reserve announced its intention to continue its current policy rate guidance of 0.0% to 0.25% until the middle of 2015, while the Federal Open Market Committee announced a purchase program of at least $40 billion per month of Agency mortgage-backed securities. The European Central Bank made clear its intention to keep the euro intact, while announcing a detailed plan to purchase eurozone sovereign bonds in the secondary market. Further stimulatory plans were also announced in China and Japan. The future implications for inflation and growth in the light of this desperate intervention remain uncertain, but worrying. The political tensions in the Middle East are also of concern as Israel calls for a definite "red line" to be drawn with respect to nuclear development in Iran. Global sovereign bond yields were volatile during the quarter, initially declining before assuming an upward trajectory as investors gained in confidence, abandoning the so-called safe haven of bonds in pursuit of the perceived attraction of riskier assets such as equities. The inflation risk referred to above and in previous reports has largely been ignored by bond markets, reflecting the view that this potential problem is still some way off. As the global economy continues to stumble along, we retain our belief that the recovery will be a slow and gradual one, causing us to retain our cautious stance. That said, we will continue to take advantage of opportunities as they arise.

The second quarter of 2012 proved to be negative for global equity markets, the MSCI World Index reflecting a total return of -5.1% in US Dollar terms. Greece remained in the spotlight as the deliberations over whether or not to accept the conditions surrounding the second bailout of EUR 130 billion failed to reach a conclusion and were delayed until after the June elections. The resulting coalition, which is led by the New Democracy Party, will hopefully be able to put the required reforms in place. Spain, too, put its hand up as assistance of EUR 100 billion to bolster its banking system was sought. Some progress was made on both of these fronts in June al-lowing markets to recover some of the losses made in April and May. Also helping was the announcement by the US Federal Reserve (the Fed) that the current policy rate guidance of 0.0% to 0.25% is expected to remain in place until late 2014. The Fed also announced an extension of Operation Twist, the program whereby it has been purchasing long dated Treasury securities, funded by the sale of short dated Treasury securities, in an attempt to increase liquidity. The job market, however, remained subdued while consumer sentiment weakened, indicating that the recovery remains a long and drawn out process.

The "risk off" trade was back in vogue during the quarter, resulting in the yield on ten year US Treasuries falling to unprecedented lows during the quarter before settling at 1.66% at quarter end, still significantly down from the yield of 2.21% at the end of Q1 2012. While inflation remains in check, the rapidly rising corn price does raise concerns about the follow on impact on food inflation.

As the global economy continues to stumble along, we retain our belief that the recovery will be a slow and gradual one, causing us to retain our cautious stance. That said, we will continue to take advantage of opportunities as they arise.

Global equity markets across the board rose for the third consecutive month in 2012, although for the first few days of March this certainly did not look like it would be the case. A palpable change in sentiment was, however, evident toward the end of March. Although the ECB has previously extended the view that economic activity in the region appears to be stabilising, markets remain nervous about financial stability in the peripheral countries. Although the second EUR130 billion bailout of Greece has been agreed, there is a growing disquiet that this may still be inadequate. Spain too, is firmly in the spotlight as that fiscal position is closely monitored. Inflation continues to be closely monitored, but it is unlikely that this measure will run rampant in the medium term. Yields on government bonds rose sharply in the middle of the month before falling back to close the month only slightly higher than the opening levels as the "risk off" trade seemed to be back in vogue. Even as the global economy continues to show signs of recovery, we believe that it is likely to be a slow and gradual one, causing us to retain our cautious stance. That said, we will continue to take advantage of opportunities as they arise.

The last month of the year continued the pattern of volatility that has been seen pretty much since May, with the MSCI World Index closing at levels very much unchanged from the opening levels for the month, although well off the low point seen during December. Despite numerous meetings, little headway seems to have been made in the task of finding a solution to the precarious debt situation in which many Euro zone countries find themselves. The USA remains of concern, although good corporate earnings and better than expected employment numbers may herald the prospect of a better 2012. Food prices remain on an upward trajectory, which will obviously be negative for inflation, but it is unlikely that this measure will run rampant in the medium term.

The uncertainties emanating from Europe and the USA again led to the "risk off" trade, causing a marked decline in yields on government bonds as investors rushed to this perceived safe haven.

As the global economy remains on the back foot, we continue to retain an element of caution in our positioning, continuing to view the market as one in which careful stock picking will be of paramount importance. This said, we do believe that more opportunities will raise their heads in 2012.