The past quarter has seen a lot of turmoil on the markets, with record highs and severe corrections followed by new records highs, all in quick succession. September, though, has consisted of a virtually uninterrupted recovery, lead by heavyweight global miners Anglo American and BHP Billiton and ably assisted by the rest of the resource sector. Still lagging are the financial and industrial sectors, with especially financials offering cheap valuations and significant upside potential. Should the anticipated positive revaluation of banking stocks with their large market capitalisations occur, the market index is likely to continue exploring new ground to the upside. Industrial stocks, excepting credit retailers, have been remarkably resilient through the recent volatility, and are set to continue their stable, moderately rising trend, despite as a group not being particularly attractively valued.Of course, the subprime crisis has not necessarily been entirely resolved, and further potential fall-out from either the financial crisis or the weakening US housing market could still derail the global stock market recovery. Nevertheless, given the incredible potential of the Chinese (and, further down the line, Indian) economic growth engine, allied to domestic attempts to make up for years of underinvestment in infrastructure, the opportunity cost of underexposure to equities is likely to be punitive.

The sector changed from Domestic- Asset allocation- Prudential High Equity to Domestic- Asset Allocation- Prudential Variable equity on 12/10/2007. It retained it's history.

In spite of the early-month nastiness, March 2007 ended up on a rather pleasant note for equity investors, with the local market gaining 6.1% for the month and improving on the all-time by 1.26%. A number of buing opportunities presented themselves in the equity markets, and we were fortunate enough to capitalize on these by virtue of not being fully exposed to equity at the start of the month. The equity allocation in the portfolio has since been increased to the Regulation 28 prescribed limit of 75%, with 15% of the total portfolio being allocated to foreign equities. The major global bourses are still to recover fully to the highs of late February, thereby offering a significant buying opportunity in our view. Equity remains our preferred asset class for the time being, followed by cash, listed property and bonds. We see significant risk in the domestic interest rate enviornmnet, and are therefore loath to carry too much exposure to interest-rate sensitive securities like credit retailers, banks, listed property and bonds.

The JSE had another stunning year: the broad market gained almost 38%, driven by strong domestic and international economic growth, massive demand for South Africaís bountiful mined commodities, and a sizeable weakening in the rand. 2006 was dominated by two trends that have been pre-occupying the thoughts of worldwide macro-economic analysts for a while: the anticipated slowdown in the US economy (in particular in the US housing market), and the continued rapid growth of resource hungry China, India and others in the eastern region. This translates into a healthy local investment environment for South Africans, albeit that valuations are historically high. It is logical to suppose that value style investing will have an advantage over growth; however, both should yield wealth-enhancing results over the next year.