During the course of September world equity indices experienced generally good news from both developed and emerging markets. As a result the world chalked up the best returns for a September (traditionally a poor month for equity returns) month in almost 80 years. Some of the PIGS countries held very successful bond auctions (Portugal, Ireland and Greece). In fact, some of them hugely oversubscribed. Yields were higher (of course!) than the last sales but the oversubscription of these auctions - even if buyers were other European countries and even the European Central Bank - allayed fears of a European meltdown starting with the heavily indebted countries. Generally emerging markets are going through a period in which they attract a lot of international investments. Such capital flows has strengthened a number of (mostly emerging) currencies to a point where various central banks have endeavoured to intervene in markets with the view of reducing the value of their currencies. Lately this has been called the "global currency war" because many countries strongly feel that a weaker exchange rate makes their exports cheaper (this is what China and the USA often duel about). Over and above the general period of good news and strong equity markets, South Africa has also been the beneficiary of strong capital flows to the JSE. During 2010 (to 26 September) a total of almost ZAR 102 billion were allocated to purchases of South African Assets (bonds ZAR 73 billion and equity ZAR 19 billion).

We are of the opinion that the importance of developed economies in the manufacture of world equity market sentiment will diminish while the power of the emerging countries to influence investor's sentiment internationally will increase. During the next 24 (or so) months the effect of the relative health and growth potential of Brazil, Russia, China and India (as well as a number of other emerging economies of which we are not the least) will become more important players in the manufacture of investor's (equity market) sentiment. The very large numbers of US dollars, Sterling and Euros made available to those markets combined with slower economic growth in the developed world will strengthen the emerging currencies and their role in world matters and markets.

In addition, inflation and interest rates will remain low. This creates a healthy environment for equity markets. The positive economic growth in emerging countries will further stabilise and motivate equity markets.

Although the fund is classified in the Asset Allocation Variable Equity sector, the fund has been fairly fully invested in equities over the last three years. This is clear from the comparison in the performance table above, which shows that the fund did not perform significantly different from the benchmark (75%Alsi 40 and 25% SA repo rate) over the three year period ending April 2010.

It is our opinion that the international equity markets will be driven by the following factors this year: Low inflationary pressure in the first world. This should translate to low interest rates for the foreseeable future. The latter will do much to maintain the positive environment in which we have seen the strongest equity rally in living memory. Central Banks everywhere will be very careful of changing the current accommodation phase until they are sure that the various economies and banking systems can grow at a thrifty pace in less friendly environments. A lot of cash world-wide will be looking to generate returns because interest rates are very low. While the speed of the current economic upturn in the developed nations may slow in 2011, the recovery in developing (emerging) economies seems to remain strong. We are of the opinion that the importance of developed economies in the manufacture of world equity market sentiment will diminish while the power of the emerging countries to influence investor's sentiment internationally will increase. Growth of 3.2% is predicted in South Africa.

During 2010 international equity markets drivers mentions above, the following two factors will play a leading role in equity markets during the next number of months. Inflationary pressures in the first world are low. This should translate to low interest rates for the foreseeable future. The latter will do much to maintain the positive environment in which we have seen the strongest equity rally in living memory. Central Banks everywhere will be very careful of changing the current accommodation phase until they are sure that the various economies and banking systems can grow at a thrifty pace in less friendly environments. The latter two is probably While the speed of the current economic upturn in the developed nations may slow in 2011 (more about this next time), the recovery in developing (emerging) economies seems to remain strong. We are of the opinion that the importance of developed economies in the manufacture of world equity market sentiment will diminish while the power of the emerging countries to influence investor's sentiment internationally will increase. During the next 24 (or so) months the effect of the relative health and growth potential of Brazil, Russia, China and India (as well as a number of other emerging economies of which we are not the least) will become more important players in the manufacture of investors (equity market) sentiment. The very large numbers of US dollars, sterling and Euros made available to those markets combined with slower economic growth in the developed world will strengthen the emerging currencies and their role in world matters and markets. In South Africa the economic news generally has been good. The 5th consecutive monthly rise to 52.5 (50.3 in November) in the purchasing managers' index (a key indicator of the health of the manufacturing sector) provides evidence that the recession and that the concomitant slowdown in manufacturing have ended. The business activity index rose to well above 50 (to 55.1 from the recent lows of 47.3) and the business condition index increased to 69.5 from 65 in November. Against the above background we expect 2010 to be a generally good news year internationally. In addition, inflation and interest rates will remain low. This will create a healthy environment for equity markets. The positive economic growth in emerging countries will further stabilize and motivate equity markets.