Global markets had another turbulent quarter as a result of the unexpected "leave" outcome of the UK referendum on EU membership. Despite heightened volatility, global markets delivered a positive return in Q2 with the MSCI World index closing the quarter up 1.2%.

The unexpected outcome of the referendum caused significant market turbulence towards the end of the quarter with markets falling sharply late June before recovering again by quarter end. There will likely be negative growth implications for the UK and Europe but the broader implications of the vote will only be known after a period of complex and prolonged exit negotiations by the UK.

In the aftermath of the UK-referendum there was a flight to safety, with increases in gold, safe haven currencies and developed market bonds. Market expectations for rate hikes have been pushed out further this quarter seemingly because of a still weak global economy and the Brexit vote. Against this volatile backdrop we observed positive dollar returns across most markets.

The MSCI Emerging market index ended the quarter up 0.8%, the S&P 500 was up 1.9%, the FTSE up 6.7% (in dollar terms) while Japan was weaker (down 7% in Q2). The local equity market also delivered a positive return with the FTSE/JSE All share Index closing the quarter up 0.4%.

After a prolonged period of significant weakness, we have now had two successive quarters of resource sector outperformance (up 6.4% this quarter) as commodity prices rebounded. Financials (down 4.3%) underperformed, with UK-exposed firms particularly hard hit (Investec and Capital and Counties were down 17%). Industrials ended the quarter up 0.5%

The fund slightly underperformed its benchmark over the quarter, driven by costs incurred from flows and significant index changes that necessitated trading. The fund continues to closely track its benchmark, the FTSE/JSE Top 40 Index, which closed the up 0.1%.

Over the quarter, global equity markets were generally higher, with the MSCI World Index closing the quarter up 5.0% in dollar terms. We saw particular strength from the Nasdaq index in the US (+10.7%), the German market (+10.1%) and Hong Kong stocks. The MSCI emerging market index closed the quarter up 9.2% with a weaker dollar supporting dollar returns across many emerging markets.

In South Africa, the economy remains very weak, with agriculture and mining sectors contracting of late and consumer expenditure weak. The rand is particularly important for financial markets at present, as it has strengthened this year from very weak levels, tempering inflation expectations and improving the interest rate outlook.

Ratings agencies have placed the SA sovereign ratings on a negative outlook, with a possibility of a foreign currency downgrade below investment grade due to tepid medium-term growth prospects, a lack of progress on growth-enabling reforms, a weakening fiscal position and heightened potential threats to (currently highly regarded) state institutions. The S&P rating decision in December will be particularly closely watched and a downgrade would be negative for the rand and interest rate expectations.

Against this uncertain backdrop, the local equity market gained 0.3% over the quarter, underperforming other emerging markets. After a prolonged period of weakness, firming commodity prices have led to three successive quarters of resource sector outperformance (up 8.1% this quarter and 36% year to date). The platinum sector was the star performer (up 22.6% this quarter and 125% year to date), outperforming gold (down 10%) and general mining (up 16.7%).

Industrials (down 2%) underperformed this quarter with cyclical retail shares particularly weak. Financials closed the quarter higher (up 0.8%) driven by a strong performance from banking stocks.

The fund slightly underperformed its benchmark over the quarter, driven by costs incurred from flows and index changes that necessitated trading. The deletion of SABMiller from the FTSE/JSE Top 40 Index, which accounted for over 12% of the index resulted in higher than normal trading activity and therefore costs to the fund. Overall the fund continues to closely track its benchmark, the FTSE/JSE Top 40 Index, which closed the quarter down 0.2%.

Broad emerging market economic weakness is now evident, with China's unexpected slowdown feeding through to many other emerging market countries via reduced demand for the commodities that they export. Commodity prices were sharply lower over the quarter, contributing further to deflationary forces across the globe. Commodity producing country currencies, including the rand, were sharply lower.

Developed economies continue to show reasonable economic progress, with unemployment continuing to fall, but inflationary forces proving very elusive. The US, in particular, is growing well and showing labour market and housing market strength.

The large economy central banks continued to maintain accommodative policies, with near zero interest rates and ongoing quantitative easing in Europe and Japan. The US Fed postponed its expected September rate hike, ostensibly reacting to financial market weakness emanating from China's slowdown.

The South African economy continues to weaken due to the large commodity exposure, but also due to structural problems such as power constraints, labour market rigidities and socioeconomic disparities.

The SA market declined by 2.1% over the quarter, led by resources (-17.9%), as commodity prices fell sharply. Financials closed the quarter down 1.1% while the Industrial Index closed the quarter up 0.8%.

Winners were particularly the large global companies, notably SABMiller (+25.8%), British American Tobacco (+17.6%), Steinhoff (+10.3%) and Richemont (+10.7%). SABMiller rose in the run up to the cash offer from AB Inbev, which was subsequently accepted in principle by the SABMiller board. The rand fell (-12.1%) over the quarter against the US dollar, assisting many of these global stocks.

Commodity companies were particularly weak, with sharp price falls in iron ore and platinum producers. Certain industrial companies, such as Massmart (-26.7%), Nampak (-23.6%) and Mr Price (-23.0%) also sharply reversed from very elevated levels, given the sluggish economy.

The fund very slightly underperformed its benchmark over the quarter, driven by costs incurred from flows and index changes that necessitated trading. The fund continues to closely track its benchmark, the FTSE/JSE Top 40 Index, which closed the quarter down 1.5%.

The year 2015 was a watershed year for the global economy and global markets. After a steady recovery, the US Federal Reserve started the interest rate normalisation process with US interest rates increasing for the first time in nine years. While the US recovery gained momentum, we saw increasing deflation risks across the rest of the developed world and additional quantitative easing in Europe and Japan. Investor uncertainty and concerns around growth in China led to an aggressive sell off in commodities, a blowout in EM currencies and a sharp reduction in the growth outlook for commodity led economies.

While global markets had a good final quarter, returns for the year were pedestrian. The MSCI World Index declined 0.3% for the year (up 5.6% in Q4) with developed markets substantially outperforming emerging markets. Dollar strength saw the MSCI Emerging markets index close the year down 15% in dollar terms with commodity led economies such as Brazil (down 31%) and South Africa (down 25%) amongst the worst performers.

The rand depreciated by 35% vs. the US dollar in 2015 reflecting domestic policy concerns, a deteriorating economic backdrop, power shortages and weaker commodity prices. Slowing growth in China and oversupply concerns saw commodity prices decline substantially with oil prices, precious and base metals prices all declining between 10-30% over the year.
Against a challenging SA economic environment, the ALSI posted a positive Rand return of 1.7% in the fourth quarter (5.1% for the 2015 year). Industrials once again delivered the best performance over the quarter with Rand hedge stocks in particular outperforming. The FTSE/JSE Industrial Index closed the quarter up 15.3% (up 6.6% for the year) while the FTSE/JSE Financial Index closed the quarter down 3.3% (up 3.9% for the year). The sharp fall in commodity prices resulted in Resources once again underperforming with the FTSE/JSE Resource Index declining a massive 19.2% for the quarter (down 37% for the year).

The fund underperformed its benchmark marginally over the quarter, driven by costs incurred from flows and significant index changes that necessitated trading. The fund continues to closely track its benchmark, the FTSE/JSE Top 40 Index, which closed the quarter up 2.51% and the year up 7.52%.

While global growth dipped in the first half of 2015, it is set to make a modest comeback over the remainder of the year, partly due to the reversal of several temporary factors that depressed economic activity in the US. The Chinese government's efforts to stimulate their economy and reasonably strong economic momentum in Europe and Japan should also lift growth. Still, a persistent shortfall in aggregate demand remains the defining feature of the global economic landscape.

Against this backdrop world markets delivered a mixed performance. On a regional basis, the S&P500 ended the quarter largely unchanged. Emerging markets marginally outperformed developed markets with the MSCI EM Index and MSCI World Index up +0.8% and 0.5% respectively in the June quarter. Dispersion in market and sector performance was high. Hungary (+11.0%), UAE (+10.7%), and Russia (+7.7%) were the best performers in US dollars. The bottom three markets were Indonesia (-13.8%), Malaysia (-7.9%) and Egypt (-6.1%).

Commodity prices weakened further over the quarter as deteriorating demand/supply fundamentals and a stronger dollar led to further price pressure across key commodities. With the exception of the Oil price which recovered from previous lows (up 25% in Q2), most base metals and precious metals were down mid to high single digits over the quarter. The rand was broadly flat over the quarter providing little support to local resource counters which remain under pressure from falling commodity prices.

Locally, the FTSE/JSE All Share Index touched a record peak in April before entering a more volatile period for the remainder of the quarter as negotiations between Greece and their European creditors broke down. The equity market ultimately ended the quarter largely unchanged.

SA sector winners included Support Services (+11.7%), General Financials (+11.5%), Mobile Telecoms (+11.0%), Forestry and Paper (+10.3%), and Specialty Chemicals (+10.0%). Unsurprisingly, sector laggards included resources stocks, with the Gold (-16.8%), Industrial Metals (-13.7%) and Platinum (-8.1%) sectors hurt by falling commodity prices. Construction (-8.3%) and Fixed Telecoms (-19.0%) were also out of favour.

The fund marginally underperformed its benchmark over the quarter and year to date, driven by costs incurred from flows and significant index changes that necessitated trading. On a gross basis, the fund continues to closely track its benchmark, the FTSE/JSE Top 40 Index, which was up 0.7% this quarter and 6.4% year to date.