The deepening global credit crunch is amplifying the fallout in the overall economy. Consumer confidence report showed that sentiment remains deeply depressed. On the business front reports of financial sector distress and layoff announcements have prompted downgrades to global growth forecast.

Credit market conditions have worsened dramatically in recent weeks, sharply raising the cost of funds and curbing debt issuance. The decisions by governments to rescue their banks will hopefully help stabilise the credit market.

The SA Listed Property sector recovered strongly (+23%) in the 3rd quarter after a weak (-20%) second quarter on the back of a rally in bonds. Property companies reporting during the quarter continued the trend of reporting good growth in income distributions. Vacancies were lower and rental reversions showed pleasing growth. The investment case for SA listed property remains positive. The return for cash was 3.1% and for the All Bond 12.8%.

The fund reduced its weighting in equities and increased its weighting in cash.

The world economy and financial markets is battling a "perfect storm". High and rising energy costs are compounding the slowdown in the G7 economy which has already been weakened by the sub prime fallout. The energy crunch has further stoked inflation concerns, which have added to selling pressure in the global markets. Looking ahead, the world economy and financial markets will continue to operate in an environment of heightened uncertainty and even recession conditions.

The rand has remained stable against the US dollar, although somewhat weaker against the crosses. Global headwinds for the local economy are becoming stronger as inflationary pressures remain elevated, requiring tighter monetary policy.

The SA Listed Property sector fell by 19.6% in the 2nd quarter. Inflation fears, rising bond yields and another two increases in interest rates were the drivers behind the weaker performance. The fundamentals of listed property are solid with positive growth in rentals and vacancies at low levels. The quarterly return on Cash and All Bond was 2.9% and -4.9% respectively. The fund maintained its underweight position in equities and overweight cash.

U.S. business activity is decisively weakening, as evidenced by the sharp fall in the ISM index and the deteriorating job market. Economic growth in the rest of the G7 world is also trending softer. However, business conditions in the developing world remain strong, with industrial production accelerating. The liquidity facility created by the Fed and other Western central banks has had a major impact in easing the credit crunch.

The Rand was generally volatile and weaker against most major currencies over the review period. Money market rates generally increased over the review period, reflecting expectations of rising inflation and the risk of further interest rate hikes.

The SA Listed Property sector returned -0.4% for the quarter, with two increases in interest rates negatively affecting sentiment. Companies reporting during the period showed good growth in income distribution and the drivers for listed property remain strong. The quarterly return on Cash and All Bond was 2.7% and 0.9% respectively. The fund reduced its weighting in equities and increased cash.