The JSE is a dual investment market with major commodity companies being buoyant due to the interest rate cut by the US Federal Reserve whilst the domestic Financial and Industrial stocks have been very subdued.

Call rates are currently around 10% resulting in a disincentive to invest and has created a weak market for domestic stocks. The key to short term interest rates is inflation, with the four major variables being: the exchange rate; oil prices; maize prices and wheat prices. The exchange rate has been relatively stable over the last year whilst the higher maize price has almost fully been incorporated into the price index but higher wheat prices still have to feed through into higher food inflation. Inflation should peak at just over 7% in December and should decline in the 2nd quarter of 2008.

This should pave the way for lower interest rates in the latter part of 2008 and a more buoyant Financial and Industrial index. Returns over the next six months could be slow due to the hindering effect of high short-term interest rates and caution should be exercised due to the effect of the sub-prime crisis in the USA. Nevertheless this is an excellent time to accumulate stocks, which are showing excellent value positioning ones portfolio for interest rate cuts.

By all accounts the New Credit Act (NCA) resulted in a dramatic slowdown in loan approvals in June.

This may be the catalyst to dampen the very high private sector credit extension and may obviate the need for further interest rate hikes. The growth in mining, infrastructure and agricultural sectors will now assume growth leadership.

It is probable economic growth will slow down, but the inherent quality of the economic growth should improve and reduced personal consumption combined with high precious metal prices should help the trade deficit reduce.

This factor combined with higher interest rates could well result in the rand firming over the next year - much in line with other major commodity exporting countries.

The good economic growth environment is conducive to good share price performance and there are still selected shares which offer high prospective returns justifying a continued large holding in South African equities.

The outlook for world growth is positive with China , India and Russia growing by a forecast 10%, 8% and 7.5% in 2006 respectively. This has had positive implications for commodity prices and should sustain prices at higher levels with positive implications for commodity producing countries. South Africa and sub-Saharan Africa is extremely well placed and South Africa has already committed enormous amounts of money to infrastructure development and mining expansion. The construction activity and production from these projects will drive economic growth over the next 5 years and this along with the good outlook for domestic tourism and the manufacturing sector on the back of the weaker local currency will offset the anticipated material slowdown in consumer spending from the 10% real growth recently reported. Domestically the major negatives are rising interest rates and inflation and our large current account deficit at around 6% of GDP. Internationally the biggest risk is a fall in US housing prices resulting in a radical slowdown in US consumer spending and a US recession, dragging world economic growth down with it.

Centaur's investment methodology is primarily based on bottom up stock analysis where companies are purchased on the basis of the most favorable risk reward ratios and some margin of safety. Our bottom up analysis still indicates that an investor can expect good real returns from selected shares over a three year time horizon, with the caveat that there are no major domestic economic shocks.