In South Africa the inflation outlook has deteriorated and economic growth expectations have been tempered. The US banking problems will take a number of years to work its way through the system and I would expect below trend growth in the USA over that period. European growth will also slow due to the strong Euro constraining exports. Even though valuations look attractive, in the current investment climate there is little catalyst for substantial share price gains and investment conditions are going to remain difficult. Well managed, conservatively financed companies with defensive characteristics should still show reasonable returns. Current valuations are good but with economic uncertainty and high interest rates they are not exceptional. The current uncertainty should lead to some exceptional investment opportunities arising which Centaur will invest in. A fair degree of liquidity will be held to reduce risk and provide firepower for new investments. Patience and caution is warranted in this environment.

In South Africa the inflation outlook has deteriorated and economic growth expectations have been tempered. The US banking problems will take a number of years to work its way through the system and I would expect below trend growth in the USA over that period. European growth will also slow due to the strong Euro constraining exports. Even though valuations look attractive, in the current investment climate there is little catalyst for substantial share price gains and investment conditions are going to remain difficult. Well managed, conservatively financed companies with defensive characteristics should still show reasonable returns. Current valuations are good but with economic uncertainty and high interest rates they are not exceptional. The current uncertainty should lead to some exceptional investment opportunities arising which Centaur will invest in. A fair degree of liquidity will be held to reduce risk and provide firepower for new investments. Patience and caution is warranted in this environment.

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.