The Centaur Flexible Fund will change it's name to Centaur MET Flexible Fund, effective from 19 November 2012

It was a strong quarter for global equity markets, supported by lower bond rates. In SA the mining industry appears to be under threat, and whilst the short term direct impact on economic growth will be limited, its importance is far more material as it brings in valuable foreign exchange, stimulates fixed investment, contributes strongly to rural communities via transfer payments, and provides employment. Of further concern is that unsecured lending in SA has quadrupled over the last 3 years and it now appears probable that a bubble is forming, artificially boosting spending in lower income communities.

Considering the significant political risks, the high current account deficit, ANC maladministration, militant labour environment and a high fiscal deficit, I expect SA's risk premium to rise and the rand to weaken. We remain wary of resources shares as their quality of earnings is poor and the risk remains high, and are favouring non-resource rand hedge stocks. The final quarter of the year has traditionally been strong and we expect good performance over the next 3 months. However the market is fully valued and returns over a 3 year time horizon will be lower than the 20% plus annual returns which have been achieved over the last 4 years.

The negativity which prevailed in 2011 resurfaced and most global markets declined over the quarter while growth expectations were lowered for China, USA, India and Brazil. The 23% decline in the oil price was a major positive factor and if sustained will be a boost to world economic growth. Unfortunately SA is structurally positioned to grow around 3% per annum for the foreseeable future. Inflation will probably fall towards 4% and this together with a weak economy make an interest rate decline probable.

I have been lightening some of the better performing stocks as many are starting to look expensive, and have begun targeting increased exposure to companies with offshore earnings, as well as offshore listed companies. I remain cautious of commodity stocks despite a weaker rand as I see on-going operating margin deterioration, however Anglo American is trading at historically low levels and I have increased the funds position.

The team at Centaur will use their skills and independent thought to construct a portfolio which should deliver superior returns with lower risk than the benchmark thus continuing a proud tradition of superior wealth creation for our clients.

It was generally a strong quarter for stock markets worldwide, with the actions of the European Central Bank being a key factor in this performance. The US recorded better than expected economic growth and lower unemployment. The US Federal Reserve is committed to keep interest rates low until 2014 and this combined with a US election year should result in good US stock market performance in 2012.

SA inflation surprised on the downside, personal debt levels are declining and banks are increasing lending which augurs well for domestic growth.

These positive developments overall have created a bullish environment for equities and the outlook for the year is positive. However the current upswing is already 3 years old and we are in the latter half of this up cycle and may be entering a period where optimism supersedes common sense in investors' minds. Notwithstanding our good out performance this quarter, we will be cautious in this period as capital preservation is an essential element of stock market investment.

Most market indices in the developed world recovered from their October lows, whilst most Asian markets declined. The major investment theme during 2011 was the European debt crisis. Towards the latter half of 2012 global growth prospects should brighten as lower interest rates and the effects of higher oil prices are out of the system.

I expect SA inflation to breach 8% as the weaker Rand and higher maize price feeds through into prices while I expect SA economic growth to be below 2.5%.

The slowing SA economy, fiscal tightening and potential for higher interest rates are headwinds to the stock market whilst lower global interest rates are a positive factor. We are pro-actively using the current volatility to enter into quality companies at discounts.

We are realistic about the economic difficulties never the less energized by the challenge, and are satisfied to be able to report strong outperformance in 2011.