Global Market Overview
Global equity markets displayed a significant degree of volatility during June, with few developed markets posting positive returns. This resulted in the MSCI AC World $ index losing 0.3% over the month. In contrast, some emerging markets posted very solid returns, such a Russia, which rose 6.6% assisted by the stronger oil price. The MSCI Emerging market $ index ended 4.4% higher for the month.

In the currency markets, the dollar ended lower against most major currencies. It lost 1.4% against the pound, closing above the 2 dollar-to-the-pound level. In the commodity markets, oil prices rose sharply whilst most precious metals closed slightly lower. Brent Crude ended 6.6% higher during the month, which brings the rise to 23.2% for the year-to-date.

Concerns about the health of the US economy eased over the past three months as incoming data pointed to a notably improved growth rate, this despite a still weak housing market. The rest of the world continues to grow strongly, with emerging Asia and the Euro-area leading the charge and growth forecasts still being revised upwards. Consequently, across the globe there is ongoing concern about inflation and central banks are still hiking interest rates. These include Australia, New Zealand, the UK and EU. Global interest rate risks remain skewed to the upside as growth is strong and underlying inflation risks have risen. However, we do not believe policymakers will tighten so aggressively as to risk a serious growth downturn in 2008.

Last month we noted that with real yields rising, one of the large positive drivers for equities is slowly diminishing, namely excess liquidity. This is not to say equity markets can't rally further. With earnings still solid, public participation in equity markets still relatively low and fair valuations, equity markets could likely continue its rally for longer. It is however important to note that early warning signs are starting to appear and even greater vigilance is necessary.

After starting the month rather shaky, equity markets generally performed well in March. Apart from Japan and Hong Kong, developed markets posted solid returns. The MSCI AC World $ index returned 2.1% for the month, whilst the MSCI Emerging Market $ index returned a significant 3.7%, led by good returns from the Eastern European countries, Latin America and South Africa.
The global economy is still growing strongly. Expectations remain for growth in excess of 5% this year despite a slowdown in the US. The positive growth outlook remains a strong supportive factor of corporate earnings. Global interest rates are peaking. The majority of central banks are either finished or close to the end of their respective tightening cycles. The synchronised interest rate hiking cycle has contained inflation globally and remains a solid underpin to equities going forward. Equity market valuations are not stretched despite the recovery during March. Against other asset classes, equities remain attractive.

The Select Manager Global Growth FoF returned 1.31% for the month. The impact of the currency was negligible on the month.

The MSCI World $ index returned 2.3% for the month, ending the year 21.5% higher. Emerging markets shone, returning 4.4% during December and 29.2% for the year as measured by the MSCI Emerging market $ index. With only a few exceptions, most developed markets in Europe and America ended the year at or very close to six-year highs. All major developed markets have posted four years of positive returns. Although the atmosphere of euphoria remains, we do not believe that the risks to global equity markets are immaterial. Negative factors are however not new news but simply remains on our radar. Valuations are no longer compelling, but not yet expensive, especially against other asset classes. We approach this quarter with caution but remain invested as a continuation of the current rally is plausible.

The Select Manager Global Growth FoF returned -1.64% for the month. Unfortunately negative returns from bonds as well as the Rand's appreciation negated the positive equity market returns achieved during December. The fund returned 26.9% for the year.