The JSE ALSI had another bumper month returning 5.71% with all sectors showing strong positive returns; none so much as financials buoyed by confirmation that Barclays will take a stake in ABSA. Most financial stocks have also shown strong earnings reports. Industrials raced ahead on the back of General Retailers and small cap industrials. Resources benefited from an extension in dollar commodity price gains and a firm Rand. The majority of our equity managers benefited from large exposures to financial stocks.

The South African economic environment has been dominated by low inflation and strong consumer demand. The SA trade deficit (exports - imports) has steadily increased. The strong Rand has contained export growth whilst imports have risen fuelled by rising domestic spending and low interest rates. Inflation should remain benign in the short term, but in the longer term is threatened by steadily rising oil prices; rising consumer spending, strong credit demand and a potential Rand depreciation.

The JSE ALSI had another bumper month returning 5.71% with all sectors showing strong positive returns; none so much as financials buoyed by confirmation that Barclays will take a stake in ABSA. Most financial stocks have also shown strong earnings reports. Industrials raced ahead on the back of General Retailers and small cap industrials. Resources benefited from an extension in dollar commodity price gains and a firm Rand. The majority of our equity managers benefited from large exposures to financial stocks.

The South African economic environment has been dominated by low inflation and strong consumer demand. The SA trade deficit (exports - imports) has steadily increased. The strong Rand has contained export growth whilst imports have risen fuelled by rising domestic spending and low interest rates. Inflation should remain benign in the short term, but in the longer term is threatened by steadily rising oil prices; rising consumer spending, strong credit demand and a potential Rand depreciation.

Fund restructuring: The Allan Gray Balanced Fund has been removed from the Select Manager Prudential Active FoF due to its potential loss in flexibility. The fund has been forced to trade predominantly in the large cap space due to the considerable size of assets under management at Allan Gray. We have reallocated these assets equally to Coronation Absolute Return and the Prescient Positive Return QuantPlus funds, both of which we believe offer better opportunities.

August market overview: An unexpected 50bp cut in the Repo rate dominated equity and fixed interest markets in August. The All Share index gained 8.7%, largely on the back of the rate cut, which saw rand-hedge resource stocks climb strongly as the rand weakened. The interest rate cut also fed through to strong performance amongst real estate stocks, and the expectation that a lower interest rate would lead to robust credit demand and consumer spending fuelled rises in the broader financial and industrial indices. Long dated bonds achieved strong capital gains as yields adjusted to the rate cut. Yet the rate cut has prompted uncertainty around the Reserve Bank's aims for monetary policy, with a potentially weaker rand and rising oil prices posing a threat to local inflation targets. It is however encouraging to see that growth in the SA economy remains broad based, with all key sectors expanding.

Following a volatile May, June saw the ALSI move 3% lower for the month, with this decline driven largely by continued losses in the resource sector. Mid cap stocks performed similarly, yet small caps delivered stronger returns, with the JSE Small Cap Index rising almost 3%. This continues a trend seen over the past two and a half years, during which the JSE Small Cap Index has outperformed the ALSI by over 60%.

Fixed income experienced a good month, with yields declining across the board. The ALBI returned just over 1% for the month, with the short and longer ends of the yield curve contributing equally.

The Metropolitan Select Manager Prudential Active Fund of Funds' position has remained relatively stable over the past month. The underlying managers remain cautious in relation to equities, seeing the asset class as more or less fully priced. They continue to avoid resource stocks and favour financials and mid and small cap industrials, where they continue to see better value. Several have reduced equity exposure over the past few months, and have increased cash weightings as they also see little value in bonds and property, which they view as exposed to rising interest rates.