The unprecedented turmoil in global capital markets encountered in September continued unabated into the first week of October. Government-assembled rescue packages linked with synchronized interest rate cuts failed to reassure markets and traders, fearing further bank failures and a dramatic deceleration in economic activity, abandoned equities in favour of the safety of government-backed securities. The JSE was not immune to the downturn. A surprising improvement in the US dollar triggered the unwinding of extensive exposure to commodities and commodity-related products, ostensibly amassed as protection against a slowing US economy. Local mining shares suffered major declines in line with the collapse in resource prices while large-scale foreign withdrawals weighed heavily on industrials and financial shares. The broad JSE All Share Index lost 14% in September and had shed 15% in the first week of October. At this stage investors remain extremely cautious, not yet convinced that conditions are secure enough to take advantage of some appealing fundamentals. Until the measures taken by governments to stabilize the credit markets start functioning and banks resume lending to each other, world markets could remain erratic.

Many of the world's leading stock markets experienced their worst half-year performance in decades. Resurging inflation combined with ongoing worries in credit and housing markets increased the risks of a global economic slowdown, motivating hoards of investors to move out of equities into the safety of cash. The JSE performed better than most other markets, thanks to the strong performance of commodities, where higher oil, metal and food prices lifted indices to their best gains in nearly fifty years. However, as the period drew to a close evidence that commodity prices were peaking began to reflect on the performance of resource shares. Locally, economic news deteriorated. Inflation escalated and interest rates were raised. Declining vehicle sales and falling housing prices underpinned sagging consumer confidence, while power cuts and slowing world demand weighed on production. Financial and industrial shares lost significant ground as unit trust holders cashed-in and foreigners sold out of emerging markets.

A big sell off, largely by foreign investors, in shares like Barloworld, PPC and Reunerts in June hammered performance leaving the Twenty Ten Fund lagging its peers. The fund slipped 10.0% in June compared with an average loss of 5.6% in the sector. The reduction in foreign exposure in popular infrastructure shares has put pressure on performance for the first six months of the year despite very good profit performance by the companies held. In the six months to June the fund price has declined by 16.5%.

The JSE All Share Index ended the first quarter of the year up 2% with resources solely responsible for the positive performance. Significant investment write-downs by leading global banks arising out of their exposure to the subprime mortgage market and the stresses this placed on credit markets pushed investors out of the US dollar into the safe haven of commodities. Tightness in the oil market and worries that power outages in South Africa would hurt platinum supplies added to concerns.

While mining markets boomed, financial and industrial counters lost ground. Financials were knocked by global fears of instability in the banking sector whereas industrials were squeezed by unease over a slowdown in local consumer spending and doubts about corporate margins in light of heightened inflationary pressures.

By late March, though, international markets had begun pricing-in most of the bad news, reinforced by views that some of the banks' write-offs had been excessive and that the actions of central bankers over the past few months would soon take effect. Risks remain on the downside and it is still possible that bad news could dominate headlines for some time to come. But markets appear to be bottoming although a major turnaround will only come once there is clear evidence that the world's major world economies are on the mend.

In the quarter ended March 2008, the TwentyTen fund lost 10%, well below the gain in the overall market but generally in line with the decline in financial and industrials shares. The power crisis, rising inflation and a move by international players out of emerging markets was evident in the performance of a number of counters in the fund, despite a positive earnings outlook. The fund's two year performance is still impressive - according to information provided by Metropolitan Collective Investments the fund is ranked in the top quartile.

In 2007, the overall market ended up a very satisfying 20%, but by year-end it was well off its mid-October all-time peak. Even so, the gains weren't uniform. The index was supported largely by resources as a surge in the oil, gold and platinum prices to record levels - the outcome of turmoil in credit markets, geopolitical uncertainty and concerns about the health of the global economy - provided the feedstock for the gains in mining shares. China's insatiable demand for certain other materials like iron ore added thrust to the sector's move.

Construction shares actually outperformed resources and the government's bold infrastructure programme and large-scale mining projects were plainly evident in the profits of companies such as Murray and Roberts, Group 5 and Aveng. It was hardly a surprise that big-ticket retailers closed deep in the red. Mr Mboweni's determination to lower inflation took its toll on consumer spending and investors switched to the safety of the non-cyclical food retailers. The year's biggest disappointment, however, was the banking sector, despite delivering quality earnings growth and increased dividend payouts.

Unfortunately the bad news looks set to continue for at least the first half of the year. Locally, analysts will be watching for signs of a slowdown in corporate profits and measuring how well consumers manage their personal balance sheets after a series of interest rate hikes. With the FIFA World Cup a little over two years away, spending on preparing the country for the event will remain a priority. Other essential services like improving the rail system and increasing power capacity will also progress unhindered. The spending should support employment and underpin economic activity.