After the dramatic declines of July the JSE, and many other markets, recovered somewhat. Resource shares led the recovery, with financial and industrial shares generally slightly positive. Rand hedge shares were boosted by a softer currency that declined to its lowest level in some months. In contrast to earlier this year small-cap stocks lagged behind the top 40, but were nevertheless generally still positive.

Bonds weakened as short-term interest rates rose in response to fears of a further increase in the bank rate. This fear has been driven by poor inflation statistics released recently as well as signs that the local economy is stronger than expected. The weakness of the currency, as well as relatively high wage increases, is causing many economists to raise their inflation forecasts for this year and next.

The Nedbank Managed Fund performed slightly below average for the month, with its relatively high weighting in local equities. Nevertheless for 2002 and longer periods the fund has performed comfortably above the median.

During the month the fund increased its cash holding slightly, but reduced the bond exposure. No other significant asset allocation changes took place.

The short-term outlook for global markets remains uncertain. While economic conditions in the US look reasonable, the earnings outlook for large corporates is keeping the markets very nervous. For domestically driven companies trading conditions continue to look good with most recent results above expectations. Recent weakness appears to have been caused by investors worried about the recent empowerment suggestions coming out of various government departments. Nevertheless the fund managers believe that good fundamental value exists in many local financial and industrial shares and therefore the fund is expected to remain heavily invested in this sector. Resource shares have recovered slightly, but remain very dependent on the rand and the global economic recovery. In view of that the fund managers believe that the fund should maintain a relatively high exposure to equities, but the fund managers would prefer not to be overweight in resources right now.

Bonds have been weak recently, but now appear to have discounted a great deal of bad news. The fund managers nevertheless remain cautious about the long end of this market and prefer short-term deposits which are offering attractive rates.

The fund managers continue to believe that the equity market will be the sector of choice over the next few quarters unless global and local economic growth collapses.