Developed world equity markets (-2.7%) retreated in anticipation of US interest rates rising unexpectedly soon which would have negative consequences for global liquidity. Commodity exporters and emerging markets (Brazil -19.3%, Turkey - 12.1%) heavily underperformed.

The JSE (-2.6%) declined, falling below the 50 000 level. Resource shares (-6.3%) came under significant pressure as global commodity prices fell, while Industrial (-1.4%) and Financial (-1.2%) shares losses were less severe.

Yields on SA long-dated bonds rose 38 points with an expanding current account deficit and weaker fiscal position increasing the probability of a sovereign ratings downgrade. The SA inflation print rose to 6.4% from 6.3% in July, driven by accelerating food prices. Producer inflation, however, eased to 7.2% from 8.0% previously. The South African Reserve Bank's Monetary Policy Committee (MPC) left the short-term repo rate unchanged despite the CPI uptick. The MPC cited a broad-based deteriorating economic outlook and projections for a near-term peak in inflation.

Commodity prices fell sharply with gold down 6%, palladium off 14% and copper losing 4%. This was mostly driven by a resurgent US dollar and expectations for slower Chinese and European growth.

The rand weakened significantly against the US dollar but fared better against other commodity exporters and the euro. Faster US growth pushed the dollar to a two-year high against the euro, while the British pound benefited from the Scottish independence 'no' vote.

The Nedgroup Investments Stable Fund's weighting to domestic equities was further reduced during the month, as earnings risk has increased in the domestically oriented companies in particular. The fund maintains the full weighting to foreign assets. Diversification across equity sectors has been maintained to mitigate specific economic event risk. The exposure to domestic bonds was again increased slightly in anticipation of a weaker than expected domestic economic outlook. Liquidity (cash) levels remain relatively high.

Global equity markets advanced (+1.9%) and were led by Japan (MSCI Japan: +5.2%). Japanese Prime Minister Shinzo Abe announced his 'third arrow' of structural reforms focused on governance and the labour market, asserting his determination to return the world's third largest economy to growth and global competitiveness.

The JSE (+2.8% in ZAR, +2.2% in USD) tracked global bourses higher, led by Resource stocks (+3.4%) as the Gold and Oil prices rose. Industrials (2.6%), Listed Property (+3.4%) and Financial Shares (+2.4%) also rose.

Yields on Eurozone bonds declined after the ECB ventured into negative territory with its deposit rates, with yields in Spain, Italy and Ireland tumbling to record lows. South African bond yields were little changed, shrugging off the ratings downgrades, with the All Bond Index (+1.0%) gaining. South African inflation rose to 6.6% year-on-year in May from 6.1% previously due to higher food and fuel costs. This is at its highest level in almost five years.

Crude oil (+3.6%) posted further gains on upbeat Chinese inflation data and as concerns of supply disruptions mounted due to increased geopolitical tension. Gold (+5.8%) rallied after the dollar came under pressure as the Fed indicated it was committed to accommodative measures and low interest rates.

Both local and international equities remain the most likely asset classes to meet the Nedgroup Investments Stable Fund's investment objective in the long term. The Fund therefore maintains a relatively full weighting to these asset classes. Diversification across equity sectors has been maintained to mitigate specific economic event risk. Although bond yields have risen to more attractive levels, capital risk remains and a better entry point is expected in the future. Cash levels have been maintained at relatively high levels as a result.

Global developed markets (+0.2%) ended the month in positive territory despite a negative contribution from Europe following geopolitical concerns surrounding Ukraine. US markets rebounded towards the end of the month following positive economic data confirming a continued recovery in the US economy. The JSE continued its recovery, helped by renewed interest in South African assets by foreigners seeing SA as a relative safe haven emerging market relative to its peers.

US bond yields drifted higher following a less dovish statement by newly elected Federal Reserve Governor Janet Yellen, leading to speculation that interest rates in the US will start to rise sooner than previously anticipated. Bond yields in South Africa fell for a second month in a row, backed by a stronger currency and renewed interest from foreign investors.

Emerging market currencies in general found some support towards the latter end of the month, with the rand in particular finding traction and it has now recovered the losses experienced in January. Oil prices held up well despite the geopolitical risks involving Russia (a major energy supplier), while iron ore (-8.1%) and copper (-5.5%) dragged the industrial commodities basket lower following further indications that economic activity in China is slowing.

Short-term rates in South Africa were kept unchanged following the MPC meeting in March despite rising producer and consumer inflation gauges. The rand’s strength is providing the reserve bank with some breathing space, amid weak economic indicators.

The Nedgroup Investments Stable Fund continues to have a relatively full weighting to equity markets, with a preference to non-SA equities. During the quarter, the allocation to short dated bonds was increased, and is included as a proxy for cash rather than a view on bonds in particular. The foreign asset position remains close to the prudential maximum of 25%, but with a preference to real assets (equities).

US equity markets led developed markets (+2.2%) higher in December after the US Federal Reserve eased investor anxiety while announcing a $10 billion trimming of its $85 billion monthly stimulus programme. Emerging markets (-1.4%) closed lower on profit taking and a generally stronger US dollar and ended the year in negative territory (-2.3% for the year). The JSE (+3.0%) rose in December to close the year up 21.4% but fared little better than the average emerging market bourse when measured in US dollars (-1.5% for the year).

Developed market bond yields rose as the Fed formally announced the commencement of the long-awaited stimulus tapering. South African bond yields fell marginally after benign inflation data was reported, showing that consumer inflation decelerated further to 5.3% year-on-year in November from 5.5% in October as a result of lower petrol, food and communications price inflation. Factory gate price increases also eased from 6.3% in October to 5.8% in November.

The gold price (-3.6%) fell sharply following the Fed's tapering, resulting in a 27.3% decline during the year as investors favoured equities over bullion as an inflation hedge. Industrial metals prices rose but oil (Brent -0.9%) was largely unchanged despite the taper announcement. Persistent supply disruptions in Libya and the gathering pace of global growth provided some support.

The rand tumbled to its lowest level in over four years against the US dollar during December, closing the month 1.9% down after SARB reported the third quarter current account deficit at 6.8% of GDP. This brought the decline in the local unit to 18.9% against the US dollar for the 12 months.

The Nedgroup Investments Stable Fund maintains a relatively full weighting to equities, despite the likelihood of short term volatility, as both local and international equities remain the most likely asset classes to meet the Fund's investment objective in the long term. Diversification across equity sectors has been maintained to mitigate specific economic event risk. Although bond yields have risen to more attractive levels, capital risk remains and a better entry point is expected in the future. Cash levels have been maintained at relatively high levels as a result.

Developed markets (+5.0%) rallied in the month after the US Federal Reserve defied consensus expectations to taper its monthly stimulus programme citing the weak growth environment. Fed Chairman Bernanke warned that the bank would not let market expectations dictate policy direction.

The JSE (+5.1%) also surged, boosted by industrial and financial shares (+6.3% respectively). Resource counters (+2.0%) underperformed as the US dollar, oil and precious metals prices declined.

Developed market bond yields fell across the board as investors anticipate Federal Reserve bond purchases being maintained at elevated levels. In South Africa, yields fell sharply following the Fed's statement, ending the month more than half a per cent lower and pushing the All Bond Index to a 3.9% gain for the month as the global carry trade resumed. Consumer inflation in South Africa accelerated to 6.4% year-on-year in August from 6.3% in July. The SARB left the repo rate unchanged but struck a hawkish tone, hinting that any increases in inflation would force it to raise rates.

South Africa's trade shortfall unexpectedly widened to R19 billion in August (the biggest gap in seven months) as strikes cut mining exports. The cumulative deficit for the year now stands at R107 billion compared to R70 billion over the same period last year. Precious metals prices declined despite the weaker US dollar. Brent crude oil (-4.6%) fell as supply concerns eased after the US and Russia agreed on a resolution to eliminate Syrian chemical weapons and the US and Tehran resumed talks over Iran's disputed nuclear programme.

The rand (+2.4%) strengthened against the US dollar which weakened against most currencies as US federal agencies prepared to shut down when legislators deadlocked over the federal spending vote. The rand also benefitted from sizable net inflows into South Africa's bond and equity markets as US tapering fears eased.

The Nedgroup Investments Stable Fund maintains a relatively full weighting to equities, despite the likelihood of short term volatility, as both local and international equities remain the most likely asset classes to meet the fund's investment objective in the long term. Although bond yields have risen to more attractive levels, capital risk remains and a better entry point is expected in the future. Diversification across equity sectors has been maintained to mitigate specific economic event risk. Cash levels have been maintained at relatively high levels to take advantage of investment opportunities that may arise as a result of short term market volatility.