As the global recovery gains traction, GDP expansion is expected to improve in the US, EU and UK over the following years. Growth in the US appears sustainable at present, driven by consumer demand, private investment and improved competitiveness driving exports. Additionally, a number of countries in Europe have seen the worst of their fiscal austerity programmes, and are showing improvements in consumer confidence which are expected to boost domestic demand. Despite the recent slowdown, developing economies are still likely to be the long term drivers of global GDP growth given their favourable demographic profiles, high saving rates and continued growth in investment. These countries have experienced some short-term challenges due to escalating current account deficits and overreliance on their export-oriented sectors. We believe developing economies will need to continue focusing on driving domestic demand to have a more balanced and sustainable GDP mix. However, with most emerging economies having built up relatively healthy foreign exchange reserves along with their high savings rate, favourable demographics and relatively strong government balance sheets, we believe the longer-term outlook for the developing world remains positive.

Domestic consumer demand has slowed considerably in the last two years, as the unsecured lending boom has come to a halt. Adding to consumer headwinds, petrol price increases pushed the CPI inflation rate above the South African Reserve Bank's 3% to 6% target, squeezing disposable incomes. While domestic GDP is expected to grow by just 2% this year, rand weakness seen in the first three quarters of 2013 will drive greater industrial production in the economy over the next 6 to 12 months, offsetting the slowdown in consumer expenditure and lifting the country's growth rate to above 3%. Additionally, inflation is expected to dip back into the target band over the short term, with global food and oil prices stabilising. As a result of both greater export growth and weaker import growth, the current account deficit as a proportion of GDP is expected to stay at recent levels over the short term, and decline steadily in the years ahead.

South African equity markets have rallied during the 3rd quarter as concerns around Fed tapering eased. Industrials outperformed significantly with concerns around the Chinese slowdown weighing on the performance of the Resources sector. The valuations of the JSE All Share Index do appear high in relation to its long term average but this is largely attributed to the Industrials sector. The Industrial sector is trading at around 22x earnings, a 38% premium to its 15 year average multiple of 16x. This does highlight potential downside risk taking into account these premium multiples on record earnings and high profitability relative to history. The Resources sector has seen continued pressure on earnings during the past quarter and is trading on relatively depressed earnings at present. Current resources earnings are well below their long term trend highlighting significant upside potential. On a relative basis, Industrials are trading at a significant premium to both the Resources and Financial sectors on a forward a basis, highlighting significant downside risk should earnings not meet expectations. Global equity markets have continued to move even higher during the past quarter with the MSCI World Index continuing its upward trend. During the past few years global bond and emerging markets have been the beneficiaries of strong inflows while the developed market equities have lagged. One of the key drivers behind this trend was the quantitative easing programs and with discussions starting around the potential winding down thereof, we saw the start of a reversal of the above trend - developed market equities experienced inflows, while global bond and emerging markets experienced outflows. Global pension funds are underweight equities compared to the long term historic average, which combined with the capital losses related to bonds creates the potential for higher demand for quality developed market equities.

Global property rentals and occupancies are improving gradually and capex remains focused on extensions and refurbishment of existing strong locations. The normalisation of global bond yields pose a risk for REIT financing cost and valuations, but the REITS that have well-structured balance sheets will deliver stronger income growth and outperform in this environment. The supply of new shopping centre space in South Africa will increase to above 600,000 square meters for 2013 relative to levels of 400,000 to 500,000 square meters over the past four years. However, demand from national retailers for space in strong nodes continue to support shopping centre rentals while the demand in the industrial logistics market is firm and vacancies are low. The office market remains tough and any recovery in rentals is dependent on stronger growth in the economy and a recovery in corporate employment and activity. Office rentals remain under pressure as we continue to see new supply coming to the Johannesburg and Cape Town markets.

Global income yields have since come off of their short term highs, but are widely expected to continue on a medium term upward trend. Against the backdrop of short term uncertainty in US yields and some reversal in the foreign flows to emerging markets, South African yields have been volatile. Adding to the uncertainty, the South African Reserve Bank is facing a challenging period due to a weaker Rand and higher inflation at a time when economic growth is slowing. Our Income exposure is well positioned to take advantage of opportunities while remaining focused on the quality of the instruments and the cash flows of the underlying issuers.

The global economy is expected to grow by 3.3% in 2013 with the growth primarily being driven by developing economies. The developed world has started to show some signs of improvement as they gain competitiveness through lower unit labour costs with growth in the US and EU expected to accelerate going into 2014. However, the rate of growth in developed economies is likely to remain muted given the need for continued austerity and fiscal constraints on government balance sheets. Developing economies face some short term challenges due to rising unit labour costs and increase in cost of living which is transpiring into social unrest as seen in Brazil and South Africa. At the same time, the Chinese government has been tightening monetary policy to reduce lending and reign in the property market. These challenges do make the short term outlook for developing economies slightly uncertain. However, we believe that these developing economies including Sub-Saharan Africa are well positioned for long-term growth given favourable demographics, the continuing trend of urbanization and relatively stable government balance sheets. The South African economy has been slowing in recent quarters, and is expected to expand by 2.4% in 2013. Demand for consumption goods has been weakening on the back of tightening unsecured credit conditions and stagnant or declining employment in the mining and manufacturing sectors, which continues to pose a threat to the growth outlook. A weaker rand will however provide a boost to these industries, as South African exports become more competitive in the global markets. Over the longer term, implementation of government industrial and social policies such as the Industrial Policy Action Plan and National Development Plan will be more critical to realizing a growth recovery.

The South African equity markets have faced some pressure during the latter half of the second quarter this year on the back of concerns globally around reductions in quantitative easing. While the JSE All Share Index has declined from record highs, its valuation on a price to earnings basis remains above its long term average. The Industrial sector continues to trade at rich multiples on record earnings and profitability despite the recent pullback. Concerns around the health of the consumer in South Africa and the growth in real disposable income point to an environment of further downside risk for retailers in the near term. The Resources sector has seen earnings come under pressure on the back of falling commodity prices and rising costs. However, the substantial depreciation in the South African currency over the past few months should provide support to mining sector earnings in the year ahead if sustained around current levels. This should contribute to a rise in Resources sector earnings which currently is well below trendline earnings. The Resources sector, despite being on relatively low earnings, trades at a significant discount to Industrials highlighting decent value being offered. Global equity markets have continued to move higher during 2013 with the MSCI World Index continuing its march upward albeit at a slower pace than before. The rise has been on the back of corporate earnings being robust and some upward momentum noted in major developed economies such as the US. With financial markets having benefitted from the various quantitative easing (QE) programs of major global central banks over the past few years, the proposed tapering of QE by the Fed has impacted the global equity markets of late with higher volatility being realised. However, the focus on fundamentals should drive investors to focus on higher quality companies with an emphasis on stock picking. This bodes well for asset managers like us who have maintained our investment philosophy of investing in quality companies which have strong competitive advantages, and the ability to leverage off those competitive advantages to deliver a higher level of sustainable Return on Equity through the economic cycle.

Supply of global property has been very low over the past five years and demand is recovering, especially for better quality properties. It has become more difficult for real estate investment trusts (REITS) to find good quality acquisitions that offer value and their focus is on refurbishing or extending existing properties that are in strong locations. The increase in global bond yields are a risk for REIT valuations and financing cost, but the REITS that have a competitive advantage and well-structured balance sheets will deliver stronger income growth and outperform in this environment. Demand from South African national retailers for space in strong nodes continues to support shopping centre rentals while the demand in the industrial logistics market is firm and vacancies are low. The South African office market remains tough and any recovery in rentals is dependent on stronger growth in the economy and a recovery in corporate employment and activity. SA REITS are fully valued and higher bond yields are a risk but SA REITS are expected to deliver 5% to 6% income growth per annum over the medium term and their balance sheets are strong.

Based on the improving growth outlook for the US economy, the Federal Reserve has indicated its willingness to reduce the level of stimulatory support which resulted in yields increasing from the low levels reached during April 2013. However, the Federal Reserve is expected to be prudent in their action with the objective of ensuring that the increase in yields has a measured impact on the global economy and markets. Against this backdrop of increasing US yields and some reversal in the foreign flows to emerging markets, the South African yields are moving higher. Our portfolios are well diversified and we are confident that in an environment of increased volatility, the relative downside protection offered by our portfolios will assist in delivering real wealth creation for our clients over the long term.

The National Development Plan (NDP) was the cornerstone of both the State of Nation Address (SONA) and the Budget speech this year. Key aspects of the NDP revolve around addressing major issues such as job creation, improvement of education and skills for young people and improving our economic competitiveness as a country by investing in infrastructure and raising our productivity. In the short term, the macro environment remains tough with the South African economy anticipated to deliver economic growth of 2.7% for 2013. The South African consumer has been the key driver of economic growth over the years but will face pressure from rising inflation (fuel and food costs), a moderation in real wage increases (both public and private sector) as well as access to credit pulling back due to concerns around the unsecured lending market by the major financial institutions. Infrastructure investment should gain momentum with government related spend expected to start coming through, which together with spending by the major public enterprises (Eskom & Transnet) will provide some support to economic growth in the foreseeable future. The manufacturing and mining sectors could potentially surprise on the upside. Challenges around labour, administered prices and poor productivity are well publicized and have impacted these sectors. However, the Rand has weakened significantly on the back of our weak current account and negative sentiment around the industrial action during 2012. A weaker Rand for a sustained period and stable commodity prices has the potential to surprise on the upside contribution to growth and company earnings for both the manufacturing and mining sectors. From a fiscal perspective, while our sovereign debt levels are on a rising trend, they are at manageable levels. The budget deficit remains high but with the risk of further downgrades, Treasury can be expected to be fairly tight around budgeted expenditure for the year ahead and improve recoveries around taxes.

The South African equity market continued its strong performance in 1Q13, continuing to make record highs. The JSE All Share Index (ALSI) is now trading at a Price to Earnings (P/E) multiple of 16.7x relative to its long-term average of 11.9x, whereas a dividend yield of 2.8% is also relatively low compared to its long-term average of 4.4%. Relative to other asset classes such as bonds and cash, equities still offer value. With the equity market appearing fully valued, the importance of active management of portfolios through stock selection and sector allocation increases. The resources sector appears to be offering some value, trading at a significant discount to industrials, particularly the retailers. Retailers are trading at high multiples on record earnings thereby increasing their downside risk should earnings disappoint. With the current account deficit remaining a concern and potential continued pressure on the Rand, investors should continue to have appropriate Rand hedge exposure found in exporters and foreign entities. Given this backdrop, we continue to ensure that our portfolios are appropriately positioned to provide downside protection and deliver real wealth creation over the long-term. Our portfolios are well diversified with high quality companies which have strong competitive advantages, healthy balance sheets, the ability to generate a higher level of sustainable Return on Equity (ROE) through the economic cycle, generate strong cash flows and are trading at discounted valuations relative to the market. We remain confident that our portfolios' positioning is likely to deliver real wealth creation over the long-term while minimizing downside volatility.

Supply remains limited in the global property market as developers are not getting access to funding from banks. This is positive for good quality REITS who have strong balance sheets as they are well positioned to provide space to customers as the demand recovers. The demand is stronger for prime quality and more efficient properties which will result in a stronger recovery in rentals for these properties, while secondary quality properties will continue to lag. Global REIT yields remain very attractive relative to bond and cash yields and the Oasis Crescent Global Property Equity Fund continues to take advantage of these opportunities with the average cash flow yield of the fund at 6.2% and the dividend yield of 5.5% being very attractive relative to the average bond yield and inflation which is 2.2% and 2.3% respectively. The South African office market remains tough and any recovery in rentals will be dependent on stronger growth in the economy and the level of corporate employment and activity. Demand from national retailers for space in strong nodes continues to support shopping centre rentals while the demand in the industrial logistics market is firm and there is potential for increasing demand from exporters for industrial space as the weaker Rand will assist exporters. The SA listed property sector is currently delivering a yield of 6.8% for Property Unit Trusts and Property Loan Stocks are yielding 5.9% relative to the SA 10yr bond yield of 7.0%.

We have seen improvements in the US economy over the past two to three quarters but the US Federal Reserve is expected to keep the Federal Fund Rate low over the medium term until there is certainty on the sustainability of the recovery. We therefore expect income yields to remain at very low levels. Against the backdrop of global stimulatory monetary policy, South African yields are expected to remain low over the medium term but inflation risk has increased over the past 6 months due to the Rand weakness and there could be upside surprises. Our Income portfolios are well positioned to take advantage of opportunities while remaining focused on the quality of the instruments and the cash flows of the underlying issuers