The August MSCI Index closed up for the month with an increase of 1.1%. Global economic slowdown might be underway. With a major adjustment in expected consumer spending in the US and the major risk in high inflation. International central bank tightening has put pressure on most developed economies. Currency risk remains to the upside especially in the US dollar. We have switched the Orbis holding into the Investec Global Strategic Value Fund.

The fund aims to provide long-term capital growth primarily through investment in companies from around the world, which are expected to enhance underlying profitability and shareholder value through operational or structural improvements to their businesses. According to the fund managers of Investec the global stock markets are full of opportunities for a fund focused on companies undergoing positive transformation. Current economic conditions and increasingly exacting shareholders have jolted many firms to initiate widespread corporate change. The fund aims to take advantage of the value unlocked by change by using its disciplined evaluation process. Each prospective investment needs to meet the fund's strict criteria of a history of value creation, attractive valuation, an improving earnings outlook and upward momentum in the share price. The fund's AA rating from Standard & Poor's and an AA rating from Forsyth Partners recognizes the strength of management and capacity of its investment process to continue to profit from the dynamic global environment.

The yield on the 10-year benchmark rose by nearly 10 basis points from 4.55% to 4.65% during the last week of the month. In the currency markets, the US dollar was particularly strong lately, rising over 1%, whilst sterling showed its first signs of weakness correcting against most of the majors.

In the equity markets, the US indices made good progress. Bolstering the markets is the conclusion that earnings growth remains on track. Forecasts for third quarter operating earnings for the S&P 500 in aggregate, call for a 14% gain.

The June MSCI Index close was almost at the same level as the beginning of June at -0.2%. Global equity markets had a turbulent month, with the fund losing 0.8% during June. Of the underlying funds Templeton performed the best, followed by Ashburton and then Orbis, which has the largest exposure to equity markets.

The US Federal Reserve raised interest rates for the seventeenth consecutive time to 5.25%, the highest level since March 2001, but indicates that the rate rising cycle could be nearing the end. The US economy grew by 5.6% in the first quarter of the year. Employment data was disappointing and inflation continued to rise in May. The Core Consumer Price Index (excluding food and energy) rose by 0.3% in May for the second consecutive month. The US trade deficit widened from US$62bn in March to US$65bn in April. The bond market recovered into month end as investors gained in their conviction that there will be a reduction in inflation pressures.

The Bank of England left interest rates unchanged at 4.5% for the tenth consecutive month. The European Central Bank raised its main refinancing rate by 0.25% to 2.75%, on the back of increased inflationary pressures and improving economic activity. As some of the other markets, the FTSE All-Share came under pressure early in June, reflecting concerns about rising inflation and interest rates but staged a recovery on hopes that US interest rates are near their peak.

In Japan economic fundamental remains strong with a revision to first quarter economic growth. Stockmarkets here rebounded from mid-month lows. Having dipped to almost the 14 000 level, the Nikkei 225 Index recovered strongly in the second half of June. The US dollar gained slightly against most major currencies over the month.

The MSCI Index lost 3.7% during May. US stocks had one of the worst months in the past three years. UK indices lost ground over the month, following the trend in other markets. European stocks fell on prospects for higher interest rates and lower earnings outlook. Both the CAC and DAX posted substantial highs early in the month but later softened. Japanese markets slumped in May.

Economic data was generally positive. The US economy grew 5.3% in the first quarter of 2006. The European Commission upgraded its 2006 economic growth in Euroland to 2.3%. Japan’s economy expanded at an annualized rate of 1.9% in the first quarter of 2006. The World Bank revised its estimate for Chinese growth upwards. The OECD predicted that global economic expansion would slow in 2007 as interest rates climb in the US, Europe and Japan.

The Federal Open Market Policy Committee raised US interest rates 0.25% for the sixteenth time to 5%. Reserve Chairman, Ben Bernanke, said that “some further policy firming may yet be needed to address inflation risks”. The European Central Bank left its rate at 2.5%. As expected, the Bank of England also kept interest rates unchanged at 4.5% for the ninth consecutive month.
At the beginning of the month emerging market bonds traded at a record low over 10-year US Treasuries.

The US dollar fell to an eight month low against the yen and a twelve month low against the euro and ended the month lower against most currencies.

The MSCI Index gained 2.9% during April. Resource stocks were driven by higher commodity prices. The Goldman Sachs Commodity Index rose to a record high during the month, with large gains in sugar, gas and oil. The copper price rose to a record high of $5,940 a ton during the month. Growing tensions over Iran’s nuclear ambitions pushed oil prices to above $70 a barrel. Tensions also pushed the price of gold to above $600 an ounce for the first time in 25 years. The Dow Jones Industrial Average was 2.3% firmer in the month. UK indices were relatively unchanged. Both the CAC and DAX were also little changed in April. The Topix stock index in Japan hit a 14-year high during the month. Emerging markets performed well in April, benefiting from positive global economic news.

Economic data was generally positive. US consumer spending seems to be little affected by higher oil prices and interest rates. China’s first quarter GDP grew by 10.2%, the fastest growth rate in more than a year.

As expected, the Bank of England and the European Central Bank kept interest rates unchanged in April. The People’s Bank of China raised the benchmark one-year lending rate by 0.27% to 5.85%.

US ten year bond yields rose less than the US 30-year bond yields over the month and the US bond yield curve became less inverted. Strong economic growth indicators in the major economies combined with record high commodity prices resulted in higher bond yields. The Japanese 10-year bond rose in line with the trend in global bond markets.

The US dollar was weaker against all the major currencies in April.

At the end of February the MSCI Index ended virtually flat. Commodity prices were again volatile during the month, while equity markets generally consolidated, although volatility increased. Both the DAX and CAC rose in February. UK indices all posted gains over the month. Japan’s stock market indices fell in February.

Economic data was mixed, although generally positive in the US. The US trade deficit reached a record US$726bn in 2005 or 5.8% of GDP. Manufacturing news in Germany was disappointing. The Bank of England forecast that GDP would grow at its long-term average over the next few years. Evidence of economic recovery in Japan also continued to appear.

The Federal Funds rate remained unchanged at 4.5%. Ben Bernanke, in his first testimony before Congress as Federal Reserve Chairman, said that interest rates might have to rise to prevent the US economy from overheating. Money markets are now anticipating a rate rise in March, and a further rate rise after that. Both the Bank of England and the European Central Bank kept interest rates unchanged at 4.5% and 2.25% respectively.

US ten year bond yields rose only 3 basis points in the month. However, the US30-year bonds rallied 16 basis points and the yield curve became more inverted. UK bond yields rose slightly and prices fell in line with other global bond markets.

The US dollar was a little stronger against most major currencies.

The MSCI Index rose 4.4% during this period while commodity prices gained over the month. Gold climbed to a 25-year high and prices of other metals also gained with zinc and copper continuing to hit record highs. The oil price also rose by 15%, and passed US$69 a barrel.

US Indices were firmer over the month, assisted by strong company profit news releases. Both the CAC and DAX rose around 5% during January. Markets in the UK also posted gains over the month. Japan’s stock market outperformed most major Asian markets.

In the US the trade deficit narrowed sharply in November. Consumer inflation rose by 3.7% over the year to December. The German economy grew by 1.1% in 2005, based largely on exports. UK gross domestic product for the last quarter of 2005 rose 0.6%. China’s National Bureau of Statistics revealed that China’s economy grew 9.9% in 2005.

The US Federal Reserve raised the Federal Funds rate by a further 25 basis points to 4.5%, the fourteenth straight rise. We expect one more rate hike at the end of March. Both the European Central Bank and the Bank of England kept their short rates at 2.25% and 4.5% respectively.

US ten year bond yields rose from mid-January due to inflation concerns as oil prices firmed. This caused the yield curve to flatten. Other major bond markets moved the same way. Yields firmed and prices fell for ten year bonds in Europe, the UK as well as Japan.

The US dollar was generally weaker against all major currencies in January.

Most equity markets posted solid gains over the last quarter of 2005. The MSCI Index rose 2.73% during this period. During December US indices moved sideways while European markets and commodity prices gained over the month. Gold climbed to a 25-year high and prices of other metals also gained, with copper continuing to hit record highs. In Europe the DAX and CAC continued the moderate rises that have seen them gain fairly steadily over the year. UK indices all posted substantial gains in December. Japan’s stock market indices continued their strong performances until year end, rising for the eighth consecutive month. Both, the Topix and Nikkei indices, set new five year highs during December.

Global economic growth is expected to continue slowing in 2006 due to slower US growth. Modest accelerating growth (and inflation) is expected in the UK, EU and Japan. China’s National Bureau of Statistics raised its 2004 GDP estimate to 10.1%, higher than previously reported. The Chinese economy may expand 9.4% in 2006. Japan’s economic recovery should also be sustainable and stronger.

In the US the Federal Open Market Committee raised the federal funds rate by 0.25% to 4.25%, the highest since June 2001 and the 13th consecutive increase. The Bank of England’s Monetary Policy Committee left its main interest rate unchanged at 4.5% for the fourth consecutive month. The European Central Bank (ECB) might not be finished raising interest rates. An economic revival in Germany gives authority to remarks that the ECB may raise rates again after the first increase in five years.

In the US the 10-year treasury note yields ended 2005 below two-year yields for the first time since December 2000 on speculation that the Federal Reserve interest rate increases will slow the economy and restrain inflation. This inverted yield curve has preceded the last four recessions. In Japan the 10-year government bonds fell for the third year on signs that the economy is nearing an end to deflation.

The Yen rose slightly against the US dollar. Most currencies were flat against the dollar in December.