The Johannesburg Stock Exchange All Share Index ended June 2.08% lower and 0.5% higher year to date. The Rand was slightly higher against the US Dollar and is now 2.1% below its end of 2010 level. The South African All Bond Index delivered a positive 0.2% return in May to deliver a positive 2.2% return year to date. Cash delivered a positive 0.5% in May and thus 2.8% year to date.

Developed equity markets were mixed in June with the MSCI World Index losing 1.8% and emerging markets were also weak with the MSCI Emerging Market Index losing 1.9%. The MSCI World Index (in Dollar terms) is 3.6% higher year to date. The MSCI Emerging Market Free Index (in Dollar terms) is now only flat year to date. The broad based CRB commodity index lost 3.4% in June and is up 1.6% year to date. Again the main catalyst has been the big 7.1% decline in the oil price in June. Despite the political upheaval in the oil producing counties of the Middle East worries about weaker global growth caused a quick sell off in oil.
The latest South African consumer inflation number for May showed an increase to 4.6% from April's 4.3%. Expectations are that inflation will rise to the 6% level by the end of 2011 with core inflation picking up to the middle of the target band. The SARB continues to highlight the fragile global growth backdrop and the Euro debt crisis giving us the impression that they are reluctant to increase interest rates. Nevertheless the consensus forecast is for interest rates to be hiked by 50 basis points before the end of 2011. Consumer spending has so far been the main underpin to the economic recovery in South Africa. Details in the SARB quarterly bulletin showed consumer spending growing at 5.8% in the first quarter. Latest vehicle sales show growth but at a slower pace if one includes the vehicles sold by AMH and AAD which are not included in NAAMSA numbers. Foreigners have become net buyers of both equities and bonds in June and year to date. Foreigners bought R547m of equities in June and thus R3.2bn year to date and R 11.3bn of bonds and thus R23.7bn year to date.

Most of the major developed equity marke1s have given back a lot of their early gains in 2011 and most emerging markets are showing negative returns. The recent patch of poor economic data from the US and other parts of the world needs to be watched carefully. The relative value of equities compared to cash and bonds still seems appealing in developed markets. In the South African context we believe that stock picking is more important and that the cheapest part of the equity market is tied to global growth, namely resources. Clearly the European debt crisis is hampering sentiment and growth.

The Johannesburg Stock Exchange All Share Index ended December 6.2% higher and thus resulting in an 18.9% year to date total return. The Rand was very strong against most currencies and gained 6.7% against the US Dollar in December to post gains of 10.6% in 2010. The South African All Bond Index posted a gain of 1.7% in December to post a total return of 14.9% in 2010. Cash delivered a positive 0.5% in December and thus 6.9% in 2010.

Global equity markets were strong in December! The FTSE World Index (in Dollar terms) ended December 7.5% higher and thus 10.0% for the whole of 2010. The MSCI Emerging Market Free Index (in Dollar terms) gained 6.2% and thus 16.7% for 2010. The broad based CRB commodity index appreciated by 10.4% in December and is up by 17.4% for the whole of 2010. Most of the recent PMI numbers from emerging countries, the US and parts of Europe point to stronger manufacturing growth for at least the first half of 2011.This together with some supply concerns has boosted many metal and commodity prices.

Despite an uptick in inflation to 3.7% in the last reading it is expected that inflation will average 4.5% in 2011 and get close to 5% in 2012. This will allow the Reserve Bank to keep short term rates at all time lows for 2011 and support the recent pick up in credit demand from the private sector. The government's gradual reduction of its budget deficit over the next two years is still stimulatory and we thus expect decent economic growth and earnings growth in 2011. Despite a very strong performance in the mid cap area of the equity market we still see value in selected equities in SA with dividend yields of between 4% and 7%. In particular developed market equities are offering value globally where yields are in excess of cash and government bonds. Not withstanding a better performance by global equities since September 2010 we believe that the value that exists in equities will result in further positive performance from current levels. The fund has maintained a fully invested bias and any setback would be seen as a buying opportunity.