Global equities declined by 17.0% in USD's over the quarter with rand returns down a more muted 12.6% following the depreciation in the rand/USD exchange rate. Emerging market equities fared even worse, declining by 28.7% in USD's and some 24.9% in rands. The sovereign risk premium surged to 414 basis points from 295 the previous quarter, highlighting the increase in risk aversion towards emerging markets in general. With visibility in the global growth outlook having deteriorated further and earnings expected to remain under pressure for longer, the near term outlook for global equities remains poor. The sharp pullback in the ISM index and further widening in corporate bond spreads suggests that even non-financial company earnings -up some 3.9% year/year in Q2 -will likely turn negative in the coming quarters. Given the lead and lag relationship between US earnings and the rest of the world, disappointing earnings growth will become more broad based and will likely continue for a number of quarters. Despite all the recent doom and gloom, equity market valuations are attractive and given the coordinated global bail out that has occurred it could well present good buying opportunities on a 12 month view.

The fund fell by 18% in rand terms for the quarter underperforming the MSCI Wolrd index which declined by 17%. Despite this we are still happy with the blend of managers and no major changes where made to the fund.

No significant manager changes took place during the quarter. The exposure to Europe was reduced. The fund remains overweight Europe and Asia ex Japan, and underweight the US and Japan.

Global equities disappointed over the quarter yielding -2.7% in USD's and -3.5% in rands. For the year as a whole, the MSCI Global Equity Index yielded a rand return of 4.6%. Negative earnings growth for the S&P500 in Q3 and expectations that earnings growth will remain flat in H1 2008 will limit gains in offshore equities, but equity markets are likely to avoid a sharp derating given that the US Fed is expected to cut interest rates in 2008, and due to reasonable valuations in major markets. In light of the poorer global growth outlook and the belief that the Rand may be vulnerable to a surging current account deficit, we favour an overweight offshore asset allocation in 2008.