It was an interesting quarter in global markets as the world saw how quickly capital losses take place when bond yields back up. Rates looked exceptionally expensive on absolute levels but the back up in yield was driven largely by an increase in forward guidance dialogue, better growth data driven by the U.S and Europe but predominantly by a lack of liquidity. This could be seen as the first sign that any potential rate hike by the Fed could bring about some disorderly readjustments.

At the same time equities retraced marginally, although European equities (Euro Stoxx 50) were down almost 7.5% during the quarter. Chinese equities may have topped for the time being retracing 7.25% in June but still up 14.12% for the quarter. In SA during Q2 2015, The Johannesburg All Share lost 0.2%, The All Bond Index lost 1.4% and Listed Property lost 6.23% (all on a Total Return basis). Over the same period the fund produced a return of 1.1%.

Looking Ahead

The most well telegraphed "tail event" in history, Greece continues to concern investors as they grapple with the permutations around a potential "Grexit" and its impact on asset prices. However, the real question surrounds the feedback that associated currency moves will have on various areas of the global economy and whether or not investors begin to think about risk again.

A stronger Euro wouldn't be a good result for European exporters who are enjoying the export benefits of a weaker Euro and Europe itself might not like the deflationary effect that currency strength might bring. Yet a weaker dollar (should the Fed not hike rates), would be a large positive for the U.S market, its economy and likely emerging markets.

Puerto Rico debt problems and the negotiations around restructuring of various debt instruments bears watching. In conjunction with the slow motion train wreck of weakening commodity prices, a wounded Chinese stock market, the ongoing Greece reform or exit discussions and a very weak quarter for corporate debt. Various domino's appear to be lining up and look to be going through the wobbles and there are signs that risks are increasing.

Meanwhile the South African economy is spluttering and yet our stock market is only 6% off its all- time highs. Investors would be mindful not to confuse the economy and the stock market as they are not always related. However, and to be clear, valuations are not compelling in absolute terms and consistent with our last commentary, caution appears increasingly warranted.