The ongoing investor uncertainty regarding the global economic outlook that has troubled financial markets since the beginning of this year worsened in September and resulted in a wide scale sell off out of risky assets. This stems mainly from the risk to the global financial system that is posed by the ongoing European sovereign debt crisis.

Outside European equity markets, emerging markets were the next worst affected, with both the bond markets and equity markets being adversely affected by this worsening investor sentiment. The local bond market consequently lost 2.1%, with the long end of the curve (>12years) losing 3.64%. This rise in bond yields over the month saw the local property market losing 2.1%. On a quarter to date basis, the bond market was up by2.8% while the local property market was up by2.2%.

The local equity market was worst affected and suffered a loss of 3.6% for the month, dragged down mainly by the resources sector which lost 4.6% for the month. On a quarter-to date basis, the local equity market lost 5.8%, with the losses again mainly the result of weak performance out of the resources sector which was down by 10%.
The rand weakened by 15.7% against the US dollar and by 7.8% against the euro, offsetting some capital losses out of offshore risky assets.

June was a difficult month for the markets as concerns over a Greek default weighed heavily on investors' minds. Both International and Local markets were negatively impacted by the risk aversion that ensued the negative global financial market developments.

The FTSE/JSE All Share Index lost - 2.0% for the month of June and was down -0.6% for the quarter. Resources as measured by the FTSE/JSE Resources Index were down the most in this difficult environment losing -3.1% for the month and -5.7% for the quarter. The FTSE/JSE Financial Index lost - 2.0% for the quarter, but returned a positive 1.25% for the quarter. In this difficult environment, Industrials provided the greatest protection with the FTSE/JSE Industrial Index only losing -0.26% for the month, while returning 2.7% for the quarter.

Bonds also struggled in the month of June with the All Bond Index only returning 0.2% for the month, but benefitting from the uncertainty over the quarter returning 3.9%. Cash returned a stable 0.5% for the month and 1.4% for the quarter.

Property was the top performing asset class for both the month and the quarter, returning 1.2% for the month and 5.0% for the quarter.

The first quarter of 2011 has proved to be challenging for financial market returns. The numerous risks across the globe heightened volatility in markets. These risks indude, problems in North-Africa and the Middle East, Europe's debt problems, policy induced inflation and ill-conceived policy exit strategies.

Local equity markets had a volatile start to 2011, as the FTSEI JSE All Share Index suffered heavy losses in January and again in early March after an earthquake and tsunami struck Japan's Tohoku region on 11 March. These losses were later reversed as market sentiment improved and the ALSI managed to close up 1.1 % for the quarter.

The best performing sector over the quarter was Resources which was up by2.9%, with coal, oil and steel being the main drivers of performance. The FTSE/JSE Top 40 index returned 2.2% for the quarter, while the FTSE/JSE Mid Cap Index returned -4.5% and FTSE/JSE Small Cap Index returned -5.3%.

The SteFl composite, which measures the return on money market instruments, returned 1.42% for the quarter, while the All Bond Index lost 1.57%. This was a result of an upward parallel shift in the yield curve, mainly due to fears of rising inflation, the weaker Rand and net foreign outflows.

Over the quarter the rand depreciated 2% against the US Dollar, 4.9% against the British Pound and 7.7% against the Euro.

During the first half of the year, equity markets struggled to find direction, due to the uncertainty caused by negative economic news that continued to overshadow better than expected company earnings reports. The second part of the year, however, proved more positive for equity market, when compared to the first six months, as news on the economic front started to improve. The FTSE/JSE All Share Index returned 24.02% over the latter 6 months and was up by only 18.98% for the year. The best performing sector was industrials, returning 24.02%, while financials only returned 16.56% and resources 12.27%.

From a market cap perspective Mid Caps again dominated returning 30.27% for the year, while Small Caps returned 24.65% and Top 40 returned 17.22%.

Interest rates continued to move lower in 2010, with the South African Reserve Bank cutting the repo rate three times during the year to 5.5%. This was in an attempt to stabilise the economy and kick-start growth after the financial crisis of 2008. This declining interest rate environment was very positive for bonds, with All Bond Index returning 14.96% for the year. The longer end, higher duration bonds benefited the most, with the ALBI 7-12 year area returning 16.00% and the ALBI +12 year area returning 15.86%.

Property, which benefited from the reduction in interest rates and declining bond yields, was one of the best performing asset classes, returning 29.62% for the year.