Central bank policies supported a rally in growth-sensitive assets in September. The US Fed announced QE3 while the ECB pledged to support Eurozone countries' short-term bonds. This eased Eurozone debt tensions, bringing relief to unsustainable yields of Italian and Spanish debt in particular, and supported the single currency. On the back of this, Gold rallied 7.7% while emerging and developed equity markets were up by 5.8% and 2.5% in US dollar terms, respectively.

Locally, the All Share Index was up by 1.6% in September, contributing to the 7.3% increase over the quarter. September saw a reversal in the recent trends with resources (+5.7%) outperforming financials (+0.25%) and industrials (-0.1%). Higher commodity prices, partly due to a weakening of the US dollar and speculation of further monetary stimulus by Chinese authorities to bolster their economy supported mining counters.

Furthermore, concerns about the South African economy and government stability elicited a ratings downgrade from the Moody's ratings agency. While this has been expected for some time, the timing of the announcement was somewhat coincidental with South Africa's inclusion into the Citigroup WGBI, which somewhat appeared to provide support to local bond yields.

Inflation linked bonds had yet another strong month and returned 2.68% as medium term inflation expectations deteriorated further. Nominal bonds lagged with a return of 0.93%, while cash continued to post a steady monthly return of 0.43%. Listed Property was the only asset class to post a negative return over the month as it declined by 3.27% in September.

The S BRO Balanced Fund of Funds will change it's name to S BRO MET Balanced Fund of Funds, effective from 12 October 2012

The EU summit in June, proposed measures to address what investors feared to be a deadly feedback loop between the European bond markets and the European banking system. This arose as governments in Europe needed to borrow funds from the bond markets to capitalise a near-insolvent banking system. At the same time investors were demanding higher yields for the further increase in debt this would additional borrowing would cause. The proposition, at the EU summit, to recapitalise the banking system externally addressed this issue. This caused Spanish and Italian bond yields to fall below the critical 7% level at which debt becomes unsustainable.

As investors perceived this to signal an easing in financial system risk, they took advantage of the attractive valuation opportunities within growth assets. This saw the MSCI World Equity Index returning 5% over the month and Emerging Markets up by 3.4%, in US$ terms. These gains helped limit the quarters' losses of -5.8% and -10.0% for Developed and Emerging markets respectively.

The domestic market benefitted from the more positive sentiment, which was most visible in the rand which appreciated by 4.3% to R8.14 against the US dollar. The All Share was up 1.9% with the Top 40 index delivering 1.6%.

Foreign demand for local bonds reached a record R22bn over the month. This depressed bond yields across the curve, to their lowest levels in 20 years. The R186 (15 yr) yield declined by 45bps to 7.92% and the R157 (3 yr) dropped by 39bps to 6%, while 10-year bond yields have rallied strongly from 8% at the beginning of the year to 7.45% currently. Consequently, the All Bond Index rose by 3.34% and listed property doubled that at 6.9%. Despite outperforming a cash return of 0.45% over the month, Inflation Linked Bonds lagged nominal bonds, with a return of 0.89%.

Growth-focused assets' strong start to 2012 eased in March as hopes for a worldwide economic recovery started to fade somewhat. There was still some bullish sentiment with easing Eurozone tensions, a continuing US recovery and continued central bank aid. But investor fears concerning the fragility of US recovery and the impact of tight austerity on Europe started to outweigh positive factors. Investors were also weary that any global economic revival could be short lived due to a supply-shock induced surge in oil prices.

The MSCI World index gained 1.3% on a total return basis in US dollar terms in March 2012 and the MSCI Emerging Markets index declined 3.3%. The FTSE/JSE All Share (ALSI) declined 1.41% on a total return basis in March 2012, in line with weaker emerging market performance. Basic materials (-8.09%), mining in particular, was the worst-performing sector. The rand weakened 2.5% against the US dollar and 2.7% against the euro in March.

SA's Monetary Policy Committee (MPC) decided to hold rates at their current levels as local economic growth still remained a concern. Forecasts are for an interest rate hike in early 2013. Inflation-linked bonds are expected to continue their outperformance over nominal bonds for the short term given the slightly pessimistic inflation expectations as a result of local factors (cost-push inflation) and global factors (rising oil prices). In March the All Bond index gained 0.12% and the Inflation-Linked Bond index gained 1.15%. Cash returned 0.47% while listed property was up 2.1%.

Further intensification of the European debt crisis in the latter half of 2011 resulted in an increasingly opaque global macro economic outlook and rising levels of negative investor sentiment. This was much to the benefit of fixed interest asset classes, which saw the local bond market returning 3.45% in the final quarter of the year and 8.80% for the year. With local inflation ending the year at a rate of 6%, this translates into a real return of close on 3% from this asset class, far exceeding the negative real return of 3% delivered by the local equity market.

Globally, the same trend was repeated with safe haven assets as represented by developed market government bonds returning 7% in USD terms, while equities as shown by the MSCI World Equity Index lost 5%.

Despite posting rather relative muted returns compared to 2010, the local property market was the top performing asset class with a nominal return of 8.93% for the year and 3.73% in the final quarter of the year. On a forward looking basis, healthy contractual escalations from this asset class, coupled with projected rental distributions within the region of 5% to 7% will be sufficient to support a forward yield of 8%. This is an attractive real return opportunity relative to cash. Cash as measured by the SteFI composite index returned 5.73% for the year. Should inflation sustain its current up trend, Cash as an asset class is set to remain un-attractive from a real return point of view.

Local investors with some offshore exposure would have benefited from the significant weakening of the rand over the year. The rand weakened by 21.90% against the US dollar and by 18.34% against the Euro over the year. At current levels, the rand is trading within its fair valuation levels, but given how highly volatile it is, it remains difficult to form realistic expectations regarding its outlook.