The US Fed left interest rates unchanged at their September FOMC meeting, which in turn evoked the global hunt for yield and increased demand for emerging market assets, causing the rand to appreciate substantially against the US dollar by 7.4%. The SARB also left the repo rate unchanged at their MPC meeting, signalling a dovish tone that it might be at the end of the interest rate hiking cycle.

The ALSI was down -0.9% the month. Within the Index, Resources (+4.5%) outperformed Financials (+1.5%) and Industrials (-3.4%). BAT, Steinhoff, SAB and Aspen were all battered by rand strength but the long-term earnings growth outlook remains positive. Our managers still see upside in Naspers, our largest equity holding across our funds, which they deem trades at a discount to its sum-of-parts value.

The ALBI returned 3.0% the month as the rush by global investors into our bond market continues. Foreign flows into local bond markets edged up slightly in September by R1.9bn and reached R64bn this year. Foreigners now own close to 40% of total outstanding national government local currency debt which equates to R0.6 trillion. Year-to-date the All Bond Index has the best return among SA asset classes returning 15.1%, SA Listed Property 8.8%, Cash 5.4% and the All Share Index lagging at 4.8%. Local equity markets continue to see foreign capital outflows (R13bn in September), reflecting their negative sentiment of the SA economy.

Risk appetite returned and markets rallied in March despite fundamentals having little changed. The SARB's Monetary Policy Committee hiked the repurchase-rate by 25 basis points to combat rising inflation expectations as CPI inflation surged to 7% year-on-year in February (vs January's 6.2%).

Developed equity markets gained 6.9% and Emerging market equities surged 13.3% (both in USD), buoyed by improved emerging market sentiment. The rand gained 7.5% vs a weaker US dollar during the month, mitigating offshore returns. The JSE All Share Index gained +6.4% in March as Financials rallied +11.5%, aided by the rate hike, while Resources continued their rally adding +5.1%, boosted by short-term dollar weakness.

Global bond yields were largely unchanged while South African yields recovered sharply, supported by improved demand for emerging market assets as foreigners purchased R17 billion worth of SA government bonds in the first quarter, pushing down the 10-year yield to 9.03%, from 9.33% end of February, resulting in a 2.6% monthly gain for the All Bond Index.
Looking at SA Asset class returns for the first quarter of 2016, SA Listed Property is way ahead at +10.1%, followed by the ALBI's +6.6% return, then the ALSI's +3.9% return and finally Cash's +1.7% return. The rand has gained 5.2% vs the US dollar during Q1, resulting in lower returns in rands for offshore asset classes, Global Equities returning -4.7%, Global Bonds +2.5% and Global Property -0.5%.

The Southern Charter BCI Worldwide Flexible Fund of Funds primary objective is to generate moderate to high long term total returns. The fund aims to provide investors with capital growth of 5 % above inflation over a 2 year rolling period, by investing in a combination of asset classes including local and international equities, fixed interest, property and cash. The manager shall have maximum flexibility in terms of asset allocation and shall not be precluded from continually varying the underlying exposure to both local and offshore assets such as equities, non-equity securities, bonds, preference shares, property, fixed interest and money market portfolios and assets in liquid form. This fund is NOT Regulation 28 compliant and therefore will reflect our best unconstrained asset allocation strategy. It is ideal for investors with discretionary funds and who are willing to have a high exposure to offshore assets.

Global equity markets remained highly volatile in September, impacted by growing concerns of a slowdown in Chinese growth and its influence on emerging markets. Persistent negative sentiment towards emerging economies have spilled over to developed economies even though the growth prospects in the US and Eurozone remain positive.

The US Fed kept rates on hold, citing weak global growth and low inflation in the US. The SARB followed suit and kept interest rates unchanged in the September MPC meeting, highlighting the difficulty of monetary policy in a slowing growth and rising inflation environment, having lowered their growth forecast for SA in 2015 to 1.5%.

The ALSI gained 0.95% over the month, consumer goods sector performance was driven by the 27% jump in SABMiller's share price after news of a takeover bid by AB Inbev, the world's largest brewing company. Commodity prices continued their downward slide as the Brent crude oil price fell 9% and the Resource sector 10%, under performing Financials and Industrials which fell 1.7% and 4.1% respectively.

The uncertainty in the markets were however good for bonds as the ALBI remained flat for the month. SA Listed property gained 0.82% as distribution growth remains strong in the property market. The rand continued its downward trend against developed market currencies falling to a record low of R14 to the US dollar.