Global growth expectations have improved in recent months-periods of rising global growth expectations have typically been very positive for South Africa equities. After a slowdown in 2003 the domestic growth performance should be much better in 2004, support coming from lower interest rates, higher global growth and hopefully a weaker rand.

We expect the macro drivers for resources to be more supportive thus closing our underweight to more neutral position. We will stay overweight mining houses and platinum and underweight gold. Our stance on financials is derived from an underweight banks and a strong overweight life assurance.

Including small caps we have a neutral weighting on industrials with our strongest bets through SAB, Imperial, Barlows, Naspers and MTN.

With the likelihood of war with Iraq still ever present, the US long bond looking expensive, and the weakness in the dollar, what do global investors buy? Alternative safe havens such as gold, and even possibly platinum, are likely to be the focus of attention in the first quarter of 2003. While the local Gold sector outperformed strongly in December 2002, Platinum under performed, as it did for the whole of 2002. Unfortunately the strong Rand, weak palladium prices may hinder strong out performance following on from Gold's strength.

In terms of the local economy, there is the prospect of interest rate cuts happening sooner rather than later. Given this, investors are likely to position themselves in those sectors that are likely to be beneficiaries of rate cuts, sooner rather than later. However, a word of caution in this regard: the rate hikes of 2002 are likely to start having a negative effect on the consumer in H1 2003, whilst any budgetary stimulus for 2003/4 is only likely to have a positive effect from H2 2003. At the same time, declining inflation is likely to have an adverse effect on retailers' margins.

As always the direction of the Rand will dominate sector selection, given the much stronger local currency recovery that has taken place in Q4 2002, and looks set to continue for a while, what with events like the upcoming Telkom listing and the World Cup Cricket. With the strong performance that we have already seen in the Retailers last year, it is the more diversified

industrials/conglomerates that still have further upside given the favourable local environment. With similar earnings growth, but a lower rating, the Banks are also set for a period of out performance in Q1 2003.

However, it would be unwise to be too underweight Resources. Investors are likely to position themselves for an improved global outlook for 2003, relative to 2002, and of course South Africans' inherent pessimism towards the Rand should mean that the outlook one year out for a weaker currency should favour the global Rand hedge sector. Any weakness in Q1 2003 is likely to be a good buying opportunity on a longer-term view.