In January our average prudential balanced portfolio returned 3.98% (December 1.24%). Top performer is NAM Prudential Managed (5.69%), Old Mutual (1.41%) takes bottom spot.

The past year to end January, for the first time in a while saw some foreign equity indices outperforming the SA ALSI. In this category fell the Nikkei that produced 26.5%, the DAX produced 20.4% versus the SA ALSI at 19.8%, not far behind the DAX, while the Rand depreciated by 14.4%. Together these two elements would have produced a return of 47.8% and 40.7%, respectively, for an SA investor in the Nikkei, respectively in the DAX, returns that compare favourably with the top performing sectors of the FTSE/JSE. Foreign investors in the SA ALSI in contrast, would have had a return of 2.6% (US investor) and minus 2.9% (Euro investor).

This no doubt hurts when viewed in the context of what a foreign investor could have earned in their local bourses. Foreign portfolio flows into SA equity appear to mirror this disappointment of foreign investors. Since the SA Reserve Bank kept its repo rate unchanged in February, SA also no longer offers such an attractive investment opportunity for foreign investors in SA bonds, who would in fact have experienced negative returns over the past year in most instances. Another factor that has been benefiting SA was the huge demand for its natural resources but with the steep decline in global consumer confidence and consumption, it will take some time before the consumption driven demand for our commodities will recover again.

The question is whether these trends will continue. Our expectation is that they will. This should continue to dampen the enthusiasm of speculative foreign investors as will the continuing negative inflation differential between SA and its major trading partners and the fact that SA Reserve Bank kept the Repo rate unchanged. Foreign investment flows are likely to subside and this should impact negatively on our local equity and bond markets. We therefore expect continued Rand weakness and upward trending inflation that should in time to come lead to inclining interest rate levels locally.