In December the average prudential balanced portfolio returned 2.77% (November: -0.08%). Top performer is Prudential (3.31%), Investment Solutions (2.06%) takes the bottom spot. Investec, top performer for the quarter outperformed the 'average' by 0.8%, primarily through sector allocation and stock picking. On the other end of the scale Investment Solutions' underperformance of the 'average' by 1.4%, was caused primarily by its underweight exposure to offshore assets. Its offshore allocation was 18% versus 30% for the 'average' (end September).

Despite strongly declining inflows of foreign investment capital from local markets in 2013, its impact was neutral on equities, but still provided good support to the local fixed interest markets, thereby aiding a low local interest rate environment. The FTSE/JSE Allshare returned 18% ex dividends (21.4% incl. dividends).

Around 6% of the total equity performance of 2013 resulted from the rerating of equities while the balance of 15% represents earning growth. For this year we would not see foreign portfolio flows to produce much downward pressure on local equities, currently being at around zero. However, a rising interest rate environment, the advent of which may well be forced by further weakening of the Rand, should put a damper on local equity markets as the result of which we would not expect any further rerating of equities in 2014, as we have seen in 2013.

We see no reason at this stage though why company earnings growth in 2014 should not equal the 15% of 2013. As the result, we would expect local equities to return around 15% in 2014, with some upside potential.