The Fed kept interest rates unchanged in September due to concerns about slowing global growth and volatility in financial markets. This left investors uncertain about the strength of the US economy and the timing of future rate hikes. Global equities had their worst quarter since 2011 due to fears about China's economy and declining commodity prices. Locally, South Africa's GDP contracted more than expected and the outlook was revised lower. The rand depreciated sharply while domestic equities fell, with resources shares hit hardest by declining commodity prices.

1. THE FED GOT COLD
FEET!
MARKET OVERVIEW
Third quarter 2 015

2. 2
Contents
THIRD QUARTER IN REVIEW .......................................................................3
Global.......................................................................................................3
Local .........................................................................................................6
OUTLOOK ....................................................................................................8
ASSET CLASS RETURNS .............................................................................11
CONTACT US.............................................................................................13
DISCLAIMER ..............................................................................................13

3. 3
T H I R D Q U A R T E R I N R E V I E W
Global
The year started with investors worried about the strength of the US economy. This quickly
transitioned to the risk of a Greek default in the second quarter and, by the third quarter, the focus
fell squarely on China and the fear that a sharp slowdown could push the global economy back
into recession. In hindsight, the US was merely going through a weather-induced “soft patch” and
Greece was bound to accept the bailout terms to prevent it from defaulting, rendering these fears
obsolete. Could the same play out for China? The perceived magnitude of the risks and contagion
stemming from a Chinese hard landing loomed larger than the preceding concerns, pushing
financial market volatility to levels not seen since the financial crisis. At the same time, uncertainty
grew over when the US Federal Reserve would start hiking interest rates.
One market commentator noted that “China sneezed and the Fed got cold feet”. It was
anticipated that the Fed would hike interest rates at their September meeting. Instead, it kept rates
unchanged as global concerns, financial market turmoil and sluggish US inflation weighed against
an improving job market, delaying the country’s first rate hike since 2006. This left financial market
participants uncertain over whether the economy was strong enough to withstand higher interest
rates. Economic data was mixed. The second quarter GDP growth estimate received a massive
upwards adjustment to reflect an expansion of 3.9% and the first quarter’s contraction was revised
to show 0.6% growth. Most of the growth was driven by stronger consumer spending.
Source: Trading Economics

4. 4
Buoyant US consumer confidence was a sign that lower gasoline prices had trumped the impact
of financial market volatility and that households were spending the windfall from weak energy
prices. US job data started the quarter on a strong footing with the unemployment rate dropping
to 5.1%, signaling an economy that was close to full employment. But August and September’s
payroll data disappointed with only 136 000 and 142 000 jobs created respectively during each
month, falling short of expectations that were closer to 200 000. A further worrying sign was that
more people left the workforce. It pushed the labour force participation rate down to a low not
seen since 1977. But counter-intuitively, job openings increased. The manufacturing sector was to
blame for some of the job losses in September. The sector moderated amidst a slowdown in global
growth and the impact of a stronger dollar. In contrast, the services sector remained buoyant and
took up much of the slack caused by the manufacturing sector.
Source: Inet
In July, the Greek government succumbed to creditors’ demands and accepted their bailout
terms. This provided the struggling Greek economy with a life line to help recapitalise its stricken
financial system. Prime Minister Tsipras called a snap election following the bailout deal, the result
of which provided him with a stronger mandate to implement the necessary reforms. The Eurozone
in general seemed to be on a better path. Second quarter GDP growth came in at 0.4%, lifting
year-on-year growth to 1.5%. This was in line with the region’s average growth rate over the past
20 years. Due to downside risks to economic growth, the European Central Bank pledged its
commitment to supporting the economy through accommodative monetary policy and that it
stood ready to act with further stimulus.
Developments within China rattled global financial markets, with the region the biggest source of
anxiety for investors who were initially unsettled by the Chinese government’s direct involvement
to stem the slide in the local equity market.

5. 5
This was followed by poor communication about changes to exchange rate policy by the
authorities that would allow the currency to be in contention for inclusion in the International
Monetary Fund’s Special Drawing Rights currency basket. Weak manufacturing numbers brought
China’s growth prospects further into question, impacting confidence levels. The stabilisation in
China’s second quarter GDP growth numbers did little to alleviate concern due to the quality and
accuracy of the data being brought into question. The People’s Bank of China cut interest rates
on 26 August with the aim of supporting the nation’s slowing economy. The Chinese authorities
further assured that they would strengthen fiscal policy, boost infrastructure spending and speed
up tax reforms.
A key development for the oil market was the lifting of sanctions against Iran in exchange for the
country easing its nuclear ambitions. It is expected that Iran can double its oil exports from current
levels. The rebound in Brent oil prices in the second quarter was reversed during third quarter as oil
contracts slid to their lowest levels in over six years to trade at $40.74 a barrel in late August as
supply levels remained robust. A late spike helped the oil price to recover somewhat, but it still
closed down -23.2% for the quarter.
Global equity markets suffered their worst quarterly performance since 2011. The MSCI Global
Equity Index lost 8.9% during the quarter and was down 7.5% for the year to date. The S&P 500
Index broke its run of nine consecutive quarters of positive performance to decline sharply by 6.9%
during the third quarter. The worst performing developed market equities were from Europe and
Japan. The Euro Stoxx 50 lost 9.5% and the Japanese Nikkei 225 Index tumbled by 14.1%. The
Nikkei’s loss was despite the index experiencing its biggest one day gain (8%) since October 2008
after Prime Minister Abe signaled a potential cut in corporate taxes. Investors pulled an estimated
$40bn out of emerging markets – the fastest pace since the height of the global financial crisis. The
MSCI Emerging Market Index lost 18.5% during the three months. Local equity market declines were
compounded by currency losses against the dollar.
The drop in the oil price and concern over global growth caused inflation expectations to fall to
such a degree that they were at post-recession lows in the US, UK and Europe. The yield on US 10-
year treasuries fell by more than 20 basis points, and those of German 10-year bunds by close to
20 basis points. As a result of lower bond yields, the JP Morgan Global Government Bond Index
rose by 2.0% during the quarter. Following substantial strength over the preceding 12 months, the
dollar moved sideways against the euro during the third quarter.

6. 6
Local
Global financial turmoil manifested in the local market through currency depreciation and further
weakness in the share prices of mining related companies. The rand depreciated sharply and on
a trade-weighted basis touched its worst level on record. Whilst currency weakness on its own
should improve the country’s competitiveness, structural shortcomings caused economic growth
estimates to be revised lower for the next three years. The economic backdrop remained gloomy
and any rebound will come off a low base. Despite economic weakness, the Reserve Bank
maintained a tightening bias in its monetary policy.
The Reserve Bank hiked interest rates by 0.25% to 6% in July – a move that was not fully discounted
by the financial market. Following that meeting, Governor Lesetja Kganyago received some
breathing space from the US Fed that held off on their first interest rate hike and he kept local rates
unchanged at the Monetary Policy Committee’s September meeting. Despite the deteriorating
growth outlook, his tone turned decidedly more hawkish and he warned that the Reserve Bank’s
monetary policy remained on a gradual normalisation path. Growth forecasts were also revised
lower and the Reserve Bank now sees economic growth coming in at 1.5% for this year and 1.6%
for 2016.
The release of second quarter GDP numbers caused quite a stir as these were lower than even the
most pessimistic forecasts. Economic growth contracted by 1.3% during the quarter and year-on-
year growth was a disappointing 1.2%. The slowdown was broad-based, but the largest detractors
were agriculture, mining and manufacturing. Mining and manufacturing productivity did rebound
going into the third quarter, but the data came off low bases and growth was not expected to be
sustained. Alongside the deteriorating growth outlook, business confidence fell to a 16-year low.
Source: Statistics South Afirca

7. 7
The drop in business confidence largely reflected concern over the retail and wholesale trade
sectors. Consumers remained under substantial pressure from a poor employment backdrop,
lower disposable income growth, high debt levels and restricted access to credit. The
unemployment rate did inch lower to 25% in the second quarter, but job growth took place in the
informal and public sectors and was absent in the private sector. Another indicator that pointed
to consumer stress was vehicle sales growth that suffered from seven consecutive months of
negative annual growth. September’s decline of 9% was the biggest in more than a year when
almost 5 000 fewer cars were sold than a year ago. Retail sales growth found some reprieve,
seemingly propped up by the drop in petrol prices.
The slowdown in domestic demand had a bigger than expected impact on consumer price
inflation which moderated from 5% in July to 4.6% in August. In addition, fuel price deflation
countered the exchange rate and food price inflation. The slowdown in domestic demand and
growth in exports, which were boosted by the rand’s depreciation, helped the current account
deficit shrink more than expected to 3.1% of GDP in the second quarter from 4.7% in the previous
quarter. The better-than-expected current account deficit provided some short-term support to
the rand, but this faded quickly as global developments dominated.
Source: Statistics South Afirca
The rand lost 13.6% against the dollar during the quarter and has depreciated by 20.7% against
the greenback since the start of the year. During the quarter, foreign investors bought R3.1bn worth
of domestic equities and sold R5.5bn worth of bonds. The FTSE/JSE All Share Index lost 2.1% during
the three months ending 30 September 2015 and is now only 3.4% up for the year to date. The
Resources sector struggled most in the third quarter as companies suffered from earnings
downgrades due to the sharp drop in commodity prices. Resources share prices were 16.7% lower.
Financial shares also ended the quarter in the red with a decline of 2.9% while industrial shares
bucked the trend and closed 1.6% higher.

8. 8
Industrial shares benefitted from speculation about the take-over of SABMiller by Anheuser-Busch
Inbev, which caused SABMiller’s share price to soar by 27% in September alone.
Despite foreign selling, the local bond market found support from domestic investors who bought
bonds as interest rates were kept unchanged in September, inflation readings were lower than
expected, and risks of an imminent sovereign credit rating downgrade receded. The All Bond
Index gained 1.1% during the quarter, but underperformed cash that delivered a return of 1.6%
over the same period. For the year-to-date, the All Bond Index’s return of 2.7% also
underperformed cash’s return of 4.8%. Listed property gained 0.8% during the third quarter which
lifted its year-to-date return to 13.3%.
O U T L O O K
It was always known that recovering from the Great Financial Crisis would be a slow process as
excess leverage was unwound. But the liquidity glut from global central banks pushed asset values
higher and kept volatility levels at extraordinary low levels, until four months ago. Investors have
been spooked by the pace and magnitude of recent financial market turmoil, but we view this as
a mid-cycle correction that was necessary to extend the duration of the current business cycle.
The turmoil left financial markets overly bearish with weak economic growth already priced in. A
stabilisation in Chinese economic growth over the coming months is key and will probably be the
swing factor to help sustain ongoing global expansion.
Global growth projections have been revised lower and in the latest International Monetary Fund
(IMF) World Economic Outlook (October 2015), global growth for this year was revised down to
3.1% and next year’s growth to 3.6%. This was due to slower emerging market growth projections
that were driven by the decline in commodity prices. Soft global growth conditions will keep the
global monetary policy bias towards easing. More importantly, the Chinese authorities have further
scope to ease their monetary policy to prevent growth from softening any further. With policy
support currently in the pipe-line, China should start to regain some momentum over the coming
months. It should also be taken into account that China’s share of world GDP has risen dramatically
in the past 15 years. As a result, China’s contribution to global growth has held up well even though
its own growth rate has slowed.

9. 9
Source: International Monetary Fund World Economic Outlook October 2015
Since the US Fed’s September meeting, rate hike expectations have moved out, although US
economic conditions still provide the Fed with the right backdrop to increase rates before the end
of the year. It will be important for the Fed to lift rates from zero as soon as possible as this will
remove lingering uncertainty about when rates will rise. The US economy is expanding strongly due
to rising household consumption following the financial windfall from lower energy prices. The
recent slowdown in employment data should not be the start of a sustained deterioration in the
labour market as it is not consistent with rising job openings. The euro area economies are stronger
and more durable than investors currently appreciate. The region is strengthening and showing
signs of a broad-based expansion.
The recent correction in financial markets has left global developed market equities about 10%
cheaper and emerging market equities 25% cheaper. This removed a lot of the valuation froth that
was evident. We expect that global equities will be supported by continued accommodative
monetary policies, soft inflation and a moderate global economic recovery. We are overweight
global equities and expect them to deliver solid returns over the next 12 months. The drop in
developed market bond yields looks set to reverse as economic growth firms, deflation fears
unwind, and the Fed begins the slow process of normalising interest rates. We remain underweight
global bonds, with a preference for absolute return orientated global fixed interest strategies.
Where the sluggish South African economy is concerned, there are no catalysts on the horizon to
prompt stronger growth. Instead, recessionary risks for next year have risen as depressed
commodity prices, poor power supply, labour strikes and deleveraging consumers all weigh
against the economy. The continued lacklustre performance will prevent employment,
consumption and private sector investment spending from recovering. The IMF, in its most recent
revised forecasts, predicted that the South African economy will grow by 1.4% this year and that
growth will slow down to 1.3% in 2016.

10. 10
The moderation in economic activity will limit the extent of interest rate hikes and the Reserve Bank
will probably come under pressure to ease monetary policy towards the end of 2016. Inflation is
expected to breach the targeted band early next year, but this should be temporary and it needs
to be kept in mind that most of the upside risks to inflation are largely exogenous. Exchange rate
pass-through effects will be the largest contributor to higher inflation rates. The Reserve Bank
Governor has noted that he won’t use interest rates to defend the currency from depreciating
further.
The rand is expected to remain on the back foot given the local economy’s weak growth
backdrop, low real interest rates, large fiscal and current account deficits and continued risk of a
sovereign credit rating downgrade. The pullback in the domestic equity market has not been big
enough to unwind excessive valuation levels and, going into the final quarter of the year, the
FTSE/JSE All Share Index had already recovered most of its losses. This has once again placed the
equity market in expensive territory with a price-to-earnings ratio of 19 which is close to historical
peaks. We remain underweight domestic equities due to expensive valuations, the weak
economic backdrop and concern over companies’ earnings expectations.
We have lightened underweight positions to domestic bonds and listed property due to the
weaker growth outlook and subsequent downward revisions to interest rate hike expectations.
There are still risks which prevent us from going back on-weight with these two asset classes. They
include downside risks to South Africa’s credit rating, the pass-through effects of rand weakness
on inflation and the lift-off of US interest rates. Financial markets have entered a period of
increasing volatility and we expect this to continue as global growth remains uneven. Given
expected volatility, we believe it is important to keep a maximum allocation to offshore assets to
benefit from the diversification benefits of currency movements.

11. 11
A S S E T C L A S S R E T U R N S
3 Months 6 Months Ytd 12 Months
Headlines Indices
Africa All Share -2.13% -2.32% 3.39% 4.79%
Africa Top 40 -1.47% -0.73% 4.88% 4.89%
Africa Mid Cap -5.90% -11.88% -5.20% 3.16%
Africa Small Cap -3.85% -2.45% 0.62% 7.22%
Africa Fledgling -0.39% -1.46% 1.21% 1.07%
Africa Resource 20 -16.72% -20.51% -20.71% -36.42%
Africa Industrial 25 1.63% 3.67% 9.89% 17.77%
Africa Financial 15 -2.89% -5.51% 4.46% 15.29%
Africa Financial and Industrial 30 0.75% 2.09% 9.29% 17.70%
Africa Capped All Share -2.13% -2.32% 3.38% 4.89%
Africa Shareholder Weighted -4.22% -4.34% 2.24% 6.07%
All Share Economic Group Indices
Africa Oil & Gas Index 25.15% 200.00% 172.53% 95.87%
Africa Basic Materials Index -14.42% -15.16% -13.13% -26.43%
Africa Industrials Index -3.05% -6.76% -6.06% -1.96%
Africa Consumer Goods Index 16.11% 16.84% 19.11% 25.31%
Africa Health Care Index -7.94% -15.82% -13.13% -0.79%
Africa Consumer Services Index -7.60% -5.67% 11.17% 32.11%
Africa Telecommunications Index -16.78% -9.04% -11.27% -15.76%
Africa Financials Index -1.06% -3.32% 7.46% 19.11%
Africa Technology Index -4.41% -2.50% 22.70% 33.45%
All Share Sector Indices
Africa Chemicals -14.01% -5.40% -11.43% -16.20%
Africa Electronic & Electrical Index -11.26% -5.19% -9.04% -20.38%
Africa Industrial Engineering Index -15.84% -13.78% -7.27% -11.24%
Africa Beverages Index 25.11% 24.37% 30.71% 26.94%
Africa Food Producers Index 3.89% -0.08% -3.77% 10.95%
Africa Health Care Equipment Index 0.00% -10.70% -1.10% 8.23%
Africa Pharmaceuticals & Biotech Index -17.72% -22.60% -26.35% -11.76%
Africa General Retailers Index -8.95% -5.52% 8.95% 23.07%
Africa Media Index -8.35% -7.07% 14.59% 39.36%
Africa Industrial Transportation Index -6.54% -12.06% -13.78% -8.97%
Africa Food & Drug Retailers Index -3.55% 1.01% 5.36% 26.76%
Africa Fixed Line Telecommunications Index 8.11% -12.46% -0.96% 26.91%
Africa Banks Index -8.47% -11.05% 0.20% 16.04%
Africa Non-life Insurance Index 6.24% 1.50% 8.91% 11.22%
Africa Life Insurance Index -2.07% -7.82% 5.96% 13.41%
Africa General Financial Index -0.51% 10.97% 13.97% 26.20%

12. 12
Africa Equity Investment Instruments Index 6.10% 4.50% 7.70% 13.07%
Africa Software & Computer Services Index -4.41% -2.50% 22.70% 34.52%
Africa Gold Mining -8.19% -23.60% -17.71% -25.40%
Africa Platinum & Precious Metals -36.65% -41.81% -50.40% -54.97%
Africa Property Unit Trusts - (PUT) #N/A #N/A #N/A #N/A
Africa SA Listed Property - (SAPY) 6.24% -0.38% 13.26% 25.82%
Bonds, Cash & Inflation
All Bond Index 1.11% -0.31% 2.67% 7.04%
Stefi Composite 1.60% 3.18% 4.76% 6.38%
CPI - New Headline (Previous Month) 1.49% 4.13% 4.59% 4.59%
CPI - History Rebased (Previous Month) 1.49% 4.13% 10.15% 4.59%
Currencies
Rand Dollar Exchange Rate 13.56% 13.89% 20.70% 22.52%
Rand Pound Exchange Rate 9.56% 16.29% 16.38% 14.28%
Rand Euro Exchange Rate 14.20% 17.65% 10.48% 8.54%
Dollar Euro Exchange Rate 0.03% 2.80% -7.98% -11.85%
Dollar Yen Exchange Rate 2.44% 1.20% 1.20% -7.69%
Naira Dollar Exchange Rate -1.32% -1.34% 7.70% 21.95%
Commodity Prices
Brent Oil (USD/Barrel) -23.38% -13.07% -15.33% -48.77%
Gold (USD/oz) -4.94% -5.76% -5.76% -7.76%
Platinum (USD/oz) -15.91% -20.66% -25.02% -30.35%
Copper ($/Ton) -10.98% -15.83% -19.91% -24.39%
CRB Index -14.69% -8.52% -15.72% -30.41%
Global Bonds & Equity
Global Bonds (R) 16.73% 14.14% 19.76% 19.54%
MSCI Global Equity (R) 3.53% 3.52% 11.71% 14.15%
Global Bonds 2.77% 0.20% -0.80% -2.46%
S&P 500 -6.94% -7.15% -6.74% -2.65%
Nasdaq -7.35% -5.73% -2.45% 2.82%
MSCI Global Equity -8.86% -9.13% -7.47% -6.86%
MSCI Emerging Mkt -18.53% -18.73% -17.18% -21.21%
FTSE -6.57% -8.94% -5.57% -5.60%
DAX -10.13% -17.11% 0.70% 4.87%

13. 13
C O N T A C T U S
Novare Holdings (Pty) Ltd
Third Floor , The Cliffs Office Block I
Niagara Way
Tyger Falls
Carl Cronje Drive
Bellville
7530
South Africa
P O Box 4742
Tyger Valley
7536
South Africa
Tel: +27 (0) 21 914 7730 | Fax: +27 (0) 21 914 7733
w w w . n o v a r e . c o m
w w w . n o v a r e e q u i t y p a r t n e r s . c o m
w w w . n o v a r e i n v e s t m e n t s . c o m
w w w . n o v a r e c a p i t a l . c o . z a
D I S C L A I M E R
This document is for information purposes only and is not intended for any other purpose. Novare
Holdings (Pty) Ltd and its subsidiaries (NH) does not accept any liability or responsibility of whatsoever
nature and however arising in respect of any claim, damage, loss or expense relating to or arising out
of or in connection with the reliance by anyone on the contents of this document. This document is
confidential and issued for the information of the addressee(s) and clients of Novare Holdings
(Registration No. 2005/035231/07) and its subsidiaries. Copyright in this document created by NH will
remain vested in us and will not be transferred to anyone in part or whole without the prior written
consent of NH. Past performance is no indication of future performance.
Novare Investments (Pty) Ltd is an Authorised Financial Service Provider: 757
Novare Actuaries and Consultants (Pty) Ltd is an Authorised Financial Service Provider: 815
Novare Equity Partners (Pty) Ltd is an Authorised Financial Service Provider: 41836
Novare Capital (Pty) Ltd is an Authorised Financial Service Provider: 45473