PSG Wellington / Paarl Investment Opportunities in May 2014

Page 2 | CONFIDENTIAL 0#### The world had (and still has) too much debt : MSCI ACWI = -40%...

Page 3 | CONFIDENTIAL 0#### Governments and central banks tried to get their economies going again Keep interest rates low Quantitative easing

Page 4 | CONFIDENTIAL 0#### 1. Keep rates low to try stimulate growth Source: I-Net Bridge

Page 5 | CONFIDENTIAL 0#### 2. Print money to stimulate growth Dr Bernanke explains Quantitative Easing

Page 6 | CONFIDENTIAL 0#### QE took the markets higher Source: I-Net Bridge. MSCI ACWI to 27 April But what did this mean for us in SA?

Page 7 | CONFIDENTIAL 0#### SA was a beneficiary of money searching for yield 2012: R85bn into SA bonds 1.5% 7% Bonds, equities and the rand rallied, and became ‘expensive’

Page 8 | CONFIDENTIAL 0#### 22 nd May: Taper talk What happens when the taps get turned off?

Page 9 | CONFIDENTIAL 0#### SA vulnerable to global central bank policy Rand became oversold Source: I-Net Bridge to 31 January 2014 Foreign flows – SA Bonds and Equities

Page 10 | CONFIDENTIAL 0#### SARB faced some tough choices RAISED RATES Inflation Weakening rand “The SARB face some very tough choices – A rate hike today, however unpleasant, might just be the saving grace for an economy in distress” Investec Asset Management, 23 January 2014 Fragile five

Page 11 | CONFIDENTIAL 0#### South African markets - at a critical junction Cheap international money looking for returns Big capital flows into EMs (like SA) Hides weak SA economic fundamentals Drives up the equity and bond market prices Artificially supports Governments finances

What does this mean for investors?

Page 13 | CONFIDENTIAL 0#### Cash rates remain below inflation Source: I-Net Bridge, Investec Asset Management Negative real cash rates to continue

Page 14 | CONFIDENTIAL 0#### Beating inflation not very easy Source: Gavekal, February 2013 Risk x x x x x x x x x x x x x Cash under the mattress Cash at the bank Short term treasuries Domestic government bonds Investment grade bonds Real estate High-yield and emerging market debt Large-cap growth Emerging markets Small cap Venture capital Private equity Large-cap value Real return = 0% Guaranteed losses unless world enters deflation

Page 15 | CONFIDENTIAL 0#### ALSI- Reached an all time high during the month of May Source: I-Net Bridge The FTSE/JSE All Share Index (in ZAR) (50 000)

Page 16 | CONFIDENTIAL 0#### SA Equities are expensive 20-years to end April 2014 (17.5x) Source: I-Net Bridge Mean: Std Dev: 2.48

Page 17 | CONFIDENTIAL 0#### But equities have delivered significant returns recently However there were huge divergences 71% of the ALSI’s total return came from 5 stocks: Naspers, Richemont, SABMiller, Sasol and MTN 10 shares contributed to 92% of the performance of the ALSI

Page 18 | CONFIDENTIAL 0#### “Past performance is not necessarily a guide to the future” Last 10 yearsExpected 10 year return SA Property SA Equity SA Bonds Cash

Page 19 | CONFIDENTIAL 0#### Unit Trust return extremes by sector

Page 20 | CONFIDENTIAL 0#### Conclusion We are in unchartered territory Significant structural and valuation risk in most asset classes

Page 21 | CONFIDENTIAL 0#### Global imbalances mean caution is appropriate Source: “If you have an unstable system, eventually something will cause it to collapse.” - James Rickards

Page 22 | CONFIDENTIAL 0#### Conclusion We are in unchartered territory Significant structural and valuation risk in most asset classes Need to manage downside risk Now not the time to gamble Asset allocation is critical.

Thank you

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