While the above represents our neutral position, we do make allowances for a discretionary adjustment to the equity risk premium implied. At present, we feel there remains a strong case to assume an exit multiple well below the historical average:

While we think recent adjustments to commodity price forecasts have better encapsulated the current macro environment, we continue to see risks biased to the downside for as long as GDP projections are being lowered. While acknowledging the tenuous relationship between SA GDP and the earnings growth reported by SA listed companies (large foreign-sourced earnings component and different composition), current expectations do not appear out of line but look vulnerable to any further cuts to GDP.

Our own commodity forecast profile anticipates that prices peak in 2013 and then begin to decline. For as long as investors believe Resource earnings are close to peak levels, the Resources sector will likely trade at a discount trailing multiple relative to history.

In what will likely prove a slower, more volatile growth environment for large OECD economies, with elevated forecast risk due to the reliance on policymakers, we believe equity investors will demand a higher equity risk premium than usual.

With a greater level of comfort around our earnings forecasts following recent downgrades and limited directional bias from commodities and exchange rates, we have reduced the amount by which we expand the equity risk premium from 50% in 4Q11 to 25%.This implies an exit PE multiple in two years' time of 11.1x. This aims to cater to downside risk to earnings forecasts in the interim, as well as the potential for a lower-than-average multiple for the reasons given above. Relative to our assumed neutral rating over time, our discount caters for earnings falling short of expectation by c.13% over the next two years.

Eoin Treacy's view The South African market is generally associated with the commodities sector because of the significant weighting of industrial and precious metal miners. However, a point often overlooked is that a number of Autonomies are also listed in the country from sectors such as brewing, telecommunications and luxury goods. In addition, South Africa's large young population is migrating into the middle classes. This is reflected by the relative outperformance of the consumer retail and food sectors.

The FTSE/JSE All Share is one of only four indices to have successfully held a move to new highs since August. The banking sector has outperformed the wider market since October and continues to extend the breakout to new all-time highs in nominal terms. A sustained move below 40,000 would be required to question medium-term scope for continued upside.

The Rand has surged versus both the US Dollar and Euro over the last month. Sustained moves above ZAR8 and 10.75 respectively would be required to check medium-term scope for continued outperformance.

For an investment community obsessed with the Eurozone's banking sector it is noteworthy that South Africa is not the only country where banks are leading. While a number of Europe's stock market indices are in cyclical bull markets the weakness of their respective financials remains a headwind which is currently being countered by profligate central bank support. For higher growth, less debt challenged economies, where secular bull markets are evident, one would expect banking sectors to perform at least as well as the wider market. As liquidity providers, banks should prosper in a bull market. They are often leaders and when they move to positions of persistent underperformance it is generally a sign of trouble to come. Banks are therefore worth monitoring.

Many industrial metals had a torrid time in 20011 and experienced deep corrections. However they have all bounced and copper in particular is testing its high. Additionally, the global liquidity situation cannot be ignored. Against a background of slowing global growth, central banks are busy expanding their balance sheets and injecting liquidity into their respective markets. Those with the capacity to do so are cutting interest rates. India and Indonesia have also announced large infrastructure development projects which may create demand for industrial resources.

BHP Billiton (yield 2.98%) has held a progression of higher reaction lows since October and a sustained move below ZAR25,000 would be required to question medium-term scope for continued upside. Anglo American (0.64%) exhibits similar recovery potential. Kumba Iron-Ore consolidated above the 2008 peak for much of 2011 and broke upwards to new high ground in January. Anglogold shares a similar pattern with the FTSE/JSE Africa Gold Mining Index and has been consolidating mostly above the three year range since late October.

In the energy sector, coal miner Exxaro (yield 2.95%) has rallied impressively over the last month to hit new all-time highs. While somewhat overbought in the short-term, a sustained move below ZAR17,000 would be required to question the consistency of the advance. Chemical/energy company Sasol rebounded impressively to challenge its April peak where it has paused. A break of the progression of higher reaction lows, currently near ZAR39,000, would be needed to question the consistency of the almost six-month uptrend.

Brewer, SABMiller (yield 2.2%) remains in a consistent medium-term uptrend. It unwound the overbought condition relative to the 200-day MA from October and broke upwards again last week. A sustained move below ZAR27,000 would be required to begin to question medium-term scope for additional upside.

Luxury goods manufacturer, Compagnie Financiere Richemont (yield 0.83%) has been consolidating in the region of the 200-day MA since early 2011 and is now retesting the peak above ZAR4,500.

Vodafone's South African unit, Vodacom (yield 5.28%), has been trending consistently higher since mid-2010. It accelerated somewhat this week but a sustained move below the 200-day MA, currently near ZAR8,600, would be required to question medium-term upside potential.

British American Tobacco (yield 1.36%) hit an accelerated medium-term peak near ZAR40,000 in December and is now reverting towards the 200-day MA. A sustained move below ZAR35,000 would be needed to question medium-term uptrend consistency.

Among more domestically focused companies, the pace of cement manufacturer, Afrimat's, uptrend has increased. A break of the rising lows would be needed to check medium-term upside potential.

In the foods sector both AVI Ltd and Tiger Brands are becoming increasingly overextended relative to their respective to their 200-day MAs. Clear breaks in their short-term progressions of higher lows are likely to suggest mean reversion is underway. Retailer Shoprite Holdings has a similar pattern but is less overextended. Higher end furnishings manufacturer, Steinhoff, broke upwards to new highs this week.

Investors continue to voice concerns about the quality of South Africa's governance. However, despite some unsavoury characters, the current administration has retained the comparatively sound economic policies of its predecessors in a sign of stability most were not expecting. There is significant room for improvement on the governance front but the performance of the currency, equity and government bond markets suggest investors are willing to give South Africa the benefit of the doubt.