Bonds were the best performing local asset class in 2008 yielding a return of 7% for December and 17% for the year. This was 5% higher than the 11.7% returned by cash for the year. Domestic equities yielded 1.5% in December delivering a dismal -23.2% returns for the year. This was in line with global markets which staged a year-end rally on the back of further rate cuts. Global economic prospects remain grim with recessionary conditions evident in the US, Eurozone and the UK. This is unlikely to turnaround soon as it will take time for the policy measures to have effect. This will provide strong headwinds to earnings prospects for most of the year with some improvement in the second half of the year. Our market, despite having better fundamentals will remain subject to the swings of offshore sentiment. Further rate cuts are likely both globally and locally which should be supportive of equity markets towards the latter part of the year. Local bonds performance will be supported by inflation moving back into the inflation target range by mid-year, another 300 basis point rate cuts during the year and global bonds remaining firm on deflationary fears. Against this background we will remain cautious favouring bonds over cash and looking to add cautiously to equities as the year progresses.