The biggest risk to investors this year will be rising global unemployment and the likelihood of it causing further economic deterioration, according to Forsyth Barr.
The broking firm says corporate earnings are likely to get worse early in the year and believes low investor confidence will dominate sentiment
until there is a clearer picture of how long the recession will last.
"Investor confidence has been rocked by the synchronised decline in global equities and recessionary outlook.
"This provides a complex new challenge for firms and investors, given the earnings outlook remains highly uncertain with the risk firmly to the downside," the company said in its outlook for the year.
Forsyth Barr was more confident about the New Zealand sharemarket and said that, based on past big corrections, the market was now at the bottom.
"The New Zealand equity market has historically taken around 15 months from a peak to a trough level with the average decline in the equity market ranging from -30 per cent (Asian financial crisis) to -50 per cent (broad recession 1990-92).
"The current New Zealand equity correction has already passed the 15-month period, falling around -40 per cent peak to trough."
But the report was still cautious about jumping back into the market, saying the global recession could prolong and deepen New Zealand's recession.
The firm said that in the short term investors should focus on companies with low gearing risk, strong fundamentals and less vulnerability to a deeper recession.
"2009 will remain a highly volatile environment for equities," the report said.
