Caution prevails; invest in government bonds, says Merrill Lynch GWM

"We are very cautious on 2009," says Gary Dugan, chief investment officer of Merrill Lynch Global Wealth Management in Europe, Middle-East and Africa and author of Year Ahead 2009 . "Equities are attractively valued but investors need to take a limited risk to achieve modest gains," Dugan told reporters at a press conference held at Merrill's London offices this morning.

While Dugan advised that a Merrill absolute return fund would allocate up to 25% in equities that have a distinctive Western European or China flavour, he offered caution to those wooed by the snap recovery in equity markets that followed the depression in the 1930s and in 1974. "The 60% returns in the years that followed these recessions will not happen this time round because of deeper structural concerns from this crisis," says Dugan.

Maintaining his cautious outlook, Dugan suggested that