During 2008 the domestic bond market was the best performing asset class, with a total return of 17.0 percent, Stanlib said on Friday.

"All of that gain was achieved in the second half of 2008, after a dismal first half performance," said Stanlib economist Kevin Lings.

The improvement in the past six months was helped by the sharply lower oil price, an improved inflation outlook and expectations of lower interest rates, he said.

This had generally been the case globally.

In contrast, the SA equity market declined by a massive 23.2 percent in 2008, Lings said.

"This makes 2008 the second worst annual (calendar) equity performance since 1960, and hence a very rare event," Lings said, adding that the worst yearly performance since 1960 occurred in 1970.

"During September/October it certainly looked like 2008 would actually be the worst year since 1960, but a slightly better performance in November and December helped to provide some stability towards the year-end."

However, Lings pointed out that if the investor had managed to avoid the negative returns that occurred in September and October, his annual equity performance would actually have been a small positive.

In the 49 years since 1960, the SA equity market had recorded a decline in 14 of the years (including 2008), which is 29 percent of the time, Lings said.

"Stated differently, the equity market declines on average one in every four years.

"Despite this reality, equities remain the best performing asset class over any extended period of time."

Lings said research showed that SA equities had never yielded a negative return over any four year rolling period, and had outperformed the bond and cash markets over any period longer than six years.

According to Lings, a large number of investors during the past year reduced their equity holding and moved their investments into cash.

"While this would have proved beneficial in 2008, it is key to recognise that the returns from cash have generally struggled to keep pace with inflation over extended periods of time, and that simply remaining over-invested in cash will ultimately prove unsatisfactory when compared with other asset class returns," he said.

Sapa

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