Investors should expect modest returns from the equity markets in 1999 and be prepared for periodic bouts of uncertainty, according to Hibernian Investment Managers.

It is cautioning that despite a good start this year the markets will remain volatile. It forecasts continued low, or possibly lower, interest rates and a slowdown in global growth this year. And company profits are unlikely to grow as quickly as some analysts are forecasting, it warns. But despite these concerns, Hibernian believes equities will deliver better, albeit modest returns compared to bonds or cash.

It favours investments in Europe, including Ireland, but remains cautious about Britain where fears of a recession are already beginning to be reflected in share prices. The big question for 1999 will be the extent of global economic slowdown and the response of policymakers to it - in the form of interest rates and fiscal policy. Focusing on the Irish market, Hibernian says that as a whole it remains underpinned by relatively attractive valuations in a European context and will continue to benefit from strong economic growth.

In Europe, it recommends that investors should favour the bigger capitalised stocks and the peripheral markets. "The results season will no doubt bring surprises both negative and positive but should put Europe's outlook on a more stable footing."