Massive injections of taxpayer money into the Western financial system improved market sentiment last month, Forsyth Barr broker Tony Conroy said.
"It is possible that we have seen the market low and the recent positive momentum could well be maintained for up to three months," he said.
"Nevertheless, on balance, we see this as a bear market rally and expect further relapses as this global recession is likely to be protracted."
The New Zealand market rose only 4% in March while global markets mostly rose 15% to 20%, he said.
Forsyth Barr's preferred valuation indicators continued to show that the New Zealand equity market was undervalued and ripe for a positive move.
Earnings had been downgraded by about 35% since the bear market began in late 2007 and the market was now trading below the bottom of its normal price-earnings band on probably bottom-of-the-cycle earnings.
Investors should take advantage of depressed prices to increase holdings in core stocks with sound fundamentals, Mr Conroy said.
Forsyth Barr's top five picks remained NZX, Delegats, GPG, Kiwi Income Property Trust and Ebos Group.
However, further analysis suggested there could also be good value in Tower and to a lesser extent Steel and Tube Holdings, Methven and Cavalier Corporation, he said.
"Our investment strategy in the current markets remains biased towards safety.
"While we believe we should be close to the bottom for the New Zealand equity market, we acknowledge the potential for a prolonged downturn."
There was no need for investors to chase excessive risk in the current environment or to target stocks that had greater near-term earnings or balance sheet uncertainty, Mr Conroy said.
Instead, investors should back value and yield and have a bias towards stocks that should have lower downside earnings risk and sound balance sheets.
