Investors should gradually put money into relatively risky assets such as UK equities and stocks should start to recover by the end of this year after an uncertain start, says JPMorgan Asset Management.

“In uncertain markets such as these, it makes perfect sense to dribble money in on a regular basis,” Tom Elliott, global strategist at the investment firm, said in a note.

A significant and sustainable rally in stocks is unlikely to occur until all unpleasant economic surprises are out of the way and until leading indicators of risk, such as the spread between interbank interest rates and official rates, have moved, Mr Elliott said.

At present the gap between the Bank of England official interest rate and three-month Libor is about 45 basis points. In calmer economic conditions, Libor tends to closely follow official interest rates.

“A continuing decline in corporate earnings and earnings forecasts, together with fears of a bubble in government bond markets and low bank account cash rates, will be a feature of the first half [of 2009]. But the year may end on a happier note for equities, as investors start to anticipate economic recovery,” Mr Elliott said.

He warned investors to be wary of short-term, “bear market rallies” and said people should wait for an end to unpleasant surprises from economic news before committing significant sums to the stock market.

JP Morgan’s investment bank predicts that the UK economy will contract by 2.2 per cent this year, with much of the decline concentrated in the first six months of 2009.

“This [GDP forecast] is not so different from consensus within the City, which sees a recovery taking place in 2010, fuelled by large increases in public spending and continuing loose monetary policy,” Mr Elliott’s note said.

Mr Elliott said stocks, corporate bonds and other “risk” assets tend to move six months or so ahead of changes in the real economy, so a sustained stock market rally could be under way as early as the third quarter of this year.