With equity markets recently suffering their worst falls since 9/11, a plethora of analysts notes has been issued to calm the nerves of private investors who may be tempted to exit the market. Despite recent market turmoil, Barclays Wealth says that it retains its conviction in its long-term - and long- held - view that equities will outperform bonds. However, Michael Dicks head of Research, at Barclays Wealth says he remains worried that the overly-negative reaction of markets will become more and more self-fulfilling, “polluting” economic fundamentals. In a statement, Mr Dicks said :”Usually, there are two sides to a market, with the forces of fear and greed playing out. But occasionally a situation develops where no-one is willing or brave enough to adopt one of these two frames – a market ‘funk’, which now seems prevalent.” According to Mr Dicks, the worry is that markets take on a life of their own, with fear pushing them down even in the face of mildly good macro-economic news. “In this world, the non-linearity of the real world may turn out to be a real issue: hence the 75bp cut by the Fed should, for example, have made a much greater impression than two equivalent smaller cuts. Clearly, a policy response of ‘steady as she goes’ (25bp per meeting) risked disaster.” Sounding a more positive note, Barclays Wealth says that employment data is imprecise and open to revision, and that the consensus view on retail sales has also frequently been proved wrong in the past. Mr Dicks pointed out that consensus forecast for US growth in 2008 has shifted down only very slightly and that those (few) forecasters who have dramatically moved down their forecasts have had excessive attention in the press. Barclays Wealth says it is unsure about how long the market “funk” will continue, and whether equity markets will plumb new lows before they find a floor and start generating decent returns again. “We suggest sticking close to home on asset allocation in the short term. For most investors, this doesn’t feel like a good time to be brave.” Guy Monson of Sarasin Chiswell points out that in large sections of the world’s markets, companies continue to enjoy an extraordinary run of earnings growth. He says that the firm plans to continue to retain its holdings in large high-quality global blue chips with strong balance sheets and international sales (especially to the Gulf and emerging markets). Sarasin is also planning to make reductions in larger positions in metals and energy stocks to reflect slower world growth. It plans to accumulate index-linked bonds for long term inflation protection. On days of excessive weakness, Sarasin plans to introduce exposure to quality financial stocks that exclude any balance sheet impact and blue chip quoted property stock with multi-year strongly covenanted rental income. Bob Doll, vice-chairman and chief investment officer for Global Equities at BlackRock provides some recent historical perspective, pointing out that equity markets have declined 15 per cent over the past 100 days, an event that has occurred eight times previously since 1970. Following those eight declines, markets were up in the one- and three-month periods that followed seven out of eight times, with average gains of 5 per cent and 8 per cent for the one- and three-month periods. He points out that over the past few weeks, technical factors (such as price momentum) and investor psychology have been driving the markets more than fundamentals have been. BlackRock does not believe the seemingly open-ended downturn will persist for too much longer. Michael Gordon, head of investment strategy at Fidelity International says that investors caught up in this maelstrom should do nothing. “History shows that this is usually the best course of action in such situations,” he said. “All too often private investors are sucked into a market at its peak and then exit at the bottom. Tempting as it might be to withdraw money when markets drop sharply, this merely crystallises an individual’s losses. “For our fund managers, the volatility has a silver lining. The sell-off brings many more opportunities for those willing to take a long-term view. Some of our portfolio managers believe that financials, one of the hardest hit sectors since summer 2007, are beginning to look attractive at their current levels. The shares of property companies have already begun to recover after losing more than a third of their value last year. “Before Christmas I forecast that UK equities would finish 2008 10 per cent lower than they started the year. The FTSE 100 Index has already fallen by almost 15 per cent since January 2. I stick by my original forecast: conditions could easily worsen in the short-term, but I am optimistic about the second half of 2008.“