Investors seek safe havens

Worldwide stock markets have taken a battering

World stock markets have had a torrid time over the last year. Major economies were seen as verging on recession - and then America was attacked.

Since then, central banks have been busy slashing interest rates and introducing other economic measures to try to kick-start the global economy.

But the future still appears uncertain. City pundits are now divided on whether central bank action will work, and if the world will yet fall into a full-blown recession.

But whatever the long-term future holds, ordinary investors should brace themselves for many more weeks of uneasy market conditions.

Sectors suffer

What should private investors do?

Insurance, airline operators, travel agents, and hotel groups have been especially by the economic turmoil stemming from last week's attacks, and have joined the ranks of technology, media and telecom (TMT) firms in investors' bad books.

In some instances, the impact was dramatic.

One of the UK companies worst hit was British Airways, whose stock lost one fifth of its value after the terrorist attacks, making it the worst performer in the benchmark FTSE 100 index.

Sectors gain

And if investors are selling airlines, where are they putting their cash?

Food, pharmaceutical and defence stocks traditionally benefit during times of civil unrest and war.

The price of resources has also risen. Any tension in the Middle East tends to push up the price of oil.

Although the Organisation of Petroleum Exporting Countries (OPEC) has capped oil prices at $25 a barrel, crude was trading at $27 on Wednesday morning.

Henk Potts of Barclays Stockbrokers has forecast that oil firms BP and Shell will benefit from the rise.

Security companies and specialist telephone companies trading on the US market have also done well since the terrorist attacks.

Golden future

Gold bullion is traditionally seen as a safe haven in times of stock market volatility.

And since the attacks last week, prices have risen to an 18-month high.

People in economies affected close to Afghanistan are also likely to turn to gold, but not in its bullion form.

Converting cash into jewellery is one way people try and protect themselves from the prospect of inflation.

Should I sell?

You may be tempted to sell if you have seen your shares tumbling in the last week.

But experts advise people to think long-term, and try and ride out the storm.

They believe that while the market may fall further, the heaviest losses have probably passed. It might be hasty to panic sale.

"You have got to sit it out now," Mr Potts says. "You have probably already suffered the losses so it may be a case to see how the market pans out."

James Dalby of Bates Investment Services, an independent financial adviser, agrees.

"A knee jerk reaction to what happened last week is not what is called for - it will only crystallise your losses."

So, should you buy?

It is always difficult to judge whether a market has reached its lowest level - and it could always fall further.

However, on a historical basis the market is quite low.

For example, the FTSE 100 is now at its lowest level since mid-1998.

If you invest through a collective investment fund, your fund manager should now be re-balancing the portfolio to make sure there are some equities in defence, food retailers and pharmaceuticals.

But in many cases, it is now too late to make a fast buck in defensive stocks as they have already risen quite significantly. You will have to think long-term.

If you have American stocks in your portfolio or are investing in a US-based fund, the advice from experts is also to ride out of the storm.

"Do not avoid America, or UK and Europe - these are three essential areas of a portfolio," Mr Dalby says.

"But the key to investing is spreading your risks across a range of different sectors."