However, in the UK, Barclays argues that there is now a serious risk of a recession. Such a downturn could prompt investors to take a long position in relatively safe, defensive large-cap stocks and take a short, or bearish view of medium and small size firms, Barclays Wealth said.

“Although August might not have seemed especially eventful from a global investor’s point of view, it has been pivotal for a UK investor with home bias and inadequate currency hedging – serving to demonstrate how essential it is to diversify out of the UK, and look to insure against further falls in the value of the pound,” Michael Dicks, head of Research and Investment Strategy, Barclays Wealth, said.

“When it comes to the rest of the world, the sharp moves in currencies over the past month serve to demonstrate both the scale of opportunities in this asset class currently and the potentially huge costs of not hedging portfolios adequately. That is particularly important when several other asset classes – such as commodities – are no longer trending higher in the way that they were previously,” Mr Dicks continued.

Meanwhile, turning to specific geographical regions, Barclays Wealth said that in the US, the valuation gap for equities, based on revised earnings expectations versus real corporate bond yields, suggested there is plenty of upside for the S&P 500 index of equities. As a result, Barclays Wealth remains overweight in the US equity market. The UK is its least-preferred equity market.

“In Europe, valuations continue to suggest that equities should rally from current levels. But gathering clouds on the economic horizon mean equity markets are unlikely to break above their 2007 peaks before this time next year,” the bank said.

Barclays Wealth said most emerging market stocks look cheap at current levels although it would take time for indices to recover and should only be for the most long-term investors. It has, meanwhile, moved to a neutral stance on Chinese stocks, having been underweight.

On fixed income, it said that after two positive months due to some easing of inflation fears, there is still some value left in government securities compared with cash. Barclays Wealth prefers the highest rated end of investment grade corporate debt.

On commodities, it said supply/demand imbalances should continued to underpin prices although there have been some pullbacks recently. It expects some further slippage in oil prices, which it says are trading above fundamental fair value.