Despite a looming UK general election and a fiscal situation so bad it could yet prompt a ratings downgrade if not dealt with soon, Barclays Wealth is not advising investors to move out of the UK altogether yet.

This is because sterling looks cheap, particularly versus the euro, and the UK stock market is effectively the world’s most internationally-diversified large market, said the wealth manager. Instead, it advises nervous investors to hedge portfolios to deal with this risk, rather than restructure them.

Investors should, on the other hand, prepare for interest rate rises, says Barclays Wealth. While central banks are unlikely to raise rates until the end of the year, three-month money market rates could rise sooner, and do so faster than expected.

Therefore, in terms of liquid assets, investors should move towards traditional money market instruments as opposed to short-dated government bonds, it says.

On international markets, Barclays Wealth likes Japanese export stocks as, while it is not positive on Japanese equities generally, it thinks the country’s exports will benefit from economic recovery, particularly in its key trading partner China. It suggests a basket of currency-hedged Japanese export stocks.

Barclays Wealth remains bullish on commodities due to demand pressure from emerging market economies, and the fact that they have not recovered with their usual pace relative to equities by historical standards.