A week of turmoil in the stock markets has left UK investors feeling battered. Pension and investment funds have taken a sharp dive, as the FTSE 100 index of leading shares has lost 356 points over the past two days and threatened to drop below the psychologically significant 6,000 barrier.

Since July 13, when it peaked at its highest this year at 6,716, the FTSE has fallen by more 10 per cent.

Now, after four years of rising share prices, many people are asking if this is the time to sell. There is a strong temptation for jittery investors to cash in their chips.

Jeremy Batstone, head of research at Charles Stanley, the stockbroker, said: “The worst-case scenario is that the collapse in the US sub-prime mortgage market is the trigger for sharply lower consumer spending. If the US consumer starts spending less this could, in turn, hit the global economy, triggering a world recession. Asia, which has up to now been a key engine of world growth, could be dragged down by the US.”

But so far there is little sign of private investors becoming rattled and rushing for the exit in the latest market falls. Mr Batstone said that he was urging his own clients to stay put.

Most of the current selling appears to be from fund managers needing to meet redemption demands.

Many fund investors are nursing heavy losses. Figures from Bestinvest, the independent financial adviser, show that over the past month the worst-performing fund was the Legg Mason Japan Equity fund, which lost 11.3 per cent, while Invesco Perpetual US Smaller Companies lost 9.7 per cent. Among the worst performers were two funds from the Artemis stable – Artemis European and Artemis Capital.

Justin Modray, of Bestinvest, said: “Their stock-picking system can suffer during periods of sudden market change, though they did bounce back quickly after heavy falls last summer.”

But despite the latest sharp setback, most market commentators are urging investors to hold on. John Hatherly, of Seven Investment Management, the wealth manager, said: “The message is don’t panic. We are seeing a reaction from a market which has been hitting near all-time highs this summer.”

He pointed out that UK shares had a setback in May last year and again this February, but in each case they went on to recover and such market setbacks were a regular feature of bull markets, such as the one that ran from 1987 to 2000. He added: “Unless the world is going into meltdown, which I don’t believe, I think the market will recover again.”

He said the situation today was quite different from 2000, when the last bear market began. Then some stocks were heavily overvalued, with price-earnings ratios of as much as 60.

Today the stocks in the FTSE 100 are on p/e ratios which average about 13, which is not only much lower than 2000 but lower than the valuations they had at the bottom of the bear market in 2003. Higher earnings have allowed share prices to grow without becoming too expensive.

Mike Lenhoff, chief strategist at Brewin Dolphin, the stockbroker, agreed that shares were not overvalued and expected the market to resume its upward trajectory after the latest tumble. The broker’s forecast for the year-end level of the FTSE has not changed. “It was 6,550 before the index topped 6,700 and it remains 6,550 today.”

But some private investors may wish to disregard the commentators and sell their shares. Brian Dennehy, of Dennehy Weller & Co, an independent financial adviser, said: “If investors want a really safe haven then the only one is cash. But if you are prepared to tolerate some risk then you could buy a guaranteed equity bond.

“These bonds promise to return a set percentage, typically 100 per cent, of any stock market rise over a fixed term, usually three to five years, with the safety net that if the market falls investors receive back their initial sum in full.”

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