Brave investors were urged to buy beleaguered British retailers, banks and housebuilders last week, despite warnings that the bear market could last well into next year.

Stock markets in general are expected to remain choppy for the next six to nine months as investors fret over the double whammy of slower growth and higher inflation, especially as oil hit $143 a barrel last week.

However, many British banks and retailers have already slumped by as much as 60% from their peaks last year as traders have priced in a 1990s-style recession. If this is avoided, as many economists believe it will be, investors will be able to snap up household names at bargain prices.

The FTSE 100 index of leading companies closed down 91 points last week at 5,530 after a sharp global sell-off on Thursday. The turmoil was sparked by fears that banks in Europe and America will have to raise yet more cash from shareholders to beat the credit crunch. British banks including Royal Bank of Scotland, Halifax Bank of Scotland and Barclays have already been forced into cash calls worth about £20 billion.

The falls were exacerbated when Opec president Chakib Khelil suggested crude oil could soon top $170.

The Footsie is down by 18% since it topped 6,700 last June. Analysts including investment bank Morgan Stanley and broker Brewin Dolphin think it could fall another 10% to about 5,000 before the bear market ends.

The market is already down by 26%, though, if you strip out oil and mining shares, buoyed by the soaring price of crude, according to Mike Lenhoff at Brewin Dolphin.

The bottom third of UK stocks, which include many banks and retailers, is already down by around 60% from the market peak, according to investment bank Citigroup.

Lender Paragon is down 90%, Bardford & Bingley has slumped 80% and builder Taylor Wimpey has slid 81%.

The heavy falls are in spite of the fact that America looks likely to avoid the two quarters of negative growth necessary to declare a recession. The Federal Reserve has cut rates aggressively to boost the economy and consumer spending and payroll numbers have been remarkably robust.

Lenhoff said: “If evidence of recession doesn’t come through in the next three months, I don’t think it will come through at all. And if that happens, you have to be a buyer of banks and other consumer-facing stocks if they are still at current levels.”

It is a closer call in Britain, where the Bank of England has been less aggressive in cutting rates and the property downturn is a step behind the US. However, most economists still think the UK will avoid a recession.

Graham Secker at Morgan Stanley said: “Our analysts believe the market is factoring in a severe slowdown for domestic banks, retailers and leisure companies. However, we assign just a 20% probability to an early 1990s recession and think that valuations in these sectors look compelling.”

Secker would buy British Land, DSG International (owner of Dixons), Home Retail Group (owner of Argos), and Royal Bank of Scotland — if you believe the UK will suffer only a moderate economic slowdown.

Plenty of analysts are more bearish, RBS analyst Bob Janjuah caused a stir when he warned clients of a full-scale crash in the next three months. “A very nasty period is soon to be upon us — be prepared,” he said, and warned that America’s S&P 500 could fall 20%. If the Footsie replicated such a fall, it would take the index to 4,440.

Others believe we are still only part of the way through the bear market that started with the tech crash. In his book Anatomy of the Bear, American historian Russell Napier estimated that the typical bear market ends 14 years after it started, which would mean the Footsie will not get back to its all-time high of 6,930 until 2014.

Most analysts agree it is too late to sell. If you have a balanced portfolio, they suggest you sit tight — while brave investors could start dripfeeding money into the markets.

Richard Buxton of Schroders said: “Yes, we are in for a tough time and there may be another sell-off, but valuations are cheap and an awful lot of the bad news is already priced in. It is too late to sell, investors need to look through the volatility — I am investing aggressively on downturns.”

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