Right now it is possible to make a bear case for pretty much every major currency on the planet. Similarly, it is difficult to argue a bull case for most mainstream assets. Seldom have such stark signs of the times been seen. What should one do?

On the eve of a tumultuous general election, Jeremy Batstone-Carr, the well-respected head of private client research at stockbroker Charles Stanley, implied that the outcome for investors was of limited relevance. Through a glass darkly, he sees a sustained period of deflation.

He is not alone. In recent weeks, deflationary fears have increasingly emerged among several key fund management groups that match, and in some quarters exceed, the fears of those who worry about inflation.

Deflationary forces are indeed powerful. The West has excess capacity, hence no wage growth, falling demand and so on. To some minds, an extended period beckons when the UK will look like Japan, with high taxes, lower consumer prices and no growth.

‘The outlook is extremely bad,’ declares Batstone-Carr, who believes an inflationary period is some way away. He says that before the early May convulsions in Greece, Wall Street and elsewhere, ‘bubble vision had led many to believe an economic recovery was at hand. This was a mirage and, like all mirages, it has now disappeared in a puff of smoke’.

He adds: ‘Ultra-easy monetary policy means conditions of supply and demand are not normal. Do not even think we face a double-dip recession because we have not recovered [from the first phase] yet. It all boils down to what is a recession and what is a depression. A recession is a pause in a period of secular growth as we had in the 1980s. I do not believe we are now in a period of secular growth.’

The past decade, he points out, was built on a bubble of credit. Not only is credit now more expensive, it is also harder to obtain. There will be aggressive deleveraging. He warns: ‘Things have got to get worse before they get better.’

Deflation, he predicts, will take a grip for at least five years. Investors must expunge from their minds the idea that investing in risk is about capital appreciation. ‘If you get appreciation in a period of deleveraging and deflation you will be very fortunate.’

Batstone-Carr is advising his firm’s clients and portfolio managers, none of whom are under any obligation to take up his advice, to focus their attention on capital preservation.

‘This is a time to think about return of capital, not a return on capital.’

Strong words, and there are more. He continues: ‘Seldom has there been a period of such volatility in the sovereign bond markets. And this is not exclusive to the “Club Med” countries. Bond yields are also rising in the US, which faces its own major budget problems.’

Conditions will not allow growth in heavily indebted countries and thus help bring down deficits, he says.

He is underwhelmed by the €750 billion (£644 billion) support package set up by European governments and the International Monetary Fund (IMF). ‘It brings a degree of stability in bond markets and the banking sector, but overall the package looks unworkable. It requires many agreements and political support. Just look at what the voters of North Rhine-Westphalia thought of Angela Merkel’s commitment to Greece in the May by-election. And I am not entirely convinced that taxpayers around the world [who fund the IMF] are enthralled about the continued socialisation of debt.’

Historically, after the last world war and in the depression of the 1930s, inflation was the way out of horrifically high sovereign debts so why not this time? Batstone-Carr says: ‘The inflation option is not one that any government or central bank will contemplate and this deleveraging process has a way to go yet. Logically, this means we are heading [back] to recession.’

Rising New Year equity markets appeared to lead many to believe the good old days were coming back. ‘But I don’t think they will come back,’ he says.

Batstone-Carr has been a stark realist for more than 12 years – roughly half his career as a prominent and well-travelled analyst – and believes the best asset option for investors is equities as the returns on alternatives, such as cash, are poor. He favours big, strong global companies, plus selected sovereign bonds. ‘I like Canadian sovereign bonds and, until recently, Australian. But my stiff upper lip has now gone a bit wobbly on that one.’

Batstone-Carr’s regard for big companies places him squarely in his comfort zone. As head of research, this is his bag. With his team of nine analysts, each one covering at least two sectors, he covers just large companies – ‘all the FTSE 100 companies and an eclectic group just below. Some 130 companies in all,’ he says.

His research efforts are served up to his firm’s clients and discretionary fund managers at Charles Stanley, a firm dedicated to private clients, who are mostly high-net-worth individuals. They are served by some 30 offices throughout the UK. Currently, the broker has a heady £12 billion under management.

In the Far East, Batstone-Carr believes insufficient emphasis has been placed on the recent fall of more than one-fifth in the Shanghai market, a decline that mirrors the debt and inflationary pressures on the Chinese government and is not a good omen for metal prices. ‘There is an excessive downside,’ he says.

Today, in a period of turmoil and angst, Batstone-Carr believes the best exposure to emerging markets ‘is right on our own doorstep’, through global companies within the FTSE 100 index.

‘This is a better way of carrying emerging market risk than through direct investment in the region,’ he says.

Shares on the Batstone-Carr buy list

Batstone-Carr’s specialty area is pharmaceuticals, and he is bewildered by what he terms the market’s ‘crazy obsession with financials and cyclicals – “low beta” areas such as engineering, retail and media’. Given his pitch, there are only two drug companies on his screen: AstraZeneca and GlaxoSmithKline. He is not enthusiastic about the former.

‘AstraZeneca’s products are heading for the off-patent cliff and the company has relatively little in the new drug pipeline. It is cash-generative and might find something under the microscope, but GlaxoSmithKline has been through the off-patent peak and has substantial, late-stage products in the pipeline. And it is flag- planting in emerging markets.’

He is especially keen on Unilever, whose new management is ‘doing a good job in concentrating on fewer products – higher volumes and higher margins’, while the company has a strong presence in emerging markets.

The same is true of Associated British Foods, another FTSE 100 constituent under new management – the latest generation of the Weston family dynasty.

‘Associated British Foods is a great company, brilliantly managed but now with a punchy rating,’ he says. However, its premium rating leads him to believe better value can be found elsewhere.

Reckitt Benckiser, the household goods giant behind brands such as Cillit Bang, is equally highly rated but, in this instance, the rating is justified. ‘It will be vulnerable to periodic slip-ups, but we do like the company.’

Batstone-Carr is also recommending the two oil majors, and believes the equity market has overreacted to BP’s calamity in the Gulf of Mexico. ‘Should BP’s dividend yield be as much as 6.9 per cent?’ he asks.

He is particularly keen on cash-generating companies with a progressive dividend policy – in other words, companies that return capital. In this category, few can match British American Tobacco, the tobacco leviathan. ‘BAT has been the best-performing FTSE 100 member in the past 10 years. A total return of 400 per cent.’

Batstone-Carr is also supportive of Imperial Tobacco and is not overly concerned about tobacco’s pariah status. ‘The latest thing is the banning of branding on packets of cigarettes sold in Australia. Tobacco is an industry that will never be clear from doubts.’

Batstone-Carr also believes value can be found in telecoms. ‘They are looking increasingly utility-like and the most under-owned sector in Europe by the professional [fund management] industry. I like Vodafone, and its potential yield of 5.4 per cent, but I am not particularly enthusiastic about BT. Why? Its pension fund. This has a substantial but unspecified deficit.’

The other telecom company he recommends buying is Cable & Wireless Worldwide, now set free from the UK business of its former parent company. ‘We argue this is the more dynamic of the two constituent parts. It is more highly rated than Cable & Wireless Communications,’ he points out. His medium-term forecasts place the company on a prospective yield of more than 4.7 per cent.

‘We are also very keen on National Grid. Sure, it has a lot of debt, but it is earning money to pay off that debt.’ Centrica is another state spin-off he believes is worth buying. ‘On our forecasts, the prospective yield is 4.7 per cent.’