Where in the world to invest your isa

With stock markets markedly lower after two successive years of decline, investors are understandably nervous about putting money in shares to mop up their Isa allowance for this tax year.

But if you do take the plunge, where in the world should you invest?

Economists tip the US and the UK markets to make the largest gains - but don't expect anything dramatic.

Michael Hartnett, director of European Investment Strategy at investment house Merrill Lynch says: "US interest rates are low, unemployment is rising and when company profits do rebound, the stock market will look good."

But he warns the market already looks pricey so progress will be slow. He forecasts the S&P 500 index up 6 per cent to around 1,200 by the year end.

He predicts a similar rise in the UK FTSE 100 index to 5,500 but warns if the US market fails to rise, other markets will struggle.

John Ross, portfolio strategist at giant Fidelity Investments agrees: "Expectations for economic growth in 2002 are broadly optimistic and the US is likely to take the lead in steering world markets."

Jason Hollands, director at stockbrokers BestInvest says: "The most important thing in these difficult markets is to ensure you have a balanced portfolio. We favour the UK but if you already have a hefty chunk of your money here, you need to look elsewhere."

Warren Perry from independent financial advisers Whitechurch Securities says: "Consider keeping your money at home especially if you have invested in technology, Europe, healthcare or theme funds in the last three years."

Be prepared to invest for at least five years. If you invest money you might need soon, you could be forced to sell when markets are low. But a five-year view leaves sufficient time for share prices to rise.

US: Rising unemployment could cause spending to slow down, but investors are anticipating greater government spending and historically low interest rates will boost the economy. The performance of the stock market will depend on how company profits do. These should be boosted by lower energy prices, lower debt costs, general cost cutting and economic growth.

UK: Unlikely to outperform the US but in its favour share prices are attractive compared to bonds and other markets. The small and medium sized company sector could perform relatively well if growth in the domestic economy meets expectations.