Markets Have Not Bottomed; Stay Cautious: Analysts

Some investors may see the sharp fall in global stock markets driven by fears of a euro zone breakup as a buying opportunity, but analysts warn the market is yet to hit the bottom and investors should tread cautiously.

Photo: Oliver Quillia for CNBC.com

"It's not a time to chase for returns, it's a time to preserve capital," Sani Hamid, Director of Wealth Management, Economy & Market Strategy at Financial Alliance, told CNBC.

A surge in the Italian 10-year bond yield past 7 percent on Wednesday sent investors rushing for exits on fears that Europe's third biggest economy would need a bailout in the same way Ireland and Portugal did and cause a potential breakup of the euro bloc.

Asian markets, as measured by the MSCI Asia Pacific Index, were down 3 percent on Thursday, following similar steep losses in the U.S. and Europe.

But despite these declines, Hamid believes we have not yet seen the bottom and is advising clients to avoid buying right now.

"If you look back at history into the Asian crisis, and into the crisis of 2008 in the U.S....from the top to the bottom of the market took about one, one and half years to settle. We are just merely into the sixth month of the top of the market in Europe, so I think there is still some way to go," he said.

Staying defensive and in cash is the best way to go, according to Hamid. He adds that one should re-enter the market sometime in the first half of 2012, when markets have truly capitulated.

He believes investors have yet to truly discount the bad news. "I think bad news in terms of growth. Everybody is saying growth will slow down globally, but I think a synchronized slowdown will surprise a lot of people."

The only certainty in this current market is uncertainty, say analysts as Europe's problems linger on.

Stuart Oakley, Head of Emerging Markets FX Trading at RBS, says, "Whatever the solution ends up being, we are still days, weeks, months away from that happening. The market is going to be riddled with uncertainty for weeks and weeks and weeks."

According to chartist Daryl Guppy, CEO of Guppytraders.com, there is more risk than value in the market currently. “If you look at the VIX, or the key volatility gauge, it tells us volatility is likely to continue. That's simply all that it's telling us at this point in time."