LONDON (Reuters) - World stocks' deep plunge into bear market territory is causing investors to seek short-term refuge in a defensive bunker, but a broad tumble in risky assets sets an almost perfect stage for a strong recovery later.

Stock indexes from India to Iceland have fallen more than 20 percent from their recent cycle peaks, thus qualifying for technical "bear market" status. MSCI's world equity index hit 21-month lows this week, falling 22 percent from its record peak of November.

However, this may be a case where the night is always darkest just before dawn when triggers for an upturn in risky assets emerge.

"We're essentially underweight risk assets and overweight risk free assets, that's obviously the way to play expectations for poor performance in equity markets," said Richard Batty, global investment strategist at UK-based Standard Life Investments.

"But we are looking for triggers ... triggers to crystallise the value revealed in equity markets, which have not materialised."

Such triggers may be already appearing in markets for some investors. Asked by Lehman Brothers about the best way to cope with a bear market, one in five investors said they preferred heavy allocation overweight to risk as they believe likely long-term pay-off compensates for portfolio value volatility.

"For those plan sponsors, insurers, and even high net worth individuals with the luxury of a long horizon, risky assets already are available at attractive discounts to strategic intrinsic value," the US bank said in a note to clients.

"The 'buying opportunity bohs out. The only question becomes timing," said Ken Fisher, chairman and chief executive of California-based Fisher Investments.

"The categories that were leading the market before the peak — energy, materials and industrials, emerging markets — all continue to lead and I think that remains in place as this corrective phase ends."

The banking sector has been the worst casualty for the one-year-old credit crisis, with the S&P bank index hitting record lows almost on a daily basis.

However, fund managers reckon exposure to banks in the fixed income arena can be in fact attractive.

Asset managers at Invesco Perpetual have bought a range of bonds issued by banks, boosting bank credits to 21.2 percent of its Monthly Income Plus Fund from 7.5 percent in May 2007.

Paul Causer, joint head of fixed income at Invesco Perpetual, noted that widening bank debt spreads over risk-free rates, now in excess of 300 basis points, meant that coupons for new issues were attractive.

"We believe that bank credit spreads now offer compelling value for investors," he said.

Asset managers at Investec say investment grade credit and better quality high yield bonds offer reasonable value as company balance sheets are holding up well and financing needs are limited.

Standard Life Investments has also switched its fixed income allocation into the UK corporate credit market, especially in the banking sector, from risk-free US Treasuries.

Standard Life's Batty says spreads on UK corporate bonds have blown out to 200 basis points over UK risk-free rates, which represent a worse than reality scenario.

"They are effectively pricing in depression and deflation, which would be too much," Batty said.

"Equity holders can be wiped out but the credit is much lower risk. (Even if they go bankrupt) there is some value left, as some assets can be sold off. Credit holders have the first call on this because they are higher up in the pecking order."

Elsewhere, Standard Life has been keeping a defensive portfolio of underweight cyclical equity markets, properties and other risk assets and overweight cash.

Swiss asset manager Sarasin believes an expected upturn in the economy by the year end would act as a springboard for risky assets.

"Although we have to face bad news on the economic front for a while to come, we should see an upturn by the end of the year," Sarasin's chief economist Jan Poser said in a note to clients.

"The financial markets won't fail to spot these signals of the economy bottoming out... Financial markets look ahead to the next upturn. We believe we are about to enter such a phase."