Investment markets have deteriorated rapidly in the past two months as the credit crisis spilled across into equities and other asset classes, according to Martin Gilbert, chief executive of the £100 billion fund manager Aberdeen Asset Management.

"I think people are only beginning to realise the effect that the sub-prime mortgage markets had on confidence and the ability of investment banks to use their capital," Mr Gilbert said.

"What we are seeing is the banks hoarding cash and protecting their balance sheets. I can't believe that the world is going to be unaffected. I think we are talking ourselves into a slowdown."

Mr Gilbert said he was "not negative on the UK specifically" and there are still buying opportunities in specific areas of the stock market, in particular financial services companies such as banks.

He said, internationally, Aberdeen had been investing in property markets in continental Europe and Asia. He said the fund manager had "very limited exposure" to UK or US property.

"There are almost two worlds. The UK and US and the rest of the markets. There' s a big difference in yields," Mr Gilbert said.

Aberdeen said it was cautious about the outlook for world financial markets and the potential knock-on effect on new business, it said today as it reported an 18 per cent increase in full-year pre-tax profits from £79.9 million to £94.3 million.

Assets under management rose 30 per cent to £95.3 billion over the 12 months to the end of September, although they have topped the £100 billion mark since then, Aberdeen said.

Aberdeen said its traditionally conservative and value-driven approach to investment markets meant that it managed to escape the turmoil that hit mortgage-related structured credit markets in June. Earnings per share rose 24 per cent to 11.1p and the firm will pay a 5.5p dividend for the full-year.

But Aberdeen said that it had reduced its exposure to the "overvalued" Chinese market, drawing explicit parallels with the sub-prime crisis and collateralised debt obligations.

The move follows a warning from Warren Buffett, the American investment guru, who recently declared the Chinese market was "too hot".

Mr Gilbert compared China to the technology bubble of the late 1990s. He said: "It's a liquidity and confidence-driven market and I cannot see how it will be sustained." Aberdeen stall has £1.2 billion of exposure to Chinese companies listed in Hong Kong, a spokeswoman said.

Charles Irby, chairman of the fund manager, said: "Our core equity managers have stuck to their process of only investing in stocks that meet their strict quality and valuation criteria. Thus they now have in general significantly lower exposure to China and the resource sector than either benchmarks or their peer groups."

Shares dipped 2.25p to 165.25p.

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