This, coupled with its expectation of an improving global economy, means it is not overly concerned about the impact of tapering on equities.
Patrick Moonen, senior equity strategist at ING IM says: “Equity valuations are at their highest level since 2010, and are up around 45% since the cycle lows. Price earnings ratios in both the US and Europe have increased substantially over the past two years, and are now close to or above their long term average. We are probably close to the top of the current valuation cycle, but we don’t expect a big decline in valuation metrics. Global monetary policy remains easy and risk-appetite supports flows towards the equity market.”
“European third quarter earnings have been weaker than US earnings, especially on revenues, but in Japan the rising earnings trend continued in Q3. Meanwhile, notable risks to earnings are potential negative impact of difficulties in emerging markets and currency volatility.”
“Overall, the fundamental outlook for equities remains positive, provided (political) turmoil does not last long enough to derail investor confidence. Over the next 12 months, equity performance will more or less be in line with earnings growth.”
Patrick Moonen: “Relative to corporate bond yields, equities are still attractively valued. Equity risk premia are still far above the long term averages, and they act as a ‘buffer’ against a general rise in interest rates – when they come.”
“Improving earnings; continued loose monetary policies; a lack of event risk and a broad decline in uncertainty are all good for risk appetite. Given this, we are not overly worried about the impact on equities from the start of tapering, especially as this goes hand in hand with an improving economy.”