Tapering won't hurt equities too much – ING IM

TaperingA decline in risk and a less uncertain atmosphere in the markets means the start of tapering should not affect equity values too badly.

The prediction comes from Patrick Moonen, senior equity strategist at ING Investment Management International, who says risk appetite should support flows into equities in the coming months.

“Improving earnings, continued loose monetary policies, a lack of event risk and a broad decline in uncertainty are all good for risk appetite,” says Moonen. “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.”

Equities are not cheap, though. Moonen notes that equity valuations are at their highest level since 2010, about 45% higher than the lowest point in the recent cycle.

He predicts prices are “probably close to the top of the current valuation cycle”, but does not expect a big decline in valuations.

“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.”

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