'Keep Calm and Carry on' Buying Stocks: HSBC
Stock markets around the world have over-reacted to concerns the U.S. Federal Reserve will taper its bond-buying program and global equities are likely to gain another 7 percent by year-end, according to the global head of equity strategy at HSBC.
"The lesson of history is that the first tightening in a cycle – as long as it comes because risks to growth have diminished, not because of inflation or structural worries – typically causes only a short-lived correction in stocks," Garry Evans from HSBC said in a note on Thursday.
Evans said there were many bullish signs for global equities including 10 percent earnings growth and reasonable valuations. According to him, while growth is sluggish, the world is unlikely to see a recession and central banks will step in to help markets should growth deteriorate.
"Bernanke has made it clear that tapering is data dependent, and that the Fed could even increase QE if growth were to weaken," Evans said.
Global equity and bond markets have gone through a tumultuous period after the Fed Chairman Ben Bernanke signaled on June 18 that the central bank was likely to cut the size of its asset purchases if the economy kept improving.
HSBC recommends buying IT and financial stocks because of their cheap valuations and because those two sectors are likely to see the strongest earnings momentum. The bank also favors U.S equities, given the potential for further earnings upgrades.
According to Evans, the recent correction had taken some excess out of markets. "With no recession in sight, we find it hard to make a bear case."
- By CNBC's holly Ellyatt, follow her on Twitter @HollyEllyatt