Global stock markets are closing out August on a high as investors grow increasingly confident about the world economy and analysts expect the buying momentum to continue into September.
Major equity markets around the world are trading at, or near, the highs for the year. U.S. stocks have been a standout, with the S&P closing above 2,000 this week for the first time ever. In Europe, the Stoxx Europe 600 has rebounded from a sell-off earlier this month to trade 4 percent higher year-to-date.
Stocks in Asia also had a decent showing, with the MSCI Asia Index rising 5 percent so far this year and up 14 percent since the year-low hit in February. India is the notable out-performer, with both Sensex and Nifty broke fresh life-time records this month. Shares in China and Hong Kong are hovering at 2014 peaks, while Australia's ASX 200 is at its highest since the global financial crisis six years ago.
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Against this backdrop, is the rally set to continue?
"Yes, I think so," said Mikio Kumada, global strategist at LGT Capital Partners. "The correction that needs to happen has already happened, so global markets are likely to trek higher from here."
Geopolitical tensions surrounding Iraq and Ukraine briefly roiled markets in July but shares made a turnaround in August. Kumada said European stocks have the most to gain in September.
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"What goes down hardest, often comes back up the most," he said. "The European markets' performance still lag that of the U.S., which more than doubled since 2009. I believe that Europe also has to be potential to do the same, if governments and the ECB get their policy right. Of course, timings will depend a lot on political news flow."
Kumada is also upbeat about the prospects for U.S. equities, despite calls that the market is due for a significant correction. "I don't buy the bubble argument. True, some sectors of the market such as high tech are a bit overvalued, but overall, U.S stocks still look reasonably priced," he said.
Sean Darby, global head of equity strategy at Jefferies, says equity markets are looking toppish, but he does not expect any meaningful correction in September as low interest rates will keep investors chasing for more lucrative returns in stock markets.
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"That's because most markets are still experiencing negative real interest rates, and under these circumstances asset prices will remain attractive and well-bid," he said.
China and Japan in vogue
Share markets in China and Japan may have headed in separate directions this year, but both could move upwards in tandem in September, analysts told CNBC.
Jefferies' Darby remains bullish on China's A-share market, which has outperformed its Asian peers. He expects the Shanghai Composite Index, which has gained 4 percent so far this year, to continue gains ahead of the link-up between Shanghai-Hong Kong stock exchanges in September, which allows investors in both exchanges to trade in each other's markets.
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Japanese shares, on the other hand, were clear laggards so far this year, with the Nikkei 225 falling over 5 percent, after breathtaking gains of 57 percent in 2013. Poor data and doubts over Prime Minister Shinzo Abe's policies to reboot the economy weighed on sentiment.
But LGT's Kumada is staying overweight on the market, expecting equities to outperform in next three to six months. "We don't see major risks for the Japanese economy in the medium term. If reflation appears to stall, the Bank of Japan will intervene," he said.
Market risks persist
To be sure, with traders coming back from their summer holidays in September, any rally could have its fair share of volatility.
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"There is a ton of downside this fall, but that is a function of the coming end to Fed's QE which ushers in a new era of rising interest rates and less grip on markets by the Fed," Clem Chambers, CEO of financial market website AVDFN, wrote in a note.
"This slow return to normality will likely be accompanied by shocks. The market is also very high. So put together, it's time to buckle up!" he added.
When asked about events that could upset global markets, both Darby and Kumada flagged escalation of tensions between Ukraine and Russia as a wild card.
"If that happens, it is wishful thinking to believe that only Europe will suffer. There's no way that a major BRICS economy's pain won't hurt the rest of the world as well," said Kumada.