Another shakeout in risky assets appears to be underway following explosive gains in recent weeks, says BCA Research.

“Renewed concerns emanating from weakness in U.S. housing, further turmoil in the financial sector and credit markets have sparked a broad-based selling of financial assets. Over the past couple of days, implied volatilities have moved higher, carry trades have begun to unwind, stock indexes across the globe have taken a haircut and government bond markets have rallied,” it notes.

BCA adds that, while further downside is probable in the near term, a bear market in risky assets is unlikely. “The global economic backdrop remains decent despite a weak U.S. economy, and further monetary easing will be provided,” it says.

“Investors should continue to bet on reflation, but also to expect heightened volatility and a further narrowing in breadth of the advance to persist heading forward, particularly in the U.S.,” BCA concludes.