Global equities are likely to struggle in the near term suggests independent research firm BCA Research in a research note.

The firm predicts that, “a backdrop of tightening liquidity and a downgrading of earnings expectations”, will hamper global equities.

“A defensive sector and country strategy will be appropriate for a while longer, benefiting European equities relative to their U.S. counterparts,” it suggests.

However, it adds that a rotation into more cyclical markets will be appropriate during the first half of next year, “a time when economic expectations are likely to be excessively downbeat”.

“Relative strength in U.S. equities will be supported by a shift in liquidity conditions as the [European Central Bank] moves to hike while the [US Federal Reserve Board] backs off,” it says. “Moreover, the relative valuation advantage of European equities is eroding and our risk measure is starting to tilt in favor of the U.S.”