The basic conditions underpinning a favourable outlook equity market remain in place, says BCA Research.

In a research note published Thursday, BCA says that the key fundamentals for equities are valuation, the earnings outlook, and the liquidity climate. “On all three counts, the equity market outlook still looks favourable,” it says.

BCA indicates that by most valuation measures equities appear to be reasonably valued. “For the global index, both the price-to-earnings ratio and the price-to-book ratio are at the low end of their historical range, while the dividend yield compares favourably to bond yields,” it says.

On the earnings front, BCA says that if the economic recovery persists, which is its baseline scenario, then earnings should continue to see further gains, albeit at a slower pace than they did last year.

BCA believes that there’s little chance of an early tightening in monetary policy in the major regions.

“Against this backdrop, we are sticking with our advice to stay with a slightly overweight stance in stocks in 2011,” it concludes.

IE