BCA Research predicts that 2007 will turn out to be another good year for equities.

“We expect a re-rating of global equities, enabling them to post solid returns again this year,” the firm says in a research note.

“A rise in P/E ratios is likely in 2007 as the Fed embarks on monetary easing in response to slower U.S. economic growth,” BCA says, adding, “History indicates that a rise in P/E multiples should more than offset a modest deceleration in earnings growth to keep the equity bull market on track.”

“Moreover, equity valuations look highly compelling relative to bond yields, which should induce investors to switch into stocks if our soft-landing scenario for the global economy pans out,” it says. “Scope for a re-rating is greatest in the emerging markets, which remain our favorite equity play for 2007.”