A long position in oil or energy stocks is a good hedge against a potential threat to global equity markets, counsels BCA Research.

“World stock markets are in the midst of a correction, but the fundamentals point to higher prices by year-end,” it notes.

However, the firm says that, “One of the key risks to our view is the possibility of another spike in oil prices, which could crimp growth in the industrial economies and re-ignite inflation fears. Indeed, recent geopolitical tensions have pushed crude oil prices to their highest level in nearly four months (contributing to the weakness in equity prices in the past few days).”

“The favorable structural outlook for energy underpins our positive stance on oil and oil-related assets, but we also like them as a hedge against one of the key risks to our upbeat equity outlook,” it offers.