The recent near-term downside for global equities will be limited if bond yields decline, says BCA Research.

Global equities have corrected by 5% in the past three weeks, as investor risk aversion has risen, BCA observes in a research note.

“The drop in share prices followed a steady climb in bond yields. However, stocks got some support last week as global bond yields edged lower,” it observes. “In the past three years, equities have struggled whenever bond yields have risen, but subsequently rebounded once bond yields rolled over.

“We believe worries about stagflation are misplaced, such that bond yields will fall as global growth cools. While the equity correction may have further to run, we advise investors to focus on bond market behaviour; a further decline in bond yields would help stabilize global stock markets,” it concludes.