Bank J Safra Sarasin has said that in order for the current stock market rally to continue, economic indicators need to remain positive but not so positive they they trigger tapering.

Equity markets are expected to continue reaching record highs in the first quarter of 2014 provided that economic indicators remain positive, says Bank J Safra Sarasin, the private banking arm of the Safra Group. However, the bank warned that too positive indicators could trigger a tapering of quantitative easing and stop this very same trend. 

"Tapering is likely to push interest rates higher, which would reduce the appeal of dividend paying securities," it said in a press release. 

According to Bank J Safra Sarasin, a with the latest stock market rallies driven by loose monetary policies and healthy economic indicators, economic improvement could raise concerns about tapering, which could then impact equity markets. On the another end, a deterioration in economic indicators could also halt stock market advances as risk aversion intensifies.

Thus, the bank said that in order for the current stock market rally to continue, economic indicators need to remain positive but not so positive they they trigger tapering. 

Based on the price/earnings ratio, equity markets are slightly above long-term averages (about 7 per cent higher than the 10-year average). The longer the hunt for yield lasts, the more likely that P/E ratios will continue to overshoot. In addition, many indicators are already at peak levels, making further improvement difficult. 

"The window of opportunity for rising equity prices will remain open through the first quarter of 2013. Tapering is unlikely to become an issue until the end of the quarter," commented Gabriel Bartholdi, strategist for the firm.

Bank J Safra Sarasin operates in Asia through its main offices in Singapore and Hong Kong.