The enduring equity market rally is being supported by three powerful forces — improving macroeconomic fundamentals, solid corporate earnings and abundant liquidity.

Korea; the US debt ceiling debate and the Fed’s start of balance sheet tightening; the ECB starting to withdraw its ultra- loose monetary policy; and the US’s more confrontational approach on trade issues with China and Mexico. The North Korea-related risks have clearly gone up with the recent nuclear test and the successful firing of an intercontinental ballistic missile with the potential to reach the US mainland. North Korea’s increased belligerence raises the risk of a miscalculation.

The above factors may cause some indigestion for equity markets in the coming one to three months. However, we do not believe they will be sufficient to derail the bull market for global equities, now in its ninth year, given the robust fundamental backdrop highlighted earlier.

To recap, corporate revenue and earnings growth continues to surprise positively in major markets on the back of accelerating and synchronised global economic expansion, supporting high equity market valuations. Meanwhile, contained bond yields and a gradual pace of central bank policy tightening are likely to continue providing a favorable environment for equities.

Hence, we doubt that any pullback, while overdue, will be deep or prolonged.

It would likely take a significant escalation of risk events to pull equity markets sharply lower, given the still extremely supportive fundamentals. Therefore, we would prefer to ride out the potential volatility and take a dollar-cost averaging approach to equity investments, accelerating purchases on any market weakness.