The Federal Reserve has signalled it will start to “taper” its $85 billion a month asset purchases later this year and may halt them altogether by mid-2014. 

This, according to BlackRock, is causing considerable concern since it is “tricky [to] try putting toothpaste back into the tube”.

It is also unclear how and, indeed, whether markets have already priced the removal of the stimulus into their valuations. 

“What policies do markets currently price in? And, importantly, how would markets likely react to alternative scenarios? Policies are ever-changing, not static,” BlackRock stated.  

The group also points out that this is really a political decision, and politics often does not align well with market sentiment. 

“Central banks cannot enact structural reforms,” BlackRock said. “[Politicians can, but] the problem is politicians tend to act only when they have no other options left. They also have a much higher threshold for market pain than investors.”

The fact that there is no global co-ordination over the stimulus is also cause for concern. 

“An eerie calm has descended on Europe” and the Bank of Japan is experimenting with an “all-in, $1 trillion-plus stimulus bet,” according to BlackRock. 

The asset management firm sees real problems in the emerging market too. Data shows signs of a slowing of growth and there is not an obvious answer for how countries could pick up the slack.  

“This is bad news...Emerging markets have powered world economic growth since the [2008] crisis. Are developed markets ready to take over as growth locomotives?” It is tough to see, BlackRock said.

But according to the group's analysis, this does not mean a crash in asset prices: “Where does this leave us? Valuations are resetting to levels where expectations are better aligned with realities... Most assets are still priced reasonably compared with their own history,” BlackRock stated.

Like many analysts, the group sees identifying value in volatility as the key factor that will enable investors to be profitable in 2013/2014.

“Markets were an investor nirvana in 2013 – until very  recently...[However, now] the era of assets moving in lockstep appears [to be] over, making markets prime hunting ground for stock and bond pickers. Volatile assets started to perform better, meaning investors finally got paid for taking additional risk.”