European Equities Have ‘Rarely Been So Appealing’
Following the DAX's rise to a new record high and the FTSE's rally to its highest level in over five years, Citigroup's Jonathan Stubbs told CNBC that European equities have "rarely" been so appealing to investors.
The bank's European equity strategist said on Monday that the pace of downgrades to earnings forecasts is improving which, in the past, has been very positive for stock returns.
"The last five times it has happened we've seen an average equity market return of 30 percent in the following 18 months – and that's broadly where we are now," he said.
Stubbs pointed out that equities were particularly attractive to bond investors, given the bond market rally since late last year.
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"Although European equities are up 100 percent since the 2009 lows, and although valuations have got more expensive… European equities have rarely been this attractive to so many investors – non-equity investors - as they are today."
Encouraging data from the U.S. and Japan helped to push stock markets higher on Monday. Germany's DAX reached an all-time high of 8,449 after the open, and Britain's FTSE 100 rose to 6,739 – its highest level since October 2007.
Stubbs said Europe's earnings season to date "hasn't actually been that bad."
"We have seen week after week of net downgrades – 54 weeks in a row of net downgrades in Europe and globally - but European earning expectations have only fallen, in 2012, from 10 percent to -3 percent. So we've seen a very modest pull-back in earning expectations," he said.
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Looking ahead he forecast earnings growth of 10 percent in 2014, adding: "We're coming towards, we think, the trough in the earnings cycle and that's what the market is focussing on as well."
He said financials was his preferred sector and added that European banking stocks "will surprise many."
"European banks are on this very positive journey from… capital deficit to a capital surplus. That's one of the key themes we think that will sustain outperformance and performance from banks over the next couple of years."
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- By CNBC's Katrina Bishop, follow her on Twitter