Citigroup's global equity strategists see improvements in Europe's economic outlook as a reason to be more optimistic on European stocks, but they are underweighting the U.S. market, which is now seen as too richly valued.
Citi strategists have upgraded Europe's equity markets to neutral and the U.K. to overweight. Economists at the bank have upgraded their 2014 GDP growth forecasts to 0.6 percent for Europe and to 2.1 percent for the U.K.
"[Emerging markets] and UK appear the cheapest of regions across the world, trading at 11.8 times and 13.3 times trailing PE, respectively," they said.
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Europe's stock markets have been outperforming the U.S. since the S&P 500 hit a two-month low on June 24. The S&P is up 4.8 percent since then, but the Spanish stock market is up 12 percent, and France and the U.K. have gained 10.3 percent and 7.3 percent, respectively.