Despite the turmoil over Greece, and questions over the euro zone bloc’s very survival, equities remain undervalued, market watchers told CNBC.
Stock markets in Europe and the US have rallied this year after last year's turbulence over the euro zone debt crisis, with the Dow finishing the week just shy of the psychologically important 13,000 level last reached in May 2008 - but analysts and strategists are now examining whether the rally, which is based on relatively low volumes, can continue.
"We are in a Goldilocks scenario for equities. A lot of investors are underinvested in this market and they will move money into the riskier assets,” Philipp Baertschi, chief strategist at Sarasin said.
A Goldilocks economic scenario is used to describe the state of the economy that is not too hot and not too cold, just right - an analogy using the popular children's story of Goldilocks and the Three Bears.
“The market can still drive higher. The macro data is improving, but positioning is still too negative, particularly for Europe and the emerging markets and valuations are still very attractive. We are probably only half way into this rally,” he added.
This view was echoed by Gary Jenkins, chief executive of Swordfish Research.
“The valuations gap is unwarranted, particularly between US and European equities,” Jenkins told CNBC.
Baertschi added that Europe had more potential than the US but emerging markets are still the most attractive.
“We are now overweight in Europe, although the upside is the biggest in the emerging markets. Investors are too cautious on euro land stocks,” he added.
If the Greece issue and the broader macro picture deteriorate significantly, Baertschi believes investors should be more cautious.
“The most important indicators are the macro indicators and the cyclical picture. So, if sentiment turns down on the business side or if spreads on Italian bonds climbing again there would be reason for caution,” Baertschi said.
He added that even if there was some volatility that could be a buying opportunity and he would stick with the rally.
However, there are still plenty who are bearish about the market. Darren Easton, senior investment advisor at Logic Investments suggested investors that had so far participated in the rally should consider exiting.
“Perhaps we are (stretching the rally). The market may be looking toppy in the short term. There are a lot of technical analysts suggesting that we may be due a pull back in the not too distant future,” he said.
The BRIC countries - Brazil, Russia, India and China - had the most potential going forward according to Baertschi.
“Cyclical markets like the BRIC countries have the most potential because they will see the most inflows," he added.