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US stocks look tired, but Europe doesn't: SocGen

U.S. stocks are looking like a "tired" asset class, while European equities should regain their thrust as euro zone's stimulus programs start to pay off, Societe Generale says in its fourth-quarter equity strategy.

SocGen said the recent sharp selloff provides an opportunity to get back into global stocks even if volatility remains until the U.S. Federal Reserve delivers a closely–anticipated rise in interest rates.


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According to Deutsche Bank, global stock markets lost $5 trillion of their value in 6 days in August.

The U.S. central bank ends a two-day meeting later on Thursday, with markets not certain if September will be the month that the Fed "lifts off" on rates.

In a note published late Wednesday, Soc Gen described U.S. stocks as a "tired asset" and said that it has little appetite for Wall Street shares even with a strengthening economy.

"U.S. stocks are currently trading at relatively high multiples but earnings growth is likely to be sluggish as margins are already toppish, the dollar is strong and rates are about to rise," the SocGen note said.

The S&P 500, a broad measure of U.S. shares, has tumbled almost 5 percent over the past month amid concerns about China's growth outlook and uncertainty about the timing of U.S. rate rises.

The S&P 500, which opened at about 1,991 points on Thursday, should end the year flat, SocGen said.

In contrast, European stocks were expected to exit 2015 with strong gains. Soc Gen highlighted five tailwinds for the euro zone equity market in the fourth quarter:

•European Central Bank quantitative easing

•Deceleration in the pace of austerity

•Implementation of structural reforms in countries such as Spain and Italy

•Expectations for an infrastructure investment plan

•Spillover from stronger U.S. economic growth

It forecast the Eurostoxx 50 index of European shares will rally to 3,500 during the fourth quarter – a gain of more than 7 percent from current levels.

"France and Italy look set to benefit in particular from implementation of reforms. All these drivers should support European equities out to 2017," the SocGen note said. "Any rise in the German DAX will be limited, in our view, given the index's high valuation and some margin squeeze."

Analysts have generally been upbeat on European shares this year as the region's economic recovery gathers pace and the risks of a Greek exit from the euro zone fade.

"Europe stands out as the undeniably positive story this year, with solid (albeit slow) growth driven primarily by domestic demand and an accelerating periphery," Deutsche Bank said in a note last week.

Asked where he saw pockets of value, Simon Smiles, chief investment officer for 'Ultra High Net Worth' at UBS Wealth Management told CNBC on Wednesday: "We continue to like European equities, Japanese equities."