European equities on track for double-digit returns by year end, says investment manager

European equities look on course to achieve double-digit growth before the year is out, according to one investment manager who is predicting a return to 2007 highs.

Dolfin's chief investment officer warned investors against turning "myopic" in the wake of the French election, which saw somewhat subdued returns given the high market expectation of a win for Emmanuel Macron.

Instead, he said that Macron has provided a "trigger point" for a longer-term rally as markets come to appreciate the region's strong fundamentals.

"The European project and the euro zone currently has all the right ingredients for investors to be in there," Vassilis Papaioannou told CNBC Monday.

European equities were buoyed by Macron's victory in early deals Monday but quickly slipped by mid-morning as some investors moved to cash in their gains.

Papaioannou said the move to profit-taking was "logical", especially given the tradition for investors to sell up in May ahead of the summer break; however, he pointed to greater growth potential.

"Looking ahead, I think that major European indices could go back to the 2007 highs which has a lot of room to go," he noted.

"We have good valuations, earnings growth is fairly robust, GDP (gross domestic product) numbers are fairly robust. Then we also have the ECB, which looks at and validates all these points. The reflation trade to me looks intact and compared to other regions I think that Europe is ready to go."

Papaioannou recommended overweighting at the periphery, in countries such as Spain and Greece, as well as France. He also said cyclicals, and financials in particular, were set to benefit most.

French banks tumbled in morning deals Monday, with Societe Generale leading the losses with a 1.8 percent drop.

ECB tightening

With the French election out of the way, and Germany's September federal election considered of little threat to the European project, Papaioannou said the spotlight would be on the European Central Bank (ECB).

Papaioannou said he "absolutely" expects the central bank to tighten its monetary policy and more to increase interest rates before the year is out.

"We've had some macro- and political catalysts … Inflation looks on target and (ECB) President (Mario) Draghi has already set the tone for a potential hike or potential tapering towards the end of the year."