As European equity funds continue to attract substantial investor flows, it is worth taking a fresh look at some of the continent's banks with worldwide operations, according to Man Group's Pierre Lagrange.
"We've got a strong interest in the global European banks as it has been very difficult to invest in them for a very long time. We feel that even though there are still some issues with some of their business models, from a valuation point of view we can see a re-rating," observed Lagrange, speaking to CNBC on Tuesday.
"Especially if we start thinking we are in a less deflationary environment in Europe - and from an interest rate point of view," added the Belgian fund manager who co-founded GLG Partners in 1995 and has stayed with the firm since its $1.6 billion acquisition by U.K. asset manager Man Group in 2010.
European banks, as represented by the Euro Stoxx banking index have had a tumultuous couple of years after assaults from a variety of quarters, such as rock bottom interest rates, crippling litigation charges and a tightening of global regulatory screws. While the past year has seen the index rebound by over a third, it still remains 13 percent lower than in May 2015.
Looking at the broader macro picture, Lagrange says that after focusing on a litany of issues from the political to the economic in recent years, investors have now stopped looking for excuses to avoid putting money to work in European equities.
"You have a central bank that is unlikely to taper significantly, you have growth that is actually ticking up, you have confidence that we haven't had for a very, very long time on mainland Europe - and we can't forget how close we were to a disastrous and economically destructive outcome of the French election," highlighted Lagrange, arguing that given this backdrop, the region's momentum could continue for some time.
"You still can see that we've got a lot to claw back to get back to any significant exposure to Europe," he added, pointing to the gap in both investor allocations and valuations between U.S. and European equities, which has narrowed in recent weeks but remains pronounced.
Indeed, the recent spurt of enthusiasm for rotating from U.S. into European equities was highlighted in Bank of America Merrill Lynch's Fund Manager Survey for May which showed that 82 percent of respondents now see the U.S. as the most overvalued region, while European equities are now enjoying their highest allocations since March 2015.
As for his views on the U.S., Lagrange contends that the Federal Reserve will continue to favor talking up interest rates over taking concrete actions.
"This is a defence against whatever the White House may do from a policy point of view which could be both destabilizing from a bond market or from an inflationary point of view. At the same time the jury will be out on whether the economy can continue to carry on that post-election full of promise momentum," he reasoned.
"So I think the Fed has quite an interesting challenge there which is the economy is stronger now than it has been for some time but a lot of it is based on shorter-term momentum."