Citigroup's Stubbs: European Stocks 'Rarely' so Attractive as Today

Wednesday, 22 May 2013 08:04 AM

By Dan Weil

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The raging rally in European stocks has plenty of room to run, says Jonathan Stubbs, head of European equity strategy at Citigroup.

The Stoxx Europe 600 Index hit its highest level in almost five years Monday, boosted by strong auto stocks.

"Although European equities are up 100 percent since the 2009 lows, and although valuations have got more expensive, ... European equities have rarely been this attractive to so many investors — non-equity investors — as they are today," Stubbs told CNBC.

Editor's Note:
See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

The pace of earnings-forecast downgrades is slowing for European companies, a positive sign for stocks, he noted.

"The last five times it has happened, we've seen an average equity market return of 30 percent in the following 18 months, and that's broadly where we are now."

Stubbs sees an encouraging earnings outlook ahead, with growth of 10 percent next year. "We think we're coming toward the trough in the earnings cycle, and that's what the market is focusing on as well."

Low interest rates are boosting European stocks too, Stubbs explained.

Graham Secker, head of European equity strategy at Morgan Stanley, is bullish on European stocks too.

"We do not believe the market is overextended at this time," he wrote in a commentary obtained by MarketWatch. "Further, we think macro data will start to improve going forward on the back of recent commodity price declines.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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