JP Morgan downgrades UK equities, raises Eurozone

(Reuters) - JP Morgan Securities shed its long-standing preference for the UK equities within Europe and took an "overweight" stance on Eurozone, saying that continental equities were expected to benefit from improving interest rate differential and less currency headwind.

Downgrading UK equities to "underweight" from "overweight," the brokerage said within Eurozone, it preferred German equities in particular, with an "overweight" rating.

In a European equity strategy note, analyst Mislav Matejka said that he preferred German equities to do well, driven by strong performance of capital goods, autos, steel and chemicals subsectors.

The brokerage reiterated its "overweight" rating on Europe over the United States on valuation and said European corporates had moved above their U.S. peers in terms of return on equities and earnings before interest and taxes/sales.

"European equities experienced sharp outflows over the past two years as investors pared non-U.S. exposure to reduce risk... the flows could reverse as volatility continues to move lower, and investors move out of the safe haven, the U.S.," Matejka wrote.

The brokerage upgraded European chemicals sector to "overweight" from "neutral," saying that the sector had aggressively liquidated inventories, have good emerging markets exposure and should benefit from the global pickup in manufacturing activity, led by autos.

(Reporting by R. Manikandan in Bangalore; Editing by Gopakumar Warrier)