MILAN Citi strategists have upgraded continental European stocks to overweight from neutral, a move that underscores growing investor confidence in the region as its economic outlook brightens and political worries ease.
"Europe ex-UK fundamentals are improving, valuations look reasonable and interest rates are low. At the same time political risks are subsiding. That's why we raise Continental European equities to Overweight," Robert Buckland and other strategists at the U.S. bank said in a quarterly equity update.
The upgrade follows similar moves by other global investment houses earlier this year and comes less than three weeks before the first round of the French Presidential elections, a vote which could potentially unsettle global markers in case of a victory of far-right candidate Marine Le Pen. [nL8N1G00VU]
"A significant risk for global markets over the next quarter is the two stage French election where Marine Le Pen advocates EMU exit. However, she has not generated much momentum in the polls and Citi economists put her chances at only 20 percent," they wrote.
They expect the pan-European STOXX 600 index to hit 410 points by the end of the year, an 8 percent upside from current levels. That compares to a 5 percent rise expected for global equities with the broader rally supported by the "first synchronized global increase in EPS since 2010".
On Wednesday, a survey showed that euro zone businesses enjoyed their best quarter in six years at the start of 2017 and although growth was not quite as fast as a flash estimate, the upturn was broad-based. [nL5N1HD1JO]
(Reporting by Danilo Masoni, Editing by Vikram Subhedar)