European Equities Poised to Outstrip U.S., Say Strategists

NEW YORK (TheStreet) -- Strategists increasingly prefer European markets to those in the U.S., claiming there is stronger upside for the region amid better economic data, attractive valuations, and growing speculation of more stimulus.

By contrast, U.S. markets have been fluctuating between gains and losses on a daily basis as higher valuations and tepid earnings growth are blamed for a lack of direction.

ClearPath Capital Partners chief investment officer, Brendan Connaughton, said he sees similar conditions in Europe to those that existed in the U.S. before its big rally: low interest rates and signs of a pick-up in economic growth. This means potential European rallies have further to run Connaughton said, predicting several developed indices will outperform the US on a three-year basis.

"The U.S. is a petri dish for what could happen in Europe," he said. "We don't need more stimulus in Europe for stocks to do well, but we think we'll get it."

The MSCI Europe index has posted total returns of 106% since the market nadir of 2009 while the S&P 500 has notched a return of more than 175%. European equity gains have been restrained by the region's debt crisis in 2010, fears of a Greek exit from the euro in 2012 and rising tensions between Ukraine and Russia this year.

Federated Investors is among those who see a brighter outlook. The fund manager raised its exposure to Europe during the first quarter, from 40% to 56.5% for a World ex-U.S. fund. Head of international equities Audrey Kaplan said the firm sees more signs of a sustained economic recovery, while sentiment continues to improve.

"Europe also has more (stimulus) instruments available relative to the U.S. such as lowering rates, a new communications strategy and talking down the currency," she said.

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