Earnings growth will help European equity markets gain 14 percent next year,while a falling risk premium and flows back into the asset class are likely tosupport the market in the longer term, Nomura says, echoing similarly bullishcomments from Goldman Sachs and UBS last week.
"The rally in European stocks in 2013 to date was entirely driven bymultiple expansion. If we are right to call a trough in earnings, thenexperience indicates that the market index's main driver will switch to earningsgrowth in 2014," Nomura writes in a research note.
Earnings growth could come from continued external demand, the early signsof some domestic recovery and a margin expansion greater than consensusexpectations, it says.
Nomura estimates that $130 billion needs to return to European equity fundsjust to make up for the 'disinvestment' that has taken place. Overall, globalequity holdings need to rise by $5 trillion to return to the pre-crisis share oftotal financial assets.
"Within the market, we retain a pro-Risk and anti-Quality stance," Nomurawrites. "Within Europe, we remain 'overweight' Spain, Italy, Germany and Sweden,and 'underweight' the UK, Switzerland and Belgium."
Nomura lowers its stance on insurance and telecoms to 'neutral'. It doublesthe size of its position in healthcare, but remains "underweight" on the sector.
Within its 'European Recommended Portfolio', Nomura adds companies such asLufthansa, Ryanair, Deutsche Post, SKF,Novartis and Alcatel-Lucent. It removes firms such asGlaxoSmithKline, Ericsson and ArcelorMittal.
Reuters messaging rm://atul.prakash.thomsonreuters.com@reuters.net