HSBC (LSE: HSBA.L - news) equity strategists cut their rating on European shares - excluding the UK - to "underweight" from "overweight", while raising its stance on U.S. equities to "overweight" from "underweight", citing more compelling valuations in the U.S. and a less supportive monetary policy in Europe.
HSBC writes in a note that the MSCI Europe equity index has risen roughly 20 percent in U.S. dollar terms since European Central Bank (ECB) head Mario Draghi pledged last July to do "whatever it takes" to protect the euro currency from the region's sovereign debt crisis.
It adds that this has beaten returns on U.S. and other global equity regions but that this rally has meant that valuations on European equities are now slightly less attractive than before.
"We had previously favoured Europe on valuation grounds but, following a period of strong performance, the relative valuation case is no longer as clear," HSBC says in a note.
"Also, the ECB remains reluctant to do QE (quantitative easing), and earnings in Europe - excluding the UK - are likely to disappoint," it adds.
HSBC adds that problems over Italy's political deadlock and Cyprus' bailout are further negative factors for European equities.
According to data from Thomson Reuters Starmine, the "smartestimate" - which is favoured towards the top-rated analysts - has a forecast of 5.2 percent growth in earnings for the pan-European STOXX 600 index over the next 12 months - less than a forecast 9.5 percent growth in earnings over that time for the U.S. S&P 500 index.
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