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STOCKS NEWS EUROPE-Europe equities to rise 14 pct next yr-Nomura

Reuters - UK Focus

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 to support the market in the longer term, Nomura says, echoing similarly bullish comments from Goldman Sachs (NYSE: GS-PB - news) and UBS (Xetra: UB0BL6 - news) last week.

"The rally in European stocks in 2013 to date was entirely driven by multiple expansion. If we are right to call a trough in earnings, then experience indicates that the market index's main driver will switch to earnings growth in 2014," Nomura writes in a research note.

Earnings growth could come from continued external demand, the early signs of some domestic recovery and a margin expansion greater than consensus expectations, it says.

Nomura estimates that $130 billion needs to return to European equity funds just to make up for the 'disinvestment' that has taken place. Overall, global equity holdings need to rise by $5 trillion to return to the pre-crisis share of total financial assets.

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"Within the market, we retain a pro-Risk and anti-Quality stance," Nomura writes. "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 doubles the size of its position in healthcare, but remains "underweight" on the sector.

Within its 'European Recommended Portfolio', Nomura adds companies such as Lufthansa, Ryanair, Deutsche Post, SKF, Novartis (Xetra: NOT.DE - news) and Alcatel (Paris: FR0000130007 - news) -Lucent. It removes firms such as GlaxoSmithKline (Other OTC: GLAXF - news) , Ericsson (Xetra: 857463 - news) and ArcelorMittal (Other OTC: AMSYF - news) .

Reuters messaging rm://atul.prakash.thomsonreuters.com@reuters.net