STOCKS NEWS EUROPE-Nomura backs Italy, Spain; less keen on FTSE

Nomura's European equity strategists expect European equity markets to rise further over the next 6-12 months and back "peripheral" southern European markets such as Spain and Italy over the likes of Switzerland and Britain's FTSE 100 equity index.

"There has been a strong reallocation into European equities of late. Nonetheless, we continue to believe that the market will rally further on a 6-12 month view," writes Nomura in a strategy note.

"However, considering the recent relative outperformance, not to mention the 33 percent gains accrued since June last year, investors looking to move money into Europe may become increasingly discerning on where they invest," they add.

Nomura says Italy and Spain offer the "most attractive return prospects", partly due to the regions' cheap valuations.

It adds that "higher quality" or more "defensive" parts of the European equity space, such as Switzerland and Britain, are "overvalued".

"The UK is a defensive market that - while not expensive relative to the rest of Europe - is likely to continue to underperform against the backdrop of a global economic upswing," it writes.

"The cyclical exposure the UK does have (mining) is the wrong type, if our economists are correct in forecasting that Chinese economic growth will decelerate to 6.9 percent next year," it adds, keeping an "underweight" recommendation on the UK and Switzerland.

Nomura keeps an "overweight" position on Germany, whose DAX equity index touched fresh record highs this week.

Italy's FTSE MIB (Milan: FTSEMIB.MI - news) benchmark equity index has risen 18 percent since the start of 2013 while Spain's IBEX equity index has risen 23 percent, with both beating a gain of 13 percent on the FTSE 100, while Switzerland's SMI (KOSDAQ: 100660.KQ - news) equity index has risen 19 percent.

Reuters messaging rm://sudip.kargupta.thomsonreuters.com@reuters.net