Citi still upbeat on European equities

A significant and synchronised global recession is not going to happen, so European equities are headed higher this year, Citi said.

Markets have been questioning the underpinnings of the 'bull case' for European equities, the outlook for growth in earnings per share and liquidity - quantitative easing from central banks, that is - sending European stock market gauges into bear-market territory.

However, a sustained bear-market needs a "significant and synchronised" global recession - which was not the view of economists at Citi.

"There has been no accompanying collapse in European/global macro data, if one looks at the G10 Citi Economic Surprise Index," the broker said in a research note sent to clients.

Instead, the main driver of the current market gyrations had been a "crisis of confidence" in the post Great Financial Crisis 'liquidity-put'.

Against that backdrop, investors had been fretting over China, commodities, credit and currencies, the broker explained.

"Expectations of growth have been priced out and sentiment has been crushed. Signs of stability in USD and commodity markets would help, but the focus is likely to remain on policy makers."

Nevertheless, Citi admitted it had been too optimistic on the European equity space, but said it continued to see upside on a 6 to 12-month view.