Welcome to Thoughts on the Market. I'm Graham Secker, head of Morgan Stanley's European

and UK equity strategy team. Along with my colleagues, bringing you a variety of perspectives,

I'll be talking about our latest thoughts on European equities, specifically why we remain

positive on the outlook for European stocks, and why the region looks well set to keep out

performing its global peers for the remainder of the year. It's Tuesday, August 17th at 2pm

in London.

Having moved sideways through much of June and July, European equities have re-accelerated

this month, recently posting 10 consecutive days of positive returns for the first time

since 2009. This rally has allowed European equities to break out to new all-time highs,

which, while similar to what we are seeing in the US, is quite different to other global

stock markets where performance has been more subdued. Post these recent moves, MSCI Europe

has now out-performed global ex-US stocks by 10% over the last six months, which represents

its best period of relative returns since 1998.

For us, Europe's ability to keep pace with US stocks and out-perform other global peers

is particularly encouraging just here given that it has not been accompanied by rising

European bond yields or the out-performance of value stocks. Historically, such an environment

is usually associated with Europe underperforming rather than outperforming. This unusual disconnect

suggests that there is a more durable bid for European stocks beneath the surface, which

should gain further traction if our bond strategists are right, in their call for higher global

bond yields over the coming months.

In addition to this potential for higher yields, we see three further reasons to remain

optimistic on European stocks for the remainder of the year.

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