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Komfie Manalo, Opalesque Asia:

The Netherlands-based asset manager Saemor Capital said that after three strong quarters of earnings upgrades, companies are showing less optimism heading into the second half of the year partly caused by the strengthening of the euro.

In its monthly report to investors, Saemor said that the European stocks continue to look modestly expensive in absolute terms but very cheap against bonds. Inflows into European equity funds could support the market in the coming months, but earnings delivery remains crucial for markets to make further gains from here.

"We have adopted a more cautious stance since early May, as expressed by tactically adding weight to earnings momentum and quality factors," the company said. It added, "The market has since taken a step back, but style performances have not (yet) caught up with a declining market. Our underweight in cyclical value hasn't paid off yet as higher risk financials have been holding up well. Seasonal patterns and our macro models suggest a continued risk-off period within European equity markets. On the consumer and manufacturing side we have seen signs of a slowdown. As global economic surprise indicators further deteriorated (multi-year low for the US) and monetary policy becomes less accommodative, we expect higher quality stocks to outperform......................

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