Salient to Investors:

Fund managers are increasing holdings in Spain, Italy and Germany. Bank of America said 45 percent of fund managers believe euro-zone shares are undervalued, the highest for any region since at least 2001.

The Euro Stoxx 50 has dropped 30 percent from February 2011 to 0.93 times book value, the lowest ratio since March 6, 2009, the week that preceded a 70 percent rally in the index.

Stephanie Butcher at Invesco Perpetual said Europe is beginning to price in Armageddon, many high-quality international assets are very lowly valued.

Laurent Millet at the Artemis European Opportunities Fund said investors make the big mistake of looking at the market through the macro risks – valuations are now incredibly cheap.

Pictet Asset Management lowered its recommendation on European shares on June 1 citing significant political-event risk in the euro zone and the region’s weaker economic momentum.

Katherine Garrett-Cox at Alliance Trust sees significant downside risk and cut holdings.

Deutsche Bank said speculating on declines may be a losing bet because of the likelihood of more government aid, and any positive surprises are likely to fuel outperformance.

Economists expect the ECB to cut the key interest rate by 25 basis points to 0.75 percent by Q3 to stop credit markets from freezing and avoid a deposit run in some nations.

Raj Tanna at JPMorgan Private Bank sees a buying opportunity as Europe is home of some of the best global companies in the world and their fundamentals are as strong as they have been in a number of years – shares of high-quality corporations have fallen in sympathy with the broader market, creating very attractive opportunities.

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