European stocks deserve some summer romance. Here's why.

The second quarter of 2020 is one we shall never forget as the world attempted to get to grips with a pandemic like we have never seen in our lifetimes. As the US continues to struggle more than Europe in controlling the pandemic, investors have been much more at ease putting their money back in US companies than their European counterparts as seen by the S&P 500 rallying 20%, in contrast with just 13% for Europe's Stoxx 600.

Now although 13% was a step in the right direction, the story of European equities being out of favour in contrast to those across the atlantic is nothing new. In fact June was the first month in 28 that European investors were net buyers of domestic equities. It's not hard to see why as political worries including Brexit, together with weak economic growth, have done little to excite investors. This could all be about to change however.

First of all, Europe appears to have a better hold on Covid-19 than the US as strict lockdown measures have largely contained the spread, meaning economic activity, including tourism, has started to pick back up. The EU's response of a €750 billion recovery fund is also a key breakthrough together with the ECB's buying up of corporate debt.

Similar to the US, many investors in Europe are faced with a substantial gap in yield between bonds and equities. Many of these investors will be asking themselves whether the growth and value opportunities are more attractive in equities if they haven't been already. And it's hard to argue that they aren't - even more so if inflation shows any signs of rearing its head.

Inflows into Europe could also come from rotation out of US stocks. US stocks are seen by many as at lofty valuations - in particular within tech - and the near-term outlook is not helped by a volatile political environment with an election in November and tensions with China still high. Europe suddenly seems more attractive, if nothing but on a relative basis.

Noting many of these reasons, Credit Suisse recently increased their allocation to European equities and reduced their US exposure, whilst Goldman Sachs' strategy team noted that although the Euro may be strengthening - typically a headwind for European stocks - the risk-reward in contrast with fixed income, is likely to attract interest.

Goldman's team also stated that for many it is hard to look past US equities and their exposure to the sexier parts of the market such as tech, software and social media, and Europe of course can't compete on these fronts. However, they say that we could see a European leadership in the 'green economy' which is increasingly backed by politicians.

Regardless of how one views the outlook for European equities in the long-run, the headwinds facing the US and likely volatility to come means that diversification will be as important as ever and Europe deserves serious consideration.