European high net worth investors believe that the continent’s equities are the most undervalued of all risk assets at present, with most believing that the eurozone will survive its current troubles, according to a new survey by
JP Morgan Private Bank.

The bank found that across Europe 45 per cent of HNW investors think European equities are the most undervalued risk assets, with this proportion hitting as high as 69 per cent of respondents in Spain (in the UK the figure was 41 per cent and in Ireland 44 per cent). US real estate was singled out by 24 per cent as a good investment opportunity, with Asian equities getting 11 per cent of the votes, and high yield bonds and oil 10 per cent.

While the eurozone is certainly in trouble, over 75 per cent of respondents believe the eurozone will survive the ongoing crisis, possibly with changes to the current structure. Those in Spain, Ireland and the UK have the most optimistic outlook on the issue, with 92, 90 and 85 per cent respectively believing the eurozone will either manage to avert large defaults and be rewarded for stringent austerity, or will survive but in a different form.

An overwhelming majority of the 300 HNW investors surveyed are not concerned about the prospect of a global recession: only 6 per cent believe that this will come to pass.

Looking at investors’ top investment picks, 38 per cent of investors predict that technology will be the best performing sector of 2012. Banking and mining followed with 20 and 16 per cent of the votes respectively.

In discussing the prospects for European markets, Cesar Perez, chief investment strategist for JP Morgan Private Bank in EMEA, warned that for the next few months markets will be “distracted and volatile” with most of the near-term event risk continuing to be election and policy driven.

“The European sovereign debt crisis has given rise to the need for structural reforms. Imbalances are still severe and the divergence in economic activity between periphery and core is negatively correlated with any potential improvement in the situation. Until now, policies have been reactive rather than proactive and politicians are not yet willing to integrate more. The arrival of Mario Draghi at the helm of the ECB last year was positive for markets as this increased the likelihood of the ECB acting as the buyer of last resort,” said Perez.

Perez believes that prevailing circumstances call for “modestly less risk than normal” and cautions that while equities look cheap they are “cheap for a reason.”

“The extremely high uncertainty surrounding Europe and threats to emerging market growth are two explanations why equities are as cheap as they are from a price-to-book and to a lesser extent a price to-earnings valuation perspective,” he said.

“Given that this uncertainty at the macro level is unlikely to be resolved overnight, equity valuations could stay cheap for some time. Nonetheless, we do see opportunities in selected stocks that benefit from downbeat valuations in Europe, but which generate a majority of their revenues outside of Europe.”