A record outperformance of European stocks against their US peers still has some ways to go amid China reopening optimism and a better earnings outlook, according to Morgan Stanley strategists.

Graham Secker, the bank’s chief European equity strategist, said lower natural gas prices and resilient economic data are also contributing to the rally that began three months ago. That’s allowed the MSCI Europe to break above its 100-week moving average relative to its US peer, in dollar terms, for the first time since the global financial crisis.

“Going forward, monetary policy will be tighter, fiscal policy will be easier and value stocks will no longer play second fiddle to their growth peers,” Secker wrote in a note on Monday. “This backdrop should be more favorable for the European equity market than that of the past decade or so.”

The Stoxx Europe 600 Index has surged nearly 30% in dollar terms since the end of September, outpacing a 12% rise in the S&P 500. Even so, valuations are still both cheaper than the US and below their long-term average. Strategists at Citigroup Inc. and Goldman Sachs Group Inc. have also turned optimistic about European stocks this month.

Not everyone is of the same view. JPMorgan Chase & Co. strategists, led by Mislav Matejka, said they expect the rally to fizzle out through the first quarter amid continued risks from hawkish central banks, volatile inflation and weaker corporate earnings. Bank of America Corp. strategist Sebastian Raedler warned on Friday that stocks don’t fully reflect the prospect of weaker economic growth.

Morgan Stanley’s Secker acknowledged that worse-than-expected economic data, a rebound in gas prices or a bigger hit to European earnings from a stronger euro could spark some profit taking in equities. For now, though, he said light investor positioning, a higher total yield than the US for the first time in over 30 years and a wider-than-normal divergence in regional sector trends make Europe more attractive.

--With assistance from Farah Elbahrawy and Michael Msika.

This article was provided by Bloomberg News.