London: Another year, another call for a rally in Europe’s value shares.

These stocks, which trade at cheaper multiples to earnings and asset value and are often perceived as riskier to hold, disappointed investors with half the returns of growth peers in 2017. That was after firms including Morgan Stanley and BlackRock Inc. predicted an outperformance last January.

Now, rising bond yields and a stronger economy are leading some strategists to again bet on a recovery, rather than another false dawn.

“Europe’s is a big value index, and with the pickup in bond yields, the value rotation is just starting,” Emmanuel Cau, an equity strategist at JPMorgan Chase & Co. in London, said by phone.

Such a switch by investors could prove a turning point for the region’s equity market, which is usually considered an ideal hunting ground for bargain-seekers but has been weighed down since the financial crisis by a weakness in value relative to growth. Financial companies, the largest contributors to an MSCI gauge of global value shares, make up a greater proportion of the Stoxx Europe 600 Index than the S&P 500 Index.

And they are back in favour. Banks are among the best industry group performers on the Stoxx 600 this month. Firmly at the top are automakers, a sector whose 2017 hardships attracted bargain hunters. The industry index has climbed almost 30 per cent since a July low.

“Carmakers are one of our biggest bets,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany, whose firm added to its exposure around the time the Stoxx 600 Automobiles & Parts Index’s forward price-to-earnings ratio hit the lowest level in a year. “With economic growth and demand picking up, risk appetite comes back, and appetite for value as well.”

The euro zone is enjoying the broadest expansion in a decade, and the region’s economic momentum shows little signs of slowing. That has led strategists to also pile bullish calls on cyclical companies reliant on growth. According to Goldman Sachs Group Inc., value shares in Europe have underperformed partly because they have included several cyclical sectors until recently hampered by sluggish economies.

“Can value finally recover? Yes,” the bank’s equity strategists including Peter Oppenheimer wrote in a note this month, adding that value sectors like banks, carmakers and energy are “finally transitioning from value traps to value opportunities.”