European shares climbed to fresh five-and-a-half-year peaks yesterday, as glimmers of optimism from Unilever and Remy Cointreau SA, as well as solid German sentiment data, outweighed weaker reports elsewhere.

An improved performance in China, Russia and Indonesia helped Unilever report better-than-expected 2013 results, sending its shares 1.8 per cent higher.

Prospects of a recovery in emerging markets also boosted French spirits group Remy Cointreau SA, whose shares added 4.5 per cent as investors looked past a fall in quarterly sales and focused instead on the company’s forecast that China will return to growth in fiscal 2014/5.

Prospects for a recovery in the domestic European market, meanwhile, were supported by a solid German ZEW survey, with a jump in the current conditions index.

“Growth is stronger outside Europe but even in Europe there are signs that growth is turning, and this is the point – coming off a low base – when it can have quite a large impact,” said Peter Sullivan, head of European equity strategy at HSBC.

Growth is stronger outside Europe but even in Europe there are signs that growth is turning

“So we think that 10-15 per cent (earnings growth) is eminently achievable both this year and next, and that will be enough to drive equities higher.” Also in the upbeat earnings camp, Swiss testing and inspection firm SGS rose 4.2 per cent after strong results prompted it to hike dividends and pledge solid sales growth over coming years.

The news also boosted rivals, such as Intertek, which added 3.2 per cent.

The share price gains, however, masked weaker updates in other sectors, which kept a lid on the broader market.

The FTSEurofirst 300 rose as high as 1,353.47 points – its strongest since May 2008 – before trimming gains to close at 1,345.36 points, up 0.1 per cent on the day.

Among the drags, Dutch food and chemicals group DSM fell short of its full-year earnings target and French engineering firm Alstom lowered its annual objectives, sending the stocks down 10 per cent and 14 per cent, respectively.

“The earnings season, from what I’ve seen of it, looks generally a tad mixed,” said Paul Sedgwick, head of investment at Frank Investments.

“You have seen markets outperform growth and earnings in the last year, so people will definitely want to see earnings being maintained to justify the rally that we have had in equities.”

Given the high valuations and the mixed earnings so far, Jeanne Asseraf-Bitton, head of cross asset research at Lyxor Asset Management, recommended a long-short strategy – buying some stocks and selling others rather than betting that the market as a whole will move in a particular direction.

“With more dispersion between stocks, the strategy will benefit from the return of good short ideas and generate more alpha than long-only funds.”

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