Further European volatility in 2017 will create significant investment opportunities, the head of UK and European equities at Schroders has said.
Rory Bateman said there would be uncertainty prompted by a number of elections and the start of the UK's Brexit negotiations.
But he said Brexit would be an issue primarily affecting the UK, pointing out that only 5 per cent of EU exports come to Britain.
He said: “Valuations remain compelling and the slow economic recovery in Europe should provide a solid backdrop for corporate earnings to deliver potentially their best growth rates for five years.
“Correlations are at elevated levels although there are signs that the momentum is changing, driven by the pick-up in bond yields.
“We remain highly vigilant in our search for mispriced opportunities (particularly during volatile market conditions) as earnings growth should differentiate company performance over the coming months.”
Mr Bateman said the energy, commodity, utilities and chemicals sectors had seen positive earnings revisions over the past three months as year-on-year comparisons become easier and underlying commodity prices improve.
Addressing correlations, he said the past few years had been largely driven by macro and momentum themes, with quality and growth parts of the market outperforming value.
There had been little differentiation between stocks within those groupings and, in his view, this had led to new mispriced opportunities.
He said: “Banks are an example of this highly correlated market as the whole sector has come under pressure amid low interest rates.
“However, there are very significant differences between individual banks in terms of capital strength, asset quality, cash generation and future dividend potential.
“An unwinding of correlations could allow those differences to be properly appreciated by the market. We feel it is prudent to be selective about exposure to banks.”
