(Bloomberg) -- European stocks have never been this cheap compared to the U.S. market, with Morgan Stanley strategists seeing more upside for the region’s equities. 

The MSCI Europe Index is valued at a 33% discount to its U.S. counterpart, based on forward price-to-earnings ratio, the biggest in history, after the latest robust earnings season fueled further upgrades to European estimates.

READ: European Profit Outlook Robust Even With Inflation, Supply Issue

European equities have been gaining for six weeks straight to record highs on the optimism that economic growth can overcome inflation, tapering and supply risks. 

“European valuations look reasonable in absolute terms, very attractive in relative terms,” Morgan Stanley strategists led by Graham Secker said in a note on Sunday. “Increased macro crosscurrents suggest greater volatility next year, however the underlying macro backdrop remains a solid one and investor sentiment remains muted despite equities at record highs.” 

Strategists also highlight that European equities trade at a record low valuation versus real bund yields, with the gap between 10-year real bund yields and Europe’s forward dividend yield at 500 basis points. Morgan Stanley expects 10% earnings-per-share growth for the MSCI Europe in 2022, above the 7% consensus, and sees 8% upside for the index.

Morgan Stanley is not the only European equities bull. JPMorgan Chase & Co. strategists recommend being overweight Europe against the U.S., Pictet Wealth Management cites valuations in favor of European stocks, while Goldman Sachs Inc. strategists said last week the the European rally had further to run. 

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