Stronger economic growth, increased airport traffic in European cities, higher dividend payout ratios and in some cases rock-bottom valuations were enough to convince some international fund managers to build their exposures to Europe a year ago, if not longer.

With the blue-chip Euro Stoxx 50 Index up 8.9 per cent this year, and some country indices such as Spain's IBEX35 up 15.3 in the same period, the rally in France's CAC 40 Index this week is just the latest market to lift a gear. Returns are broadly the same in Australian dollars.

PM Capital fund manager John Whelan says "the noise" has become more positive with a sharp shift in the perceived political risks, the biggest of which is a break-up of the monetary union. Stock prices are now reflecting the recovery that was already evident, but with "a long way to run".

"Everyone's talking about the US market but the European market's up even stronger," Mr Whelan said. "We believe that the economies are less impacted from political factors than most people really think.

"Ireland is creating 1,000 jobs a week which equals 3 per cent employment growth, and unemployment should get under 5 per cent by the end of the year. Airport arrivals are up 10 per cent in 2016 because there's more economic activity around and hotel rates are up 16 per cent, there's cranes everywhere." PM owns Bank of Ireland and the homebuilder Cairn Homes.

K2 Asset Management fund manager James Soutter emphasised the need to buy selectively, arguing that some sectors had run strongly. Credit Suisse on Wednesday signalled a 4 billion Swiss franc ($5.4 billion) capital raising and Mr Soutter said the Swiss bank won't be the last.

"After this rally, I wouldn't be surprised if a few more financials come out. A lot of European financials still need a bit of balance sheet repair," he said, and "I really think you've got to see some earnings come through to support European financials."

Some heat is also coming out of the London property market, "that said, German property is doing quite well," the K2 fund manager observed.

Mr Soutter owns Atos, a French IT service provider that has broken into the mid-caps with a 51 per cent rally in 12 months. "I just don't see [Europe] as a holistic buy and from our point of view here, we're quite cautious on the US because of the valuation as well."

PM's Mr Whelan was bullish on the prospects for his holdings in Spain, which include the domestic-focused Caixabank and hotel operator Hispania.

"One of the first sectors to recover in Spain was its hotel and tourism industry," he said; Hispania "bought all these hotels at the bottom a couple of years ago and they've ridden the upward momentum in occupancy and rates."

Caixabank, which has more than doubled since its post-Brexit low, has lifted its dividend yield to 5 per cent and is poised to benefit from an uptick in demand for home loans. Spain has undertaken more reform in its labour market and on company tax than Italy for example, rendering the economy more competitive. "You can have a 30-year fixed rate mortgage at 2 to 3 per cent, it's cheaper to have a principal and interest mortgage than rent. That should benefit the Spanish banks," Mr Whelan said.