Despite all of the talk in the first quarter of 2013 of an equities revival, many on the buy side in Europe are pessimistic for the asset class in the coming months.

Major benchmark equity indices such as the FTSE 100 and S&P 500 have soared in the first three months of the year, but trading volumes are still well below the record levels of early 2009 in many European equity markets.

And talk of this ‘great rotation’ into equities from bonds is maybe missing the point.

“Since mid-June last year, it has been quite clear that equities markets have been in a stronger trend and bond markets have reached levels that would suggest limited upside,” said Giovanni Govi, chief investment officer at Theorema Asset Management, a London-based European long/short equity group.

“Therefore, people have associated a great rotation taking place. But generally in the equity markets, prices are generally determined at the margins, not by significant flows. And therefore in my mind I attach limited importance to this great rotation.”

Govi, though, is warning that equities markets could be in for a rough ride as things may get worse before they get better in Europe, especially if indebted southern European nations such as Cyprus and Italy continue to shake the foundations of the eurozone project and the plug is pulled on the great quantitative easing program of many central banks.

“We continue in general to have a strategically constructive view on equities,” said Govi. “However, our view rests on the determination of central banks to keep abnormal monetary policy conditions.

“So, at the moment on a purely tactical basis, we see a couple of risks for equities markets, of which one is certainly the return of European systemic risk brought about by the Italian elections and the recent Cyprus restructuring. Both have the potential to threaten European equity markets for at least three or four months.”

Others are also fearful that the rip-roaring start to the 2013 trading year in terms of prices may prove, in the end, to be another false dawn. And it seems that caution appears to be the new buzzword, replacing the early-2013 optimism of many equity market participants.

“A new quarter presents new opportunities but it might not be a good idea to try too many,” said Alastair Winter, chief economist at investment bank Daniel Stewart.