European equity allocations are at a five-year high, according to a fund managers' survey by Bank of America Merrill Lynch released last week. On Monday, investment bank Nomura also reported a notable uptick in investor sentiment towards Europe.
"The sentiment of European equity mutual fund investors reached the highest level for almost two years last week as measured by our equity mutual flow indicator ... Investors have made positive inflows into European funds in eight out of the last nine weeks and purchased a net $0.6 billion last week," Nomura.
"These recent positive flows stand in stark contrast to the relentless net selling of European equity mutual funds, which had occurred since the summer of 2011," the bank added.
But strategists told CNBC that investors should be cautious, rather than euphoric, over the rally.
"When I see a sudden turnaround, a market or sector rotation or a move from safe-havens into much more riskier assets, I naturally get very pessimistic about it and think, 'How long can this last?,'" Scott Evans, head of equity sales at Espirito Santo Investment Bank, told CNBC on Monday.
"Everybody's chasing the same thing, we know ultimately that it'll all go horribly wrong and just when everyone has given up on safety, that's when you've got to be concerned," he added.
However, Evans told CNBC Europe's "Squawk Box" that he could understand market exuberance as global governments signal an easing of austerity and a focus on growth.
"We will start to see fiscal expansion, we will start to see inflation coming through and we will start to see the impact of quantitative easing coming through which will drive equities further," Evans said. "I think we will still see momentum within the financial sector, momentum in the asset managers but at some stage it does start to unravel unless you get fundamental changes in the macro-economic environment."