June 11 (Bloomberg) -- The rally in so-called cyclical shares, which has sent stocks tied to the economy “through the roof,” may end as valuations surpass those of companies whose earnings aren’t as linked to growth, strategists at Axa Investment Managers said.

Industries including basic resources, machinery and information technology trade in Europe at an average of 13 times their estimated earnings for the coming 12 months, according to a report by Charles Dautresme and Franz Wenzel in Paris. That’s 1.3 times the valuation of so-called defensive stocks, which -- as the CHART OF THE DAY shows -- is the highest ratio since the start of Axa Investment’s data in 1995. The average ratio during the period was 0.91.

Europe’s Dow Jones Stoxx 600 Index has surged 36 percent since March 9 on speculation the worst of the first global recession since World War II is over. The rally has been led by companies most dependent on a buoyant economy, which have outperformed industries such as health care, consumer staples, utilities and phone companies.

The gains in cyclical stocks have been “extreme,” Dautresme said in a phone interview yesterday. “Cyclicals rebound when investors anticipate increases in profit, but we’re still in a period of downgrades. The move has been too early.”

Banks and basic-resources shares have led gains among the 19 industry groups in the Stoxx 600 since March 9, according to Bloomberg data. Telecommunications, media and health-care stocks have been the worst performers. Cyclicals have tended to trade at a discount to defensive stocks because their profits are deemed riskier, the strategists wrote in a report last month, which compared valuations from 1995 to April 2009.

Signs of an economic recovery have “propelled cyclical sectors through the roof,” they wrote. “It is reasonable to expect that the extreme over-performance of cyclicals is rather behind us than in front of us, at least for the coming quarters.”

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Adria Cimino in Paris at acimino1@bloomberg.net.

Last Updated: June 11, 2009 06:20 EDT