Citi analysts downgraded European equities to neutral and upgraded their stance on the US in their latest global equity strategy note.
Citing increased political risks and narrowing market leadership in Europe, they see the US as a more attractive option in the near term due to its “growth-oriented” nature and defensive qualities.
“Near-term risks for European equities have increased,” the note states, highlighting political uncertainty and its impact on European bond spreads. This has led Citi to downgrade continental Europe to Neutral “until near-term risks show signs of abating.”
The US, on the other hand, received an upgrade due to its focus on growth sectors like technology and industrials, along with a tilt toward defensive sectors like healthcare.
“We upgrade the US due to its substantially higher Growth tilt relative to Europe and more Defensive nature in episodes of uncertainty,” they state.
Citi analysts believe these characteristics position the US market to outperform Europe in the current environment, particularly given the potential for a stronger US dollar.
They believe the “potential USD strength should be more conducive to US outperformance.”
Additionally, the report suggests that ongoing political uncertainty could discourage US investors from recently favored European equities.
