Citigroup has revised its global equity strategy, downgrading European equities from 'overweight' to 'neutral' while upgrading the United States to 'overweight'.
The decision is driven by increased near-term risks in European markets and a more favourable outlook for the US.
Citi outlines three primary reasons for the downgrade: Heightened political risks, narrowing market leadership, and the potential for a continued positioning unwind.
Political uncertainties have been a significant factor. In France, President Emmanuel Macron's government faces challenges, including pension reform protests and social unrest. The UK's political landscape remains volatile amid the inevitable ousting of the Tories after 14 years.
Citi's analysis highlights that European markets have seen a narrowing of leadership, meaning fewer stocks are driving market performance.
This concentration increases vulnerability to market shocks. Furthermore, the potential for continued positioning unwind — where investors reduce exposure to certain assets due to perceived risks — adds to the caution.
In contrast, the US market is seen as more growth-oriented. Sectors such as technology and industrials, which Citi favours, are expected to perform well. The healthcare sector, viewed as defensive, is also a potential winner.