Citi analysts downgraded European stocks to neutral and upgraded their stance on the US in their latest global equity strategy note.
Given rising political risks and narrowing market leadership in Europe, they view 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 stocks have increased,” the note said, highlighting political uncertainty and its impact on European bond spreads. This has led to Citi downgrading continental Europe to neutral “until near-term risks show signs of abating”.
On the other hand, the United States received an upgrade due to its focus on growth sectors such as technology and manufacturing, along with a tendency towards defensive sectors such as healthcare.
“We upgraded the US due to its significantly higher growth propensity compared to Europe and more defensive nature in periods of uncertainty,” they say.
Citi analysts believe that these characteristics place the US market in a position to outperform Europe in the current environment, especially in light of the potential for a stronger US dollar.
They believe that “the potential strength of the US dollar should be more consistent with US outperformance.”
Additionally, the report notes that ongoing political uncertainty may dissuade US investors from recently favored European stocks.
