Investing.com -- Citi Research analysts are making adjustments to their global equity strategy, with upgrading the UK to “neutral” and downgrading Emerging Markets (EM) to “underweight”, reflecting a shift in market dynamics and potential headwinds.
UK upgraded to Neutral:
Previously neutral on the UK, Citi now views it more favorably due to the UK's defensive sector tilt. The UK market has a 50% weighting towards consumer staples and utilities, which can provide stability during periods of market uncertainty.
Emerging Markets downgraded to Underweight:
Citi downgraded Emerging Markets to "Underweight" citing concerns about a potentially stronger US dollar and heightened geopolitical risks, particularly those related to potential Trump tariffs. Geopolitical tensions could further dampen the outlook for EM markets. While EM markets boast strong expected EPS growth, year-to-date performance has been lackluster, and valuations are no longer considered attractive.
Despite the adjustments, Citi's global equity strategy maintains a core focus on growth and cyclical sectors. However, the analysts flag the need for some defensive positioning to mitigate potential risks. The US and Japan remain “overweight” in Citi's allocation model due to their growth potential and the presence of defensive characteristics that could provide stability in a shifting market environment.
Within growth sectors, Citi favors Consumer Discretionary and upgrades Communication Services. The upgrade for Communication Services is based on its defensive nature, strong EPS growth, and attractive entry point after recent underperformance.
Financials remain the preferred Value play. Conversely, Industrials are downgraded due to earnings downgrades and unattractive growth prospects despite high valuations.
Consumer Staples are upgraded to Neutral in recognition of their defensive positioning, offering a balance between growth and stability.