Citi downgrades European equities to neutral after Trump’s tariff threats
[SINGAPORE] Citigroup has downgraded European equities for the first time in over a year, citing worsening relations between Brussels and Washington over President Donald Trump’s push to seize Greenland.
“The latest step-up in transatlantic tensions and tariff uncertainty dents the near-term investment case for European equities” and hurts the earnings outlook for companies on the continent, strategists including Beata Manthey wrote in a note dated Monday.
They cut Europe, excluding the UK, to neutral in their global allocation on the weaker near-term investment case. Meanwhile, Citi upgraded its view on Japanese stocks to overweight from neutral.
European shares, which have outperformed US stocks over the past year, slumped on Monday after Trump announced fresh tariffs on countries backing Greenland. The European Union is weighing potential levies on US$108 billion of US goods among other potential retaliatory moves.
Manthey was among the first Wall Street strategists to upgrade Europe to overweight in October 2024, a time when most investors were still shunning the region. The Stoxx Europe 600 Index has risen 17 per cent since then.
To be sure, any reaction might be short-lived until there’s more clarity on the latest tariff threats. The prevailing “TACO trade” mindset among investors may prevent a repeat of the post-Liberation Day drawdown.
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For now at least, the Citi strategists see better risk-reward in emerging markets and Japan. “Our targets still point to upside for the Stoxx 600 by end-2026, but we see more attractive risk-reward elsewhere,” they wrote.
Manthey’s team said Japan has replaced Europe as an overweight in its allocation. They see the Asian market having longer-term tailwinds for earnings and valuations from reflation and other factors. BLOOMBERG
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