Citi downgrades European equities, cites tariff uncertainty

(Sharecast News) - Citi downgraded Continental European equities to 'neutral' from 'overweight' on Tuesday as it said the latest step-up in transatlantic tensions and tariff uncertainty dent the near-term investment case, casting doubt on broad-based earnings per share inflection in 2026. "We therefore downgrade continental Europe to 'neutral' in a global context for the first time in over a year," it said.

"Resilient global economic conditions could still support cyclical ex-US markets - and our targets imply circa 5% upside for the Stoxx 600 to year-end - though we now see better risk-reward in emerging markets and Japan (upgraded from 'neutral' to 'overweight'."

The bank also said it was adjusting its European sector allocation.

"While our strategy maintains a cyclical tilt, we downgrade internationally exposed sectors where EPS improvement looks more difficult (autos, chemicals), while maintaining our preference for European banks and industrials," it said.

Citi said that despite significant uncertainty, recent events could bolster the longer-term case for diversification within equity portfolios, with Europe as a key beneficiary.