In a recent report, Citi Research downgraded European equities to Neutral, as the potential election of a far-right government in France will bring risks to the European market. The broker meanwhile upgraded US equities to Overweight, citing its bullishness on growth-oriented US equities.
According to Citi, there are three main factors behind the downgrade for European equities, including increased political risk, investors reducing their positions in the region, and European stocks being concentrated in a small number of large companies. However, the broker noted that although there are some negative factors for European stocks in the short term, the European economy is in the early stage of recovery and the fundamentals are turning a corner, so it is still positive on European stocks for the medium term.
Citi also commented that the US stock market has stronger growth and risk resilience than the European stock market, and the potential strength of USD may support US stocks to outperform European stocks. Political instability in Europe may cause US investors to be reluctant to shift their capital to European stocks for the time being.
