Investing.com — Citi Research downgraded UK equities to “underweight” from “overweight” rating, citing the market’s defensive and commodity-heavy composition as a liability in an environment where earnings growth and market leadership are broadening.
The strategists said the UK had served as a “geopolitical hedge” within equity portfolios during the Iran conflict, but with geopolitical tensions abating, that rationale has faded.
“Although valuations remain attractive, the market’s defensive and commodity-heavy composition is less appealing in an environment where earnings growth and market leadership are broadening,” the strategists said. “We continue to favour more Cyclical opportunities elsewhere.”
The currently trades at 12.2 times forward earnings, the 43rd percentile of its historical valuation range, making the UK the cheapest major market in relative terms, the report said.
For the FTSE 100, Citi forecast earnings per share growth of 22% in 2026, in line with consensus, and 9% in 2027, above the 7% consensus estimate.
Within the UK, Citi said it still favoured Banks, Basic Resources and . Given economic uncertainty, the bank said it preferred the FTSE 100 over the FTSE 250.
The downgrade is part of a broader reallocation by Citi toward cyclical markets and away from defensives.
The broker simultaneously upgraded Japan to “overweight” from “underweight,” calling it “one of the most attractive beneficiaries of improving cyclical conditions,” with exposure to the artificial intelligence investment cycle through its technology and semiconductor supply chains. Citi’s target stands at 4,500, implying 12% upside from the current level of 4,020.
The U.S.remains “overweight,” supported by “robust earnings revisions, strong earnings delivery, and continued leadership in AI-driven growth,” with an year-end target of 8,100, representing 7% upside from the current level of 7,544.
was kept at Neutral, described as “an attractive diversifier against AI volatility,” while Emerging Markets also remain “neutral.”
At the sector level, Citi upgraded to “overweight” from “neutral” and maintained “overweights” on and , while downgrading Health Care to “neutral” from “overweight.” and remain “underweight.”
Citi set a year-end 2026 target of 1,440 for the , implying approximately 6% upside from the current level of 1,353, driven by what it described as “robust EPS growth.”
Global EPS growth expectations have risen by approximately 10 percentage points year-to-date to 27%, according to the report.