In its latest Global Equity Quarterly report dated April 14, 2025, Citi Research has released a comprehensive update on its market outlook across regions. The report outlines important shifts in recommendations, reflecting the evolving global economic and geopolitical landscape. One of the standout takeaways is Citi’s decision to downgrade the US market to Neutral from its previously favorable Overweight rating. The downgrade is rooted in the observation that the primary drivers of American "exceptionalism" are beginning to fade, both from a GDP and earnings per share (EPS) standpoint. Citi also warns that tariffs, especially under the Trump Administration, pose a significant risk to U.S. corporate earnings. Even after the most recent sell-off, U.S. markets remain expensive, trading at roughly the 80th percentile valuation multiple compared to historical levels.
In contrast, Citi maintains a more optimistic view of Europe. The firm maintains its Overweight rating on European equities, noting that although earnings downgrades are likely, the region has already fully priced in the 20% tariffs and valuations still appear attractive. Citi points to ongoing structural tailwinds from fiscal stimulus programs and anticipates the European Central Bank (ECB) will likely continue cutting interest rates. Alongside this, the UK has been upgraded to Overweight — a notable shift mainly driven by cheap valuations, sitting near the 20th percentile. Citi also mentions the UK’s defensive nature as an advantage, especially if market volatility continues to linger.
The outlook for Emerging Markets and Australia tells a more cautious story. Citi reports that Australia remains an Underweight, although the region does rank incrementally better in their allocation model compared to previous assessments. The firm highlights that while Australia shows some improvements, the overall market remains expensive and the earnings outlook does not seem promising.
Perhaps the most significant regional shift comes in the form of a downgrade for Emerging Markets, moved from Neutral to Underweight. The report highlights that China is disproportionately impacted by current tariffs, even in light of some recent tech-related announcements that offered limited relief. Despite faint signs of progress in trade talks, heightened bilateral trade barriers are expected to persist, dampening sentiment for the broader EM space.
Within the emerging market universe, however, India stands out as an exception. Citi maintains an Overweight rating on India, crediting the country's limited exposure to trade tensions and a steadily improving domestic macroeconomic narrative. Along with India, Citi also expresses a favorable view toward Taiwan, Chile, South Africa, and to a lesser extent, Australia — markets that are seen to benefit from either reduced global trade tensions or solid internal growth stories.
Overall, Citi's latest report underscores a cautious but targeted approach for global equity investors, suggesting a shift away from overvalued U.S. stocks toward undervalued and resilient markets like India, the UK, and certain parts of Europe.
Disclaimer:
This article is intended purely for informational purposes and reflects the views expressed in Citi Research's April 14, 2025, Global Equity Quarterly report. The content should not be considered financial advice or a recommendation to buy, sell, or hold any securities. Market conditions are subject to rapid changes, and any investment decisions should be made in consultation with a licensed financial advisor. The blog and its author take no responsibility for any financial losses that may occur as a result of decisions based on this content.
