Investing.com — Citi upgraded U.K. equities to Overweight from Underweight, citing the market’s composition as an effective hedge against geopolitical risks following recent developments in Iran.
In a note dated Sunday, the bank said that conflict in Iran has introduced fresh uncertainty for risk assets. While global equities have historically recovered relatively quickly after geopolitical conflicts begin, significant downside has occurred when such risks trigger sustained energy price spikes.
Citi Commodities Strategists expect to trade meaningfully higher, above $80 per barrel, in the current environment.
The UK market’s heavy tilt toward Commodities and Defensive sectors, along with a sizable share of Aerospace & Defense stocks, positions it to benefit from elevated geopolitical tensions.
The bank simultaneously downgraded Japan to Underweight from Overweight.
Japan tends to underperform during periods of rising oil prices, though Citi acknowledged existing tailwinds around Sanaenomics and earnings per share revisions. The model change includes the addition of a higher oil macro factor.