Published by Global Banking & Finance Review®
Posted on October 6, 2025
2 min readLast updated: January 21, 2026
Add as preferred source on GoogleCitigroup shifts focus from UK equities to Emerging Markets, citing AI and cyclical growth. UK equities downgraded due to defensive sector exposure.
(Reuters) -Citigroup has double downgraded UK equities to "underweight" from "overweight", while upgrading Emerging Markets (EM) to "overweight" in a strategic pivot toward cyclical and AI-driven growth opportunities.
Analysts at Citi raised their mid-2026 target for the MSCI EM index to 1,465, implying ~7% upside from current levels, while raising their target for the FTSE 100 to 9,700 from 9,300, implying more modest upside from current levels over the same time period.
The brokerage in a note on Friday said that the UK's 50% exposure to defensive sectors such as consumer staples and utilities makes it less attractive in a market environment increasingly favouring cyclical and growth-oriented plays.
While economic activity has held up, Citi noted that UK growth has been driven by frontloaded trade and government spending, with consumer demand remaining weak.
Taken alongside Citi analysts' expectations for earnings growth and market performance to become more dispersed across regions, sectors, and styles in 2026, the outlook for UK stocks becomes less compelling.
"While the UK has performed well as an overweight, the potential broadening and demand for cyclicality is less favourable for the index," Citi analysts wrote.
Lower energy prices are also expected to weigh on UK earnings, with Citi forecasting a 1% contraction in FTSE 100 earnings for 2025 and with no Bank of England rate cuts expected this year, the macro environment continues to face headwinds.
In contrast, Citi sees EM benefiting from a confluence of factors, including a soft-landing scenario in the U.S., anticipated Federal Reserve rate cuts, and exposure to the booming AI theme through markets like Taiwan, Korea and China.
"EM is more directly tied to the AI thematic, with exposures looking more similar to the U.S.," the report said, noting that equity inflows into EM remain subdued and could pick up.
(Reporting by Rashika Singh in Bengaluru; Editing by Ronojoy Mazumdar)
Equity refers to the ownership interest in a company, represented by shares of stock. It signifies the value of ownership after all liabilities have been deducted.
Emerging markets are countries with developing economies that are becoming more integrated into the global economy. They often offer higher growth potential but come with increased risks.
The UK economy is the economic system of the United Kingdom, characterized by a mix of services, manufacturing, and agriculture, and influenced by various domestic and international factors.
An investment opportunity is a chance to invest capital in a venture or asset that is expected to generate a return, such as stocks, bonds, or real estate.
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