China's policy support boosts European cyclical stocks, potential for market rebounds.

From Investing.com: 2024-09-25 02:57:32

Chinese authorities have implemented measures to boost the economy, including policy rate cuts and lower mortgage rates, surprising markets with further reductions in reserve ratios. While these actions have led to a rally in Chinese stocks, economists warn of the need for more fiscal support to reshape long-term growth prospects.

In Europe, industries tied to China have underperformed due to falling earnings. Citi’s analysis shows a 10% drop in earnings expectations for China-sensitive European stocks, with potential relief and recovery if China stabilizes, making these sectors prime candidates for a rebound.

Citi’s proprietary Earnings Revision Index indicates potential for market rebounds, with cyclical stocks historically outperforming during periods of monetary easing. As central banks adopt accommodative stances, cyclical sectors could benefit, especially heading into year-end with seasonal trends favoring cyclicals.

Adjusting its European sector strategy, Citi has upgraded autos and basic resources to Neutral, reflecting optimism from China’s policy support. Defensive sectors like food and telecoms face headwinds relative to improving cyclical sectors. Citi remains cautious about China’s growth outlook but sees potential for European cyclicals amidst recent policy easing.



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