European cyclical stocks may face a counterattack! Citi makes a big statement: the worst may be over, fall is a good time to lay out

The Zhitong Finance App learned that Beata Manthey, head of European stock strategy at Citigroup, said that after a difficult period, European cyclical stocks, which are closely related to economic health, now provide an attractive entry point because improved economic data and policy support suggest that the worst period for some of the hardest-hit industries in the region may be over.

The Eurozone economy has recently shown resilience beyond expectations. On the one hand, some rivals in Asia have been further impacted by the blockade of the Strait of Hormuz, and orders and part of the supply chain have been transferred to Europe. On the other hand, fiscal stimulus policies in many countries continued to gain strength, which together supported growth momentum.

According to data recently released by S&P Global, in August of this year, the initial Eurozone composite PMI rose to 52.1, higher than market expectations of 51.7, a new high in 9 months, and was in the expansion range above the boom and dry line for the second month in a row. Among them, the manufacturing PMI further climbed from 51.9 in July to 52.8, the highest level since May 2022; the manufacturing output index also reached 53.4, the highest point in 54 months.

On the demand side, the growth rate of new orders from the Eurozone manufacturing industry hit the fastest level in 40 months. In particular, export orders increased for the first time since February 2022. Behind this data, the explosive growth in demand for artificial intelligence-related technology products and the expansion of European defense spending have become the main driving forces for manufacturing orders. As the “locomotive” of the Eurozone economy, Germany's manufacturing PMI rose from 52.2 to 54.1 in August, a 51-month high, showing a strong rebound in the German industrial sector in specific fields.

Meanwhile, Citigroup's economic accident index, revised profit expectations covering a wide range of industries, and rising business activity during the summer all indicate that the European economy is moving in the right direction. “Fall is a great time to invest in cyclical stocks,” Beata Manthey said. However, at the same time, she urged investors to adopt selective investment methods. “Overall, you can think that maybe the worst is over,” she added. She said investors should at least consider withdrawing their low allotted positions on these stocks.

In terms of investment allocation, Beata Manthey said that Citi favors local stocks over exporters and consumer stocks that are highly dependent on the international market, although the latter has recently shown strong resilience.

Beata Manthey said European policymakers are taking meaningful steps to protect industries that live in the middle. Using the automotive and chemical industries as an example, she pointed out that these industries were under tremendous pressure before, but now the hardest period is probably over. She said that the recently introduced steel tariff system is modeled after measures taken by the US and has now boosted steel prices in Europe while benefiting European steel producers who can avoid this tariff, adding that this is “a great example of how protectionism may actually benefit Europe.”

The broader strategic logic proposed by Beata Manthey is that Europe can enhance its own economic resilience through priority procurement — that is, “buying European products” — and targeted tariff measures. The key risk facing this investment logic remains energy prices: for an industrial sector under pressure, the real downturn will require a continued decline in energy prices, but geopolitical circumstances have so far prevented this trend.