(Sharecast News) - Citi upgraded its stance on UK equities on Monday as it rejigged its ratings following the US and Israel's strikes on Iran over the weekend.
"Conflict in Iran introduces a new source of uncertainty for risk assets," the bank said. "Despite initial volatility, global equities have historically recovered relatively quickly after the start of geopolitical conflicts.
"However, equities have seen significant downside when geopolitical risks catalyse sustained energy price spikes."
While the geopolitical backdrop remains fluid, Citi said its commodities strategists see oil trading meaningfully higher, above $80/bbl for now.
"We therefore upgrade the UK to overweight (from underweight) within our global equity strategy," it said.
Citi pointed out that the UK market is tilted heavily towards commodities and defensive sectors along with a sizeable share of aerospace & defence, and thus serves as an effective "geopolitical hedge" within equity portfolios.
The bank said it was tactically downgrading Japan to 'underweight' from 'overweight', as it tends to be an underperformer amid rising oil prices. However, it did acknowledge existing tailwinds around "Sanaenomics" and earnings per share revisions.