Europe’s pivot toward trade protection and domestic industrial resilience is gathering pace, according to Citi, with policy measures such as procurement preferences and local-content rules expected to reshape equity valuations. Analysts led by Sebastian Satz argue that markets have yet to fully price in the shift, which is unfolding against a backdrop of rising U.S. trade barriers and intensifying Chinese industrial competition.
The bank’s European economics team has introduced a dedicated equity basket of roughly 20 stocks tied to strategic sectors, including steel, autos, chemicals, defense, industrials, utilities, and technology. Since the onset of the Middle East conflict in mid-2024, the basket has underperformed the broader European market by about 10%, despite projecting long-term earnings growth around seven percentage points above the market average. Citi estimates that European equity valuations could re-rate by approximately 10% on a longer-term basis, potentially lifting the market’s price-to-earnings multiple to around 16 times.
The policy response centers on Europe’s inward turn, emphasizing domestic demand as the primary engine of growth. This approach is expected to be reinforced by stronger trade defense in key industries, with steel cited as a sector where credible protection has already demonstrated an ability to bolster earnings and valuations. The European Union’s trade deficit with China widened to about 98 billion euros in the first quarter of 2026, up from 65 billion euros in the same period of 2024, underscoring the urgency behind the policy shift.
Citi’s equity analysts highlight a range of beneficiaries across sectors. In steel, autos, and chemicals, companies such as ArcelorMittal, Volkswagen, Renault, Lanxess, and BASF are positioned to gain. Defense, industrials, utilities, and technology names including Leonardo, Rheinmetall, Thales, Vestas, Schneider Electric, EDP, Orsted, TotalEnergies, ASML, BE Semiconductor, and ASM International are also expected to benefit from the evolving trade landscape.
