European equities may be underestimating the impact of a policy shift toward stronger trade protection, according to Citi’s equity and economics team led by strategist Sebastian Satz. The bank argues that Europe’s response to rising U.S. trade barriers and intensified Chinese industrial competition is progressing faster than markets anticipate, with procurement preferences, local-content requirements and trade defense measures gaining traction.
Citi points to a widening trade deficit with China as a key driver. The EU-China trade gap reached approximately €98 billion in Q1 2026, up from €65 billion in Q1 2024, underscoring the urgency behind Europe’s policy pivot. The bank’s European Autonomy Basket, comprising around 20 stocks focused on domestic resilience, has trailed the broader market by roughly 10% since the onset of the Middle East conflict. Despite this underperformance, long-term earnings growth for the basket is projected at about 7 percentage points above the market average.
Equity strategists at Citi estimate that European equity valuations could re-rate by roughly 10%, potentially reaching around 16 times earnings over the longer term. The bank identifies two broad categories of beneficiaries from this policy environment. In traditional industries, steel, automotive and chemicals producers are seen as clear winners. ArcelorMittal, Volkswagen, Renault, Lanxess and BASF are highlighted as potential beneficiaries.
Sectors tied to strategic resilience—defense, industrials, utilities and technology—are also positioned to gain. Citi names Leonardo, Rheinmetall, Thales, Vestas, Schneider Electric, EDP, Orsted, TotalEnergies, ASML, BE Semiconductor and ASM International as potential outperformers. The bank notes that steel represents the most immediate case where trade protection could translate into improved earnings and valuation uplift.
