European cyclical stocks may be on the brink of a rebound! Citigroup has issued a strong statement: the worst times may be over, and autumn is the perfect opportunity for positioning.

Beata Manthey, head of European equity strategy at Citigroup, stated that after a challenging period, European cyclical stocks, which are closely tied to the health of the economy, currently offer an attractive entry point. This is due to improving economic data and policy support, which suggest that some of the hardest-hit industries in the region may have seen their worst times pass. The Eurozone economy has recently shown unexpected resilience. On one hand, some Asian competitors have been more heavily impacted by the blockade of the Strait of Hormuz, leading to a shift of orders and supply chains back to Europe. On the other hand, continued fiscal stimulus measures across various countries have supported growth momentum. Data released by S&P Global recently indicated that the initial composite PMI for the Eurozone rose to 52.1 in August, exceeding market expectations of 51.7, reaching a new high in nine months, and remaining in the expansion territory above the neutral line for the second consecutive month. Specifically, the manufacturing PMI climbed from 51.9 in July to 52.8, marking the highest level since May 2022; the manufacturing output index even soared to 53.4, the highest point in 54 months. From the demand side, the growth rate of new orders in the Eurozone manufacturing sector reached its fastest level in 40 months, particularly with export orders seeing growth for the first time since February 2022. This data is underpinned by a surge in demand for AI-related technology products and the expansion of European defense spending, which have become the primary drivers of manufacturing orders. Germany, as the "locomotive" of the Eurozone economy, saw its manufacturing PMI rise from 52.2 to 54.1 in August, hitting a new high in 51 months and indicating a strong rebound in specific sectors of the German industrial sector. At the same time, Citigroup's Economic Surprise Index, the adjustment of earnings expectations across a wide range of industries, and the continuous recovery of business activity during summer all suggest that the European economy is moving in the right direction. Beata Manthey commented, Autumn is a very good time to invest in cyclical stocks. However, she urged investors to take a selective investment approach. She added, Overall, you might think that perhaps the worst times are behind us. She indicated that investors should at least consider reversing their underweight positions on these stocks. In terms of investment allocation, Beata Manthey expressed that Citigroup prefers domestic stocks over exporters and consumer stocks that heavily depend on international markets, despite the latter showing strong resilience recently. Beata Manthey remarked that European policymakers are taking meaningful measures to protect industries that are surviving in tight spots. She pointed to the automotive and chemical sectors, which had previously been under significant pressure, but may now have seen the most difficult times pass. She noted that a recent set of steel tariff measures, based on actions taken by the U.S., has already increased domestic steel prices in Europe while benefiting European steel producers who can avoid these tariffs, calling it a great example of how protectionism might actually benefit Europe. The broader strategic logic proposed by Beata Manthey is that Europe can enhance its economic resilience through prioritizing procurementessentially "buying European products"and targeted tariff measures. The key risk to this investment logic remains energy prices: for industrial sectors under pressure, a true tailwind would require sustained declines in energy prices, but geopolitical conditions have so far hindered this trend.