Citi named the UK market as the best defense against geopolitics. Where can you invest?

The British stock market is best able to protect investors amid rising geopolitical risks thanks to the high share of energy companies, the pharmaceutical sector and FMCG producers, Citi analysts said. UK stocks are also benefiting from political stability and a stronger pound sterling, market participants say.

The U.K. stock market may offer investors better protection against escalating geopolitical tensions, strategists at Citigroup Inc. said. Their note quotes Bloomberg. 

Citigroup pointed to the large influence that energy companies and traditional defensive stocks, such as the securities of pharmaceutical giants and consumer goods manufacturers, have on the British market.

«If geopolitical risks continue to rise, this typically favors the European energy sector and traditionally defensive securities. Switzerland and the U.K. tend to outperform similar markets in the face of geopolitical escalation,» a team led by Beate Mantei wrote in a note, Bloomberg reports.

About 10% of the UK's FTSE 100 index is made up of oil majors Shell and BP. Oil prices have risen about 10% since the current phase of the Israel-Iran conflict began. Shell shares are up nearly 2% and BP securities are up 2.2% (as of the close of June 17 and compared to the close of June 12).

The FTSE 100 is rising alongside continental European indices and closed at a record high last week, Bloomberg noted. The British market has recovered all losses from the April low caused by U.S. duties. The Morningstar UK index was one of the fastest-growing in Europe over the period, noted Morningstar. Global bank HSBC was the largest contributor to the index's growth, followed by defense and aerospace company Rolls-Royce and Shell. BAE Systems, which is benefiting from the rise of the defense sector in Europe, was the fourth biggest driver of growth in the index. BAE Systems shares now look undervalued, while the others are fairly valued, according to Morningstar.

«Investors are withdrawing funds from the US, and Europe and the UK have benefited. We have an improving economy and we are seen as having a more stable political situation than many other companies,» said Charles Hall, head of research at British investment bank Peel Hunt, as quoted by the Financial Times.

UK equities also benefit from the rise in sterling against the dollar: this means «the UK market will be perceived as more valuable»: this too will help attract more investors, Hall added.

«The UK market has many advantages,» said Trevor Greetham, portfolio manager at Royal London Asset Management, who was also quoted by the FT. He pointed to the lower cost of UK securities and added that the market is more diversified and inflation-resistant than some of its peers.

The FTSE 100 blue-chip index has risen 8.2% since the start of the year, while the pan-European Stoxx 600 index has added 6.4% over the period. German securities are up 17% since the start of the year, the DAX index shows. 

The British stock market is about twice as fast as the French market, which was the «least favorite» in Bank of America's Bank of America's survey, but is just as far behind the German market, which is by contrast the favorite. France's CAC 40 stock index only adds about 4% in 2025. France's rapid growth, according to analysts, is hampered by a strong decline in the luxury sector, as well as much bigger issues - political and economic.