Amid Global Volatility, Citi Favors Chinese Stocks

Citi sees the 20% tariff increase on China as having had a limited impact so far. For this and other reasons, the bank has decided to overweight Chinese equities.

Shift in Market Outlook

Economic uncertainty in the U.S., marked by recession risks and declining equities, has not gone unnoticed by Citi analysts. In this context, the bank anticipates a pause in “American exceptionalism” and sees greater potential in Chinese stocks.

Recently, Citi downgraded its recommendation on U.S. equities from overweight to neutral, a stance it now reinforces with additional clarity. “We hadn’t fully implemented our view that American exceptionalism was on hold, but now it has become more evident,” they explain. Consequently, the bank has officially downgraded U.S. equities to neutral while upgrading China to overweight.

Adjustments in Credit Markets

In credit markets, Citi has removed its preference for U.S. high-yield bonds and shifted to underweight investment-grade (IG) assets in the U.S. Meanwhile, it has closed its underweight position on IG assets in the European Union, though it maintains a generally cautious stance on credit allocation.

Citi analysts believe that, in the long run, U.S. leadership could regain momentum with renewed enthusiasm for artificial intelligence (AI). However, over the coming months, they expect U.S. growth to lag behind the rest of the world.

China: An Attractive Opportunity

Citi views Chinese stocks as an attractive opportunity, a perspective reinforced by the rising tariff risks linked to Donald Trump’s trade policies. “Even without considering this factor, the case for Chinese technology was already strong,” they highlight.

Examples like DeepSeek, which has demonstrated that Chinese technology is on par with—or even ahead of—the West despite export restrictions, support this thesis. Additionally, advancements such as Tencent’s Hunyuan (an AI-powered video generator) and Alibaba’s QwQ-32B (a cutting-edge language model) showcase the sector’s rapid development.