Citi Downgrades US Stocks, Upgrades China Amid Market Shift

Shift in Market Strategy as Chinese Stocks Gain Momentum

Citigroup Inc. has downgraded US equities from overweight to neutral while upgrading China to overweight, signaling a pause in US exceptionalism and growing confidence in China’s market outlook.

According to Dirk Willer, Citi’s Global Head of Macro Research and Asset Allocation, the US market’s ability to outperform has weakened, prompting the shift in recommendation. Meanwhile, China’s recent rally, advancements in artificial intelligence (AI) technology, and government support for the tech sector present a compelling investment opportunity.

Citi’s Market View: Why US Stocks Are Losing Favor

Citi had maintained an overweight stance on US equities since October 2023, but the market’s ability to outperform has now been called into question.

Reasons for Downgrading US Equities:

• Slowing US Economic Momentum:

  • Citi expects the US economy’s performance to undershoot the rest of the world in the coming months.
  • Weakening economic data prints could further weigh on investor sentiment.

• Deteriorating Market Sentiment:

  • The US market has been rattled by geopolitical tensions, fiscal policy uncertainty, and trade-related concerns.
  • President Donald Trump’s tariff policies and spending cuts have fueled concerns over economic slowdown.

• Stock Market Performance Lagging Behind Peers:

  • The S&P 500 has dropped 4.5% so far in 2025, reflecting weaker investor confidence.
  • Comparative underperformance against other global markets, particularly China.

China Upgraded to Overweight: A Turning Point for Chinese Equities?

While US equities lose momentum, Citi sees a strong investment case for China, even after its recent stock market rally.

Factors Supporting Citi’s Overweight Stance on China:

• AI Breakthroughs Driving Tech Sector Growth:

  • China’s DeepSeek AI technology has been a game-changer, strengthening the nation’s position in artificial intelligence and automation.
  • AI-related advancements are boosting investor confidence in China’s long-term tech leadership.

• Government Support for Technology and Innovation:

  • China’s policy-driven focus on boosting domestic tech firms and innovation is expected to support further market gains.
  • Easing regulatory pressures on the technology sector have helped stabilize investor sentiment.

• Attractive Valuations Compared to US Equities:

  • Despite a 20% surge in Chinese stocks listed in Hong Kong, valuations remain relatively cheap compared to historical averages.
  • The price-to-earnings (P/E) ratio of Chinese equities is still below global peers, making them appealing for long-term investors.

Market Performance: China Outperforms US Stocks in 2025

• Chinese stocks listed in Hong Kong have surged 20% this year, making the index one of the best-performing markets globally.
• US equities, in contrast, have faced losses, with the S&P 500 down 4.5% in 2025.
• The trend highlights a potential shift in global investment flows, as investors seek opportunities outside the US.