Citigroup Inc. has downgraded its rating on US equities to neutral from overweight, while upgrading Chinese stocks to overweight. The move comes as Citigroup strategists suggest that the period of US economic exceptionalism is currently on pause.
Shift in Strategy: A Pause in US Outperformance
Citigroup had maintained an overweight position on US stocks since October 2023. However, according to Dirk Willer, Citi’s global head of macro research and asset allocation, the US market’s ability to outperform has become increasingly evident as weaker economic signals emerge.
Willer noted in a report that Chinese stocks remain attractive, even after a strong rally this year, driven by significant breakthroughs in artificial intelligence from companies like DeepSeek, government backing of the tech sector, and still relatively low valuations in the market.
US Economy Faces Challenges
Citi’s outlook suggests that the US economy’s growth is expected to lag behind that of other global markets in the coming months. Willer pointed out that the likelihood of US exceptionalism making a strong return is slim, at least in the short term. The neutral outlook on US equities spans a three-to-six-month time frame, with expectations for weaker economic data from the US.
Market sentiment toward US stocks has taken a downturn, fueled by growing concerns over President Donald Trump’s trade policies, including his tariff war and ongoing government spending cuts. These factors have raised fears about the future health of the US economy.
US and China Markets Diverge
The impact of this shift in outlook is already visible. The S&P 500 index has fallen 4.5% this year, while a gauge of Chinese stocks listed in Hong Kong has surged by 20%, making it one of the top-performing indexes of 2025.
In summary, Citi’s adjustment to its market outlook reflects broader concerns about the sustainability of US growth and the attractiveness of Chinese equities, especially given the country’s advancements in technology and government support.
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