Citi Group has upgraded its investment outlook for the Chinese stock market to 'overweight' while downgrading South Korea to 'neutral.'
According to the South China Morning Post on July 20, Citi recently adjusted its investment outlook for China in its emerging markets asset allocation report, raising it from the previous level to 'overweight.'
Citi analysts noted that while the earnings per share (EPS) growth of Chinese companies remains sluggish, the low investor participation, falling oil prices, and the potential for global economic recovery suggest a significant inflow of foreign capital.
Recently, global stock markets have been led by a surge in some major tech stocks fueled by an artificial intelligence (AI) investment boom. However, as investor sentiment around AI has cooled and market volatility has increased, there are expectations that funds may shift from overvalued tech stocks to other sectors and regions in the second half of the year.
In a report published on the same day, Citi strategists, including David Groman, stated, 'If the favorable macroeconomic environment continues, including the easing of geopolitical risks, there is a possibility that the market rally could broaden.'
Citi acknowledged that while recent economic indicators from China have fallen short of market expectations, additional stimulus measures are expected to lead to a gradual recovery. The firm anticipates that the People's Bank of China will lower its policy interest rate by 0.1 percentage points in the second half of the year, and the Chinese government may accelerate the implementation of fiscal stimulus measures.
Additionally, Citi upgraded its investment outlook for Mexico to 'neutral,' assessing that both China and Mexico are relatively favorable markets for absorbing funds moving away from overvalued tech stocks.
In contrast, the investment outlook for the South Korean stock market was downgraded from 'overweight' to 'neutral.' This change reflects increased market volatility, despite maintaining an 'overweight' stance since mid-last year.
Citi maintained its 'overweight' outlook for Taiwan, believing that the semiconductor and IT hardware supply chains will continue to support global AI infrastructure investments, leading to a relatively stable trend.
Meanwhile, Citi has kept its overall outlook for emerging markets at 'neutral.' While corporate financial structures remain robust, risks such as stock price volatility related to AI, geopolitical tensions, uncertainties in U.S. Federal Reserve monetary policy, and climate shocks from El Niño persist.
However, Citi positively assessed the earnings outlook for emerging market companies, projecting that the net profits of companies included in the MSCI Emerging Markets Index will increase by 63% this year. Regionally, China, South Korea, and Taiwan are expected to have the greatest potential for growth.
* This article has been translated by AI.
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