Citi upgrades China to ‘overweight’ amid AI volatility, geopolitical friction

Wall Street giant Citigroup has adjusted its emerging market asset allocation recommendation, upgrading China to “overweight”, saying that investors should increase their exposure to assets that could benefit from a broadening market rally.

The bank acknowledged that while China’s relative earnings-per-share momentum remained a weak spot following a cautious start to the year, the market now screens as a prime candidate for capital rotation.

Strategists highlighted light investor positioning, lower oil prices, and an improving global growth backdrop as key support measures, while watching for signs of an earnings inflection.

The shift comes as global investors actively debate whether stock performances will expand beyond a narrow group of dominant tech leaders into a wider range of sectors in the second half of 2026.

“If the macro environment remains favourable, including easing geopolitical risks, there is scope for broadening,” a team of strategists including David Groman noted in a July 20, research report, pointing to cooling AI sentiment and elevated volatility alongside solid tech earnings growth as setting the stage for a potential rotation.

With China’s recent economic data disappointing the market, Citi analysts expected incremental policy measures to drive a mild recovery.