Chinese stocks find favour on DeepSeek trade as Citigroup downgrades US equities

‘A period of outperformance is only just starting to reverse years of underperformance’ by European and Asian equities, analyst says

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A trader works on the floor of the New York Stock Exchange at the opening bell in New York City on March 10, 2025. Photo: AFP

Published: 5:00pm, 11 Mar 2025

Citigroup recommended that its clients cool off on US stocks while investing more in Chinese equities, a call that suggests an unravelling of the trade on American exceptionalism that buoyed the “Magnificent Seven” US technology stocks over the past two years.

The bank downgraded US stocks for the first time since October 2023 to neutral from overweight, it said in a note on Tuesday. Meanwhile, it raised Chinese stocks to overweight based on breakthroughs in artificial intelligence (AI), policy tailwinds and attractive valuations, Dirk Willer, global head of macro research and asset allocation, said in the note. HSBC Holdings also downgraded US stocks to neutral.

“The news flow from the US economy is likely to undershoot the rest of the world in coming months, and at least tactically, US exceptionalism is therefore unlikely to roar back,” the report said.

US stocks tumbled overnight, with the Nasdaq 100 plunging almost 4 per cent and wiping out US$1.1 trillion in value in the biggest loss since 2022. Other Wall Street firms including Goldman Sachs and Morgan Stanley raised their price targets for key gauges of Chinese stocks last month following the ascent of AI start-up DeepSeek.

Diversification from US equities has become conspicuous in the weeks after President Donald Trump’s tariff policies against US trade partners raised the risk of a hard landing for the economy. Instead, investors are piling into stocks in China and Europe, which had been underperformers amid a frenzy over US tech stocks since early 2023.

“A key driver of this outperformance is the improving relative fundamentals of markets outside the US,” said Gary Dugan, CEO of The Global CIO Office. “In China, the government has a technological and cost advantage over many of its competitors in key growth industries. We expect the recent outperformance of European and Asian equity markets relative to the US to continue. A period of outperformance is only just starting to reverse years of underperformance.”