Citigroup cuts China exposure, increases holdings in US small-cap stocks

Investing.com - Citigroup is adjusting its global asset allocation as its economists’ “goldilocks” view continues to be validated, prompting the bank to maintain a constructive stance on equities while making significant regional and sector adjustments.

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In its February 2026 institutional outlook report, Citigroup analyst Dirk Willer stated that liquidity “may still be ample, favoring risk assets,” but he added that rising concerns around artificial intelligence justify maintaining certain hedges.

To balance these risks, Citigroup is positioning its portfolio as “underweight credit while overweight duration,” believing that U.S. interest rates “will serve as a hedge against a potential AI bubble burst or AI-driven labor market dislocation.”

The analyst further added that, in this environment, “risk parity portfolios could regain momentum.”

Overall, Citigroup remains overweight equities but is readjusting its U.S. exposure. The bank plans to “shift half of its U.S. allocation to small caps,” expanding its coverage and reducing reliance on the largest tech stocks.

The bank still maintains an overweight stance on U.S. and Japanese equities but is reducing allocations to other regions. Citigroup plans to “cut China” exposure and lower the UK underweight to 50%.

In terms of sectors, the bank is diversifying away from mega-cap growth stocks, noting a downgrade of the technology sector to neutral and a downgrade of consumer discretionary to underweight. Meanwhile, it is upgrading the industrial sector to overweight and adjusting the materials sector to neutral.

Citigroup also remains underweight credit and has adopted a more balanced stance on commodities after taking profits in base metals, maintaining a neutral outlook on precious metals and energy.

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