Recently, the international major financial institution Citigroup downgraded its rating on Chinese stocks from “overweight” to “neutral.” Experts point out that although the A-share index has seen some increase recently with policy support, it remains disconnected from the overall economy. The driving force behind China’s economic growth has lost momentum, leading to multiple challenges and severe structural challenges for the economy.
Citigroup’s strategists released a report on December 22, changing China’s A-share rating from “overweight” to “neutral” due to modest profit outlook adjustments and dim macroeconomic prospects. Earlier this year, Citigroup had upgraded its rating on Chinese stocks to “overweight.”
In terms of global allocation, Citigroup continues to maintain an overweight rating on other emerging market stocks, predicting that by 2026, emerging markets will be the region with the strongest per-share earnings growth among all major stock regions.
A finance and finance professor at Northeastern University in Boston, USA, analyzed that Citigroup’s adjustment is reasonable. The Chinese stock market indeed rebounded in July based on popular sectors and investment opportunities related to artificial intelligence. The financial policies introduced in September, especially the measures to support the monetary and capital markets, further boosted the stock market.
However, the professor emphasized that after the stock market’s expansion, without strong fundamental support, a downward adjustment would naturally occur once the short-term effects fade. The comprehensive policies introduced at the end of September are considered a short-term boost, and their effects might have been fully reflected.
An ex-Shanghai stock analyst stated that Citigroup’s rating downgrade is a normal market correction. The Chinese stock market had surged by over 30% from around 3000 points boosted by the prospects in the artificial intelligence market in September. By the end of December, escalating trade tensions between China and the US, coupled with deficiencies in areas such as chip manufacturing in artificial intelligence, have put pressure on the stock market.
On December 25, the three major A-share indices showed mixed movements at the opening. By the end of the trading session, the Shanghai Composite Index rose by 0.47% to 3959.62 points, the Shenzhen Component Index rose by 0.33% to 13531.41 points, and the ChiNext Index rose by 0.3% to 3239.34 points. However, the STAR 50 Index fell by 0.23% to 1349.06 points.
Despite the overall rise in indices, market differentiation is severe. The ex-analyst warned that there are greater risks in the current A-share market, as most of the market rise is concentrated in indices and artificial intelligence fields, with many other types of stocks continuously falling instead of rising.
He observed that the trends in A-share market have become increasingly extreme this year, often experiencing widespread fluctuations. Among the over five thousand listed companies, it is not uncommon for over four thousand companies to fall in a single day, with only a few hundred companies showing gains.
The ex-analyst expressed concerns that most A-share companies are undergoing a shift towards becoming worthless companies, with little hope for the future, leading to continued declines. The Chinese stock market is characterized by speculation on various concepts that are currently trending.
Furthermore, looking towards 2026, the professor expects the Chinese government to maintain a strong stabilizing attitude, utilizing various fiscal and monetary policies to prevent economic collapse. The main approach would involve increasing debt for infrastructure investments. However, he cautioned that the benefits of such debt issuance have significantly diminished, with the actual effects becoming less and less apparent.
In summary, the professor highlighted several core factors contributing to the widespread pessimism about the Chinese economy in the international community. These include worsening population crisis, continued weakness in investment and consumption, deteriorating geopolitical and economic environment, lack of protection for property and human rights, severe overcapacity and pricing wars, and increasing social uncertainties.
The ex-analyst concluded that over a long period of more than a decade, the Chinese stock market can generally reflect the economic situation, but in the short term, it mainly reflects market expectations of government policies and speculative capital flow. The current rise in the Chinese stock market amid a sluggish economy is primarily due to growth in the artificial intelligence sector and domestic capital inflows. In the long run, if the economy fails to recover, the stock market could easily experience significant fluctuations, leading to substantial losses for individual investors.