Citigroup Pivots to Taiwan, Cuts China Rating on AI-Led Growth Outlook

Citigroup has raised its recommendation on Taiwan equities while lowering its outlook for China, attributing the shift to Taiwan’s stronger ties to global artificial intelligence (AI) supply chains and a more positive earnings outlook.

Strategists, including David Grumhaus, upgraded Taiwan shares to “overweight” from “neutral,” citing the island’s pivotal role in AI hardware manufacturing. Conversely, they reduced China’s rating from “overweight” to “neutral,” pointing to less favorable earnings revisions and a subdued macroeconomic outlook, according to a December 22 note.

This adjustment in Citigroup’s exposure to growth stands out against a generally positive view on China among global banks. For instance, JPMorgan Chase & Co. upgraded China equities last month, driven by accelerating AI adoption and policy support for consumption.

Grumhaus and his team had previously upgraded China shares to “overweight” in July, based on improving earnings expectations and reasonable valuations. Since then, the MSCI China Index has risen approximately 8%, lagging the 11% gain seen in the MSCI Asia Pacific Index.

AI Fuels Expected Outperformance

Globally, Citi maintains an “overweight” recommendation for emerging market equities. This stance is supported by robust earnings momentum, the U.S. Federal Reserve’s easing policy, a “favorable” global economic environment, and AI-driven capital expenditure.

Emerging markets are proving a favored bet for investors heading into 2026 after a strong year. Further details on emerging market outlooks.

“Our emerging market exposure remains cyclically oriented, effectively leveraging artificial intelligence,” Citigroup strategists stated. “These markets are expected to deliver the strongest earnings per share growth among all major equity regions in 2026.”

Global Index Projections

Citigroup strategists set a target of 1,540 points for the MSCI Emerging Markets Index by the end of 2026, implying a potential upside of about 11% from Monday’s close.

Outside of Asia, strategists upgraded the United Arab Emirates (UAE) to “overweight” from “neutral,” citing solid growth and investment momentum. Meanwhile, Poland was downgraded to “neutral” and Chile to “underweight.”