Citi’s Contrarian View on China: ‘Economy Is Turning the Corner’

While China's stock market has become somewhat of a pariah for global investors this year, Citigroup Inc. is taking a contrarian view with a bullish outlook for the nation's equities.

The head of investment strategy at Citi US Wealth Management joined the "What Goes Up" show to talk about how the firm is looking at investing opportunities in an uncertain economy. The highlights were lightly edited. You can either listen to the full show or subscribe on Apple's Podcasts.

I want to know if you like defensive equities.

I am a voting member of the investment committee and we made a few changes. We brought our overweight down to a neutral again. There may be some risk there. Oil prices tend to go down when the economy slows down. We've changed a bit there.

Natural resources, agriculture, those types of commodities we think are going to hold up, we still have an overweight on them. Health-care is one of the things we like. Even if there is a downturn, the sectors that have positive earnings growth are those. Then growers of dividends. Quality companies have strong balance sheets, are consistent in their dividends, and tend to do better than riskier companies in the market.

We like the Chinese stock market. We did add a little bit further there. Our economy is in a different place than theirs. We believe that the economy may have bottomed out in May. We are looking for pockets of opportunity. It is a very desynchronized path in the global economy at the moment. China seems to be coming out of a slow down. Europe doesn't seem to be a good place to call home.

I feel like that is a bit of a contrarian call right now to be bullish on China, so I wanted to unpack your thoughts. Do you think about the regulatory risks? The pendulum may have swung in China. Is it possible that the heavy-handed approach to regulation will not be retained by the president? Is that something you're thinking about when you're bullish on China?

I don't have a lot of insight into politics there. I think that's the risk you take when you invest in those stocks. We believe that the economy is turning the corner and that we have seen extremely cheap valuations there. It feels like a moment of capitulation if you talk to your clients in that region. The contrarian call is set up by that. Is there a risk of political issues that outsiders don't know anything about? I agree. It makes sense for the right person.

Why do you think China's economy is making a turn for the better? Is it possible that Covid Zero could go away?

The credit impulse is expected to pick up. When the credit impulse picks up, and the economy takes hold, it's usually a good thing. We believe that the economy is going to pick up steam here. Maybe they don't hit their growth target. GDP is on the up-trend there. That is really everything.