Citi said in the “Emerging Markets Equity Strategy Outlook for the Second Half of 2026” released on July 19, local time, that the MSCI Emerging Markets Index had strong gains from the beginning of the year to date but was “excessively concentrated”. Increased volatility in the AI sector has exposed concentration risks; however, investors have light positions on Chinese stocks, compounded by improvements in the macro environment, and the Chinese market has conditions for “expansion and spread”. Citi upgraded the rating of Chinese stocks to “overallocated” in the asset allocation of emerging markets, while downgraded the rating of Korean stocks from “overallocated” to “tactically neutral.” The reason is that the Korean market is volatile, and the implied volatility of the KOSPI index far exceeds that of similar global markets. And as this year's gains, led by a few AI winners, are expected to spread to a wider range of sectors, the Chinese market may benefit. Citi said that at present, the Chinese market is the preferred target for capital rotation. Investors' current low positions in China, declining international oil prices, and an improvement in the global economic growth environment are the three core supporting factors, and the valuation of the Chinese market is attractive. Citi indicated that the target price for the Hang Seng Index at the end of 2026 is 29,600 points, and the target price for the Shanghai and Shenzhen 300 Index is 5,600 points.

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