Citi trims China, leans into U.S. small caps

Investing.com -- Citi is shifting its global asset allocation as its economists’ “Goldilocks view” continues to hold, prompting the bank to stay constructive on equities while making notable regional and sector adjustments.

In its February 2026 House Views note, Citi analyst Dirk Willer said liquidity “likely remains plentiful, favoring risky assets,” but added that rising concerns around artificial intelligence justify maintaining certain hedges.

To balance those risks, Citi has positioned portfolios with “a credit underweight, as well as a duration overweight,” arguing that U.S. rates “will work as a hedge against a bursting AI bubble or against an AI-driven labor market dislocation.”

The analyst added that, in this environment, “risk-parity portfolios may be rehabilitated.”

Citi remains overweight equities overall, but is recalibrating its U.S. exposure. The firm will “move half of the US allocation into small caps,” broadening exposure away from the largest technology names.

It remains overweight U.S. and Japanese equities but is trimming elsewhere. Citi said it will “cut China” while also reducing its U.K. underweight to 50 percent.

On sectors, the bank is diversifying away from the megacap growth trade, noting it will downgrade technology to neutral and consumer discretionary to underweight. At the same time, it will upgrade industrials to overweight and move materials to neutral.

Citi also remains underweight credit and takes a more balanced stance in commodities after taking profits in base metals, while staying neutral on precious metals and energy.

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