Citi: Chinese tech stocks have not yet overheated
Citigroup analysts believe that since the beginning of the year, the congestion in the Chinese technology sector has indeed increased, mainly due to the rise in technology stocks pushing up overall valuations and improving market sentiment. However, if we exclude the heavyweight Xiaomi Corporation, it can be found that although the congestion in the Chinese technology sector is higher than in other sectors, it is still not the most congested sector, which means that the sector has not yet overheated
DeepSeek emerges, driving Chinese tech stocks to surge sharply after the holiday, standing out in the Asian tech sector.
In the first week after the Spring Festival holiday, the Chinese tech sector saw a weekly increase of 11.4% (with a cumulative increase of 17% year-to-date). In contrast, tech sectors in other parts of Asia performed modestly, with a cumulative increase of only 0.2% (up 3.1% year-to-date). In terms of style, Chinese growth stocks benefited the most, rising 6% year-to-date.
In light of such positive performance, there has been related discussion in the market about whether this indicates that Chinese tech stocks have entered an "overheated" state. Should the market take action?
In response, Citigroup stated in a report released on February 12 that Chinese tech stocks are not yet overheated. Citigroup analysts believe that since the beginning of the year, the congestion level in the Chinese tech sector has indeed increased, primarily due to the rise in tech stocks pushing up overall valuations and improving market sentiment.
However, if we exclude the heavyweight stock Xiaomi Corporation (which accounts for 45% of the MSCI China Information Technology Index and has maintained a congestion score of 98-100%), it can be found that although the congestion level in the Chinese tech sector is higher than in other sectors, it is still not the most congested sector, indicating that this sector is not yet overheated.
Currently, the top three sectors are consumer goods, materials, and finance, with congestion scores of 81.2%, 69.1%, and 68.1%, respectively.
Citigroup also screened individual stock congestion scores within the Chinese tech sector in the report. The analysis found that congestion mainly stems from high valuations (recent surges in tech stock prices have made the sector more expensive) and heightened market sentiment (measured through news analysis and consensus ratings).
Xiaomi's congestion score reached 98%, ranking first.
Citigroup emphasized that congestion is not necessarily a factor to avoid, as following market hotspots often brings returns. Congestion is more of a risk indicator, suggesting that once triggering factors occur, it may lead to a collective exit by investors, resulting in a large-scale market correction