China-Made AI Chips Likely Lag Behind Those by Nvidia — Market Talk

With the US Federal Reserve's next policy meeting on the horizon, the market has largely priced in a 25 basis point rate cut, but the key focus remains on the path of future cuts and the resilience of the US economy. Speaking with CNBC TV18, Drew Pettit, Director of US Equity Strategy ETF Analysis Strategy Research at Citi, outlined his firm's global market strategy, highlighting an overweight position on select emerging markets and a neutral stance on India.

Pettit noted that while a rate cut in the upcoming meeting is expected, the more critical factor for markets is the trajectory of monetary policy into the next year. "Our economists and team expect 25 basis points, I believe at the next four meetings after December," he stated. The central question, according to Pettit, is whether these cuts will be accompanied by economic weakness or if the US economy will remain resilient. A scenario where the economy holds up despite rate cuts would signify a "soft landing," which could broaden market participation beyond mega-cap growth stocks into cyclical sectors where earnings growth might improve.

Looking at the S&P 500, which has already seen a 12% gain year-to-date, Pettit believes strong sentiment is likely to persist through the typically low-volume end-of-year trading period. He suggested that the index could close the year somewhere between 6,600 and 7,000, potentially threatening Citi's bull case scenario of 7,000.

Contrary to some assumptions, Pettit clarified that Citi's global strategy is currently overweight on Emerging Markets (EM). This is complemented by an overweight position on Europe (excluding the UK) as a cyclical play with potential for inflecting growth. However, the primary engine for their EM preference is the opportunity to gain exposure to growth and Artificial Intelligence (AI) at a reasonable valuation.

"EM is actually a way to get growth and AI exposure at a pretty reasonable price, and we lead the overweight in EM with China and South Korea," Pettit explained. He pointed to companies like Alibaba, Tencent, SK Hynix, and Samsung as examples of firms that screen well in their "AI at a reasonable price" basket.

Regarding India, Citi maintains a "neutral" stance. While acknowledging the strong and unchanged growth narrative, Pettit believes the positive outlook is already reflected in the country's valuations. "You have priced in a really good earnings and growth backdrop for India, so it remains neutral to us," he said. He also touched upon India's significant underperformance relative to the broader EM basket this year, attributing it partly to currency weakness, which he links to perceived tariff risks. He noted that for global macro traders, the currency often acts as the first "relief valve" for such concerns.

The US Federal Reserve decision on December 10 is the key event for global markets this week. Drew Pettit, Director of US Equity Strategy at Citi, said a rate cut is largely priced in but the real focus is the Fed's outlook for 2026.

According to Pettit, the bigger question is whether the US economy slows or stays resilient. If growth holds, it could support a soft-landing setup and help earnings in cyclical sectors. This could broaden market performance beyond mega-cap names in the US.

The S&P 500 is up 12% year-to-date. Pettit noted that the last two weeks of the year usually see low activity, but sentiment remains firm.

He said the index may close somewhere between 6,600 and 7,000, with little new data left this year apart from the Fed decision.

On India, Citi maintains a neutral view, as the country has a strong growth story, but valuations already reflect that outlook.

Pettit also highlighted India’s recent underperformance. MSCI India is up 2% this year, compared to a 27% rise in the MSCI Emerging Markets index — a 25% gap. Currency weakness and tariff-risk perception are part of the pressure.

Citi is positive on emerging markets overall, as they provide growth and artificial intelligence (AI) exposure at more reasonable valuations.

Pettit said the overweight stance is led by China and South Korea, with exposure to companies such as Alibaba, Tencent, SK Hynix and Samsung.

The US Federal Reserve decision on December 10 is the key event for global markets this week. Drew Pettit, Director of US Equity Strategy at Citi, said a rate cut is largely priced in but the real focus is the Fed's outlook for 2026.

According to Pettit, the bigger question is whether the US economy slows or stays resilient. If growth holds, it could support a soft-landing setup and help earnings in cyclical sectors. This could broaden market performance beyond mega-cap names in the US.

The S&P 500 is up 12% year-to-date. Pettit noted that the last two weeks of the year usually see low activity, but sentiment remains firm.

He said the index may close somewhere between 6,600 and 7,000, with little new data left this year apart from the Fed decision.

On India, Citi maintains a neutral view, as the country has a strong growth story, but valuations already reflect that outlook.

Pettit also highlighted India’s recent underperformance. MSCI India is up 2% this year, compared to a 27% rise in the MSCI Emerging Markets index — a 25% gap. Currency weakness and tariff-risk perception are part of the pressure.

Citi is positive on emerging markets overall, as they provide growth and artificial intelligence (AI) exposure at more reasonable valuations.

Pettit said the overweight stance is led by China and South Korea, with exposure to companies such as Alibaba, Tencent, SK Hynix and Samsung.

By Tracy Qu

Baidu shares rose after the company said it is considering spinning off its AI chip unit.

The Beijing-based company is assessing a possible spinoff and listing for Kunlunxin (Beijing) Technology, according to a filing with the Hong Kong bourse on Sunday.

Baidu said the proposed spinoff and listing will be subject to regulatory approval processes and added that there is no assurance that the spinoff and listing will proceed. The news was first reported by Reuters on Friday.

The stock rose 4% to HK$126.40, equivalent to US$16.24, in morning trade on Monday, after climbing 5% on Friday. Baidu's gains outperformed the Hang Seng Tech Index, which was recently 0.1% lower.

The news comes as a number of Chinese chip companies have pursued domestic listings amid Beijing's push to end reliance on foreign technology.

Moore Threads, a domestic graphics processing unit designer, began trading in Shanghai last week. Its shares surged more than fivefold on Friday. Meanwhile, chip company MetaX plans to raise the equivalent of more than $550 million in Shanghai.

Baidu, once China's dominant internet search engine provider, has sought new growth drivers beyond its core business in recent years. The company has been investing in artificial intelligence, chip design, as well as autonomous-driving technologies.

Write to Tracy Qu at tracy.qu@wsj.com

By Tracy Qu

Baidu shares rose after the company said it is considering spinning off its AI chip unit.

The Beijing-based company is assessing a possible spinoff and listing for Kunlunxin (Beijing) Technology, according to a filing with the Hong Kong bourse on Sunday.

Baidu said the proposed spinoff and listing will be subject to regulatory approval processes and added that there is no assurance that the spinoff and listing will proceed. The news was first reported by Reuters on Friday.

The stock rose 4% to HK$126.40, equivalent to US$16.24, in morning trade on Monday, after climbing 5% on Friday. Baidu's gains outperformed the Hang Seng Tech Index, which was recently 0.1% lower.

The news comes as a number of Chinese chip companies have pursued domestic listings amid Beijing's push to end reliance on foreign technology.

Moore Threads, a domestic graphics processing unit designer, began trading in Shanghai last week. Its shares surged more than fivefold on Friday. Meanwhile, chip company MetaX plans to raise the equivalent of more than $550 million in Shanghai.

Baidu, once China's dominant internet search engine provider, has sought new growth drivers beyond its core business in recent years. The company has been investing in artificial intelligence, chip design, as well as autonomous-driving technologies.

Write to Tracy Qu at tracy.qu@wsj.com

Investors could grow more confident in Baidu's outlook and share-price performance given its growing AI-related revenue and commitment to shareholder returns, Citi analysts say in a research note. Management reiterated Baidu's goal of exploring various shareholder return programs at a Citi event, the analysts say. Baidu thinks that the development of its self-designed chips and integration of heterogeneous domestic resources into unified GPU clusters have enhanced its super-computing capability and mitigated supply risk, the analysts note. Citi opens a 90-day upside catalyst watch on Baidu's ADR as the bank likes the tech giant's continued investment in upgrading its Ernie model and AI agents. ADR last ended at US$125.66.(sherry.qin@wsj.com)