(Bloomberg) -- 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 even while favoring defensive stocks in the US. 

Shawn Snyder, head of investment strategy at Citi US Wealth Management, joined the “What Goes Up” podcast to discuss how the firm is sizing up investing opportunities amid an uncertain economic outlook. Below are condensed and lightly edited highlights of the conversation. Click here to listen to the full podcast, or subscribe on Apple Podcasts or wherever you listen.

Q: I want to ask you to talk a little bit about those defensive equities that you like.

A: So, we actually made a few changes recently at Citi’s investment committee, which I’m a voting member of. One thing we did is we brought our overweight in oilfield services down to a neutral again. We think maybe there’s some risk there. If we do indeed enter a recession in 2023, oil prices tend to come down when the economy slows down. So we’ve changed a little bit there. 

We still have an overweight on natural resources, agriculture, those types of commodities we actually think are probably going to continue to hold up for the most part. And then we like consumer staples, health-care. Those two are sectors that tend to have positive earnings growth, even if there is a downturn. And then dividend growers. Those are what I would describe as quality companies, really strong balance sheets, consistent dividend growth, and what they do is they tend to outperform the more risky segments of the market. 

We do like Chinese equities. We actually added a little bit further there. We think their economy’s in a different position than ours is. We think that their economic activity may have bottomed in May and actually is going to potentially start to rebound. So we’re just looking for pockets of opportunities. You know, it’s a very desynchronized path in the global economy right now. China seems to be coming out of a slowdown, we may be entering further into a slowdown. And then Europe is, you know, anyone’s guess, but it doesn’t seem great. 

Q: I wanted to unpack your thinking on China because I do feel like that’s a bit of a contrarian call right now to be bullish on China. How are you thinking about the regulatory risks? It almost seems like possibly that the pendulum has swung in China. Does it seem like Xi Jinping has learned a lesson and is not going to keep that heavy-handed approach to regulation going? And is that at all part of your thinking on why to be bullish China? 

A: I don’t have particularly great insights into the politics there. And I think that is probably the risk you take when you do invest in those equities. But our call is more simply based on the macro backdrop and that we think that their economy is turning the corner and that we’ve seen extremely cheap valuations there. If you talk to clients in that region, it really feels like that moment of capitulation where you feel that frustration and no one wants to come anywhere near it. So I think that kind of sets up with the contrarian call. Is there that idiosyncratic risk of political issues or maybe things are kind of opaque to outside investors? Yes. But I think for the right person, it still makes sense. 

Q: What’s behind your call that China’s economy is potentially making a turn for the better? Is it Covid Zero potentially going away or is there something more fundamental at play? 

A: It’s the expectation that the credit impulse will pick up. So when you see the credit impulse pick up, and stimulus take hold, generally the economy responds to that. So we think that their economy is going to continue to pick up steam here. And maybe they don’t hit the 5.5% growth target that they want. But we think that economic activity, particularly GDP, is on the up-trend there. So that’s really it.

©2022 Bloomberg L.P.