Finimize - 🇨🇳 The US is out, China is in

What’s going on here?

Citigroup revealed newfound optimism for Chinese stocks on Tuesday – but the big bank wasn’t quite so sunny about US ones, downgrading its outlook to neutral.

What does this mean?

Investors have long been rewarded for adopting an all-American mindset: stateside stock markets have outperformed the rest of the world for over a decade. But Citi expects the US economy to slow down, so it’s placing more faith elsewhere. And it’s easy to see why China won the big bank’s attention. Local companies like DeepSeek and Alibaba have launched AI services that rival America’s best, and the Chinese government seems to be loosening its restrictive grip on the tech industry. Citi’s not the first head to be turned: investors have pushed a basket of seven of the biggest Chinese tech firms up over 40% this year. Meanwhile, the Magnificent Seven – the US tech stocks that investors have to thank for last year’s rallies – have fallen 10%.

Why should I care?

For markets: No one likes a self-fulfilling prophecy.

The Federal Reserve’s latest survey showed that US consumers are becoming increasingly pessimistic about their finances. In fact, Americans are the most worried they’ve been about missing debt payments since 2020. This could start a chain reaction – and not the feelgood Diana Ross kind. If investors take this as a recession indicator, they could sell even more stocks. That would reduce companies’ profits and spook everyday Americans into spending less.

For you personally: Your portfolio needs a passport.

You can’t bet on the next decade looking like the last. The biggest US companies would need to perform practically perfectly to match the last ten-year run – and their already stretched valuations and pumped-up profit margins don’t leave much room for improvement. So you might want to make like Citi, and let your portfolio see more of the world.

What’s going on here?

Lego said on Tuesday that it made record-breaking sales last year, giving the world’s biggest toymaker serious bragging rights over struggling rivals Mattel and Hasbro.

What does this mean?

Lego’s sales for the year came in at just under $11 billion – 13% higher than in 2023. That’s especially impressive when you consider that the industry shrank by 1%. The Danish company bucked the trend by doing some building of its own, expanding its product range to a record 840 sets and crafting digital experiences with augmented reality. Plus, Lego invested in factories, gaming ventures, and brand collaborations with the likes of Nike and Formula 1. But that came at a price: those investments and rising costs weighed down margins, so the firm’s profit rose just 5%.

Why should I care?

Zooming in: Lego built this empire brick by brick.

Lego could’ve sat back while its best-selling Star Wars and Harry Potter sets flew off the shelves. But determined to win over new customers, the company developed fresh toys aimed at women, older shoppers, and collectors – like the Botanicals and Technic sets. That’s a sharp contrast to rivals Hasbro and Mattel, both of which tend to lean on legacy franchises like Barbie and Monopoly. Lego’s been wise enough to cut out the middleman where it can, too. Rival firms have seen stuttering sales from retail partners, but Lego’s direct-to-consumer online and in-store business picked up by 12% last year.

The bigger picture: Remember what they said about slow and steady.

US tariffs could impact Denmark, Lego’s home country, as well as Mexico – host of the company’s biggest factory hub. But the toymaker is famous for handling crises (from the pandemic to rising prices) with a steady hand and long-term vision. And Lego’s on the same tack this time, calmly standing by its plans to invest in supply chains and factories in the US and Vietnam.