Global equity flows have weakened while overall investor positioning has remained relatively stable, according to Citi’s latest positioning analysis.
Citi strategists said U.S. positioning remains modestly bullish, although declining gross exposure indicates reduced investor participation. European markets recorded a more pronounced deterioration in flows, while bearish positioning increased in Asian markets, particularly the KOSPI and Nikkei.
“The dominant theme is the widening gap between weak cash flows and a relatively resilient positioning,” the strategists wrote, adding that current conditions are not sufficiently strained to indicate widespread capitulation.
Citi identified localised short squeezes and position unwinding as the main near-term risks.
U.S. Equity Positioning Remains Slightly Above Neutral
In the U.S., increased short-selling activity offset otherwise limited investor demand during the previous week, according to Citi, with S&P 500 flows moving slightly bearish.
Longer-term positioning remains modestly above neutral and below the levels recorded in June. Citi also reported a continued reduction in gross exposure ahead of key inflation data.
Unrealised losses have increased across both long and short positions in the S&P 500 and Nasdaq, with approximately half of positions in each index currently at a loss.
Small-cap equities are an exception, according to the strategists. Citi reported concentrated long exposure and elevated unrealised losses in the segment, with 93% of positions currently at a loss. The strategists said this creates a risk of position unwinding if market weakness continues.
European Equity Flows Deteriorate
European equity flows weakened during the previous week, driven primarily by the liquidation of long positions in the EuroStoxx and increased short positioning in the DAX.
Despite those movements, Citi said aggregate positioning across the EuroStoxx, FTSE and European banks remained broadly stable as different investor flows offset one another.
The DAX recorded an unusually large concentration of short positions, according to the analysis. Many of those positions are currently at a loss, with average entry levels substantially below current market prices.
Citi said this leaves the market “vulnerable to a renewed round of short covering if economic headwinds ease.”
Bearish Positioning Increases in Nikkei and KOSPI
In Asia, positioning in the Nikkei and KOSPI weakened as investors increased short exposure and reduced long positions, resulting in a more pronounced bearish bias in both markets.
Positioning in the Hang Seng and China A50 remained close to neutral, although Citi noted differences in flows between the two markets. The Hang Seng showed indications of renewed weakness.
Citi also identified a divergence between increasingly short positioning in the KOSPI and more constructive exposure to the Nasdaq.
The strategists said this suggests investors are differentiating between regional semiconductor exposures rather than taking a uniform position on the broader artificial intelligence theme.