Citi said investor risk positioning remains concentrated in large-cap equities, while sentiment towards small-cap stocks continues to be bearish, according to a note from the bank.
The bank said investors have continued to add exposure to large-cap stocks rather than increasing risk across equity markets more broadly.
“The dominant positioning story remains one of increasing concentration rather than broad-based risk taking,” analyst David Chew wrote.
In the US, Citi said positioning was broadly unchanged despite gains in major equity indices. The S&P 500 received most of the additional risk flows as investors selectively increased exposure, while positioning in the Nasdaq remained stable as long and short activity broadly offset each other.
The Russell 2000 remains the most bearishly positioned index tracked by Citi globally, according to the bank, with short exposure close to extreme levels. Citi said the macroeconomic environment continues to favour large-cap stocks.
However, the bank noted that the scale of short positioning could leave small-cap stocks exposed to a rally if investors move to close short positions by buying back shares.
In Europe, Citi described positioning as the strongest among the regions it tracks. Bullish positioning in the EuroStoxx has moved closer to recent highs as the macroeconomic outlook has improved, according to the bank.
Citi said the profitability of those positions was less favourable than overall positioning levels indicate, with around two-thirds of long positions currently at a loss. The bank said this could increase the likelihood of investors reducing exposure if the economic outlook deteriorates.
Asia remains the most bearishly positioned region in Citi’s analysis. The Hang Seng recorded the largest net outflow among the indices tracked by the bank as investors established additional short positions.
Positioning in Japan’s Nikkei and the China A50 also became more bearish, according to Citi.
South Korea’s KOSPI was an exception to the broader regional trend. Citi said short positions were beginning to generate losses while long positions remained profitable. The bank said this could result in selective short covering if demand related to artificial intelligence and corporate earnings support an improvement in underlying fundamentals.