

Market Analysis
Positioning in the FTSE China A50 index turned heavily bullish last week, according to Citigroup strategists on Monday.
This shift is partly attributed to investors unwinding previously profitable short positions, although recent activities indicate that these unwinds are occurring on losing positions. However, the notable increase in open interest suggests that investors are actively enhancing their long exposure and taking on new risks.
In contrast, positioning in Hang Seng futures had already reached extended levels before last week, with flows becoming more mixed in recent days. Despite this, both the FTSE China A50 and Hang Seng indexes are experiencing strong bullish sentiment, as investors have been increasing their market exposure to China in recent weeks.
“This creates greater sensitivity to any downside surprises from this point, but investors have been pursuing the market rally, and long positions currently enjoy an average profit buffer of 22.5% for A50,” the Citi strategists noted.
“Even a 20% decline in index levels would still leave half of the long positions in profit,” they added.
Meanwhile, US markets witnessed a decline in bullish sentiment for much of last week, although flows became more positive on Friday after a surprising uptick in US job numbers, renewing hopes for a soft landing.
In the S&P 500, positioning remains highly extended at +3.0 on a normalized scale of 5, contrasting sharply with the Nasdaq 100, which has stayed close to neutral for several weeks.
The Russell 2000 experienced the most significant change, shifting from a very bullish position two weeks ago to near-neutral positioning due to a combination of unwinding long positions and increased short exposure.
Overall, Citi observed that US markets are seeing relatively small average profits and losses, which alleviates pressure on current positions. The Nasdaq 100 displays a balance between long and short positions.
“This indicates that positioning could heighten volatility in the near term, whether through the unwinding of shorts during a rally or the liquidation of longs during a sell-off; either scenario could amplify initial market movements,” the strategists added.
In Europe, positioning in the Euro Stoxx 50 index remains close to neutral. Over the past month, bearish sentiment has decreased, but momentum has stalled, and investors have yet to shift to net long positions.
According to Citi, investors seem to be adopting a more selective approach in their European exposures, as evidenced by sector-specific exchange-traded fund (ETF) flows.
Paraphrasing text from "Investing" all rights reserved by the original author.