China bullish flows continue, US sentiment improves after jobs report: Citi

Investing.com — Positioning in the index shifted to a heavily bullish last week, Citigroup strategists said Monday.

The change is partly due to investors unwinding previously profitable short positions, although more recent activity has seen these unwinds happening on positions at a loss. However, the significant rise in open interest suggests investors are actively increasing their long exposure, adding new risk.

In contrast, positioning in had already been extended prior to last week, with flows becoming more mixed in recent days. Despite this, both the FTSE China A50 and indexes are experiencing strongly bullish positioning, with investors boosting their market exposure to China in recent weeks.

“This does create larger sensitivity to downside surprises from here, but investors have been chasing the market rally and long positions have a large buffer with 22.5% profits on longs on average for A50,” Citi strategists said in a note.

“Even a 20% drop in index levels would leave half the long positions still in profit,” they added.

Meanwhile, US markets saw a dip in bullish sentiment for most of last week, although flows became more constructive on Friday following a positive surprise in US job numbers, which renewed hopes of a soft landing.

In the , positioning remains highly extended at +3.0 on a normalized scale of 5, contrasting sharply with the , which has hovered near neutral for several weeks.

The saw the sharpest shift, moving from a very bullish stance two weeks ago to near-neutral positioning, driven by a combination of long position unwinds and the addition of outright short exposure.

Overall, Citi notes that US markets are experiencing relatively small average profits and losses, which reduces pressure on current positions. The Nasdaq 100 shows a balance between long and short positions.

“This suggests that positioning could amplify volatility near-term through unwinds of shorts on a rally or of longs in a sell-off; each scenario could amplify the initial market moves,” the strategists continued.

In Europe, positioning in the index remains close to neutral. Over the past month, bearish sentiment has decreased, but momentum has stalled, and investors have not shifted to net long positions.

According to Citi, investors are likely being more selective in their European exposures, as reflected in sector-specific exchange-traded fund (ETF) flows.