Global Equity Positioning Turns Defensive on Renewed Short-Selling, Citi Says

Global equity positioning weakened last week as investors turned more defensive and bearish flows re-emerged across major markets, according to a Tuesday note from Citi analysts. The bank reported that renewed short-selling in the U.S., Europe, and parts of Asia has driven a broad-based deterioration in market sentiment.

Underlying Positions Grow Fragile

While overall market positioning remains largely neutral, Citi warned that underlying profit-and-loss conditions for investors have become "increasingly fragile." The bank highlighted two indices in particular where this trend is most pronounced.

• The U.S. Russell 2000 and Germany's DAX stand out as markets where loss-making positions have accumulated rapidly, according to the note.
• This accumulation raises the risk of further de-grossing—or reducing overall market exposure—and forced position unwinds, the analysts wrote.

U.S. Small-Caps Show Significant Strain

In the United States, positioning weakened as investors added bearish exposure, with new shorts dominating flows in the S&P 500 and Russell 2000. The Nasdaq was a notable exception, with its positioning described as "comparatively resilient" and remaining near unchanged.

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Citi flagged the most significant risk in the Russell 2000, noting that "all longs [are] currently loss-making" in the small-cap index. This has caused a rapid decline in aggregate investor profit and loss, signaling potential for further selling pressure.

A Divided Picture in Europe

A similar defensive trend was observed in Europe, where investors broadly cut risk. New short positions were the primary driver of flows in the DAX, the UK's FTSE 100, and European banking stocks.

However, the Euro Stoxx 50 bucked the regional trend. According to Citi, "meaningful short covering" in the index more than offset the wider de-risking, leading to a modest improvement in its positioning despite weaker index performance.