US-Europe positioning gap large but starting to narrow, Citi says

Investing.com -- Net positioning on the S&P 500 remains firmly bullish but showed a slight decline over the past week due to negative flows, according to Citigroup (NYSE:C ) strategists.

“The large gap in net positioning on US vs European markets persists but began to narrow after reversals in flows on both sides of the pond,” strategists led by Chris Montagu said in a Monday note.

However, inflows into S&P-focused exchange-traded funds (ETFs) continue to run at a strong pace.

Meanwhile, Nasdaq positioning continues to be highly elevated, Citi notes, though ETFs linked to the index have seen minor outflows over the past month.

“Still, long positioning in Nasdaq is at the 99th percentile with an average 5.3% profit at 21,775 and all positions in profit,” strategists highlighted.

In small caps, Russell 2000 positioning has fallen back to neutral. While gross positioning remains elevated, large long and short positions are "closely offsetting,” strategists said.

Elsewhere, European flows have been mixed, with an increase in new long positions helping to ease the net short positioning on the Euro Stoxx 50 .

As such, the gap between bullish US and bearish European positioning remains evident, but has narrowed in the last week.

“The fundamental set up has not materially changed between the two regions which may justify the current positioning,” Montagu and his team wrote.

“On the other hand, this positioning gap only adds to the picture of high valuations in the US creating a more asymmetric risk profile with more downside potential while much bad news has already been priced in for Europe which leaves comparatively more upside potential.”

In Asia, Japan’s Nikkei 225 has seen positive flows for two consecutive weeks, pushing positioning to a moderately bullish level.

China positioning remains moderately bullish following two weeks of strong inflows, while investors have reduced net bearish positioning in KOSPI to neutral over the past month.

Source: Investing.com