Investing.com -- Citi told clients in a note on Tuesday that investor positioning across developed markets remains constructive, but the bank flagged a change in where the vulnerabilities now sit.

"Positioning across developed markets remains constructive, although the balance of risks is beginning to shift," the bank wrote.

Citi analysts added that new risk flows continue to underpin equity exposure, with Europe drawing some of the strongest incremental demand, while Asia is stabilizing through short covering rather than outright risk addition.

Short-squeeze dynamics are becoming less influential as short exposure has been reduced across several major markets, Citi said. Instead, the bank sees vulnerabilities increasingly concentrated in profitable long books, most notably in the Russell 2000 and, to a lesser extent, parts of Europe.

"As positioning becomes more extended, the key risk is shifting from forced covering by shorts to potential profit-taking by longs," Citi said.

In the U.S., positioning strengthened for a third consecutive week, with new risk flows lifting the Nasdaq and a mix of new longs and short covering driving Russell 2000 bullish levels higher, though weekly flow momentum is moderating.

Citi noted that stretched Russell 2000 long positioning now represents the larger vulnerability, and that a deterioration in growth expectations could trigger downside pressure.

European equities continue to attract new risk flows despite geopolitical and policy headwinds, led by long accumulation in the EuroStoxx 50 and DAX, according to the bank. Meanwhile, the FTSE was the exception, seeing modest profit-taking and new short activity.