Investing.com -- Citi said in a note Tuesday that investors are adding risk in large-cap stocks while staying heavily bearish on small caps, leaving global positioning increasingly one-sided.

"The dominant positioning story remains one of increasing concentration rather than broad-based risk taking," analyst David Chew wrote.

In the U.S., positioning is said to be broadly unchanged despite stronger index performance. The S&P 500 attracted most of the new risk flows as investors selectively added exposure, while Nasdaq positioning was stable, with long and short activity offsetting each other, according to the bank.

The Russell 2000 remains the most bearishly positioned index Citi tracks globally, with short exposure near extreme levels. The bank said the macro backdrop still favors large-cap leadership.

However, it noted that the size of those short positions leaves small caps open to a significant rally if investors are forced to buy back shares.

Europe has the strongest positioning backdrop globally. Citi said bullish positioning in the EuroStoxx has edged back toward recent highs as the macro outlook improves.

However, the bank cautioned that profits on those positions are weaker than the headline numbers suggest, with about two-thirds of long positions sitting at a loss. That raises the risk investors cut exposure if the outlook worsens.

Chew added that Asia remains the most bearishly positioned region. The Hang Seng saw the largest net outflow of any index Citi tracks as investors added substantial new short positions. Positioning in the Nikkei and China A50 also worsened.

South Korea's KOSPI is the exception, where short sellers are starting to lose money against profitable long positions, Citi said, adding that it could prompt selective short covering if AI demand and earnings confirm improving fundamentals.

Original Article