Australia ‘most extended’ global equity market: Citi
Timothy Moore
Mar 26, 2024 – 6.11am
For Chris Montagu, Citigroup’s London-based quantitative market strategist, Australian equities are most at risk for a pullback if investors opt to take profits on the rally.
“There has been no letup in bullish momentum for the S&P/ASX 200. Positioning is one-sided and levels are currently the most extended seen in the past three years.”
The S&P/ASX 200 on Monday closed up 41.3 points higher, or 0.5 per cent, to 7811.9 points, ending within 50 points of the record high hit earlier in the month.
In his latest equity markets positioning note, Mr Montagu said S&P/ASX 200 positioning “could lead to near-term profit taking, especially given the market’s leverage to China through resources”.
That view takes into account that sentiment in Chinese equities suggests investors are still not convinced on the economic outlook there, he said.
Similar to the ASX, Mr Montagu said in the near term, Japan’s Nikkei appears more sensitive to potential short-term profit taking, “positioning bullish and profit levels highest amongst the indexes we track. This is somewhat consistent with our Japanese strategist view in that he expects the Nikkei to be range bound in the short term but likely to break our later in the year”.
Mr Montagu also sees nerves beginning to fray in US markets. “Despite US equities continuing to make new highs, positioning via our model continues to reflect investor uncertainty on the sustainability of the current trajectory.”
Nasdaq positioning activity was mixed, overall positioning remains static, marginally falling on a week-on-week basis, he wrote. Of the two indexes, Nasdaq is more extended on a normalised basis than the S&P, he added.
As for Europe, Mr Montagu said investor positioning appears to be turning increasingly bullish relative to the US. “Euro Banks, DAX and EuroStoxx are all extended long and almost exclusively one-sided. Extended levels of positioning and profits leave increased profit taking risks against DAX and Euro Banks.
“However, our strategists have become increasingly bullish on European equities on the back of an improving GDP outlook. They raise their year-end target for the Stoxx 600 from 510 to 540 (5350 for Euro Stoxx 50).”
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