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Equities positioning highest in two years, very stretched - Deutsche Bank

NEW YORK (Reuters) - Optimistic investors betting on a bounce in global growth have the greatest exposure to equities in two years, a Deutsche Bank report said, noting a similar positioning a month before a sharp reversal in February 2018.

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., January 13, 2020. REUTERS/Brendan McDermid/File Photo

“Equity positioning, like the market itself, has run far ahead of current growth as investors price in a global growth rebound,” Deutsche Bank strategists Parag Thatte, Srineel Jalagani and Binky Chadha said in the report published late on Friday.

Systematic strategies have boosted their equity exposure, with stock allocations at strategies including volatility control, commodity trading advisors (CTAs) and risk parity, near historical highs, the report said.

The last time systematic strategies were this bullish on equities was in January 2018, shortly before U.S. stock markets experienced a sharp reversal on worries about higher U.S. interest rates, Deutsche Bank data showed.

Separately, discretionary investors, including active mutual funds and retail investors, have raised their exposure to equities to the highest level since October 2018, the report said.

Several other metrics, including rising equity futures bets by asset managers and leveraged funds, bullish stance in equity options and a low level of short interest in single stocks, point to “stretched positioning” in equities, the report said.

Equity fund managers raised their net long positions in S&P 500 futures contracts in the week ended Jan. 07 by 1,640 to 205,810, U.S. Commodity Futures Trading Commission data showed on Friday.

U.S. stocks rose 29% in 2019, with the fourth quarter delivering a gain of nearly 9%, as a thawing of U.S.-China trade tensions sharpened investors’ risk appetite.

With the bull market in U.S. stocks hitting new highs, some investors are searching for ways to pare their exposure to the small group of technology and communications stocks that has fuelled market gains for years.

On Monday, U.S. stock indexes rose to near all-time highs on optimism about the imminent signing of a preliminary U.S.-China trade deal as well as the start of the corporate earnings reporting season.

Reporting by Saqib Iqbal Ahmed; Editing by Richard Chang