Tech stocks rebound strongly, but Citi pours cold water: The unwinding of U.S. equity positions is far from over.

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The Asia-Pacific and US tech sectors saw a strong rebound on Tuesday, but Citi has warned that the process of resetting US equity positions is not yet complete and investors should not relax too soon.

The team of Citi strategists led by David Chew pointed out that the recent sharp sell-off in AI and tech stocks has triggered widespread de-risking, with fund flows in US large-caps overwhelmingly bearish, resulting in a significant deterioration in overall positioning. Among them, all long positions in the Nasdaq 100 index are currently in a loss, and the overall position level remains high, posing a potential downside risk.

This warning comes as the market undergoes a noticeable sentiment recovery.

Memory chip stocks rose across the board in US pre-market trading on Tuesday, with SanDisk up about 7%, SK Hynix up about 6%, and Micron Technology, Western Digital, and Seagate Technology all rising around 5%. Asia-Pacific markets also climbed across the board, ending four consecutive sessions of decline. South Korea's KOSPI index’s gains at one point expanded to 4%, and the Korea Exchange even activated the Sidecar mechanism to pause KOSPI program buying due to sharp rises.

Citi: Nasdaq position risks remain

Despite the rebound, according to Bloomberg, the Citi team maintains a cautious view on US equity position structures.

The report noted that the adjustment in S&P 500 positions was mainly achieved by closing long positions, while the derisking in the Nasdaq was more aggressive—clearing out long positions and adding new shorts, bringing position sizes down to near one-month lows.

Citi especially highlighted the risk in the Nasdaq 100: all existing long positions are now deep in loss, while the overall position size remains high, suggesting there is still unrelieved pressure for further reduction.

Europe DAX turns bearish, Asia KOSPI carries the highest risk

In the European market, Citi says, European investors continue to reduce risk exposure by taking profits and adding new short positions, which has pushed the DAX into bearish territory.

However, the strategists also pointed out, if market sentiment improves, the DAX has significant short-covering potential.

In Asia, Citi considers South Korea's KOSPI the market most vulnerable to further deleveraging impact. Although the index has recently retreated, position levels remain high, making it more exposed to downside risks if markets come under renewed pressure.

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