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Investing.com -- Commodity trading advisors (CTAs) are near their maximum equity exposure, leaving little room for further buying, according to UBS.
“CTAs are close to max long in equities, and are inclined to stay so in the near term,” strategists led by Nicolas Le Roux said in its latest positioning update.
“They have very limited room to buy, even in a very bullish scenario. On the other side, they have room to sell, but strong base effects should limit outflows.”
UBS estimated that in a negative two-standard-deviation scenario, CTAs could sell about $55 billion worth of global indices, which it described as low compared with historical drawdowns.
The bank’s model shows that equity positions have swelled significantly, with recent flows pushing CTAs deeper into long territory.
UBS also highlighted expected short-term trades, noting momentum remains bullish for indices such as the Nasdaq 100, S&P 500, OMX, Taiwan’s TWSE and Malaysia’s FBMKLCI.
At the same time, the report flagged several contrarian opportunities, including bullish calls on Switzerland’s SMI, Brazil’s Ibovespa, the Netherlands’ AEX and India’s Nifty, while bearish signals appear for Norway’s OBX, South Africa’s TOP40, Germany’s DAX, Mexico’s MEXBOL and Hong Kong’s HSCEI.
In bonds, CTAs continue to build a significant “long U.S. vs. short EU” relative value position, UBS reveals.
The bank said they remain biased toward paying rates, especially at the back end of the curve, with shorts in the EU, France, Japan, and Canada among their high conviction trades.
In foreign exchange, the July rebound in the dollar led CTAs to trim exposure, though they have since bought back about $10 billion.
“We don’t foresee a pick-up in CTAs FX flows, a little bit of G10 buying (GBP & JPY) vs. a little bit of EM selling,” strategists said.
Meanwhile, in commodities, range trading in energy has been “painful” for CTAs, leaving them neutral in that cohort.
Precious metals remain a “bright spot,” with no intention to sell, while strategists suggested it “may be time to take some profits and start buying back in Agriculturals.”