Barclays highlights a significant shift in investor positioning driven by growing concerns about AI-driven deflation, despite robust equity inflows. Global equity funds poured $101 billion into stocks in February, the strongest level since November 2024, fueled by resilient growth and improving earnings. However, hedge funds and systematic investors have been reducing exposure from January's peak, and retail sentiment has cooled.

Barclays estimates aggregate equity positioning has dropped to the 78th percentile, indicating markets are no longer stretched. The key driver is a change in the AI narrative: investors are moving from enjoying the AI build-out phase to worrying about potential disruption leading to deflation. This concern is reviving demand for bonds, which outperformed equities for the first time since April 2025, while high-yield credit and financial stock flows have softened.

Concerns about companies becoming 'AI losers' are weighing on credit markets. The bank doubts these conflicting narratives can coexist long-term, favoring equities over bonds. Geographic and sector rotation is also evident, with investors shifting from US to RoW markets, driven more by AI fears than currency moves.

In Europe, this has accelerated flows into defensive and value stocks, while tech de-risking lifted market breadth to a one-year high.