Goldman Sachs says hedge fund short bets are nearing a five-year extreme

Global hedge funds have stepped up short positioning since October, pushing bearish bets close to their highest level in five years, according to Goldman Sachs prime brokerage data. The bank said the ratio of short trades to long buys has reached roughly 5 to 1, a sign that downside positioning has become heavily crowded. Goldman also said its books show global equity short leverage has climbed to the 99th percentile of the past five years. That leaves the market exposed if sentiment turns and a rebound catalyst emerges, with crowded shorts at risk of a sharp squeeze. At the same time, while overall leverage has recovered, net leverage among fundamental long-short funds — a measure of how much long exposure exceeds short exposure — has fallen to its lowest level in nearly three years. The figures point to a market where gross risk has risen, but directional conviction on the long side has weakened.