By Patturaja Murugaboopathy

Oct 9 (Reuters) - Short-bias exchange-traded funds,

which bet against stock indexes and fast-rising sectors like

technology and artificial intelligence, are drawing strong

inflows as lofty prices and policy risks spur some investors to

position for a pullback.

According to LSEG Lipper data, global short-bias funds drew

$3.7 billion in September, the biggest monthly inflow in nearly

three years. U.S. funds accounted for $2.2 billion of that while

Japanese and South Korean funds took in $653 million and $424

million respectively. They have added another $1.4 billion so

far this month.

Flows into short-bias funds have often increased during

times of stress, delivering strong gains in the 2008 financial

crisis when broader funds struggled. While such inflows are not

always a precursor to downturns, rising allocations to funds

that profit from falling markets are seen as a sign of unease,

with valuation risks mounting.

This year, AI optimism has lifted megacap tech firms such as

Nvidia ( NVDA ), Microsoft ( MSFT ) and Oracle, pushing

the S&P 500, Nasdaq and Dow to fresh peaks. The S&P 500

and Nasdaq hit record highs on Thursday, up 15% and 19% this

year, while the Dow has gained 10%.

The forward 12-month price-to-earnings ratio of the MSCI

World index was at a near 5-year high of 20.4 at the end of

September.

However, the surge in equities has elicited a wave of

warnings about the risk of a looming correction.

The Bank of England has pointed to rising risks of a market

reversal, citing U.S. auto credit stress and political deadlocks

in France and Japan, while the Fed faces pressure that could

spark a sharp repricing of U.S. assets.

International Monetary Fund chief Kristalina Georgieva spoke

on Wednesday about the risks to the world economy from

potentially large corrections in lofty stock markets.

JPMorgan Chase CEO Jamie Dimon also warned of a heightened

risk of a significant correction in the U.S. stock market within

the next six months to two years, the BBC reported.

So far in October, the Direxion Daily Semiconductor Bear 3X

Shares has led with $255 million of inflows, followed by $200

million into the ProShares UltraPro Short QQQ and $143 million

into the ProShares Short S&P 500.