Global Quant: AI Momentum on a Summer Break

Research evidence excerpt

Global Quant: AI Momentum on a Summer Break

ETFs, has been a key driver.

MSCI EM AI vs China internet vs India

Momentum has had a great run; time for a break? Earlier in June, we discussed the potential software - OPF since '25

for an AI-related momentum unwind. Even in the US, the S&P 500 momentum index has 300250 230.1

200outperformed the overall market by more than 70% since 2024, nearing its dotcom run. Pre- Mcap-wtd) 150

war, the momentum run also included other themes such as materials and defense, but now EM, 100

it’s only supported by the AI theme, increasing the risk of an unwind on adverse sentiment. MSCI 500

(vs

(50) (48.2)

What works when the momentum unwinds? In the long-run, S&P 500 momentum has been index (100) (106.4)

correlated with quality and low risk, but the relationship has inverted since 2025. Furthermore, OPF (150)

Dec-24 Jan-25Feb-25 Mar-25 Apr-25 May-25 Jun-25 Jul-25 Aug-25 Sep-25 Oct-25 Nov-25 Dec-25 Jan-26Feb-26 Mar-26 Apr-26 May-26 Jun-26in EM, quality and low risk performed the best in June at the expense of momentum. Overall,

we prefer to own quality stocks with low-momentum over the summer. We also like high-yield, .Source: Jefferies,EM AI FactSet.China internet India software

low-vol stocks, with the view that if AI concerns deepen, markets may correct sharply.

Page #

Mean-reversion and long-term GARP: Software has been the most impacted sector by AI. Key report screens US EM

Naturally, any concerns about the overall AI theme's viability could lead to a valuation rebound. AI stocks with momentum 15 20

From an EM context, the overall Indian market (and software sector) and the Chinese internet USChinasoftwareinternetfor&meanIndia reversionsoftware for 16 -

have been the funding source for the Korean OWT positions and could see a bid.