A quantitative strategy report released by Citigroup on July 31st shows that since June 23rd, the global price momentum factor has experienced a cumulative pullback of approximately 19%, ranking as the seventh largest momentum pullback in the past thirty years within just 28 trading days. Momentum strategies across regions generally faced pressure in July, with Europe experiencing a decline of about 13% and Asia (excluding Japan) reaching 28%. Momentum portfolios in South Korea and Taiwan have retreated by approximately 48% and 29% respectively from their previous highs. Momentum strategies involve continuously buying the strongest performing stocks, resulting in the most concentrated holdings in popular sectors such as AI and semiconductors.
However, this is not a completely synchronized global style shift. In developed markets, funds are both selling off tech winners and buying back previously lagging value stocks; value factors are outperforming across the board, individual stock performance is diverging, and correlations are declining, indicating a "re-selection of the main theme by funds." In emerging markets, the decline is mainly seen in previously strong AI stocks like those in South Korea and Taiwan, while lagging sectors have not followed suit, suggesting a more concentrated unwinding of leveraged and crowded positions. The recent plunge in South Korea was further amplified by leveraged ETFs and forced liquidations, confirming this assessment.
