The boom is giving momentum investors their best return in decades, as the world’s hottest stocks power ahead despite worries over potentially slower growth due to the Iran war.
MSCI Inc.’s global momentum gauge has beaten the MSCI All Country World Index by 17 percentage points since the end of March, on track for its strongest two-month outperformance on record, in data compiled by Bloomberg back to 1991.
Bulls say the AI frenzy can continue luring money into the market’s biggest winners, though some caution that the scale of the outperformance is a warning sign. The longer investors crowd into the same stocks, the more exposed markets are to a sudden reversal if hot inflation causes the Federal Reserve to tighten policy or if earnings weaken.
“The momentum story will persist for another few months, with significant volatility in between, till it finally sees a climax,” said Hao Hong, chief investment officer at hedge fund Lotus Asset Management Ltd. “If inflation expectations continue to run higher, then the Fed would have to make a bigger-than-expected move, and that will stall the momentum trade.”
Continuous inflows into tech stocks have made momentum this year’s dominant global style, with investors brushing aside economic risks and chasing an expanding wave of AI winners.
“It’s risky — we are seeing bubbles forming in a number of areas, and the AI-led basket clearly has ignored all macro development,” said Jun Bei Liu, co-founder and lead portfolio manager at hedge fund Ten Cap Investment. While an end to the war would further boost sentiment near term, slower US growth is likely to impact earnings in the next six months, she added.
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