Investing.com -- HSBC said in a note Monday that momentum unwind following the release of Moonshot's Kimi K3 model is likely to remain an idiosyncratic issue rather than spill over into a broader risk-off environment, though the bank flagged emerging warning signs in its sentiment and positioning framework.

Chief Multi-Asset Strategist Max Kettner said last week's model release "triggered another wave of selling, particularly in Asia," with pressure spreading to popular segments like Japanese banks, while Indian equities, a popular short in recent months, rose 1.5% over three days, suggesting "a broad-based positioning washout."

Despite this, HSBC still believes the momentum sell-off "will largely remain an idiosyncratic issue and not morph into a broad-based risk-off backdrop," noting global equities are only 1.5% off all-time highs and EM high-yield spreads remain close to post-GFC tights.

The bank continues to favor European equities, particularly banks, as well as the equal-weighted S&P 500, and Magnificent Seven names over semiconductors in the U.S.

However, HSBC noted risk assets have been broadly flat since the beginning of June, while U.S. equity market breadth has risen to its highest level in more than a year and a half.

The bank’s sentiment and positioning framework "has also started to flash some warning signs last week," with long-only investor positioning becoming "decidedly more risk-on lately," suggesting it "may well be time to reduce risk in portfolios" after peak earnings season.

HSBC also flagged that renewed Middle East escalation and rising oil prices have not yet triggered a meaningful pickup in rates or FX volatility, though a move toward $100 a barrel Brent would challenge its tactical underweight in energy.