A recent September survey by Bank of America, focusing on Asian fund managers, indicates a notable shift in investor sentiment. While artificial intelligence remains a dominant theme, the investment community's focus is moving away from the sheer scale of capital spending and toward the critical question of revenue generation and profitability. The survey, conducted from September 4-10, gathered insights from 190 respondents who collectively manage assets totaling $512 billion.
Specifically, a significant 80% of those surveyed stated they are waiting for clearer evidence of AI commercialization before increasing their exposure to related stocks. This marks a substantial increase from 64% in August. Furthermore, a growing number of investors, 55%, now believe that the positive effects of AI have already been largely or more than fully priced into equities, up from 37% in the previous month. This sentiment is reshaping hedging strategies, with 25% of investors now opting for defensive sectors as their primary hedge against an AI downturn, a rise from 18% in August.
As the AI investment thesis evolves, capital preferences within the sector are also changing. Software and platforms have emerged as the most favored segment for risk-reward over the next 12 months, with 25% of fund managers selecting it, up from just 9% in August. This preference has overtaken the previously popular power and energy sector. Meanwhile, sentiment regarding the semiconductor cycle has shown some recovery, with a net 35% of investors expecting further strengthening, although this is lower than the 60% figure seen in July.
On the topic of regional beneficiaries, China (Taiwan) and the United States are now tied as the markets expected to gain the most from the next phase of the AI cycle, each receiving 35% support. Within China's market, AI and semiconductors remain the most favored investment theme among fund managers, with 55% of investors listing it as a top pick, significantly ahead of state-owned enterprises and high-dividend stocks.
Looking at broader market dynamics, corporate earnings expectations for Asia ex-Japan have improved, with a net 55% of managers anticipating better profits in the coming year, up from 45% in August. However, economic growth expectations have slightly cooled due to renewed focus on potential U.S. policy tightening, while inflation expectations remain stable. In Japan, a focal point of the survey is the central bank's policy normalization. An overwhelming 80% of investors are betting on a rate hike in September, and there is an increased belief that currency intervention could be triggered if the yen weakens to around 160 against the dollar.
Fund managers retain a positive outlook for Asian equities, forecasting a 6.3% upside for the Asia ex-Japan region and a 6.4% expected return for Japan, with optimism for the latter reaching the 94th percentile historically. Japan and China (Taiwan) remain the most preferred markets, with net overweight allocations of 45% and 40%, respectively. Sector-wise, semiconductors hold the top spot as the most overweight sector in Asia ex-Japan, while bank stocks in Japan have surged to a record high in terms of investor preference. There have been significant monthly shifts in fund flows, with notable increases in insurance, telecom, and software, and marked decreases in healthcare, banks, and materials.
In summary, the September survey indicates that Asian fund managers are not abandoning the AI trade but are recalibrating their approach. The primary investment logic is transitioning from one driven by capital expenditure to one focused on commercialization and tangible earnings. The path forward for AI stocks will increasingly depend on their ability to convert significant prior investments into real financial results. Simultaneously, the Bank of Japan's policy decisions are forming a major trading narrative, with optimism for the Japanese market remaining high. As the AI cycle advances, investor focus appears to be pivoting from foundational infrastructure to the software and application layers that can unlock actual business value, with Japan and China (Taiwan) positioned as the primary markets for allocating capital in this next chapter.