BofA Asia Fund Manager Survey: 80% of investors await further AI commercialization, Taiwan, China to be one of the biggest beneficiary markets in the next phase

BofA's September Asia Fund Manager Survey shows that after the continued heating up of the AI trade, Asian investors' focus is gradually shifting from "the scale of AI investment" to "whether AI can truly generate revenue." As many as 80% of surveyed investors said they want to see clearer evidence of AI commercialization or revenue monetization before further increasing their holdings of AI-related stocks. At the same time, Bank of Japan policy normalization has become the most closely watched theme in the Japanese stock market, with nearly 80% of investors expecting the BOJ to raise rates in September. The survey was conducted from September 4 to 10, with 190 respondents managing a combined $512 billion in assets. Of these, 170 investors managing $470 billion answered the global fund manager survey questions, while 87 investors managing $211 billion participated in the regional survey. AI investment logic is changing: 80% of investors demand commercialization results AI remains one of the most important investment themes in Asian markets, but fund managers' requirements for AI stocks are clearly rising. The BofA survey shows that when asked "what factor would most strengthen confidence in further increasing AI-related stock holdings," 80% of investors chose "evidence of AI commercialization/revenue generation," up sharply from 64% in August. By comparison, 15% of investors chose "further upward revisions to earnings forecasts," while 5% believed "lower interest rates" would strengthen investment confidence. This means that after years of AI capital expenditure and infrastructure investment, investors are increasingly focused on whether the large amounts of AI funding previously invested can be converted into actual revenue and profit. At the same time, investors increasingly believe that the benefits brought by AI have already been reflected in stock prices. The September survey shows that 55% of fund managers believe AI's positive impact on stocks is "largely fairly priced" or "more than fully priced," significantly higher than 37% in August. Of these, 50% believe AI's benefits are largely fairly reflected in prices, while 5% believe they are more than fully priced. Against this backdrop, investors' approach to defending against downside risks in the AI trade has also changed markedly. In September, 25% of investors chose to rotate into defensive sectors as their main hedge against the AI trade, up from 18% in August; at the same time, the proportion choosing to rotate from AI into value stocks and cyclical stocks fell sharply to 5% from 41% in August. Another 15% of investors said they would not hedge and would continue to overweight AI. Software and platforms overtake power and energy to become the most favored segment in the AI supply chain Capital preferences within the AI supply chain are also changing. The BofA survey shows that when fund managers were asked which segment of the AI value chain offers the best risk-reward over the next 12 months, software and platforms jumped to first place with 25% support, up sharply from 9% in August and surpassing the previously most favored power and energy sector. Memory chips ranked second with 20% support; connectivity and networking, data center infrastructure, and power and energy each received 15% support. Support for power and energy fell to 15% from 23% in August. This change indicates that as AI infrastructure investment gradually matures, investors are paying more attention to the value realization of the next stage of the AI supply chain, namely whether the large-scale computing power and data center investments made earlier can ultimately generate actual commercial returns through software, platforms, and the application layer. Confidence in the semiconductor cycle has somewhat recovered; Taiwan, China and the United States tie as the biggest beneficiary markets in the next phase of AI As for the semiconductor cycle, fund managers' confidence recovered somewhat from last month but remains below previous highs. The survey shows that the net proportion expecting the semiconductor cycle represented by South Korean and Taiwan, China exports to strengthen further over the next 12 months rebounded to 35% in September, compared with 60% in July. On the question of "which market will benefit most from the next phase of the AI cycle," Taiwan, China and the United States each received 35% support, tying for first place. Among them, support for the United States rose markedly from 18% in August, while Taiwan, China rose to 35% from 27%, and Japan ranked third with 25% support. It is worth noting that within the China market, AI and semiconductors remain the themes most favored by fund managers. The survey shows that 55% of investors listed AI/semiconductors as one of their favorite investment themes in the China market, significantly ahead of state-owned enterprises at 25% and high-dividend stocks at 15%. Asian corporate earnings expectations improve further Corporate earnings became another relatively positive signal in the September survey. The survey shows that a net 55% of fund managers expect corporate profits in Asia-Pacific excluding Japan to improve over the next 12 months, up from 45% in August. At the same time, earlier concerns that market earnings forecasts were too optimistic have reversed. BofA believes this means investors now see greater room for corporate earnings to further beat expectations, consistent with the recent improving trend in the ratio of upward to downward earnings forecast revisions. At the macro level, as the market refocused on the possibility of further Federal Reserve tightening, growth expectations for the global economy and Asia-Pacific excluding Japan cooled slightly in September. Inflation expectations remained broadly stable overall, with a net 25% of investors expecting inflation in Asia-Pacific excluding Japan to rise over the next 12 months. Nearly 80% of investors bet on a BOJ rate hike in September The Japanese market became another major focus of this survey. The survey shows that 80% of investors expect the BOJ's next rate hike to occur in September this year, 15% expect it in October, and 5% expect it to wait until December. No respondent expected a rate hike to be delayed until January 2027 or later. At the same time, the market's warning line for Japanese government intervention in the foreign exchange market has clearly shifted lower. In September, 55% of respondents believed that the dollar-yen rising to around 160 would most likely trigger intervention by Japanese authorities; by comparison, only 23% of investors chose 160 in August, when more investors believed 165 was the level most likely to trigger intervention. The importance of BOJ policy normalization has also surpassed corporate earnings. In September, 35% of investors viewed BOJ policy normalization as the most critical theme determining the Japanese stock market's short- to medium-term performance, up from 23% in August; the proportion choosing corporate earnings fell to 20% from 41%. Fund managers remain bullish on Asian stocks; Japan and Taiwan, China most favored Despite lingering uncertainty in the macroeconomic environment, fund managers remain optimistic about Asian equity market returns over the next year. The survey shows that investors expect Asia-Pacific excluding Japan stocks to have another 6.3% upside over the next 12 months, a level of optimism at the 89th percentile of the survey's historical data; expected returns for the Japanese stock market rose to 6.4%, reaching the 94th percentile historically, indicating that investors' optimism toward Japanese stocks is already at a relatively high historical level. At the same time, Asia-Pacific excluding Japan equities are increasingly seen by investors as undervalued. In September, the net proportion viewing the region's equities as overvalued fell to **-20%**, meaning investors who consider valuations cheap hold a clear majority. In terms of specific market allocation, Japan and Taiwan, China remain the two most favored markets among Asia-Pacific fund managers. The net overweight in Japan was 45%, Taiwan, China was 40%, and South Korea ranked third with 25%. Semiconductors remain Asia's largest overweight sector; allocation to Japanese bank stocks rises to a record high In terms of sector allocation, technology still dominates. In Asia-Pacific excluding Japan, semiconductors ranked first among all sectors with a 50% net overweight, technology hardware ranked second with 40%, and telecom rose to 20%, ranking third. Financial services and energy were 15% and 10%, respectively. Capital rotation in September was also quite pronounced. Allocation to insurance rose 23 percentage points month on month, while telecom and software increased by 11 and 10 percentage points, respectively; at the same time, healthcare/pharmaceuticals allocation fell 42 percentage points, banks fell 22 percentage points, retail/e-commerce fell 16 percentage points, and materials fell 15 percentage points. Allocation in the Japanese market was highly concentrated in banks and semiconductors. The survey shows that Japanese bank stocks received 70% overweight selection, rising to the highest level in the survey's history; semiconductors ranked second with 50%, with a clear gap between the remaining sectors and these two. Overall, BofA's September survey shows that Asian fund managers have not abandoned the AI trade, but the investment logic is gradually shifting from "capital expenditure-driven" to "commercialization realization-driven." As more and more investors believe AI's benefits have been fairly fully reflected in stock prices, whether AI can truly generate revenue and profit is becoming an important consideration for whether AI stocks can continue to attract additional capital in the next phase. At the same time, BOJ policy normalization is becoming another important trading theme in Asian markets. Fund managers not only broadly bet on a BOJ rate hike in September, but their optimism about Japanese stock market returns over the next year has also risen to near historic highs, with Japan and Taiwan, China continuing to occupy the top positions in Asia-Pacific market allocation. Within the AI supply chain, software and platforms replacing power and energy as the segment with the most favored risk-reward also shows that as the AI investment cycle advances to its next stage, capital focus is gradually shifting from infrastructure construction to AI commercialization and value realization at the application layer.