Bank of America Asia Fund Manager Survey: India falls out of favor, China’s narrative reverses, semiconductors are still “the brightest star in the class”
Bank of America's latest Asia fund manager survey shows that regional market sentiment is undergoing significant reconstruction. Japan has been the most favored market by investors for the 27th consecutive month, while India has shifted from a slight overweight last month to a slight underweight. The long-term structural narrative of the Chinese market has reversed, and investor optimism about its prospects has reached the highest level since the survey began.
According to Chasing Trades Desk, in this January survey of 112 fund managers overseeing $280 billion in assets, return expectations for the Asia-Pacific region excluding Japan soared to the 92nd percentile, a two-year high. Global growth expectations reached the highest level since October 2021, while inflation expectations remained at a low historical 29th percentile, leaving room for Asian central banks to maintain a dovish policy stance.
The semiconductor sector continues to dominate investor preference, with 54% of respondents overweighting the sector, ranking first among all industries. In the Chinese market, enthusiasm for AI and semiconductor themes reached a new high, with 66% of respondents listing it as the most favored theme. This trend is also evident in markets such as Japan, South Korea, and Taiwan, with the proportion of respondents expecting a stronger semiconductor cycle nearing a three-year high.
The cooling of the Indian market may reflect investor disappointment with the delay of its trade agreement with the United States. In contrast, aside from Japan, investors maintained a constructive attitude toward Taiwan and South Korea, benefiting from the firm expectation of a strengthening semiconductor cycle.
Japan Continues to Lead, Moderate Policy Expectations
Japan continues to top the investor preference list with a 54% net overweight, firmly in the top spot every month since being included in the survey in October 2023. Investors are raising market return expectations, with focus on policies to boost productivity through active investment in growth sectors by city governments to achieve economic growth and fiscal consolidation.
Monetary policy normalization is currently a secondary concern, with two-thirds of respondents expecting the next rate hike by the Bank of Japan in June. The economic outlook for Japan is optimistic, 63% expect the economy to "strengthen slightly" and 21% expect it to "strengthen significantly," with virtually no one expecting the economy to weaken.
In terms of sector allocation, banks and semiconductors continue to be favorites in the Japanese market, with 50% and 38% of respondents overweighting these sectors respectively. Banks benefit from rising interest rates, while semiconductors are a core target of the AI investment theme. Market return expectations for Japan have reached the highest historical quintile, with 33% of respondents expecting returns over 10% in the next 12 months.
China Narrative Reversal, Household Risk Appetite Rebounds
The Chinese market is undergoing a significant sentiment shift. Growth momentum is stabilizing and gradually improving, with a net 13% of respondents expecting China’s economy to strengthen, a sharp reversal from the net 29% expecting it to weaken in November last year.
More importantly, the percentage of respondents who believe the Chinese stock market is in a structural devaluation process has dropped to 38%, the lowest since the survey began. Household risk appetite is starting to recover, with 58% of respondents believing Chinese households will prioritize allocating assets (stocks, bonds, or real estate) rather than depositing into savings accounts.
The dominance of AI and semiconductor themes in the Chinese market is further strengthened, with 66% of respondents listing them as the most favored theme—a survey record. Internet and “anti-involution” themes ranked second with 21% support each. Meanwhile, 83% of respondents expect further monetary easing in China, maintaining at a high level.
In terms of investor positioning, 21% of respondents reported “building exposure,” with a considerable proportion of investors maintaining active participation, a sharp contrast to widespread avoidance of China during 2021–2023.
Semiconductor Cycle Expectations Heat Up, India Turns Underweight
The semiconductor sector’s overweight across the Asia-Pacific region excluding Japan reached 54%, far higher than other sectors. Technology hardware, industrials, and financial services follow at 50%, 33%, and 21% net overweight respectively. In contrast, real estate, utilities, and non-retail consumer goods are the least favored sectors, with net underweights of 29%, 25%, and 13% respectively.
The net proportion of respondents expecting the semiconductor cycle (Korea/Taiwan export growth) to strengthen rose to 58%, nearing the highest level since July 2024. This expectation supports investors’ constructive attitude toward Taiwan and Korea, with net overweight of 25% and 21% for the two markets respectively.
The Indian market shifted from a slight overweight last month to a net 8% slight underweight, possibly reflecting disappointment over the delay of its trade agreement with the US. In Southeast Asia, Malaysia, Singapore, and New Zealand maintain neutral allocations, while Thailand, Indonesia, and the Philippines are underweight.
Optimism Rises, Valuations Remain Reasonable
The surge in market return expectations is supported by strong earnings rebound. A net 63% of respondents expect improved corporate earnings in the Asia-Pacific region excluding Japan, at the historical 84th percentile. Meanwhile, only 17% believe consensus earnings estimates are too high, leaving room for upward revisions.
Despite elevated return expectations, respondents generally believe regional equity valuations are roughly reasonable. A net 17% believe Asia-Pacific ex-Japan equities are undervalued rather than overvalued. This “Goldilocks” scenario—robust growth expectations, moderate inflation outlook, and reasonable valuations—supports continued market strength.
Strengthened global growth expectations are a key driver of optimism. The economic outlook for Asia-Pacific ex-Japan has reached a two-year high, while Japan’s growth expectations remain near survey peaks. With inflation expectations low, Asian central banks excluding Japan retain room for an accommodative policy stance, providing an extra layer of policy support for the market.
This survey was conducted from January 9 to 15, 2026, involving 227 fund managers overseeing $646 billion in assets, of whom 112 managers with $280 billion under management responded to regional questions.
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