Technology Remains the Top Allocation, but Asian Investors Are Clearly Turning Defensive

Overview

Bank of America conducted its Asia fund manager survey from August 7 to 13, 2026, with 203 respondents managing combined assets of US$581 billion. The survey indicates that investors remain positive on valuations and return prospects for Asia-Pacific equities, while shifting toward an allocation strategy that places greater emphasis on defensiveness and monetization validation in AI trades.

Core views

Technology, semiconductors, and hardware remain among investors' top preferences, but positions have marginally shifted from technology and cyclical sectors toward defensive industries. AI's positive impact has not yet been fully priced in, but investors require clearer evidence of commercialization and earnings. Sentiment and valuation attractiveness have improved in Asia-Pacific ex-Japan; in Japan, positions in banks and semiconductors are highly concentrated, while monetary-policy normalization has become an important variable.

Analysis framework

The report conducts cross-sectional comparisons based on fund manager survey responses regarding net overweight positions, return expectations, valuation assessments, and thematic preferences, while incorporating monthly changes to observe marginal shifts in regional and sector allocations.

Methodology notes

• Survey ResearchFund Manager Survey

  Respondent Sentiment and Positioning Survey

  Measures market consensus and allocation changes through surveyed fund managers' expectations for macroeconomic conditions, valuations, sectors, and themes, as well as their net overweight positions.

• Allocation AnalysisNet Overweight Indicator

  Percentage Overweight Minus Percentage Underweight

  Reflects relative allocation preferences for markets, sectors, or themes by subtracting the proportion of respondents indicating underweight from the proportion indicating overweight.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Asia-Pacific ex-Japan Equities

  Positive Overall Sentiment

  Strengths

  Investor optimism has risen to historically elevated levels, while valuations are increasingly viewed as low; corporate earnings expectations remain above long-term averages.

  Weaknesses

  Growth expectations are weakening, and flows are shifting from technology and cyclical sectors toward defensive industries.

  Comparison

  Compared with Japanese equities, Asia-Pacific ex-Japan markets show greater improvement in return and valuation sentiment.

  Risks

  Slower macroeconomic growth, cooling AI expectations, and sector rotation could pressure high-valuation growth sectors.

• Technology, Semiconductors, and Hardware

  Still Core Preferences, but Marginally Cooling

  Strengths

  Technology and semiconductors remain among investors' most significant overweight preferences; Taiwan is regarded as an outstanding beneficiary market in the next phase of the AI cycle.

  Weaknesses

  Semiconductor-cycle expectations weakened markedly in August, while technology hardware positions saw one of the largest declines.

  Comparison

  Compared with defensive sectors, technology retains stronger absolute preference, but fund flows are clearly less resilient.

  Risks

  AI monetization falling short of expectations, valuation digestion, and a weaker semiconductor cycle.

• Power and Energy

  AI Value-Chain Beneficiary Direction

  Strengths

  Listed as one of the most attractive links in the AI value chain in terms of risk-reward over the next 12 months.

  Weaknesses

  Highly influenced by the AI capital-expenditure cycle and energy policy.

  Comparison

  Compared with pure-play AI software or hardware names, it better matches investors' preference for defensiveness and verifiable returns.

  Risks

  Slower capital expenditure, energy-price volatility, and regulatory changes.

• Japanese Equities

  One of the Preferred Markets

  Strengths

  Taiwan and Japan remain investors' most preferred markets; positions in banks and semiconductors remain elevated.

  Weaknesses

  Expected returns over the next 12 months declined from 5.5% to 4.9%, with a high degree of allocation concentration.

  Comparison

  Compared with Asia-Pacific ex-Japan, Japan's expected-return outlook has seen a more pronounced marginal decline.

  Risks

  Bank of Japan rate hikes, yen exchange-rate volatility, and pullback risks in concentrated bank and semiconductor trades.

Key data

• Survey Sample203 respondents, US$581 billion in assets under managementAugust 2026 survey.
• AI Downside-Risk Hedging59%Respondents hedge downside risks in the AI trade by shifting to value, cyclical, and defensive sectors, more than doubling from the July level.
• Condition for Increasing AI AllocationNearly two-thirds of respondentsRequire clearer evidence of AI monetization before increasing exposure to AI-related equities.
• Optimism Toward Asia-Pacific ex-Japan Equities89th percentileRose to a historically elevated level in August.
• Expected Return on Japanese Equities4.9%Expected return over the next 12 months, down from 5.5% in July.
• Assessment of AI Impact Pricing59%Believe AI's positive impact on equities is only partially reflected in prices.
• Expected Bank of Japan Rate HikeNearly 60%Expect the next Bank of Japan rate hike to occur as early as next month.
• Yen Intervention Trigger LevelUSD/JPY 165Most investors believe this level could trigger intervention by Japanese authorities.

Impact & implications

The investment implication is not a wholesale exit from AI, but rather a shift from a single growth narrative toward a balance of valuation, earnings validation, and risk hedging. Improved valuations and resilient earnings expectations in Asia-Pacific ex-Japan support risk appetite, but the marginal cooling in technology hardware and industrials suggests attention to crowded-trade pullbacks. Within the AI theme, investors may focus more on beneficiary areas such as power and energy, using AI monetization, the semiconductor cycle, and regional macro policies as allocation validation points.

Risks

• AI commercialization progress may fall short of expectations, potentially leading to a re-rating of related high-valuation assets.
• Weaker semiconductor-cycle expectations may weigh on technology hardware and related supply chains.
• Weaker Asia-Pacific economic-growth expectations may undermine earnings and risk appetite.
• Bank of Japan policy normalization and USD/JPY volatility may affect Japanese asset pricing.
• An accelerated rotation into defensive sectors may reflect declining market risk appetite and could constrain cyclical and growth asset performance.
• The fund manager survey reflects respondents' views and positioning and may not represent all market participants or future market outcomes.

What to watch

• Whether orders, revenue, and profit margins of AI-related companies can provide clear evidence of commercialization.
• Whether semiconductor export, inventory, and capital-expenditure data confirm cyclical weakness or stabilization.
• Whether earnings expectations and valuation recovery in Asia-Pacific ex-Japan can be sustained.
• Changes in net overweight positions in technology and defensive sectors and the pace of fund rotation.
• The timing of Bank of Japan rate hikes, whether USD/JPY approaches 165, and potential currency-intervention signals.
• Changes in relative fund flows and AI supply-chain beneficiary expectations in Taiwan and Japan.