Asia-Pacific fund managers shift from growth concerns to confidence in AI and semiconductors

Overview

This BofA Asia fund manager survey focuses on Asia-Pacific investor sentiment, macro expectations, thematic preferences, and changes in regional/sector positioning in May 2026. The report shows that the market has shifted from prior growth concerns toward greater conviction in the AI and semiconductor cycle, with Asia-Pacific equities—especially Japan, Taiwan, and Korea—seeing stronger preference. At the same time, while growth expectations have improved significantly, they have not fully turned positive, and inflation expectations and the pace of Bank of Japan rate hikes remain key macro variables.

Core views

The core views are: first, risk appetite for Asia-Pacific equities has recovered, with the MSCI Asia Pacific Index rebounding strongly from its March low and reaching new highs; second, investors are more positive on AI upside potential, and the share believing the AI rally is fully or mostly fully priced has declined; third, Taiwan is seen as the most direct beneficiary of the next phase of the AI cycle, while expectations for the Korea/Taiwan semiconductor cycle have strengthened sharply; fourth, Japan, Taiwan, and Korea continue to be the core regional preferences, while India is more likely to be reduced under a weakening global growth scenario; fifth, at the sector level, capital is rotating from energy and consumer staples into non-retail consumer discretionary, real estate, and software, while semiconductors and tech hardware remain the most crowded preferred areas.

Analysis framework

The report is based on questionnaire results from BofA's fund manager survey, comparing month-over-month changes, two-month changes, historical percentiles, and net overweight ratios to measure marginal shifts in investor views on the macro outlook, earnings, the AI theme, the semiconductor cycle, regional markets, and sector allocation. The sample includes fund managers participating in the May survey and the assets they manage, and global FMS questions are tabulated separately from regional FMS questions.

Methodology notes

• Investor SurveyBofA Asia Fund Manager Survey

  Net percentages and month-over-month changes

  By subtracting the bearish or underweight proportion from the bullish or overweight proportion, the survey measures the direction of investor consensus and uses sequential changes to identify turning points in sentiment.

• Regional Equity StrategyComparison of Asia-Pacific Market Preferences

  Ranking of regional overweight/underweight positions

  Markets such as Japan, Taiwan, Korea, and India are compared within the same survey framework to identify areas where capital preferences are concentrated and potential candidates for position reductions.

• Thematic InvestingAssessment of AI and Semiconductor Cycle

  Semiconductor cycle expectations and AI valuation perception

  The report uses survey results on expected Korea/Taiwan export growth cycles and whether AI upside has already been priced in to judge whether market conviction in the AI value chain continues to strengthen.

Asset mapping & comparison

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

• Japanese equities

  One of the leading markets in regional preference, with expected returns rising to 6.9%.

  Strengths

  Earnings are seen by the largest number of investors as the main driver of the outlook for Japanese equities; banks also benefit from expectations for higher interest rates.

  Weaknesses

  Growth expectations have rebounded but remain below earlier highs seen this year.

  Comparison

  Together with Taiwan and Korea, they form a more concentrated North Asia overweight direction.

  Risks

  The pace of BoJ rate hikes, inflation, and yen volatility may affect valuations and earnings expectations.

• Taiwan equities

  Seen as the clearest beneficiary of the next phase of the AI cycle.

  Strengths

  Highly correlated with the AI and semiconductor export cycle, with strengthening investor preference.

  Weaknesses

  Highly dependent on AI demand and the semiconductor cycle.

  Comparison

  Together with Korea, it represents the market with the clearest improvement in semiconductor cycle expectations.

  Risks

  Slowing AI demand, a reversal in the semiconductor inventory cycle, or geopolitical risks.

• Korean equities

  Benefiting from the sharp strengthening in expectations for the Korea/Taiwan semiconductor cycle.

  Strengths

  Semiconductor cycle expectations are at a high historical percentile, and regional preference continues to consolidate.

  Weaknesses

  Market performance is sensitive to exports and global technology demand.

  Comparison

  Along with Taiwan, it is a core beneficiary market in the AI/semiconductor value chain.

  Risks

  Weaker global growth, declining semiconductor prices, and volatility in external demand.

• Indian equities

  Under a scenario of further weakening global growth, they are seen as the first market in Asia-Pacific to be reduced.

  Strengths

  Still an important market allocation within Asia-Pacific.

  Weaknesses

  Relatively vulnerable in the survey and may become a source of funds when risk appetite declines.

  Comparison

  Marginal preference is weaker than for Japan, Taiwan, and Korea.

  Risks

  Global growth slowdown, valuation pressure, and foreign capital outflows.

• Semiconductors and tech hardware

  One of the sectors most overweighted by FMS investors and a core vehicle for the AI theme.

  Strengths

  AI conviction is strengthening, and expectations for the Korea/Taiwan semiconductor cycle have improved significantly.

  Weaknesses

  The trade may be crowded and sensitive to revisions in expectations.

  Comparison

  More favored than energy and consumer staples.

  Risks

  AI investment returns falling short of expectations, excessive valuations, and a cyclical reversal.

• Asia Pacific ex-Japan consumer discretionary, real estate, and software

  In May, rotation flowed from energy and consumer staples into these sectors.

  Strengths

  Benefiting from improved risk appetite and sector rebalancing.

  Weaknesses

  Real estate and software may still be constrained by interest rates, growth, and earnings visibility.

  Comparison

  Received marginally increased allocations relative to energy and consumer staples.

  Risks

  Unstable macro growth, persistently high interest rates, or insufficient earnings delivery.

Key data

• MSCI Asia Pacific Index rebound magnitude17.6%The index rebounded from its March low to a record high, mainly driven by optimism toward AI-exposed markets.
• Growth expectations for Asia Pacific ex-Japannet -5%Still negative, but significantly improved from the previous net -55%.
• Higher inflation expectationsnet 81%Investors expect inflation to rise in the future, creating a macro constraint.
• Timing of the next Bank of Japan rate hike67% think June is most likelyConsistent with the view of BofA economists.
• Expected 12-month return for Asia Pacific ex-Japan6.0%Expected returns have rebounded notably.
• Expected 12-month return for Japanese equities6.9%The report says this has reached a historical high.
• Corporate profit expectations for Asia Pacific ex-Japannet 33% expect stronger profitsPreviously, a net 45% expected weaker profits, indicating a sharp reversal in earnings expectations.
• Korea/Taiwan semiconductor cycle expectationsnet 71% expect stronger conditionsThis was 14% two months ago and is now at the 91st historical percentile.
• Energy security concernsfell from 91% to 52%Meaningfully eased month over month.
• Survey sample200 respondents managing $517 billion in assetsAmong them, 170 respondents managing $461 billion answered global FMS questions, and 92 respondents managing $209 billion answered regional FMS questions.

Impact & implications

The investment implication of the report is that the marginal narrative for Asia-Pacific equities has shifted from defensive growth concerns toward concentrated preferences in AI, semiconductors, and North Asian markets. If AI capital expenditure and the semiconductor export cycle continue to play out, Japan, Taiwan, Korea, as well as semiconductors and tech hardware, may continue to benefit; but if inflation rises, the BoJ hikes rates, global growth slows, or AI valuations are again seen as overly stretched, crowded assets may face pullbacks.

Risks

• Growth expectations remain negative, indicating that the macro recovery is not yet firmly established.
• A net 81% of investors expect inflation to rise, which could pressure valuations and affect the path of central bank policy.
• 67% of investors expect the BoJ's next rate hike will most likely come in June, so Japanese rates and currency volatility need monitoring.
• Preferences for AI- and semiconductor-related assets are relatively concentrated; if expectations are too high or positioning becomes crowded, pullback risk will rise.
• If global growth weakens further, relatively vulnerable markets such as India may be reduced first.
• Survey results reflect the views of responding fund managers at the time and may be influenced by sample composition, short-term market performance, and sentiment fluctuations.
• The report includes potential conflicts of interest disclosed by the broker, and investors should treat it as a single source of information rather than the sole basis for decision-making.

What to watch

• Whether Korea/Taiwan semiconductor export growth and AI demand continue to validate expectations for a stronger cycle.
• The impact of Japanese corporate earnings, the pace of BoJ rate hikes, and yen movements on preferences for Japanese equities.
• Whether investors continue to believe AI upside has not yet been fully priced in.
• Whether corporate profit expectations for Asia Pacific ex-Japan improve further from the current net 33% stronger reading.
• Whether regional positioning remains concentrated in Japan, Taiwan, and Korea, or begins to spread to other markets.
• Whether sector rotation continues away from energy and consumer staples toward consumer discretionary, real estate, software, and tech hardware.
• Whether India continues to be seen as the primary market to reduce under a weaker global growth scenario.