Asia Pacific fund-manager sentiment, equity positioning and AI monetization Report Interpretation

Overview

BofA Global Research's September Asia Fund Manager Survey captures investor views on regional growth, earnings, equity returns, AI, BoJ policy and sector positioning. The survey indicates constructive equity expectations but a more selective approach to AI exposure, with proof of monetization now the central requirement.

Core views

The September survey covered 190 panelists managing $512bn in assets. Of these, 170 participants with $470bn AUM answered Global FMS questions and 87 participants with $211bn AUM answered Regional FMS questions; the survey ran from 4 to 10 September 2026. The findings point to a constructive regional earnings backdrop: net 55% of respondents expect better corporate profits in Asia Pacific ex-Japan over the coming 12 months, up from 45% in August. The report links this improvement to better earnings-revision ratios and notes that concerns about overly optimistic consensus EPS estimates have reversed, implying that respondents now see more room for earnings upside. At the same time, growth expectations softened slightly as concerns returned that Fed rate hikes could come back into consideration, while net 25% expected higher APAC ex-Japan inflation over the next 12 months. China's economic outlook deteriorated sharply in September, whereas Japan's remained stable. Investor return expectations nevertheless became more optimistic. Respondents expect Asia ex-Japan equities to gain 6.3% over the next 12 months, the 89th historical percentile of optimism, and expect Japanese equities to gain 6.4%, the 94th percentile. APAC ex-Japan equities are increasingly viewed as undervalued. Japan and Taiwan remain the preferred APAC markets despite modest month-on-month declines in positioning. For Japan, policy normalization has overtaken earnings as the key near-to-medium-term equity theme: nearly 80% expect the next BoJ rate increase this month, and the perceived USD/JPY level likely to prompt Japanese authorities to intervene has fallen to 160 from 165 in August. AI remains a central but more demanding investment theme. Four out of five investors say proven, tangible AI monetization would most increase their conviction to add AI-related stocks. This caution is consistent with 55% saying the positive impact of AI on equities is already fairly or more than fully reflected in prices, up from 37% in August. As a hedge against AI-trade downside over the next six to 12 months, respondents now favor rotating into defensive sectors; appetite for rotation into value and cyclical stocks fell sharply. Expectations for a stronger semiconductor cycle recovered to 35%, but remained well below the 60% recorded in July. Taiwan and the US jointly lead as the markets respondents expect to benefit most from the next phase of the AI cycle, while Software & Platforms are seen as offering the best AI risk-reward, overtaking Power & Energy. Positioning reflects both the constructive regional outlook and selectivity by market and sector. Within Asia ex-Japan, Technology retained the top sector ranking and Telecom rose to third. September brought a sharp rotation into Insurance, Telecom and Software, alongside steep reductions in Healthcare, Banks, Retailing and Materials. In Japan, allocations remain concentrated in banks and semiconductors, with bank positioning reaching a new historical high. In China, AI/semiconductors and state-owned enterprises are identified as the leading investor priorities. For India, concern about limited AI exposure fell materially, from 32% to 10%.

Analysis framework

The report aggregates fund-manager responses and presents net survey balances, expected return estimates, historical-percentile context and month-on-month positioning changes. It compares September responses with August and selected earlier readings to identify changes in macro expectations, AI views, market preferences and sector allocations.

Methodology notes

• Event-Driven and Behavioral FinanceFund-Flow and Positioning Analysis

  Fund-manager survey positioning and net overweight measures

  The survey uses respondents' stated allocations and net overweight views to show where investors are concentrated and how positioning shifted month on month.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  AI value-chain risk-reward assessment

  Respondents compare portions of the AI value chain, including Software & Platforms and Power & Energy, to identify where they see the strongest risk-reward over the next 12 months.

Asset mapping & comparison

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

• Asia ex-Japan equities

  Respondents expect 6.3% upside over the next 12 months and increasingly view the market as undervalued.

  Strengths

  Improving corporate-profit expectations and earnings-revision ratios; Technology retains top sector ranking.

  Weaknesses

  Growth expectations softened slightly amid renewed concern over potential Fed rate hikes.

  Comparison

  Expected upside is slightly below Japan's 6.4%, but remains at the 89th historical percentile.

  Risks

  AI upside is perceived as already fairly or more than fully priced in by 55% of respondents.

• Japanese equities

  Respondents expect 6.4% upside over the next 12 months and continue to favor Japan within APAC.

  Strengths

  Japan's economic outlook remained stable; positioning is concentrated in banks and semiconductors.

  Weaknesses

  Positioning declined modestly month on month.

  Comparison

  Expected upside reached the 94th historical percentile, above the 89th percentile for Asia ex-Japan.

  Risks

  BoJ policy normalization has become the dominant near-to-medium-term theme, with nearly 80% expecting a rate hike this month.

• Taiwan equities

  Taiwan remains a preferred APAC market and is jointly viewed with the US as a leading beneficiary of the next AI cycle.

  Strengths

  Linkage to the expected next phase of the AI cycle and semiconductor demand.

  Weaknesses

  Positioning declined modestly month on month.

  Comparison

  Jointly leads with the US as the expected AI-cycle beneficiary.

  Risks

  Semiconductor-cycle strengthening expectations recovered only to 35%, below July's 60%.

Key data

• Survey participants190 panelists; $512bn AUMSeptember survey; 170 participants with $470bn AUM answered Global FMS questions and 87 with $211bn AUM answered Regional FMS questions.
• Expected better APAC ex-Japan profitsNet 55%Up from net 45% in August; refers to the next 12 months.
• Expected Asia ex-Japan equity upside6.3%Next 12 months; 89th historical percentile of optimism.
• Expected Japan equity upside6.4%Next 12 months; 94th historical percentile of optimism.
• AI monetization requirement80%Investors seeking clearer proof of tangible monetization before adding AI-related stocks.
• AI effect already priced in55%Say the positive AI impact is fairly or more than fully priced in, up from 37% in August.
• Expected BoJ hike this monthNearly 80%BoJ policy normalization became the leading Japan-equity theme.
• Expected semiconductor-cycle strengthening35%Recovered but remains below 60% in July.
• India AI-exposure concern10%Down from 32%.

Impact & implications

The survey suggests that improving earnings expectations and perceived valuation support underpin bullish 12-month views on Asian equities, especially Japan and Asia ex-Japan. Yet investors are treating AI exposure more selectively, favoring demonstrable monetization and defensive hedges, while Japan's equity outlook is increasingly tied to BoJ policy normalization.

Risks

• AI-stock exposure may remain constrained until tangible monetization is demonstrated; 55% of respondents believe positive AI effects are already fairly or more than fully priced in.
• Renewed concern that Fed rate hikes could return softened growth expectations.
• China's economic outlook deteriorated sharply in September.
• BoJ normalization is a key risk variable for Japanese equities, with a rate hike widely expected this month.

What to watch

• Evidence of tangible AI monetization before investors add AI-related exposure.
• The timing of the next BoJ rate hike and USD/JPY levels around the perceived 160 intervention trigger.
• Whether improving APAC ex-Japan earnings expectations and revision ratios persist.
• Changes in semiconductor-cycle expectations, which recovered to 35% from weaker levels but remain below July's 60%.
• Further rotation between defensive sectors, value/cyclicals, and sectors such as Insurance, Telecom and Software.