The rotation away from cyclicals and technology was most visible in Asia ex-Japan, where investors moved into utilities, banks, consumer staples, healthcare, and telecoms.
Asia Pacific fund managers are pulling back from aggressive technology bets and shifting toward defensive sectors, according to BofA Securities’ August Asia Fund Manager Survey. The survey covered 203 panelists managing $581 billion in assets under management.
A striking 59 per cent of surveyed investors are now hedging AI downside risk by rotating into value, cyclical, and defensive sectors, more than double the proportion that adopted this stance in July. Nearly two-thirds of respondents said they require clearer evidence of AI monetisation before increasing exposure to AI-related stocks. The top catalyst cited for adding to AI positions was evidence of actual revenue generation from the technology.
Japan in focus
Despite this defensive tilt, technology semiconductors and hardware retained the top two positions in sector preference rankings. The rotation away from cyclicals and technology was most visible in Asia ex-Japan, where investors moved into utilities, banks, consumer staples, healthcare, and telecoms. Industrials and tech hardware recorded the sharpest month-on-month positioning declines.
In Japan, investor positioning remained heavily concentrated in banks and semiconductors, with banks reaching a historical high in survey readings. Earnings retained their status as the primary theme driving Japan equity views, though Bank of Japan policy normalisation rose as a concern, cited by 23 per cent of respondents.
On the macro front, nearly 60 per cent of investors expect the Bank of Japan to deliver its next rate hike as early as September 2026. Most respondents identified USD/JPY at 165 as the likely threshold that would trigger currency intervention by Japanese authorities.
Investor optimism toward Asia ex-Japan equities climbed to the 89th percentile historically in August, with the region increasingly viewed as undervalued. Corporate profit expectations remained well above long-run averages, and concern that consensus earnings estimates were too high fell to the 9th percentile historically. Meanwhile, expected returns for Japanese equities moderated slightly to 4.9 per cent from 5.5 per cent in July.
Sentiment on the semiconductor cycle weakened sharply in August. Taiwan regained its position as the market seen as benefiting most from the next phase of the AI cycle, cited by 27 per cent of respondents, followed jointly by Japan and China at 18 per cent each. Within the AI value chain, Power and Energy ranked as the most favoured segment for risk-reward over the next 12 months.
China’s economic outlook rebounded sharply in August but continued to trail Japan by a significant margin. Inflation expectations in Asia Pacific ex-Japan eased further, with a net 23 per cent of investors expecting higher inflation over the next 12 months.
Published on August 19, 2026
