Asian investors are increasingly prioritizing evidence of AI commercialization and revenue generation, rather than just the scale of AI investment, according to Bank of America's September Asia Fund Manager Survey. A significant 80% of surveyed investors indicated they need clearer proof of AI's ability to generate revenue before increasing their holdings in AI-related stocks. This marks a substantial rise from 64% in August, highlighting a changing investment logic towards tangible financial returns from AI.
Within the AI supply chain, capital preferences have shifted, with software and platforms now leading as the most favored segment for risk-reward over the next 12 months. This segment garnered 25% support, a sharp increase from 9% in August, surpassing power and energy. Memory chips ranked second with 20% support, while connectivity and networking, data center infrastructure, and power and energy each received 15% support. This indicates a growing focus on the value realization at the application layer of AI infrastructure.
Confidence in the semiconductor cycle has seen some recovery, with the net proportion expecting further strengthening over the next 12 months rebounding to 35% in September. Taiwan, China, and the United States are tied as the biggest beneficiaries in the next phase of the AI cycle, both receiving 35% support. In the China market, AI and semiconductors remain top investment themes, cited by 55% of investors. The survey also noted an improvement in Asian corporate earnings expectations, with a net 55% of fund managers expecting profits in Asia-Pacific excluding Japan to improve over the next 12 months, up from 45% in August.
The Japanese market is another key focus, with nearly 80% of investors expecting the Bank of Japan to raise rates in September. BOJ policy normalization has become the most critical theme determining the Japanese stock market's short to medium-term performance, surpassing corporate earnings in importance. Fund managers remain optimistic about Asian equity returns, with expected upside for Asia-Pacific ex-Japan stocks at 6.3% and for Japanese stocks at 6.4% over the next 12 months. Japan and Taiwan, China, are the most favored markets, with net overweights of 45% and 40% respectively. Semiconductors remain the largest overweight sector in Asia-Pacific ex-Japan, while Japanese bank stocks saw a record-high overweight selection of 70%.
