Bank of America Asia Fund Manager Survey: AI is the Only Consensus, Bullish on Japan, Bearish on India

Still worried about a global economic recession in March, and in May, people are rushing to bet on AI.

This is the core signal conveyed by the latest issue of the Bank of America Securities' Asia-based fund manager survey. The survey covered 200 respondents, with a combined asset management of $517 billion, conducted from May 8th to 14th.

AI becomes the sole consensus, with Taiwan leading the way

If there is one clear conclusion from this survey, it is that: Asian institutional investors are concentrating their bets on AI, and Taiwan is seen as the most certain beneficiary of the next AI cycle in their view.

When asked who will be the biggest winner in the next phase of AI, 43% of respondents unhesitatingly chose Taiwan, followed closely by South Korea with 29%, Japan with 14%, and the United States with only 10%. The wafer foundry industry chain, represented by TSMC, has clearly built an unassailable moat in the minds of institutional investors.

Japan, Taiwan, and South Korea have thus become the top three preferred markets for respondents, and their over-allocation ratios have further widened the gap with other markets - Japan's net over-allocation is 62%, Taiwan's is 43%, and South Korea's is 33%. The concentration of capital in North Asia is deepening.

Growth concerns recede, but the shadow of inflation lingers

A month ago, a net 55% of respondents were expecting a global economic downturn; by this month, this number has plummeted to a net 5%. Such a rapid repair in market sentiment is rare in history.

However, the macro landscape is not entirely smooth. A net 81% of respondents expect inflation in the Asia-Pacific region to continue rising over the next 12 months, hitting the highest reading since April 2022. At the same time, corporate earnings expectations have undergone an unexpected reversal - last month, there was still a net 45% of respondents anticipating a deterioration in earnings, but this month, a net 33% have switched to expecting an improvement, a shift of more than 75 percentage points.

In Japan, 67% of respondents believe that the Bank of Japan's next rate hike will take place in June 2026, highly aligning with the judgment of Bank of America economists. Japan's economic growth expectations have also rebounded significantly in May, with a net 38% of respondents expecting an economic upturn.

Stock return expectations: Japan hits a historical high, AI's upside potential not yet exhausted

Respondents' expected return rate for Japanese stocks over the next 12 months has risen to 6.9%, a historical high. The expected return rate for Asia-Pacific (ex-Japan) stocks has rebounded significantly from the April low to 6.0%.

More noteworthy is investors' judgment on AI pricing. The proportion of respondents who believe AI benefits have been "fully priced" or "overpriced" in May has significantly decreased compared to last month - in other words, after a significant rise, institutional investors generally believe that the upside potential of the AI market has not yet been exhausted.

Semiconductor cycle expectations rise to the historical 91st percentile

A net 71% of respondents expect that semiconductor exports from South Korea and Taiwan will accelerate growth over the next 12 months, compared to just 14% two months ago. Such a sharp jump has pushed the current reading to the historical 91st percentile - this means that the market's confidence in the semiconductor upcycle is approaching the most optimistic moment in history.

In the Chinese market, AI/semiconductor and share buybacks/dividends remain the two most watched themes for respondents, with the internet sector's preferences warming up compared to last month. In the Japanese market, corporate earnings have surpassed policy normalization and corporate governance reform to become the primary driver of Japan's stock near-term outlook in the eyes of 38% of respondents.

India: The one under the most pressure

Not all markets are sharing in this AI feast. India's net underweight percentage of 38% is at the bottom of all Asia-Pacific markets, and on the question of "which market to cut first if global growth worsens further," 24% of respondents chose India, also leading the pack.

The reasons given by respondents are straightforward and sharp: 29% believe that India lacks a clear AI investment theme, which is their main concern for the Indian market, followed by currency