According to the latest October Asia fund manager survey released by Bank of America, investor confidence in the AI theme strengthened significantly in October, while concerns about AI overvaluation eased; at the same time, inflation worries rose markedly, and a December rate hike by the Bank of Japan became the mainstream expectation.

AI Confidence Strengthens Notably, Storage Becomes Top AI Risk-Reward Choice

The survey shows that 70% of investors believe AI monetization will be the biggest driver of Asia-Pacific stock market performance over the next 12 months. At the same time, only 35% of investors think the positive impact of AI has been fully or excessively priced in, a sharp drop from 55% in September, indicating that market concerns about AI overvaluation have eased. Positioning has also become more aggressive, with 45% of investors still overweight AI or rotating within AI, up from 25% in September. In the selection of the "best risk-reward opportunity in the AI value chain over the next 12 months," storage ranked first with 30% of votes, up sharply from 20% in September; connectivity/networking ranked second, followed by power and energy, and data center infrastructure. The share of votes for software and platforms plunged to 5% from 25% in September.

Inflation Concerns Rise, BOJ December Rate Hike Expectation Becomes Mainstream

At the macro level, growth expectations remained stable, and the economic outlook for Asia-Pacific excluding Japan remained stronger than the global average. However, inflation concerns rose significantly: a net 50% of investors expect higher inflation over the next 12 months, far above 25% in September. On Bank of Japan policy, 60% of investors expect the next rate hike to come in December. This is consistent with the expectations of Bank of America's Japan economists. Regarding themes in the Japanese stock market, earnings have replaced Bank of Japan policy normalization as the most critical near- to medium-term theme. The ratio of upward earnings revisions for Japanese companies hit a record high in September.

Technology and AI Remain Favored, Asian Funds Shift Toward Healthcare, Materials, and Industrials

Meanwhile, expectations for a semiconductor cycle recovery strengthened somewhat, with 50% of investors expecting export growth in South Korea and Taiwan to drive a stronger semiconductor cycle. In terms of positioning and allocation, Taiwan and Japan remained the markets most favored by investors, reflecting continued optimism about investment opportunities in technology and AI-related sectors. For Asian markets outside Japan, investors further shifted allocations this month toward healthcare, materials, and industrials, while reducing exposure to insurance and consumer-related sectors. In the Japanese market, positioning remained highly concentrated in banks and semiconductors.