Fund managers turn more optimistic on Asia despite Trump tariff threats- BofA

A Bank of America survey of Asian fund managers, overseeing $587 billion in assets, reveals increasing optimism regarding the economic outlook, with 70% expecting only a slight negative impact from U.S. tariffs. This improved sentiment is driven by persistent hopes for a trade deal, ongoing monetary easing, anticipated corporate earnings growth, and signs of stability in China. Japan emerged as the most favored market, followed by Taiwan and South Korea, while China's preference declined to fifth. Sectorally, managers are biased towards semiconductors, software, tech hardware, and banks across Asia ex-Japan, reflecting specific country-level drivers like resurgent semiconductor demand and interest rate expectations.

Analysis

A Bank of America survey of 222 Asian fund managers, collectively managing $587 billion in assets, indicates a material increase in optimism regarding the regional economic outlook. This shift in sentiment is underpinned by easing concerns over U.S. trade tariffs, with 70% of respondents now anticipating only a slightly negative impact. The positive outlook is further supported by expectations for continued monetary easing from major central banks, improving corporate earnings, and signs of stabilization in China's economy. The survey reveals a distinct shift in geographic preferences, with Japan emerging as the most favored market "by a distance," driven by positive sentiment towards its banking sector, which is poised to benefit from higher interest rates, and its semiconductor industry. Taiwan and South Korea follow, both benefiting from a resurgence in semiconductor demand. In contrast, China's preference has dropped to the fifth position. Sector-wise, managers across Asia ex-Japan are showing a clear bias towards semiconductors, software, tech hardware, and banks, while expressing caution on materials, energy, industrials, and real estate. Specific country themes are also evident, with a focus on AI and chips in China and a rotation in India towards consumption and infrastructure and away from IT services.

Key Decisions for Investors

• Given the strong consensus from fund managers, investors should consider increasing exposure to Japanese equities, with a specific focus on the banking and semiconductor sectors.
• The survey highlights a clear institutional preference for technology across Asia ex-Japan; portfolios should be reviewed to ensure adequate weighting in semiconductors, software, and tech hardware while potentially reducing exposure to materials, energy, and industrials.
• Note the nuanced positioning within key markets: a targeted approach focusing on AI and chips may be warranted for China exposure, while portfolios with Indian IT services should be re-evaluated against the favored consumption and infrastructure themes.
• Since the prevailing optimism is conditional on continued monetary easing and benign trade developments, it is critical to monitor central bank communications and geopolitical news for any shifts that could alter this outlook.