India, Taiwan preferred investment destinations in Asia after Japan: Bofa

China at bottom of the pack as equity markets fail to enthuse investors

Bank of America’s (Bofa’s) latest fund manager survey (FMS) on Asia suggests India and Taiwan are among the preferred investment destinations after Japan. Nineteen per cent of global fund managers remain bullish on India, as indicated by the latest Bofa Asia FMS.

A total of 249 panellists with $656 billion worth of assets under management (AUM) participated in the survey between February 2 and 8, according to Bofa. Two hundred and nine participants with $568 billion in AUM responded to the global FMS questions, while 145 participants with $331 billion in AUM responded to the regional FMS questions, as noted by Bofa.

“The February FMS has chosen momentum over rotation across markets and sectors. The favourable views on technology stay intact, with semis at the helm yet again (cited by a net 40 per cent of participants), while real estate (a net 23 per cent underweight) stays out of favour. Among markets, investors prefer India and Taiwan (net 19 per cent overweight each) apart from Japan, while avoiding Thailand (net 17 per cent underweight) and China (minus 23 per cent),” the survey findings suggest.

At the global level, 61 per cent of the respondents remained bullish/long on a group comprising Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, popularly known as the ‘Magnificent Seven’ and the most crowded trade.

Short China equities (25 per cent of the respondents) and long Japanese equities (4 per cent of the respondents) were the other most crowded trades, Bofa said. The China equity market, as Bofa survey findings suggest, failed to enthuse investors, with the majority willing to sit out/avoid the Chinese markets right now. Nearly 15 per cent FMS respondents, Bofa said, are looking to cut exposure on any bounce-back.

“Tellingly, China allocation struck a new low as investors brace for a structural derating, given their belief that the propensity among Chinese households to preserve cash rather than spend/invest is here to stay,” Bofa said.

On the other hand, investors remained bullish on the road ahead for Japan, with 29 per cent of the FMS respondents, according to Bofa, expecting double-digit returns from their equity market in the next 12 months. Twenty-five per cent of the respondents do not expect the Japanese equity markets to peak in 2024.

Earlier this week, Japanese markets hit a 34-year high, with the Nikkei hitting the 38,000 mark — the highest it has ever been since January 1990.

“Japan remains a key overweight market at the global equity level with a TOPIX basecase target price of 2600 and a rising likelihood of our bull case of 2800 coming into play as fund reallocations to Japan have been high year-to-date, driving multiple expansion,” wrote analysts at Morgan Stanley in a recent note.

Once dubbed a ‘value trap’, investors and analysts now harbour a clear value bias in Japan as corporate governance reforms, slated to be the most closely watched event this year, take centre stage.

“It is, by far, the favourite market in the region, with a net 56 per cent of investors, with a tilt towards semis and banks. Wage negotiations and Bank of Japan policy normalisation are yet another topic of interest for investors, with the FMS looking for only a measured rise in the Shunto wage growth from 3.6 per cent in 2023 to 3.8 per cent this year,” Bofa added.