Asia-Pacific fund managers are shifting capital from technology shares into defensive sectors like utilities and healthcare. A BofA Securities survey shows investors are now demanding clear proof of revenue from AI projects before increasing exposure, marking a significant change in market sentiment.
Asia-Pacific fund managers are becoming more cautious with their technology investments, moving money toward safer, defensive sectors as they await clearer signs that artificial intelligence will generate real profits. According to a recent BofA Securities survey of 203 panelists managing $581 billion, the number of investors hedging against potential downside risks in the AI sector has more than doubled since July 2026.
Demand for Evidence of AI Earnings
The primary concern driving this shift is the lack of immediate financial returns from AI technology. Nearly two-thirds of the investors surveyed stated they require concrete evidence of revenue generation before they are willing to increase their stakes in AI-related stocks. While technology, particularly semiconductors and hardware, remains a preferred sector, the blind optimism that fueled earlier buying has faded. Investors are now looking for proof that companies can actually turn their AI investments into steady cash flow.
Rotation into Defensive Sectors
The trend of moving away from high-growth tech and cyclical stocks is most noticeable in the Asia ex-Japan region. Fund managers here are rotating their holdings into sectors that typically perform better during uncertain economic times, such as utilities, banks, consumer staples, healthcare, and telecommunications. This move suggests that investors are prioritizing stability over the higher, yet increasingly uncertain, growth potential of the tech sector.
In Japan, the focus remains on banks and semiconductors, though investors are carefully watching the central bank's policy path. Nearly 60% of respondents expect the Bank of Japan to hike interest rates by September 2026, which could impact borrowing costs and market valuations. Currency stability is another monitorable, with market participants keeping a close watch on potential intervention if the USD/JPY rate reaches 165.
Investor Risks and Market Impact
For investors, this shift highlights a broader caution regarding the 'AI bubble.' Approximately 32% of fund managers cited AI-related concerns as a major market risk. When global sentiment turns cautious toward technology, it often creates volatility in Asian markets that are heavily exposed to semiconductor and hardware manufacturing, such as Taiwan and Korea.
While this rotation does not necessarily mean investors are abandoning tech, it does mean they are becoming much more selective. For the Indian market, this global shift is relevant as local IT and manufacturing sectors often track international fund flows. If global investors continue to demand proof of profitability, companies in these sectors may face increased scrutiny regarding their AI spending and project returns. The key update for investors to watch in the coming months will be the quarterly earnings reports of major tech firms, as these will provide the data needed to justify or lower current valuation expectations.