On Tuesday, a report from Bank of America (NYSE:BAC) (BofA) indicated a shift in investor sentiment regarding the Asia-Pacific economies, with a particularly cautious view on China. The bank's Global Fund Manager Survey (FMS) revealed a growing optimism about the global economy, reaching a two-year peak, with expectations for stronger economies across the Asia-Pacific region, excluding China. The survey, which has been conducted monthly for the past 17 months, noted a rise in confidence for the Japanese economy, with net 54% of participants anticipating a stronger economy over the next 12 months.
In contrast, the sentiment towards China diverged from the regional trend, with a majority of the survey participants favoring a weakening economy in China for the year ahead. This marks the first time since the FMS began that more investors expect a weakening rather than strengthening of China's economy. Additionally, the China equity market did not gain approval from survey participants, with many opting to avoid the market at present, including 15% who are planning to reduce risk on any market rebounds. Investor allocation towards China hit a new low as there is an expectation of a structural de-rating, based on the belief that Chinese households are likely to continue prioritizing saving over spending or investing.
On the other hand, Japan's outlook was notably positive, with the FMS indicating even brighter prospects for returns than previously anticipated. A total of 29% of participants expect double-digit returns in the Japanese market over the next 12 months, without any significant concerns for a market peak. Japan emerged as the preferred market in the region, with net 56% of investors showing a preference, particularly in the semiconductor and banking sectors. The survey highlighted a shift towards a value bias in Japan, fueled by expectations around corporate governance reforms, which are set to be a key event this year. Moreover, wage negotiations and the Bank of Japan's policy normalization are additional areas of interest, with the FMS projecting a slight increase in Shunto wage growth from 3.6% in 2023 to 3.8% in 2024.
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