Asia Funds Turn Defensive Amid AI Concerns

Technology continues to be the preferred sector for investors, yet a notable defensive shift is underway among Asian fund managers as of August 2026. A substantial 59% of investors are actively hedging against potential downsides in Artificial Intelligence by rotating capital into value, cyclical, and defensive sectors. This marks a significant increase from the previous month.

Investors are increasingly seeking clearer evidence of AI monetization before boosting their exposure to related stocks. This cautious approach is particularly evident in the Asia ex-Japan region, where a rotation out of cyclical and technology stocks into defensive areas like Utilities, Banks, Staples, Healthcare, and Telecoms has occurred. Industrials and Tech Hardware have seen the sharpest declines in investor positioning.

Despite this defensive allocation, optimism regarding Asia ex-Japan equities reached its highest point in August, with investors perceiving the region's stocks as undervalued. Concurrently, investor positioning in Japan remains heavily concentrated in Banks, which have reached a historical high, and Semiconductors.

This concentration in Japan is influenced by anticipated shifts in monetary policy, with approximately 60% of investors expecting a Bank of Japan rate hike as early as September 2026. Additionally, most investors anticipate Japanese authorities might intervene if the USD/JPY exchange rate reaches 165.

The sentiment surrounding the semiconductor cycle weakened significantly in August. However, Power & Energy segments within the AI value chain remain the most favored, indicating continued investor interest in specific AI infrastructure areas despite broader concerns about the semiconductor market.