Japan Equity Strategy: Asia investor meetings: Sustainability of AI rally, sector preferences

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Japan Equity Strategy: Asia investor meetings: Sustainability of AI rally, sector preferences

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Japan Equity Strategy

Asia investor meetings: Sustainability of AI

rally, sector preferences

Investment Strategy

08 June 2026

Asia investors: Positions concentrated in AI stocks, but Investment Strategy

wary of recent high volatility Japan

We visited investors in Hong Kong and Singapore on 1-5 June. Asia investors are Masashi Akutsu >>

Strategist

generally still more bullish on Japanese equities than domestic investors, and our BofAS Japan

discussions focused on the sustainability of the AI rally and sector preferences. We +81 3 6225 7754

masashi.akutsu@bofa.com

explained that (1) the AI rally is likely to continue until the Fed implements consecutive

Tetsuhiro Tokuyama >>

rate hikes; and (2) the current market is becoming more volatile or entering a period of Strategist

slowing momentum. We stated that it is time to diversify across sectors. The investors BofAS Japan +81 3 6225 8499

did not push back that much on our views. Overall, investors are building portfolios tetsuhiro.tokuyama@bofa.com

centered on AI stocks. Investors with higher beta have tended to perform better, but

quite a number would appear fatigued by recent high volatility. Many long-only investors

are evidently struggling with portfolio management due to hitting some risk limits.

Focusing on the high-beta aspect of AI stocks and referencing beta rallies since 2003,

we explained that (1) high-beta stocks tend to have prolonged rallies if they start out

strong; and (2) the initial rally has a shelf life, with recent high volatility suggesting this

phase may have started (Exhibit 1). We also noted that, compared to the IT bubble