India has regained favour among global investors, now rated mildly overweight in Bank of America’s Asia Fund Manager Survey (FMS), while Japan leads in the region and China drops to an underweight rating.

This development highlights the role of Indian markets as a diversification option compared to AI-heavy North Asian markets, supported by a “Goldilocks” environment of rising global growth and low inflation expectations across Asia, excluding Japan.

India has “slowly climbed back to mild overweight, likely serving as a diversification play against AI-driven markets,” the report said.

Currently, 10% of fund managers are net overweight on India, up from 0% in November, becoming the third most preferred market in Asia, after Japan and Taiwan.

The December survey involved 238 panellists with a total of $550 billion AUM. Of these, 203 participants with $569 billion AUM responded to the Global FMS questions, while 119 participants with $293 billion AUM answered the Regional FMS questions.

Earlier this year, India was ranked as the most preferred equity market in the Asia Pacific region, according to the Fund Manager Survey (FMS) by BofA in May. Due to positive sentiment around infrastructure development, strong consumption trends, and ongoing supply chain realignments, Indian equities then overtook Japan to secure the top spot among fund managers.

“India emerges as the most favoured market, perceived as a likely beneficiary of supply chain realignments following tariff effects,” BofA earlier noted.

Japan’s influence

Japan continues to be the preferred choice in the region, with optimistic perspectives on Prime Minister Sanae Takaichi’s policy influence. The report notes that short-term dips are generally viewed as healthy consolidations that support the persistence of the rally. Additionally, as long-term interest rates steadily increase, investors are favouring banks and semiconductors, with the latter benefiting from the AI trend.

Meanwhile, the December survey indicated that investors across Asia maintain a positive outlook on the market but have lowered their return expectations. Their optimism is supported by a strong rebound in corporate profits, although valuations that exceed long-term averages are restraining enthusiasm for significantly higher gains.

Where does China stand?

Highlighting stalled growth momentum in China, the report said, “The long-term structural view is no longer grim. Yet, with valuations no longer supportive, investors await concrete signs of stimulative policy before adding exposure. Household risk appetite is waning, with a shift toward savings over investing. Consequently, allocations have slipped to underweight.”