Asia Fund Managers Brace for Economic Slowdown Amid Tariff Concerns

Investor sentiment across Asia has taken a significant downturn, as fund managers express growing concerns over economic growth due to tariff shocks. According to the latest Bank of America (BofA) Asia Fund Manager Survey, expectations for both regional and global markets have soured, marking a stark shift in outlook since the previous month.

Key Takeaways

• Pessimism Reigns: 89% of fund managers expect weaker economic growth in Asia.

• Global Slowdown Anticipated: 82% foresee a broader slowdown affecting global markets.

• Profit Expectations Plummet: 78% predict a worsening profit cycle in Asia.

• Negative Return Expectations: For the first time since October 2022, return expectations have turned negative.

• China's Economic Outlook Deteriorates: 58% expect a weakening economy in China over the next year.

Economic Sentiment Deteriorates

The survey, conducted from April 4 to 10, reveals a stark decline in economic optimism among fund managers. This marks the second consecutive month of declining expectations, with the current sentiment being the most pessimistic since the onset of the COVID-19 pandemic.

A staggering 89% of respondents anticipate weaker economic growth in Asia, while 82% expect a slowdown on a global scale. This shift in sentiment is largely attributed to the ongoing tariff shocks that have raised concerns about trade and economic stability.

Profit Expectations Collapse

Profit forecasts have also taken a hit, with 78% of fund managers predicting a downturn in the Asian profit cycle. Many believe that current consensus earnings estimates are overly optimistic, leading to a lack of confidence in future profitability.

As a result, return expectations have turned negative for the first time since October 2022, with analysts noting that there is no perceived valuation support in the current market environment.

China and Japan: A Shift in Focus

Investor sentiment regarding China has reversed sharply after a brief period of recovery. Currently, 58% of survey respondents expect the Chinese economy to weaken over the next 12 months, despite anticipated monetary easing measures. This reflects a broader trend of structural bearishness, as households remain focused on capital preservation.

Japan is also experiencing a decline in sentiment, with 26% of respondents expecting economic weakening. Optimism regarding market direction and return expectations have reached record lows, prompting investors to closely monitor foreign exchange trends, Bank of Japan policies, and corporate reform signals.

Market Preferences and Sector Allocations

Despite the overall bearish sentiment, Japan remains the most favored market among fund managers, followed by India, which has regained its second-place position after six months. Conversely, China and Thailand are now viewed as the least preferred markets.

Sector allocations indicate a strong preference for defensive stocks in Asia, excluding Japan. Key sectors include:

• Consumer Staples

• Utilities

In the semiconductor sector, sentiment has plummeted, with 59% of fund managers predicting a downturn. In Japan, banks and utilities are the top preferences, while in India, infrastructure and consumption themes remain prominent.

Conclusion

The findings from the BofA survey underscore a significant shift in investor sentiment across Asia, driven by concerns over tariff impacts and economic growth. As fund managers brace for a potential slowdown, the focus will likely remain on defensive sectors and markets perceived as more stable. The evolving economic landscape will require careful navigation as uncertainties continue to loom.

Sources

• Asia fund managers turn bearish as tariff shocks hit growth expectations, Investing.com.