Asian fund managers are showing renewed confidence in Chinese equities while maintaining Japan as their top market preference, according to a Bank of America (BofA) survey.

BofA analysts said that optimism toward China has surged to its highest level in years, with a record number of investors no longer viewing the market as structurally bearish.

This shift comes as expectations rise for increased household spending and investment rather than cash hoarding, analysts said in a note.

Meanwhile, Japan remains the most favored market, although enthusiasm has moderated. A net 59% of participants expect a stronger Japanese economy in the next 12 months, down from 73% last month, according to BofA.

Investors continue to focus on the Bank of Japan’s policy moves, foreign exchange fluctuations, and corporate reforms, BofA analysts stated.

"Japan is the most favored market, while China leapfrogged to occupy the second position. Thailand continues to be the least preferred market, with India, Indonesia, and Korea trailing closely behind," analysts wrote.

The survey also highlighted a shift in sector preferences, with fund managers overweight in software, telecom, banks, and tech hardware, while reducing exposure to real estate, materials, and utilities.

Support for semiconductors has waned, with a net 13% of investors expecting the cycle to weaken—the lowest reading since October 2022, BofA said.

BofA surveyed 205 fund managers overseeing $477 billion in assets between March 7-13.