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Fund managers' investment views on a quarterly basis reveal improving sentiment towards equities in the second quarter on the back of Asia's fundamental strengths, according to a recent HSBC survey.

When asked about their global asset-allocation strategy for the period, fund managers moved from underweight to neutral on equities and swayed from overweight to neutral on cash.

Twelve fund companies were respondents in the HSBC survey.

The survey found that only 10 per cent of respondents held an underweight view on equities, compared to 38 per cent in the previous quarter. Sixty per cent of managers polled took a neutral view on equities, against 38 per cent in the first quarter.

Fewer managers held overweight views towards cash. In the first quarter, 63 per cent of respondents said they held an overweight view on cash compared to only 30 per cent in the second quarter.

The majority of fund managers were more positive on Greater China equities, with the proportion of those holding an overweight view rising from 75 per cent in the first quarter to 86 per cent in the second.

More than half - 56 per cent versus 100 per cent in the first quarter - maintained their overweight view on Asia-Pacific ex-Japan equities, while 44 per cent of the respondents shifted from an overweight to a neutral view.

A slightly bearish view on emerging markets was reported with 20 per cent of respondents going underweight, versus zero in the first quarter.

Fund managers were generally less optimistic towards the US, Japanese and European markets, reflecting their concerns about

the spillover of the current credit crunch into other areas of the economies.

Bruno Lee, HSBC's head of wealth management for personal financial services, said the gradual shift in views favouring equities reflected a positive long-term take on Asian fundamentals.

"While, in the near term, inflation, slowing global growth and weak sentiment will impose pressure on equity markets, it is believed that the region will remain relatively strong on the back of robust domestic demand and continuing wage growth. The story for mainland China is similar - in the very near term, sentiment is likely to be driven by concerns over the government's response to inflation, but fundamentals for the mainland remain sound," he said.

Similar to last quarter, fund managers' views on bond markets were mixed with no conclusive allocation strategy. European bonds were still the most popular with 40 per cent of the sample holding an overweight view.

Notably, the percentage of fund managers with an underweight view towards US dollar bonds increased from 25 per cent to 50 per cent, suggesting that the market expects no further rate cuts by the Fed.

The HSBC survey also tracks global fund flows on a quarterly basis.

At the end of the first quarter, the 12 fund houses' aggregated funds under management stood at US$4.8 trillion (Bt160 trillion), representing about 18 per cent of the global figure of $26.2 trillion at the end of last year.

During the first quarter of this year, fund outflow was at $124 billion, a decrease of 2.52 per cent, over the previous quarter. This was mainly driven by a $273-billion outflow from equity funds, cushioned by slight inflows into bond, money and other funds.

In the first quarter, equities outflows were highest in Europe including UK equities, at minus 9.5 per cent versus 0.4 per cent in the fourth quarter last year.

On the contrary, North American equities recorded an inflow of 1.5 per cent, versus minus 2 per cent, while Asia-Pacific ex-Japan equities drew 6.3 per cent, versus 14.3 per cent, and emerging markets equities attracted 4.9 per cent, versus minus 7.2 per cent, of inflows.