Global fund managers are turning bearish about the outlook for stock markets, with 50 percent of them taking an "underweight" view towards equities in the fourth quarter, up from 25 percent previously and reflecting weaker investor sentiment on the lingering European debt crisis, according to HSBC's latest survey of leading fund management houses worldwide.

The HSBC survey released on Wednesday pointed out global fund managers are overwhelmingly cautious towards the investment market in the fourth quarter as they are looking to allocate managed assets from equities to bonds and cash in the midst of continued market volatility.

In the survey, 44 percent of the respondents (compared with 0 percent in the third quarter) are holding an overweight view on cash and 22 percent of the respondents are bullish on bonds (again, compared with 0 percent in the third quarter). Regarding risky assets, about 50 percent of fund managers said that they hold an underweight stance on global equities, up 25 percentage points from the third quarter of this year.

The HSBC survey analyzed 13 of the world's major fund management houses in October and November 2011 to gauge the changes on funds under management (FUM), asset allocation views and global money flows.

"The survey result shows that global fund managers are of the view that they will allocate assets to safe havens and adopt a more cautious view on risky assets as investors wait for things to turn in 2012," HSBC's Group Head of Wealth Management Simon Williams told a press conference.

"Given the volatile investment environment in the days ahead, investors are advised to be cautious and play safe by building a diversified investment portfolio based on investments in equities, bonds, hedge funds and gold," Harris Fraser Investment Research Director Andy Lam told China Daily.

However, another local asset management strategist begged to differ, saying that global economic prospects for 2012 are not as bad as has been forecast.

"The European debt crisis should not spill over into a systemic financial crisis and US economic recovery should continue to be gradual, so the prospects of global economic growth in 2012 should be better," said Banyan Asset Management Chief Investment Officer Norman Chan. "We advise that investors should make more equity investment now to capture future capital growth potential given the current low stock market valuation after the global equity market sell-off in August and September."

Regarding specific asset class allocation, the HSBC survey showed that about 63 percent of interviewed fund managers are taking a bullish position on Asian bonds. Another 78 percent of the respondents are bullish about global emerging market sovereign bonds/high yield bonds. North America and Greater China continued to be the favorable regions for fund managers to make stock picks.

"As inflation on the mainland is receding from its previous peak level and monetary policies are showing signs of relaxation, Greater China equities are considered outperformers," Harris Fraser's Lam told China Daily. "With particular reference to the local stock market, the current Hang Seng Index valuation is as low as 10 times price-to-earnings ratio, so this attractive valuation should lend support for the HSI to bounce back to the 24,000 to 25,000 level."

oswald@chinadailyhk.com