Investor confidence slipped from 123 index points in December to 117 points last month, the JP Morgan Investor Confidence Index, based on a quarterly survey in Hong Kong, shows.
"The level of optimism seen last year has not been maintained, with some momentum lost," said Henry Tong, vice-president of intermediary business at JP Morgan Asset Management.
"However, the indices are still relatively high in comparison to recent trends, and confidence still exists overall."
Concern about the property bubble remains, with 63 per cent of the investors seeing this as the biggest risk this year. There is also concern about the Hong Kong stock market undergoing a correction, with 61 per cent of investors worried about the sustainability of recent gains.
Tong said that despite their bearish outlook on the local market, investors' major concerns were mainly on the global level, where confidence was lower.
The report said the European crisis had led to 74 per cent of investors seeing it as the market with the highest risk. Its debt crisis had affected the strategies of 38 per cent of investors, and the prospect of a looming currency war had influenced the plans of 41 per cent of investors.
"Confidence is likely to remain relatively low in the near-term, at least until investors are convinced that a full-scale crisis has been averted, which firstly means agreeing on debt repayment structures in the affected peripheral European markets," said Tai Hui, chief market strategist, Asia, for JP Morgan Funds.
On the positive side, mainland China is seen as the market with the highest potential by 80 per cent of Hong Kong investors, followed by Japan at 64 per cent.
In Bank of America Merrill Lynch's survey of 200 international fund managers, by contrast, Japan is expected to surpass China in attractiveness, as respondents expressed confidence in Japan's new expansionary policy.
The survey found that a net 13 per cent of regional investors now expect China's economy to strengthen in the next 12 months, down from a net 71 per cent as recently as January.