Asian-based fund managers believe regional equities may be overvalued after their recent gains but most say that further rises can be expected as liquidity flows back into the region. According to the latest monthly Merrill Lynch-Gallup survey of Asian fund managers, 55 per cent of those polled said Asian-Pacific markets might head higher in the months ahead. In the poll of 22 managers, responsible for US$273 billion of funds, about 41 per cent said they expected a stronger regional economy in the coming year, significantly higher than the 14 per cent who expressed such a view in September. In August, not one fund manager thought conditions would improve. In a bid to exploit the expected liquidity-driven rally, fund managers said their cash positions - which in the average fund have already been cut to 12 per cent from September's record 21 per cent - would be cut even further. The survey also showed that fund managers expected that the recent relative weakness of the US dollar to continue, easing pressure on the Hong Kong dollar peg. In contrast to the significant pessimism fund managers expressed about the durability of the peg earlier this year, few now expect the Hong Kong dollar to be devalued before 2000. Only 39 per cent believe the Hong Kong economy will be improved if the Government floats the currency. About 16 per cent believe the Hong Kong dollar will float next year, but 68 per cent believe it will float in 2000 or later. The survey revealed that fund managers this month were turning bullish on Hong Kong, with 5 per cent more bulls than bears, compared to last month when the survey found 18 per cent more bears than bulls. Singapore, Taiwan and Thailand have also now become favoured markets, although bearishness has intensified on Malaysia, where bears now outnumber bulls by 77 per cent.