Virtually all regional fund managers consider Asian stocks undervalued yet they have actually been raising their cash holdings, according to the latest monthly survey by Merrill Lynch. A record 91 per cent of fund managers in the survey said they thought Asian stocks were cheap, up from 82 per cent last month and 76 per cent in December. Earnings expectations are also rising. A net 76 per cent expect higher profits in the next year, forecasting an average growth of 11.4 per cent. However, 29 per cent said they were overweight on cash, with the average cash position rising to 4.7 per cent of a portfolio. The SAR slipped from last month's poll to become the third most disliked market in Asia. Nearly 10 per cent of fund managers said they disliked Hong Kong, against a positive reading last month. Thailand, China and South Korea remain the three most favoured markets in the region. The results of the regional survey were echoed in global survey. It found that fund managers saw equities as undervalued but were staying on the defensive as a potential war in Iraq was looming. A net 34 per cent of fund managers said they were running lower risk investment strategy. That was 'the highest balance that we have recorded since asking the question and a higher level of risk aversion than that recorded in the immediate aftermath of September 11', said Merrill Lynch global strategist David Bowers. 'If that aversion were to lift for whatever reason, some conditions are in place for a tactical bounce in world equities,' he said. Mean cash balances among managers surveyed globally rose to 4.9 per cent from 4.2 last month, with 15 per cent holding more than 12 per cent of their portfolio in cash.