Fund managers investing in Asia-Pacific ex-Japan are becoming a lot more pessimistic about the growth outlook, with only 3 per cent expecting the regional economy to strengthen over the next year. This is down from 26 per cent last month and 71 per cent in March, according to Merrill Lynch's latest monthly fund-manager survey. Twenty per cent of those surveyed expected corporate profits to weaken in the year ahead, a sharp turnaround from the previous month, when 21 per cent expected earnings to improve. Investors were looking for just under 8 per cent growth in earnings per share in the next 12 months, according to the report. A similar trend was visible in Merrill's survey of global fund managers. 'It's the first time fund managers have turned negative on profits since April 2001,' said David Bowers, chief global investment strategist at Merrill Lynch. 'There's a veritable collapse in expectations; they are abandoning corporate earnings and focusing on cash.' Even so, the portion of fund managers who consider equities in the Asia-Pacific ex-Japan region to be undervalued rose to 63 per cent from 58 per cent last month. In terms of asset allocation, 14 per cent said they would overweight Hong Kong equities, which was more than for any other market in the region. They would also overweight Malaysia, Singapore and Taiwan but would underweight the Philippines, Australia and China.