Fund managers have become less optimistic about the Hong Kong equity market over the past month, but their appetite for holding China stocks is increasing, according to Merrill Lynch's latest survey. Among fund managers focusing on the Asia Pacific, excluding Japan, the portion who would overweight Hong Kong in the coming 12 months has dropped to a net 6 per cent from 10 per cent last month and 25 per cent in July. The portion who would overweight China equities is the same at a net 6 per cent, although this is on a rising trend. Last month, a net 1 per cent said they would underweight China while in July, such bearish views were held by a net 13 per cent of respondents. The survey was sent out on October 7 and came on the heels of a near 600-point drop in the Hang Seng Index over the previous four days. Like last month, fund managers are the most positive on South Korea, with a net 14 per cent saying they would overweight that market, down from 23 per cent last month. There has also been a strong shift in sentiment towards Taiwan with a net 11 per cent looking to overweight the island, compared with a net 6 per cent saying they would underweight it a month ago. Not surprisingly, this coincides with a more positive attitude towards technology stocks. According to the latest survey, a net 20 per cent are now overweight technology compared with 5 per cent being underweight the sector a month earlier. The survey also showed a net 10 per cent of fund managers expect corporate earnings in the region to deteriorate in the next 12 months.