GLOBAL - Despite global market turbulence, institutional investors still believe equities offer value, particularly relative to bonds, Merrill Lynch has found.

A poll of 181 fund managers globally in the first week of August - during the height of earlier market instability - suggests "investors have not rushed to reassess the prospects for equities" according to Merrill Lynch.

Despite fund managers having turned more risk averse, a net 11% of global institutional investors still regard equities as undervalued, in contrast to 41% who think bonds are overvalued.

"Investors seem to be viewing this turmoil as a potential buying opportunity for equities," says David Bowers, independent consultant to Merrill Lynch.

He added: "They appear unwilling to turn fundamentally bearish on equities so long as they believe the rest of the world can decouple from a vulnerable US economy."

Roger Noddings, chief investment officer at HSBC Investments, told IPE:  "The weak link is America but equities look pretty cheap in terms of valuation, relative to bonds and cash, they still look cheap."

He is adamant the equities growth cycle is nowhere near being over, as he continued: "It began in 2002 on the bottom of the tech correction but it will last considerably longer than that although perhaps not quite so prolonged as past cycles.

"The UK bonds market doesn't have any attraction in the short-term because of the tightness of the [UK] monetary policy and the shortness of the yield curve," he added.

Merrill Lynch's poll shows there has been a large shift towards global emerging market equities, at the expense of US stocks, with a net 29% of respondents saying emerging markets offered the best corporate profit outlook of all regional sectors, even overtaking the eurozone.

Still, reports today show emerging-market shares and currencies dropped, with South Korea's Kospi index tumbling the most in five years, amid concerns a US housing recession will derail global economic growth dents demand for riskier assets.