GLOBAL- An increasing number of investment managers believe the best earnings are expected to come from European and UK markets while the profit outlook for global emerging markets remain the most attractive according to the latest Merrill Lynch fund manager survey.

The survey suggests managers are favouring these regions and, in particular, pouring funds into emerging markets. Of the 282 fund managers surveyed, a third said the US now has the least favourable outlook for corporate profits- the worst balance for any region, including Japan.

Just over a quarter now believe the US market has the worst quality of earnings in terms of volatility, predictability and transparency- second only to Japan.

US equities have been knocked by a series of recent corporate scandals and the report says they remain overvalued. Over half those interviewed wanted to underweight US equities over the next year, in March the corresponding figure was 29%.

Chief investment strategist David Bowers said that although many investors are more positive on the prospects for Japan, it remains a region they are unwilling to commit to.

Overall, however, fund managers say stock market conditions have taken a turn for the better. A rise from 9.2 in May to 12.3 in June of the survey’s stock market conditions indicator reflects institutional investors’ optimism.

“The surpise this month is that earnings expectations have held up so well, despite all the talk of a double dip. Stronger earnings combined with a weaker market may be causing fund managers to see value in equities again,” he says.