GLOBAL - Signs of a Goldilocks scenario were promised today for Europe by a monthly survey of fund managers, despite a third of respondents stating they remained underweight the eurozone for the second consecutive month.

According to the April edition of the Bank of America Merrill Lynch Fund Manager Survey, investors are slowly regaining their confidence following Greece's recent debt problems.

They are now expecting a 'Goldilocks scenario' of low interest rates, stable profit growth, enough liquidity and a controllable inflation rate, in part because 57% of those questioned do not believe there will be an increase in the European Central Bank's (ECB) base rate until the first quarter of 2011.

That said, the eurozone was still not a welcome addition in many portfolios despite the positive picture painted.

"Global investors still hate Europe," said Patrick Schöwitz, European equity strategist at Bank of America Merrill Lynch.

He reasoned that the dislike for Europe was still because of concerns about Greece's debt levels. Instead, many global investors are now choosing to invest in Japan as they expect the yen to weaken further, and a net 22% cited the country as the cheapest region worldwide.

Eurozone equities were not treated with as much distrust from inside Europe, as 28% of respondents argued they were undervalued; continuing last month's trend and leading to the survey's second-highest "undervalue" rating in over a year. (See earlier IPE story: Three in 10 fund managers see European equities as undervalued)

"The second positive for Europe," said Schöwitz, "is that cash levels here are not nearly as low as at the global level, they are just slightly below average and they actually went up a little bit on the month."

While the survey saw a net 13% of fund managers state they were overweight cash, the global picture in fact saw 4% of respondents admit they were underweight.

Real estate and banks remained in the three least favorite investment sectors, joined by utilities, which found itself in one of the bottom spots globally. The banking sector is thought to be finally regaining favour and as just 34% of fund managers said they are now underweight banks compared with 53% in February.

"The biggest loser, interestingly this month, is the oil sector, which saw the biggest outflow", said Schöwitz.

Yet overall there was no consensus on where to invest, he noted.

"There are only really three sectors that have any convincing overweights," said Schöwitz, citing industrial goods and services, followed by the healthcare industry and the insurance market at a distant third in Europe.

"We still see a lack of conviction in where to place overweights. That's really been the story for the last few months and it does continue," he concluded.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email