GLOBAL - European equity markets are currently seen as "cheap", according to a new survey polling over 200 investors globally.

When questioned by Bank of America Merrill Lynch for their March Fund Manager Survey, almost 30% of respondents said European equity was undervalued - the first time in a year that so many viewed Europe as such.

"At the global level, the global investors do see Europe as now looking cheap, but it's nothing exceptional," said Gary Baker, the institution's head of European equity strategy, adding that Europe was now on equal footing with Japan and that even the supposed value of European shares was "probably not enough to compensate for the uncertainty" created by the sovereign risk situations in Europe, such as Greece's debt problems.

Baker hasted to mention, however, that this risk was not deterring European investors.

"For once, they are voting with their cash on this one. Cash overweights in Europe fell quite sharply from 26% overweight in February down to just 9% overweight in March as they acted on that belief that Europe is cheap."

Despite this confidence, investors are still unsure where to deposit their money, the survey suggests. While the research indicates there is overall consensus on which European sectors to consider underweight, such as real estate and banks with over 50% and 40% respectively, the sectors considered to be overweight are oil and gas, albeit fewer than 20% of respondents agreed so.

The survey also revealed that 21% of asset allocators were underweight in the eurozone, a significant drop in trust since the end of 2009, where 13% were still overweight.

At the same time, a third of respondents expect the euro to be the currency to decline in value over the course of 2010, when given the choice between the US dollar, yen and the European currency. Similarly, only 45% of those surveyed now expect the eurozone economy to strengthen this year, down from last month's low and significantly down from January's more confident assessment, where almost three-quarters believed in eurozone growth. See earlier IPE story: Fund mangers waver over 2010 growth)

At least 15% of respondents are holding their ground with general consensus and do not expect the European Central Bank to increase its interest rates until Q4 at the earliest while a further 50% do not expect any increase at all until 2011.

Inflation is also becoming less of a concern as the year progresses, as only 34% of the 207 March panelists said they expect to see a rise in core inflation - down 10% over February and down from 61% at the beginning of the year.

"I think, certainly, there's probably more concern on inflation in some of the developing markets, but that is not the message that is coming out of this survey," argued Baker.

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