It looks like we are nowhere near seeing the last of the bond funds that are being dangled by fund management companies to investors who are still a little shell-shocked by the global financial crisis. While the debate about whether equities have bottomed rages on, the conviction towards bonds remains strong.

Global fund managers surveyed by HSBC are decidedly bullish over bonds and bearish about equities. Around 70% of the respondents are overweight bonds within a global portfolio, while 40% are underweight equities and 25% are overweight cash. More fund managers have turned overweight bonds across all geographic sectors, especially for US dollar bonds and global emerging market bonds.

The 12 fund houses surveyed by HSBC are among its partners in fund distribution. Their combined assets under management (AUM) totalled $2.4 trillion as of the end of the first quarter 2009. That makes up 2.8% of the estimated AUM of the global fund management industry. While HSBC's survey takes into consideration sentiment for the current quarter, it used previous quarter data from the respondents for its fund flow analysis.

This quarter's respondents are AllianceBernstein, Allianz Global Investors, Baring Asset Management, BlackRock, Fidelity Investment Management, Franklin Templeton Investments, Invesco Asset Management, Investec Asset Management, JP Morgan Asset Management, Prudential Asset Management, Schroders Investment Management and Société Générale.

Within the equities asset class, the fund managers surveyed by HSBC are overwhelmingly bullish over Greater China equities, despite the general cautionary warning about what are considered to be overstretched valuations in that market. Around 75% of the fund managers are positive about Greater China equities, up from 67% in the first quarter of this year.

The biggest deterioration in sentiment involves European and Japanese equities, where respondents became more underweight. They increased their underweight to 36% from 22% in the first quarter in European equities and to 70% from 33% in Japanese equities.

"Despite strong equity rallies at the end of the first quarter, the global economic outlook remains uncertain and markets will continue to be volatile," says Bruno Lee, HSBC's head of liabilities business and wealth management for personal financial services in Hong Kong. "Fund managers are therefore more cautious and discriminating in their equity allocations to ensure they capture value and growth opportunities while staying focused on the relatively less volatile bonds sector, for quality and stability."

Greater China remains the most favoured equities sector among the respondents, Lee notes, because recent economic indicators point to signs that the effects of the stimulus measures are starting to filter throughto the local economy.

The HSBC survey analysed the fund houses by their assets under management (AUM), asset allocation views and their global money flows. The net money flow estimates are derived from movements in AUM versus index movements in the equivalent class.