*Interest rates continue to exhibit fear*

More than a month following the devastating earthquake and tsunami that hit Japan, more and more institutional investment managers are beginning to label the country’s stock options as undervalued, with many seeing upside in the region.

In a new quarterly survey offered by Northern Trust, fund managers indicated a jump in potential from the last quarter. The mid-March study highlighted a 12% rise to 31% for the pool of respondents that felt there was a “more than 10% upside in Japanese equities.”

Additionally, inflation remains at the forefront, as increases are expected to occur in the near future. Results stated that 70% of the managers felt that this was likely within the next six months. Also, about 62% said that they predict ongoing market volatility to increase within the same period.

The Chicago-based financial services company highlighted that responses on “both questions were at their highest points since the…survey began in the third quarter of 2008.” The respondents include fixed-income and equity managers with value and growth styles.

Alternately, as a result of the inflation risk, 26% of the managers said they bumped up their “exposure to commodities during the first quarter” to counteract the harms, the survey stated, while noting that more than 90% agreed that oil prices will increase in the next six months.

Chris Vella, global director of research for Northern Trust Global Advisors (NTGA) pointed out that “global events during the first quarter of 2011 have given our managers a lot to digest in a very short amount of time.”

“With renewed unrest in the Middle East, it makes sense that managers have become increasingly concerned about the impact that a spike in oil prices will have on economic growth,” Vella commented. “Likewise, as general concerns around inflationary pressures persist, we would expect some of our managers to increase their exposure to commodities as a means to hedging out some of that risk.”

In keeping to their positive evaluations for the U.S., more than half of the managers agreed that U.S. equity is undervalued. Corporate earning prospective decreased, however, from 80% in 2010’s fourth quarter to 69% in 2011’s first quarter.

Other findings expressed the fact the more managers are becoming more risk-averse from 20% to 36%. Also, emerging markets potential slightly increased from 39% to 43% in the first quarter.

At the end of last year, NTGA had about $41.2 billion in assets under management for its institutional and personal clients. Its parent company had about $643.6 billion under its advisement umbrella.

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