LONDON (Reuters) - Investors’ mood improved in March as brighter prospects for global growth and scaled back predictions of further monetary easing benefited equities, a closely-watched fund managers’ survey showed on Tuesday.
The monthly poll from Bank of America Merrill Lynch showed a dramatic rise in investor expectations that the global economy will improve, adding to bullish sentiment from last month’s poll.
The survey, which polled 212 participants with combined assets of $636 billion, showed a net 33 percent of fund managers were overweight equities, up from 26 percent last month. The index reading shows the difference between overweight and underweight positions.
A net 6 percent of respondents were overweight cash, dipping from 13 percent last month. Bond allocation fell to 44 percent underweight compared with 37 percent last month.
“If you are an equity bull it’s almost a perfect survey,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.
“Growth expectations are rising and risk appetite is rising but you still have cash on the sidelines. It’s certainly not at an over-exuberant stage.”
“Overall it’s a positive story for risk assets. It’s not just down to liquidity - central banks played a key role but growth metrics are improving.”
Almost half of the poll respondents - 47 percent - do not expect the U.S. Federal Reserve to carry out further asset purchases (QE), up from 36 percent in February.
In Europe, 39 percent predict the European Central Bank will not extend QE, up from 23 percent a month ago.
“We are witnessing a rehabilitation of European growth prospects, boosted by a sharp fall in EU sovereign concerns,” Baker added.
Investors also foresee higher inflation, with a net 13 percent expecting price pressures to rise in the coming year. Last month a net 16 percent predicted inflation would fall.
“The prospect of higher inflation reflects a victory of central banks in the war against deflation,” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research.
“Risk appetite is rising with hedge funds more active, but cash is still on the sidelines to put to work.”
A net 40 percent of investors were overweight global emerging markets, still high but slightly down from 44 percent in February. Japanese equities made up for last month’s sharp fall, jumping from 23 percent underweight to 4 percent this month.
The average cash balance stayed at 4.2 percent, its lowest since July, from 4.4 percent.
Editing by John Stonestreet