Investors are growing in confidence amid “radically improved” market conditions, notably within emerging markets and in terms of eurozone optimism, according to the Bank of America Merrill Lynch Survey of Fund Managers for February.

The survey revealed that 26 per cent of asset allocators are overweight equities, up from a net 12 per cent last month, resulting in allocations towards equities making the largest one-month leap since the beginning of 2011.

These results add evidence to comments from wealth management strategists and investment chiefs, such as at UBS, suggesting that firms are taking a more positive approach to equities, such as on the US market.

The report also notes that while there is an increased appetite for cyclical stocks - including the industrials and materials sectors - allocations have fallen towards defensive stocks such as within pharmaceuticals and telecommunications.

However, with regards to cash levels, a net 13 per cent of asset allocators are overweight this month, less than half January’s net 27 per cent.

Overall, whereas in December last year a net 27 per cent of respondents projected a "worsening economy" for the following 12 months, this figure has declined to a net 11 per cent. 

“Improved liquidity has aided this rally, but it’s important to emphasise that it also reflects improving economic sentiment,” Michael Hartnett, chief global equity strategist at BoA global research, said in the report.

For example, Gary Baker, head of European equities strategy, explains that "hard economic data" must continue to improve in order to sustain a recovery. "The strongest indication of risk appetite is investors’ definitive move into cyclicals from defensive stocks and the closing of underweight positions in banks, especially in Europe," he said. 

Positive repercussions on emerging markets

In light of heightened risk appetite, a net 44 per cent of investors are overweight emerging market equities this month, up from a net 20 per cent in January.

The results also indicate a greater demand for commodities, as a net 10 per cent of global asset allocators are currently overweight the asset class, a figure which stood at a net 5 per cent according to last month's survey.

In addition, the survey found that a majority of 86 per cent of fund managers believe that the Chinese economy is heading for "a soft rather than hard landing". As a result, just 2 per cent of investors in Asia and emerging markets now forecast China’s economy to weaken within the next year, which is a considerable improvement from January's 23 per cent.

Overall, 36 per cent of the global panel said they would like to overweight emerging markets "more than any other region," the report says. “Not only is this an increase on January’s reading, but investors have expressed that they would like to underweight all other regions, including the US."

European investors return “in numbers to bank stocks”

This month, the number of investors who said that the eurozone is the region they would most like to underweight has decreased by 24 percentage points to 5 per cent.

More specifically, autos are at their most popular level recorded by the survey, with 20 per cent of investors overweight the sector, up 18 percentage points month-on-month. 

The survey also demonstrates that investors have reduced underweight positions in financial services and have taken overweight positions in industrials and basic resources.

The fact that 12 per cent of European investors are now underweight banks is also a positive swing of 38 percentage points from a month ago when the survey logged 50 per cent as being underweight in this sector.

Overall, BoA’s Growth Composite Indicator for the eurozone is at its highest this month since July 2011, according to the report.

Investors still dubious about Japan

Meanwhile, despite a boost in sentiment among Japanese fund managers, the report suggests that, on a global scale, investors "have yet to make a concerted move back to Japanese equities".

A total of 81 per cent of Japanese respondents project the country’s economy to strengthen in the coming year, a figure which is up from 47 per cent last month. 

Globally, however, 23 per cent of asset allocators retain an underweight position in Japan. This represents a small reduction of 5 percentage points from January, and is, moreover, a higher percentage than was recorded by the survey in December.