Fund managers around the world cut their cash piles in August to the lowest rate for about two years and pumped money into the equity market as their optimism about the economic outlook improved, according to the monthly survey of fund managers carried out by Merrill Lynch.

As of August, a net 75 per cent of survey respondents believe the world economy will strengthen over the coming year - a 12 per cent increase on July’s net figure. This is reflected by how average cash balances fell to 3.5 per cent of all holdings from 4.7 per cent in July.

The global survey covers 204 fund managers, managing a combined $554 billion, and was conducted from 7-12 August. A total of 177 managers, with a total of $370 billion assets under management, participated in the regional survey. Both surveys were conducted by Banc of America Securities-Merrill Lynch Research in conjunction with market research company TNS.

“Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March,” said Michael Hartnett, chief global equities strategist at Banc of America Securities-Merrill Lynch Research.

However, fund managers do still have misgivings about the turnaround. “With four out of five investors predicting below trend growth for the year ahead, a nagging lack of conviction about the durability of the recovery remains. The equity rally has been narrowly led by China and tech stocks. We have yet to see investors fully embrace cyclical regions such as Japan or Europe or Western bank stocks," added Mr Hartnett.

Despite its historic susceptibility to speculation, technology has been a popular stock with 28 per cent of those surveyed investing in the industry.

Fund managers became less gloomy about the banking sector, with only 10 per cent of investors bearish on bank stocks, compared to 20 per cent in July. Confidence is also rising among investors within emerging markets with 17 per cent of respondents overweight on bank stocks.

Finally, since hitting rock bottom in 2008, appetitive for risk has revived. While still nowhere near its 2003 peak, risk appetite is now at levels not seen since 2007 and has exceeded the seven-year average.