The survey showed that, supported by positive expectations on corporate profits, portfolio managers are backing their optimism with action by putting their money to work. Average cash holdings have fallen to 4.3 per cent from 4.9 per cent in April.

Equities were popular, especially cyclical sectors that are expected to perform best in a recovery. Investors have moved to a net underweight position in bonds for the first time since last August. Many are rushing to emerging markets, as investor optimism on China’s economy is higher than at any point in the past six years.

“Investors are finally opening their wallets and reducing cash balances to mid-cycle levels to buy equities, cyclical stocks and risky assets,” said Michael Hartnett, Banc of America Securities-Merrill Lynch co-head of international investment strategy.

“However, this rush to take on risk, especially in emerging markets, is reminiscent of bubble-like behavior. A record net 40 per cent of fund managers are looking to overweight the region in the next 12 months,” Mr Hartnett added.

“Having addressed their most urgent priority by returning to financial stocks, this month investors have added exposure to cyclical, real economy stocks and further purged defensive overweight positions,” said Gary Baker, Banc of America Securities-Merrill Lynch co-head of international investment strategy.

Sentiment towards the global economy has completed a sharp turnaround from October 2008, when a net 60 per cent of investors forecasted a worsening outlook. In May’s survey, a net 57 per cent say the economy will improve over the next 12 months, up from 26 per cent in April.

Nowhere has the reversal in economic outlook been more pronounced than in Europe. A net 35 per cent of respondents to the Regional Fund Manager Survey expect Europe’s economy to improve in the coming year. That’s in sharp contrast to April when a net 26 per cent forecasted further deterioration.

Investors have suddenly become positive about corporate profits with a net 18 per cent of those surveyed believing the outlook for global profits will improve in the next 12 months. This represents a big swing from April when a net 12 per cent were negative about profits.

The heightened appetite for equities is concentrated on emerging markets. A net 46 per cent of investors are overweight emerging market stocks, up from a net 26 per cent in April. Bullishness about China’s economy has reached its highest level since the survey began tracking China in 2003. A net 61 per cent of respondents see its economy improving – in November a net 87 per cent of the panel expected the Chinese economy to weaken.

A shift out of defensive investments towards cyclical stocks is ongoing. For the first time since early 2005, panelists are underweight in their favourite recessionary sector, pharmaceuticals, compared with a net 21 per cent overweight in April. Investors have also reduced holdings in staples, telecoms and utilities in favour of energy, materials and industrials. They have continued to increase allocations to banks, reducing the net underweight position to the sector’s lowest since June 2007.

But asset allocators have yet to fully embrace equities. A net 6 per cent of asset allocators remain underweight on equities globally, with significant underweights in Japan, the eurozone and the UK. “The recharged optimism of fund managers is not fully matched by asset allocators. One upside risk for markets is more asset allocation out of cash and bonds into equities,” said Mr Hartnett.