A net five per cent of those surveyed predicted that the global economy will improve in the coming year, a considerable increase in good faith compared with the July reading which showed 12 per cent of respondents forecasting deterioration in the world economy.

Overall recession fears are fading, although investors are still cautious, with the survey showing 73 per cent of respondents expecting below-trend growth.

A net 78 per cent responded negatively when asked about the likelihood of a "double-dip" recession, polling what European equity strategist Patrick Shöwitz termed “a net rejection of the double-dip theory,” at a press conference.

Views on inflation remain relatively neutral, according to Merrill Lynch, with only one per cent of those polled expecting global inflation to be lower in 12 months, compared to the July survey which showed 12 per cent of respondents to have this view.

Regional attitudes have shifted; investor nervousness about China and Europe has now channelled into fears about Japan, and above all, the US.

With regards to European equity, asset allocators reduced their cash and bond holdings while there was an overall uptick in allocation to equities, with demand for Eurozone stocks rising.

The overall attitude towards Europe is that it is now a safer and cheaper investment although it is becoming a cyclical choice for investors. In recent months, sentiment towards European investments has been soured by worries about the huge debt problems of Greece and some other southern European nations, such as Spain. 

As such, global emerging markets are seen as the default long-term growth story, with 38 per cent of global asset allocators being overweight these equities, up 4 per cent from July.

Sector-specific choices showed that banks, “consistently one of the most unloved sectors”, were improving in popularity, with asset allocators a net 28 per cent underweight in July compared to a net 19 per cent this month. On the other hand popularity for utilities and pharmaceuticals dropped sharply.

A total of 187 fund managers, managing a total of $513 billion, participated in the global survey from 6-12 August 2010.