Confidence in global economy is on the rise, BofA Merrill Lynch ‘s Fund Manager survey finds

Confidence in a strong global economic outlook is consolidating, while investors have indicated that they see support from current equity valuations after the recent rally, according to the Fund Manager survey conducted by BofA Merrill Lynch in February on 251 panelists with $691bn of assets under management

A net 59% of investors believe the global economy will strengthen in the year ahead which marked four consecutive months of rising sentiment.

The outlook for profits has improved with a net 39% of the panel saying that profits worldwide will improve in the coming 12 months, up from a net 29% in January.

Investors said they continue to perceive value in equities in light of strong market performances of early 2013. A net 13% of global investors still say that equities are under-valued.

At the same time, a net 82% say bonds are overvalued, the second-highest level recorded by the survey with the highest coming at the peak of the European sovereign bond crisis in 2012.

Risk appetite has also remained steady month-on-month. Average cash balances in portfolios remain at 3.8%, though the net percentage of investors overweight cash has fallen to 2 percent this month from 8% in January, the lowest reading since February 2011.

“The continued high level of optimism is a concern and markets may be vulnerable to bad news, but valuation support suggests any correction should be short and shallow, and our core ‘Great Rotation’ theme remains in play,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

John Bilton, European investment strategist added: “Investors are striking a balance between the optimism over growth and caution over investment decisions. Investors have so far resisted taking an exuberant stance.”

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