The latest fund manager survey from Merrill Lynch finds investors increasingly optimistic, and shifting into equities from cash as a result.

The survey released Wednesday reports that investors’ risk appetite has reached its highest point in more than three years, “amid continued optimism about the prospects for a global economic recovery and rising corporate profits”. Indeed, investors are increasingly confident that the threat of a double-dip recession is waning, the survey notes, reporting that 65% of respondents believe a global recession is unlikely in the next 12 months, up from 47% a month earlier. And, 72% believe the outlook for corporate profits will improve in the next year, up from 68% the previous month.

The survey also shows asset allocators shifting out of cash and into equities as risk appetites grow. Their cash positions are at their lowest level since January 2004, it reports, and 38% are overweight equities, up from 27% in September. Technology, energy, materials and industrials are the favoured sectors, with investors still shying away from financial stocks.

“Equities remain in a sweet spot: fears of a double-dip have receded, while worries about inflation and monetary tightening are not imminent enough to prevent an October surge in risk appetite,” says Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.

The survey also finds that asset allocators increasingly expect that global corporate profits will post double digit growth, as 39 % think profits will rise by at least 10% in the next 12 months, up from just 25% in September.

Optimism about Europe is also evident in the October survey, the firm says. “Europe is emerging phoenix-like from the ashes as confidence in its banks boosts overall confidence in European equities,” said Gary Baker, head of European equity strategy at BofA Merrill Lynch Global Research.

Confidence in the prospects for the Chinese economy and emerging markets in general remains robust, the firm adds, with 49% believing China’s economy will strengthen in the next 12 months, up from 35% in September. And 36% saying that they would most like to overweight emerging markets in the next year.

Continuing weakness in the U.S. dollar has resulted in a growing number of respondents who believe the dollar is undervalued, it says. “Confidence in Chinese growth has rebounded but worries over a U.S. dollar crisis are on the rise. The dollar is seen as undervalued and the yen as very overvalued, suggesting that central bank intervention in currency markets in coming months could soon prove successful,” said Hartnett.

A total of 229 fund managers, managing a total of US$616 billion, participated in the global survey from October 2 to 8.

IE