Institutional investors are becoming increasingly bullish about the prospects for global growth, according to the latest BofA Merrill Lynch Survey of Fund Managers.

The March survey reports that a net 28% of investors expect the world economy to strengthen in the coming 12 months – a large increase from a net 11% in February. And, as recently as January, a majority of respondents were predicting that the economy would weaken. Confidence in Europe has also risen, it notes.

Along with increased optimism on the economy, investors are also more bullish about corporate profits, with a net 6% expecting that corporate profits will improve in the coming year. Last month, 11% predicted profits would decline.

Fewer investors expect further rounds of quantitative easing by the U.S. Federal Reserve Board, it says. Now, nearly half of the panel expects no further QE in the U.S., up from 36% in February, and 39% predict the European Central Bank will not extend QE either, up from 23% a month ago. However, investors do foresee higher inflation, with a net 13% expecting it to rise in the coming year.

“The prospect of higher inflation reflects a victory of central banks in the war against deflation. Risk appetite is rising with hedge funds more active, but cash is still on the sidelines to put to work,” said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.

The survey reports that those naming EU sovereign debt as their number one ‘tail risk’ declined sharply to 38% this month from 59% in February. Investors within the eurozone are both more bullish about growth and far less worried about corporate profits, it adds.

With growth prospects rising in Europe, the U.S. and Japan, some investors are turning bearish on emerging markets, and concerns about China’s growth prospects have increased, it says. Now, a net 9% of respondents say China’s economy will weaken in the next year, up from a net 2% in February. And, sentiment within Asia Pacific (excluding Japan) has also dampened, it reports.

By sector, investors are increasingly bullish on banks and financial services companies. The survey found the proportion of global asset allocators that are underweight banks has fallen 11 percentage points month-on-month to a net 14%. U.S. investors are now collectively neutral on banks with a net 0% position this month. Two months ago, a net 16% were underweight banks. In Europe, the net underweight position in banks has shrunk to 7% from 50% in January.

The tech sector remains the top sector globally, and it has also enjoyed a surge in popularity among Europeans, it notes.

The survey is based on responses from a total of 278 panelists with US$796 billion of assets under management, and it took place from March 9 to 15.