Fund managers are more bullish on stocks, but they are also shifting away from Europe towards the U.S. and Japan, according to the BofA Merrill Lynch Survey of Fund Managers for March.

The survey found that investor sentiment towards equities rose from February, with 46% of asset allocators saying they are overweight the asset class, up from 33% the previous month. At the same time, cash positions have fallen, with respondents at a net neutral cash allocation, compared with a 12% underweight in February.

However, this return to stocks isn’t benefiting all markets equally. Asset allocators have retrenched from Europe, the survey found, with 21% of them now underweight European equities, compared with a 2% overweight in January. Instead, 19% of asset allocators are overweight U.S. equities this month, up from just 1% in January.

Japan is also regaining popularity, it notes, as 6% of asset allocators are now overweight Japanese equities, which is the category’s most bullish reading since August 2007, up from a 10% underweight in January.

Global investors also believe that the corporate outlook is better outside of Europe, the survey reports, with 40% of the panel saying the outlook for eurozone corporate profits is the least favourable of all regions.

“Investors’ concerns about Greece are easing, but European country risk remains a key constraint to optimism over economic recovery,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Research.

“Investors are more willing to embrace corporate risk, via equities, than sovereign risk,” added Michael Hartnett, chief global equities strategist at BofA Merrill Lynch Research.

Against a backdrop of concerns over public sector deficits, investors are showing greater bearishness about the macroeconomic outlook, but greater bullishness about companies, the survey observes. Additionally, inflation expectations have fallen, and investors are seeing rate hikes as less likely. European investors have sharply scaled back their expectations of a rate hike by the European Central Bank before October, with 85% of them now ruling out a hike before the fourth quarter, up from only 45% in February.

The global panel is also less concerned about changes in monetary policy threatening macroeconomic stability. Less than half of respondents now describe monetary policy as an “above normal” risk, compared with 55% in February.

The latest survey of 207 fund managers, who manage a total of US$589 billion, was conducted from March 5 to 11.

IE