The attitude of fund managers toward the global economy and risk assets has improved fairly dramatically in just the past several weeks, according to findings of the Bank of America Merrill Lynch survey.
The firm's monthly fund manager survey, which measured the views of 254 global fund managers, found that 49 percent now expect government bonds to be sold to purchase higher-beta stocks, a jump of 12 percent from December.
The survey also saw asset allocators assigning the most funds to stocks since February, 2011, and they cut cash holdings to 3.8 percent form 4.2 percent in December. The firm said investors' appetite for risk in their portfolios is now at a nine-year high. While BofA does not see this shift yet representing a contrarian sell signal, it also noted that an increasing number of the fund managers see stocks as undervalued, particularly in Europe. (Read More: First Shots Fired in Global 'Currency War' )
"Following the resolution of the U.S. fiscal cliff, sentiment has surged. Half of investors now tell us that they would sell government bonds to buy higher–beta stocks, which his consistent with increasing growth and inflation expectations and with our call for a 'Great Rotation' to start in 2013," said chief investment strategist Michael Hartnett, in a news release.
The surveyed group also became much more confident about the global economy in just a month's time. A net 59 percent now expect the global economy to strengthen this year, compared to a net 40 percent last month, the most positive outlook since April, 2010. (Read More: Stocks Looking Beyond Debt Ceiling, for Now )
The biggest concern for markets continues to be the U.S. fiscal crisis, but that concerned has waned in the last two months, BofA Merrill said. The group was surveyed between Jan. 4 and Jan. 10.
The fund managers are also positive on China, with 63 percent expecting a stronger economy this year and only one in seven seeing a Chinese had landing as the number one risk. (Read More: China Hints at Far Wider Welcome to Overseas Investors)
The managers are also net overweight global banks for the first time since February, 2007, but banks are still viewed as the most undervalued sector. The telecom sector, meanwhile, has fallen to a net 25 percent underweight, its lowest weighting from asset allocators since December, 2005. In the biggest sector shift, pharmaceuticals declined to an 11 percent overweight from a net 24 percent last month.
In the last month, the sentiment on Japan shifted as well. Now a net three percent of managers are overweight Japanese stocks, a big reversal of the 20 percent underweight last month.
As for Europe, the perception that Italy is a substantial tail risk has dropped sharply to 17 percent form 26 percent in December. But perceptions that France and Spain have worsened increased to 24 percent and 29 percent, respectively.