Investor sentiment about the outlook for the dollar and US equities rose in March to the highest level since Bank of America Merrill Lynch began tracking the views of fund managers in early April 2001.

A net 72 per cent of investors now expect the US dollar to appreciate against other currencies over the next year, a 30-point increase in a month. Attitudes toward US stocks have also become more positive. A net 5 per cent identify the US as the regional market it most wishes to overweight, compared to January’s net 19 per cent wishing to underweight it. Investors also believe that the US offers the best outlook of any region for corporate profits, according to the survey.

An overall total of 254 panellists with $691 billion of assets under management participated in the survey from March 8 - 14. A total of 198 managers, managing $578 billion, participated in the global survey. A total of 124 managers, managing $241 billion, participated in the regional surveys. The survey was conducted by BoA Merrill Lynch Research with the help of market research company TNS.

Investors are cautious about China, with only a net 14 per cent of regional investors expecting the Chinese economy to be stronger in a year’s time - this represents one of the sharpest falls in this reading in the survey’s history. Increased fears of a hard landing in China are reflected in a shift out of emerging market equities and into developed markets (mainly the US and Japan).

“Relative US economic outperformance on the back of the housing market’s ongoing improvement and the energy independence story will lead a secular uptrend in the dollar. US equities’ leadership in the ‘great rotation’ suggests developed market equities are the likeliest winner in this scenario,” said Michael Hartnett, chief investment strategist at BoA Merrill Lynch Global Research.

European enthusiasm

The survey reveals that European fund managers have adopted a more positive outlook for the region’s economy. A net 40 per cent now expects it to strengthen over the next year. This compares with a net 8 per cent two months ago.

Global investors are taking a more cautious view, evident in reduced positions in European equities. They now have a net 4 per cent overweight in the region.

Risk appetite dips

The survey shows that while global investors’ stance towards equities remains constructive, their risk appetite slipped back slightly this month. The ML Risk & Liquidity Composite Indicator declined by one percentage point month-on-month, its first fall in nine months. Even so, this measure remains well above its average over the past ten years.

Moreover, asset allocators are more inclined to fund future equity purchases by reducing cash holdings, which remain at 3.8 per cent. The March survey found 28 per cent would use cash in this way, versus February’s 22 per cent. The majority, though, are more inclined to lighten government bond holdings to facilitate fresh buying of equities, the firm said.

Banking confidence

Investor confidence on banks has reached its highest than at any time since December 2006, the survey reveals. A net 14 per cent have moved to an overweight position this month - up eight percentage points month-on-month.

Renewed appetite for technology exposure was also evident, with bullish positions in the sector climbing to a net 35 per cent, reversing a pattern of declining exposure over the past year.