Managers take more of a liking to China, says BofA Merrill Lynch

Money managers are showing the strongest optimism in China's economy in more than three years, according to the Bank of America Merrill Lynch November Survey of Fund Managers.

A net 51% of investors polled across Asia Pacific, global emerging markets and Japan believe China's economy will strengthen in the coming 12 months, the highest reading since July 2009 and up 46 percentage points from last month.

“While sentiment within Europe remains weak, rising allocations to global stocks tell us confidence in general is improving. The jump in China optimism shows how fast sentiment can turn around,” said John Bilton, European investment strategist, in a news release.

A net 34% of all respondents said the world economy will strengthen in the coming year, the highest since February 2011 and up 14 percentage points from October, despite the looming U.S. fiscal cliff.

Fifty-four percent of respondents cited the fiscal cliff as the largest tail risk, up from 42% last month.

Views on corporate profits and investing in equities improved this month. A net 4% expect the outlook for corporate profits to improve in the next 12 months, compared with a net 28% predicting a worsening in profits in September. Equity allocations continue to rise with the inverse occurring with bond positions. Asset allocators increased equity allocations for a fifth straight month with a net 35% overweight equities and underweight bonds, about a 10-percentage-point rise from October for both asset classes.

“Momentum has gathered behind the idea that we are on the cusp of a 'great rotation' out of bonds and into equities. The only missing ingredient is a resolution to the U.S. fiscal cliff,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in the news release.

There has also been greater appetite for emerging markets exposure. A net 37% of allocators are overweight global emerging markets equity, up from a net 35% in October.

A total of 248 money managers with $695 billion in assets under management participated in the survey Nov. 2-8.