By Natsuko Waki
LONDON Feb 14 (Reuters) - Investors' mood improved further in February as commitments from central banks to provide ample liquidity underpinned global growth expectations, benefiting equities and emerging markets, a closely-watched fund managers' survey showed on Tuesday.
The monthly poll from Bank of America Merrill Lynch showed a dramatic improvement in investor views on market liquidity conditions, which hit their highest reading since June.
The survey, which polled 202 participants with combined assets of $609 billion, showed a net 26 percent of fund managers were overweight equities, up from 12 percent last month. It was the largest monthly jump in more than a year and the highest reading since July. The index reading shows the difference between overweight and underweight positions.
A net 13 percent of respondents were overweight cash, down from a net 27 percent in January. The underweight to bonds increased in February to a net 37 percent, compared with 34 percent last month.
A net 32 percent of the investors viewed liquidity conditions as positive, compared with a net 7 percent saying they are negative. This was the largest monthly change in the past five years.
"The broad message is that there is normalisation of risk appetite. I wouldn't say it's a big risk-on survey... Not a lot of investors have participated in the rally," said Gary Baker, head of European equity strategy at BofA Merrill.
"Liquidity conditions are the big factor. Actions from the European Central Bank have been important but also the Federal Reserve and the Bank of Japan. You saw improvement in global growth expectations as well. Big beneficiaries are emerging markets."
Liquidity conditions are measured with the depth of the market, narrowness of bid/offer spreads and ease of execution.
A net 44 percent of investors were overweight global emerging markets, up from 20 percent in January, posting the second biggest jump since 2001. Europe showed improvement, while Japan became the least favoured region.
The average cash balance fell again to 4.2 percent, its lowest since July, from 4.4 percent.
Investors were still mindful of tail risks. Some 55 percent of respondents expected a country would leave the euro bloc at some point, up from 49 percent in January.
Hedge funds raised their gearing levels. The ratio of their gross assets relative to capital rose to 1.49 from 1.22 last month. Their net exposure to equity markets - measured as long minus short as a percentage of capital - rose to 34 percent, its highest level since June, from 31 percent in January.
(Additional reporting by Alessandra Prentice; Editing by Ruth Pitchford)
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