LONDON Global investors turned overweight bank stocks for the first time in six years in January and boosted equity holdings to a two-year high, a survey showed on Tuesday.
Buoyed by increasing confidence in the world's economic outlook, fund managers also boosted euro zone equity allocations to a 5-year high and turned overweight Japan.
But they are still cautious when it comes to adding risk and many of their overweights on risky assets are still rather small, Bank of America/Merrill Lynch (BofAML) said in its monthly asset allocation survey.
"Global investors' bullishness has massively surged. Risk appetite is the highest we've seen since 2004," John Bilton, European Investment Strategist at BofAML said when presenting the poll the bank headlined: "The Bears go into hibernation."
The poll shows a net 3 percent overweight on banks and cash at its lowest since April 2011, while four times as many asset allocators said they were overweight stocks than a year ago -- a net 51 percent of investors, Bilton said.
Fund managers are still worried about U.S. and European fiscal woes and Europe's economic outlook and stepping back cautiously into some assets. The net 3 percent overweight for Japan equities -- the first since July 2011 -- is still modest by historical standards, the bank said.
"With a lot of the more risk-on calls ... folks won't run shorts but they are yet to really feel they are ready to add risk properly," Bilton said.
European portfolio managers in general are more circumspect than their peers in other regions, he said, and are less bullish in their positions and more concerned about recession risks.
Worries about Italy dropped sharply since last month -- 17 percent view it as the biggest European tail risk versus 26 percent last month -- while worries over France and Spain have increased.
Cash levels, although lower, are still above BofAML's "sell signal," but there may be a correction ahead, the bank said.
"Bullish sentiment does not guarantee a correction in risk assets (our contrarian cash indicator stays neutral), but a January dip would be healthy and without one a larger correction later in the first quarter becomes more likely," the survey said.
The poll of 254 fund managers was conducted January 4-10.
(Reporting by Ingrid Melander; Editing by Ruth Pitchford)