Optimism is returning to the markets, with 26% of fund managers surveyed by Merrill Lynch believing that the global economy will improve within the next 12 months. In January, that measure was net negative 24%.

Respondents also said that they are beginning to unwind bearish positions, particularly bank stocks; the number of fund managers underweight bank stocks declined to 26% net in April, down from 48% net in March.

Likewise, the net percentage of professional investors overweight cash fell to 28% from 41% last month. And today, 17% are underweight equities, compared with 41% in March. Asset allocators are also turning toward cyclical sectors, including technology.

“Improving sentiment on financials has decisively removed the logjam on sector rotation,” said Gary Baker, co-head of international investment strategy at Banc of America Securities-Merrill Lynch Research. “This is enabling broader optimism about growth to feed into greater risk appetite and prompting a march out of defensives into cyclicals.”

Michael Hartnett, co-head of international investment strategy at Banc of America Securities-Merrill Lynch Research, was more cautious: “The consensus has shifted from apocalyptically bearish to reluctantly bullish. But it’s important to note that asset allocators are still underweight equities, indicating they have yet to fully embrace the idea of a new bull market.”

Globally, fund managers are most bullish on emerging markets, particularly China. Following that, the U.S. is their other preferred location for a 12-month view.

Among sectors, technology is the most popular, followed by pharmaceuticals and industrials.

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