Investors have become less bullish about the global economy but have not given up on riskier assets, finding equities as cheap as they have been since March 2009, a Bank of America Merrill Lynch poll showed on Tuesday.
The investment bank also concluded that fears over the euro currency have peaked and that BP's oil spill in the Gulf of Mexico has prompted equity investors to chase dividend payouts in sectors other than energy.
BofA-Merrill said the main finding in its June survey of 207 global fund managers was that investors had become cautious on economic growth but that sentiment toward riskier assets such as equities has not overly suffered.
Risk appetite has stabilized, said Gary Baker, head of European equity strategy. You haven't really seen any panic from investors.
A net 24 percent of respondents expected global growth to strengthen over the next 12 months compared with 42 percent in May and 61 percent in April.
That is quite a major reversal in terms of expectations, Baker said.
A net 27 percent of respondents now expect weaker growth in China over the next 12 months, the most pessimistic reading since January 2009. This could, however, prove a positive as it suggests fears of Chinese overheating may be waning.
The less bullish growth sentiment was matched by more positive attitudes toward riskier assets.
Respondents said equities were now cheaper than they have been since March 2009, with emerging market stocks seen as the most favored sector.
Cash levels slipped to 4.1 percent of portfolios from 4.3 percent in May, both below the 4.5 percent level BofA-Merrill considers a buy signal.
The investment banks said the overall tone of the June survey suggested that a simple absence of negative surprises on macro-data would be equity positive.
In other words, conditions are ripe for investors to boost stocks again unless there is unexpectedly poor economic news.
OIL AND EURO
The month's survey also showed that this year's fall in the euro may be close to bringing the currency down to what investors see as a fair value.
Only a net 14 percent said the euro was still overvalued, down from 45 percent a month earlier. Views on the dollar, meanwhile, were neutral.
The survey also found that the Gulf oil spill had contributed to a sharp pullback in exposure to energy stocks.
Only a net 7 percent were overweight compared with a net 37 percent in May.
The main beneficiaries were dividend friendly utilities, telecoms and pharmaceuticals, Baker said.
(editing by John Stonestreet)