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Investors cut cash, buy stocks in anticipation of European QE: survey

[LONDON] International investors are cutting safe-haven cash positions and buying up stocks in anticipation of more economic stimulus in Europe and a steady recovery in the United States, a closely watched survey showed on Tuesday.

The monthly Bank of America Merrill Lynch survey of 177 fund managers who run US$514 billion in funds showed allocations to cash, a shelter in times of volatility, dropped half a per centage point to 4.5 per cent on average in January.

More than two-thirds of respondents said they expect stocks to outperform in 2015 with more than half taking 'overweight' positions in the asset class. Stocks are typically more volatile than cash or bonds but offer buoyant performance when economic conditions are seen as improving.

The survey found less optimism about the world economy in January than a month earlier, with the proportion of respondents who expect an improvement dropping to 51 per cent from 60 per cent.

But the European Central Bank is expected to boost flagging growth with monetary stimulus measures, such as an asset purchasing scheme known as quantitative easing - already tried after the financial crisis in the United States and Britain.

The plunge in global oil prices could add to this stimulus effect by reducing production and transport costs, but the impact is unpredictable as it could also destabilise growth in commodity-producing countries, the survey found.

"Lower oil prices and hopes for policy stimulus are sustaining both global growth expectations and investor confidence," said Michael Hartnett, Chief Investment Strategist at BofA Merrill Lynch.

Investors in equities are favouring shares in US shares, with 24 per cent of respondents overweight compared to 16 per cent in December. Emerging market equities are out of favour, with 13 per cent of respondents underweight.

As the US economy has recovered and expectations mount that the Federal Reserve will tighten monetary policy in response, dollar assets have become more attractive, which has drawn much investment out of emerging markets.