GLOBAL - Profit growth expectations are at a five-year high and fears among fund managers of a double dip recession are beginning to wane, according to the latest Bank of America-Merrill Lynch survey.

Almost 70% of fund managers believe the next 12 months would see an increase in earnings per share, suggested the results of the BoA-ML study.

According to the October Fund Manager Survey, over a third of the 229 fund managers questioned now also expect double digit growth to return to the economy by this time next year. This move goes hand-in-hand with over 50% respondents stating they now see a double-dip recession as unlikely - a marked change from four months ago, when over 70% still expected a second downturn.

"There still seems to be some scope for European investors to become more optimistic. That is reflected in the fact that cash holdings are still high in Europe," explained Gary Baker, head of European equity strategy at Bank of America Securities - Merrill Lynch.

While the percentage of overweight cash investors in Europe has decreased compared to the previous month, the 16% retained is still close to the average 18% usually present. Baker noted that Europe had "been a miserable region" in the past.

Trust in European banks was also beginning to return. "Europe has been lagging the rest of the world," said Baker, adding that while people now had a better idea of what shape bank write-downs were taking, there were still other problems. "There is that outstanding issue of where regulations might go," Baker cautioned, while insisting:  "We do expect recovery, fund managers are clearly in that frame of mind."

This is illustrated by the fact that banks are now an overweight holding among fund managers questioned. "For the first time in two years, we see European investors overweigh banks and underweigh healthcare," explained Baker. Banks saw a 19-point rise in popularity, and Bank of America - Merrill Lynch has now upgraded European banks to overweight.

A good example of Europe's resurgence in popularity is that while investors remain confident about emerging markets, with Brazil cited as the favored BRIC market, Europe is the developed market of choice for pension managers, with 30% seeing it as undervalued.

Japan has lost some of its standing, partially because of perceived yen overvaluation. But Baker believes that the policies of new prime minister Yukio Hatoyama may also be causing problems.

"There is a general feeling that the [Japanese] government or some of the announcements so far have not been completely pro-business friendly," he said, adding: "There is some confusion as to what the policies on the yen at the moment, whether they want to keep with the strong yen policy."

In Europe, investors had been favoring both the technology and insurance markets heavily, but at only 23% and 15% respectively, confidence in technology is down by 8% on last month and still very far away from the 40% or more that is seen as a true mark of confidence.

Overall, the results can be summed up quite quickly, as Baker said: "Europe, emerging markets and Japan, that is where the changes have been."

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