GLOBAL - Institutional investors have adopted a more pro-cyclical stance amid greater confidence in the strength of global growth and improving risk appetite, a survey has found.

"Asset allocators increased their preference for equities over bonds, and adopted a ‘fully invested' stance, reducing their cash balances to the lowest level in more than three years," according to Merrill Lynch's July monthly global fund manager survey.

The shift to a more cyclical stance has benefited technology stocks in particular, but also the energy sector, industrials and materials sectors raised more investor interest, according to David Bowers who presented the survey's results in London today.

"A net 26% of survey respondents say they are overweight technology, sharply up from 16% in June," said Bowers.

Simultaneously, investors have reduced their exposure to consumer staples and pharmaceuticals.

Although the majority of asset allocators are overweight in the eurozone, the interest in global emerging market (GEM) equities has picked up, too.

According to the study, which surveyed a total of 186 fund managers from July 6 to July 12, investors see emerging market risk currently as very small.

"Emerging markets continue to be in the midst of a substantial secular bull move.  However, the strength of the recent rally - which has seen GEM equities up 35% from their March 2007 lows - may result in some profit-taking," says Michael Hartnett, chief Global Emerging Markets Equity Strategist at Merrill Lynch.

Credit risk poses the greatest threat to financial stability, the survey found.

"In a new questions this month, we asked asset allocators to rate seven potential risk s to financial market stability," explained Bowers, adding: "The risk that is most elevated at present is credit (default) risk, regarded by a net 72% of the panel as above normal."