Investors have boosted their allocation to euro zone stocks to its highest in 5-1/2 years at the expense of emerging markets as confidence about the region’s growth improves, a closely-watched survey showed on Tuesday.

The monthly fund managers poll from Bank of America Merrill Lynch showed a net 17 percent of investors are overweight the euro zone, the highest level since January 2008.

The index reading shows the difference between overweight and underweight positions.

A net 88 percent of fund managers based in Europe expect the region’s economy to improve in the next 12 months, the highest reading in nine years.

Europe is now the most favoured region, ahead of Japan, with a net 20 percent of respondents wanting to overweight the market on a 12-months view, the highest in six years.

In contrast, investors slashed emerging market equity exposure to a net 19 percent underweight – the lowest exposure in 12 years.

“There is a very sharp surge in optimism in the global economy, led by Europe for the first time in three years,” said John Bilton, head of European investment strategy at BofA Merrill.

“There is a pick-up in sentiment towards developed markets against emerging markets… But it’s really Europe where the bounce back in optimism is most apparent.”

Other parts of developed markets also attracted investors, according to the survey which polled 180 managers with combined assets of $516 billion.

U.S. equity overweights are above 30 percent on a net basis, the third highest level in 10 years. This is driven by a strong dollar view, with a net 72 percent expecting a higher U.S. currency on a 12-month horizon.

Investor exposure to UK stocks turned overweight for the first time in more than 10 years.

Overall allocation to equities rose to a net 56 percent overweight from 52 percent, the highest in 5 months.

Fund manager exposure to bonds fell to a 28-month low with just 3 percent of investors expecting lower long-term bond yields over the next year.

Investors remain concern about a hard landing in China, with more than half of respondents citing it as the biggest tail risk.

As the global economy picks up, investors thought companies should be boosting capital expenditures to secure future growth. A net 64 percent of respondents thought corporates are currently under-investing in the business.

(Editing by Ron Askew)