Global investors betting on a pickup in economic growth in the second half of 2014 have driven equity overweight positions to three-year highs, a closely watched survey showed today.

According to Bank of America Merrill Lynch, which polled 179 managers controlling assets of $524 billion for its global survey, close to two-thirds of investors are overweight in equities, more than at any time since early 2011.

Investors typically increase their exposure to stock markets when they feel optimistic because a more buoyant economy is usually good news for corporate earnings and, by extension, the valuation of company shares.

The survey found that 69 percent of investors expect the world economy to strengthen over the next year.

But with higher economic growth comes greater expectations of a common side-effect - rising prices. More than 71 percent of investors said they expect inflation to be higher in 12 months' time, up 13 percentage points since last month.

"All the optimism that's there on the growth outlook is feeding into the inflation outlook now," said Manish Kabra, a European equities and quant strategist at BofA.

In spite of the upbeat mood, investors continue to hold high levels of cash - on average 4.5 percent of their portfolios in July - which is sharply higher than levels considered normal of less than 4 percent.

BofA attributes this in part to a "structural" legacy of the 2008-2009 financial crisis when many investors converted large parts of portfolios out of financial assets to protect against extreme market slumps.

Nevertheless, while equity allocations are high, more than a fifth of investors worry stock markets are now overvalued and possibly due a correction - the survey's highest reading since 2000.

The biggest risk worrying investors is geopolitical crisis following tensions in the Middle East and between Russia and Ukraine, the survey found, while concerns highlighted in previous months, such as debt defaults in China, are easing.

Not all regional equity markets share the high expectations of global investors, however. Allocations to euro zone equities fell to 35 percent overweight, from 43 percent overweight in June.

European stocks' fall from favor is benefiting Japanese equities, in which 26 percent of investors are now overweight - the highest allocation for five months, the poll showed.

British stocks are also losing popularity, with 8 percent of investors now underweight compared with 4 percent a month ago, while allocations to U.S. equities are unchanged at 10 percent overweight.

Some 30 percent of investors think European peripheral debt is the most crowded trade, down from 39 percent, while U.S. High Yield is too packed, according to 36 percent.

A hunt for yield at a time of historically low interest rates has pushed investors into assets once deemed too racy for many, sending yields to record lows in countries once at the center of the euro zone crisis such as Italy, Spain and Ireland.

U.S. high-yield debt, meanwhile, is yielding less than emerging market debt, even though the latter's average credit rating is lower.