The world economy is in its best shape in 18 months as China's prospects improve and the U.S. looks likely to avoid the so-called fiscal cliff, according to the latest Bloomberg Global Poll of investors.

Two-thirds of the 862 surveyed described the global economy as either stable or improving. That's up from just over half who said that in September and is the most since May 2011.

The U.S. came out on top for the eighth straight quarter when investors were asked which markets will offer the best opportunities over the next year. China ranked second, reversing a decline to fourth in the September poll of investors, analysts and traders who are Bloomberg subscribers. The European Union, beset by a debt crisis, was seen offering the worst returns.

"The global economy is improving, recovering and healing, thanks to the U.S. and the emerging markets," said Andrea Guzzi, a poll respondent and vice president of IST Investmentstiftung fuer Personalvorsorge, which manages money for Swiss pension funds. "More people are becoming wealthy, less and less are poor."

Stocks were seen as the asset of choice, with more than one in three of those surveyed on Nov. 27 forecasting equities would have the best returns in the coming year. Real estate came in second: Just less than one in five investors singled it out favorably, the best showing since the quarterly poll began in July 2009. Bonds were seen as offering the worst returns.

Fed Purchases

The Federal Reserve is expected to provide continued support to the bond market after its Operation Twist program ends next month, according to the poll. About three in four said the U.S. central bank will begin outright purchases of Treasury securities after its plan for swapping short-dated securities for longer-dated ones expires.

A plurality -- two in five -- said the Fed also will continue buying mortgage-backed securities into 2014, a strategy dubbed QE3 by investors, shorthand for the third round of quantitative easing by the central bank.

"The Fed is being very clear about monetary policy," Gala Prada, a poll respondent and portfolio and asset manager for Fiatc Mutua de Seguros y Reaseguros, a Barcelona-based insurance company, said in an e-mail. "If the economy doesn't improve, there will be a QE4 or more asset purchases."

David Fuller's view There is plenty for everyone to agree or disagree with in this article, so I am using it as a starting point for discussion, rather than a template for Fullermoney views, which it certainly is not.

Consider for instance the extremely bearish view on European equities, with which I began to disagree following Mario Draghi's appointment as head of the European Central Bank in June 2011. Investors were discounting a collapse, creating the lowest valuations anywhere, but 'Super' Mario has helped to organise the EU and drag it towards a recovery programme.

This chart-illustrated item continues in the Subscriber's Area.

This explains why the German DAX Index is up 25.48% this year in USD terms, more than twice the gains achieved by favoured Wall Street's S&P 500 Index 12.53%. Among readily accessible markets, DAX only trails Fullermoney favourite ASEAN star performers such as The Philippines 37.78% and Thailand 31.12%, and down under value play New Zealand 29.27%, albeit overextended relative to its MA (these index performances are also calculated in USD).

The obligatory 'crisis' description during any mention of European markets is losing its appropriateness, although it may linger due to habit.

As for the headline above: "World Economy in Best Shape for 18 Months", that is not saying much given global economic problems, although the trend is improving generally and that has certainly been favourable for stock markets, along with all the quantitative easing (QE), which continues.

Today, the biggest question mark relating to market performance concerns the world's second biggest economy - China (weekly & daily). This has fooled me because there were plenty of upward dynamics at the beginning of this year and also since October, and valuations are historically attractive. Nevertheless, China is beginning to test the region of its 2008-2009 lows.

I am trying not to overreact to this continued decline by China's Shanghai A-Shares Index, although that would have been a good idea two years ago, given the long procession of lower rally highs. I take some comfort from the Hong Kong HSI's performance, which cannot be entirely explained by the currency link to the USD. Also, the HSCEI, quoted in HKD, shows evidence of base formation development. Nevertheless, I will remain nervous about China's A-Shares Index above, at least until it surges above the upside key day reversal seen 7 days ago, and hopefully not too long thereafter largely confirms a trend reversal by also taking out the early November high.