Investor exposure to emerging market stocks hit its lowest level in almost 12 years in July as fears rise of China's hard landing and expectations build for a stronger dollar, a poll showed on Tuesday.
The monthly fund managers poll from Bank of America Merrill Lynch also showed investors boosted cash levels in an attempt to lighten risks.
China is now the biggest concern for investors, according to the poll. A net 65 percent of respondents now expect weaker China growth. This is the difference between those saying weaker and those saying stronger or no change.
This is a dramatic reversal from December, when a net 67 percent of investors expected stronger growth in the world's second largest economy.
A net 83 percent of investors expected the dollar to appreciate in the next 12 months, the highest in the history of the survey which started in April 2001.
As a result, a net 18 percent of investors are now underweight the emerging region, the lowest since November 2001 and down from a net 43 percent overweight just five months ago.
Cash levels jumped to 4.6 percent from 4.3 percent in June, according to the survey, which polled 178 fund managers with combined assets under management of $482 billion.
"Investors have derisked, positioning is very light and expectations are pretty low. Emerging markets and the U.S. dollar are the big themes," said John Bilton, European investment strategist at BofA Merrill.
More than one in two respondents viewed China's hard landing and a collapse in commodity prices as the biggest tail risk.
Overall equity allocations rose to 52 percent overweight from 48 percent on a net basis. Bond holdings fell to a net 55 percent underweight, below its 10-year average.
Hedge funds also lightened their positions. Their net exposure to equity markets, measured by long positions minus short positions as a percentage of capital, fell to 32 percent, from 45 two months ago, which was the highest since mid-2006.
Investors preferred the United States and Japan for their equity investments. Allocation to U.S. stocks rose to a net 29 percent overweight, the highest since June 2012. Japanese equity holdings rose to a net 27 percent overweight from 17 percent last month.
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