Investors are offering the clearest signal yet that the global economic slowdown is forcing them to overhaul their asset allocations, according to Merrill LynchÆs survey of fund managers in July.

The credit crunch is leading to polarised investment allocations and is taking survey readings into uncharted territory, setting four records: net 53% of global asset allocators are overweight cash; 40% are underweight equities; 32% are underweight Eurozone equities; and 40% are underweight UK equities. They are net overweight in US, Japanese, and global emerging markets equities, albeit only slightly.

Risk appetite globally is close to the record lows reported in March with only 16% of respondents to the July survey finding equities cheap. The survey also shows that investors have an increasingly sceptical view of earnings forecasts. A net 83% of global fund managers polled believe consensus corporate earnings are too high.

A total of 191 fund managers participated in the global survey from July 3 to 11, managing a total of $610 billion. A total of 169 managers participated in the regional surveys, managing $394 billion. The survey was conducted with the help of market research company Taylor Nelson Sofres (TNS). The survey measures net responses by taking the balance between the bullish and bearish views for each survey question.

Fund managers that invest in global emerging markets û as opposed to those who invest in both developed and emerging markets û are decidedly bearish.

ôThis month saw an abrupt change in sentiment towards emerging market equities,ö Merrill Lynch says. ôThere appears to be a growing awareness that rising inflation in emerging markets, which contrasts with developed market trends, makes them more vulnerable to monetary tightening and slowing domestic demand.ö

The inflation concerns have caused investor anxiety over emerging market earnings. All the global emerging market fund managers who participated in the poll said they expect corporate profits to decline either slightly or strongly. They are underweight in all sectors, except for energy where they are overweight, and telecommunications where they are neutral.

In terms of market preferences, global emerging market fund managers are most overweight in Russia, slightly underweight in Thailand, Turkey and Brazil, and underweight in all the other emerging markets.

The mood among Asia-Pacific ex-Japan fund managers isnÆt any better. All of them expect the regionÆs economy to weaken over the next 12 months and all of them expect corporate profits to deteriorate.

Asia-Pacific ex-Japan fund managers are most overweight in Hong Kong, China, and Singapore. They are most underweight in Australia, South Korea and Malaysia.

In terms of sectors, they are most overweight in staples, telecommunications, and energy. They are most underweight in media, banks, and autos.