Debt default in China has become one of investors’ biggest concerns over the past month, according to a new survey of global fund managers.

As the country’s corporate and personal debt pile has increased precipitously in recent years, Chinese firms have struggled to repay loans, adding to investors’ concerns.

And the poll also revealed that investors have been paring back their US equity allocations amid a growing belief that American interest rates will rise in the second quarter.

Bank of America-Merrill Lynch released its monthly fund manager survey* for March yesterday, with China clearly having risen to the forefront of investors’ thoughts.

China debt defaults are now seen as the second-largest tail risk in world markets – 19% of investors rank it as their greatest risk, compared with 14% a month ago. The top tail risk is seen as geopolitical crisis.

Emerging markets have also received a resounding thumbs-down from investors, with a net 11% of asset allocators underweight global EMs – a big increase from February’s net 1%.

A net 57% of BAML’s global panel of fund managers said that global EMs was the regional asset class they most wanted to underweight in the coming 12 months. This represents a fall from February’s net 63%, but BAML said it was still close to historic survey highs.

Meanwhile global investors have been significantly reducing their allocations to US stocks. A net 19% of global asset allocators are now underweight US equities, the highest level since January 2008. It represents a sharp deterioration from February, which saw a net 6% of investors overweight.

Part of the reason may be the S&P 500’s extraordinary increase in value by 10.8% over the past 12 months, based on its Tuesday closing price. The proportion of investors saying US equities were overvalued hit a net 23% - its highest level since May 2000.

In more bad news for the US market, the equity outflows look set to continue. A net 35% of investors said the US was the region they would like to underweight the most, the most bearish reading in nearly 10 years.

A US interest rate rise is now expected sooner rather than later, with the proportion of investors expecting the Federal Reserve to make an increase in the second quarter rising to 34%, up from 28% in February. In contrast, the number expecting a rate rise in the third quarter has fallen.

As a result, a net 2% of those surveyed believe that the dollar is overvalued – representing the first such overvalued reading since 2009.

In Europe, equity bullishness has been reflected in large allocations towards financial services. European investors overweight banks has soared to net 22%, up from net 26% underweight in February. Investors are now overweight insurance by net 31%, up from a net% underweight in February.

“Investor consensus suggests that the strong dollar will act as positive rather than a negative for the global economy and markets,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Manish Kabra, European equity and quantitative strategist, commented:  “Bullishness towards European stocks has reached uncharted territory. Demand for financials highlights confidence in domestic growth, while belief in European exporters is building on gains seen last month.”

*A total of 207 panelists with $565 billion of assets under management participated in the survey from March 6 to 12.