Global fund managers have been fleeing emerging market and Japanese equities, cutting exposure to the lowest level since December 2008, according to the June fund manager survey from Bank of America-Merrill Lynch.

Meanwhile, a hard landing in China ranks as their number one concern, more so than a banking crisis in Europe.

China worries have driven a run from EM equities, with global managers reporting a net 9% underweight on EM and Japanese equities for June, a sharp decline from 43% net overweight four months before. Investors cite a commodity collapse as the biggest tail risk.

Fund managers continued to cut their commodity exposure further, with managers now a net 32% underweight, in line with a low not seen since December 2008.

The survey calls commodities and EM equities “the most unloved areas in the market”. As such, it notes, contrarians should consider increasing exposure to the two asset classes, with a bearish attitude to emerging markets typically coinciding with outperformance versus developed markets.

“The biggest contrarian play in the market today is assets linked to China," says Michael Hartnett, chief investment strategist at BoA-Merrill global research. "The lows in emerging market equity and commodity allocations suggest that the market has over-positioned itself for a shock in China.”

Some 32% of fund managers fear a hard landing in China and 21% believe “Abenomics” is doomed to fail, whereas only 14% fear a European sovereign debt/banking crisis.

Indonesia and India saw the most significant swings month-on-month – in May, managers held a net 45% overweight on Indonesia and a net 40% on India, but have since shifted to a net underweight of 46% and 10%, respectively. Global funds also cut exposure to Thailand and Turkey.

Korea is the darling of the moment, with Asia-Pacific investors continuing to “favour Korea and detest Australia”. And although fund managers reduced exposure to Korea to net 12% overweight, from 21% in May, they maintain it is their favourite spot in Asia.

Tech stocks are hot, with investors a net 36% overweight, while industrials dropped about 20 percentage points month-on-month to a net 14% overweight. There was a similar dropping of retail stocks, from a near 50% overweight in May to 29% this month.

There was a shift out of Japanese equities into eurozone and the US, with the survey noting that global fund exposure allocation to Japanese equities has fallen for the first time in eight months.

Exposure to US equities rose to net 25% overweight, the highest figure in more than a year, while European equities bumped up to net 6% overweight, from net 8% underweight. Allocation to Japanese equities sank to net 17% overweight, with the bear market in the Nikkei 225 benefiting the US and Europe, but not emerging markets.

Confidence in global equities rose from net 41% overweight in May to net 48% overweight in June, as investors appear to be embracing the ‘great rotation’ story out of bonds. Bond exposure fell to net 50% underweight .

Confidence in Europe was marked; a net 45% of managers expect Europe’s economy to grow in the next year, the highest level since February 2011. Further, for the first time in two years, most do not expect a recession in the next 12 months.

Europe’s corporate outlook is also improving, with net 30% anticipating profits this year; while most managers do not expect double-digit profits in 2013, they still have confidence in European stocks, with their cash levels falling from 3.7% to 3%.

“Investors can now see a certain level of stability returning to Europe’s economy and positioning for a recovery has started,” says John Bilton, the bank's European investment strategist.