Fears of a hard landing and debt default in China have receded sharply, with a hefty increase in global fund managers who have moved to overweight the country.

A net 6% of respondents quizzed in the monthly Bank of America-Merrill Lynch manager survey* expect China’s economy to improve over the next 12 months — the first positive reading in this poll since October.

Global emerging market investors are now a net 75% overweight China, up from 17% in July and 19% underweight in June. Asia-Pacific investors moved to 27% overweight, versus 17% in July and 5% in June.

In July, China had been cited as posing the joint biggest tail risk, with a net 28% of respondents citing a debt default top of their worries, which in itself was lower than the 37% reading in June.

But by this month that concern had receded, with just 12% of respondents citing it as the main risk. The biggest risks cited in August were geopolitical crisis (44%), asset mania (14%) and eurozone deflation (13%).

The eurozone continues to be out of favour with investors. Managers’ allocation to the zone sunk from a net 35% overweight last month to 13% this month. BoA-Merrill branded it an end to investors’ love affair with Europe, since that level is in line with its average allocation over 10 years.

Improving sentiment towards emerging market equities was matched by increased allocation, with global fund managers boosting their exposure 12 percentage points month-on-month, to a net 17% overweight — a 17-month high. That was the second biggest increase in allocation after cash (18 percentage points).

“The market melt-up is over, or at least on pause, as investors seek refuge while they digest world events and the prospect of higher rates,” said Michael Hartnett, chief investment strategist at BoA-ML.

Technology, consumer discretionary and utilities were the top EM targets, while industrials, materials and consumer staples were the least popular.

India moved from being by far the most heavily favoured emerging market globally in July to one of the least favoured in August.

EM managers are now a net 30% underweight the country. That’s a significant turn around from July, when a net 47% of EM managers were overweight India, itself down from 75% in June and 50% in May, but up from 44% in April.

Investors based in Asia Pacific also grew more negative on India, moving from a net 7% overweight to 1%.

The biggest change in sentiment among Asia-Pacific investors was to cold-shoulder Taiwan, which went from a net 27% overweight to 5% overweight.

Japan picked up speed in August, with a net 30% of global investors overweight, the highest allocation in seven months and up from 26% in July, 21% in June and 7% in May.

But BoA-ML warned that allocation to Japan was above the 10-year average and as such looked stretched. Investors favoured technology, industrials and autos, and shunned utilities, consumer staples and pharma.

* A total of 224 panellists with $675 billion of assets under management participated in the survey from August 1-7. A total of 112 managers with combined AUM of $278 billion took part in the regional surveys.