Investors are the most negative they've been on China's economic growth since January 2009, with a net 39% expecting growth to weaken. This reflects a widespread rise in bearishness about the global economy since last month, according to the latest monthly fund-manager survey from Bank of America Merrill Lynch.

A net 12% of respondents predict the global economy will worsen in the coming year, the first negative forecast since February last year, and a big shift from the outlook in June, when a net 24% forecast the economy would strengthen.

Yet global emerging-market (GEM) and Asia-Pacific investors' allocations -- as compared to those in June -- don't seem to reflect the concerns about China. Around the same proportion of GEM fund managers as last month remain underweight the country and the number of Asia-Pacific investors that overweight it has in fact gone up.

Indeed, emerging-markets exposure overall has risen, with a net 34% of global asset allocators overweight GEM equities, up from 19% in May, and a net 48% say GEM is the region they would most like to overweight in the next year, more than double the figure in May.

The most significant shifts in terms of country allocations by Asia-Pacific fund managers were a sharp swing from a net 3% being overweight India and Korea in June to a net 10% being underweight this month; and a switch from a net number underweight to a net number overweight for Thailand, the Philippines and Singapore. There was also a sharp rise in the net number of investors overweight Taiwan, while overall allocations to Indonesia were cut. China was the least favoured country among Asia-Pacific managers, while Australia was the least.

Interestingly, GEM allocators disagreed on India, moving from being net underweight to net overweight the country; on Indonesia, with the net overweight rising a little; and Taiwan, with a net 74% underweight, up from a net 63% last month. Most other Asian-country allocations among GEM investors remained relatively stable, with Taiwan and Malaysia remaining the least favoured countries.

As for Japan, after a three-month period of optimism, global allocators dropped to a net 11% underweight.

Meanwhile, investors seem to be showing less fear about Europe, with the proportion of allocators underweight eurozone equities falling to a net 10% from a net 27% in June. This is despite the fact that a net 17% of European investors expect the region's economy to weaken.

Exposure to the US has fallen significantly, however, reflecting that investors are more concerned about the outlook for US equities than at any point since November 2006. A net 14% of the panel say it is the region they would most like to underweight. A net 7% of global managers are overweight US equities, down from a net 20% in June.

Overall risk appetite has declined, with investors moving into cash and reducing exposure to cyclical stocks. Cash now comprises 4.4% of an average portfolio, up from 4.1% in May. A net 39% of the panel is taking lower than normal risk, more than double the proportion in May. Allocations towards pharmaceuticals, a classic bear-market sector, are at their highest level since March 2009.

Managers have scaled back positions in global equities while moving into bonds in the past two months. The proportion of allocators overweight equities has slipped to a net 11% from 30% in May. The proportion underweight bonds has fallen to a net 15%, down from 29% in May.

This is despite investors acknowledging that equities are increasingly undervalued and bonds increasingly overvalued. The spread in perceived valuations of bonds and equities is at its widest since 2003.

Risk aversion is not restricted to long-only investors. Hedge funds have reduced their net equity exposure to its lowest since March 2009.

Inflation concerns have eased as sharply as growth concerns have appeared. A net 12% of investors believe inflation will fall in the coming year, a turnaround from June, when a net 12% were forecasting higher inflation.

As a result, investors are pushing back the date they expect next to see a rate hike in the US or eurozone. Four out of 10 respondents to the global survey are ruling out any rate hike by the Fed before July 2011, and only 4% predict an increase this year. The regional survey shows that 47% of European investors predict no rate hike from the ECB before July 2011.

A total of 202 fund managers, managing a total of $530 billion, participated in the global survey from July 1-8. A total of 170 managers, managing $393 billion, participated in the regional surveys.