Investors have switched sharply from being overweight China and Hong Kong in February to underweight this month, and emerging market allocations are the lowest recorded by Bank of America Merrill Lynch's Fund Manager Survey.

A net 31% of global allocators are underweight EM equities this month, up 29% from February, and a net 9% are UW China compared to a net 9% who were OW that market last month. Similarly, a net 15% are UW Hong Kong, down from a net 5% OW in February.

A net 47% of regional fund managers in Japan, Asia Pacific and global EMs expect China's economy to weaken in the coming year, up from a net 41% a month ago.

Meanwhile, confidence has risen in the eurozone, UK and US, with allocations to the latter in particular at a seven-month high.

All this points to a 'risk off' move towards greater protection, as the prospect of geopolitical instability rises, notes the survey. As tension rises in Ukraine, 81% of investors said they see geopolitical risk posing a threat to financial market stability, more than four times the reading a month ago. And 27% of investors said a geopolitical crisis is the biggest tail risk, up from 12% in February.

Further evidence of risk aversion came from hedge funds, which have reduced both leverage and exposure to equities. The weighted average ratio of gross assets to capital has fallen to 1.34 times from 1.49, the lowest in 20 months.

All that said, investors now see more value in emerging markets, with a record net 49% of the global panel of managers saying it is the most undervalued region, up from 36% in January.

Moreover, certain Asian countries are heavily in favour: exposure to South Korea and Taiwan has risen further, with a net 25% OW the former and a net 20% OW the latter.

Sentiment on Thailand has also improved, amid the political issues there – Asia region investors are neutral on the country, after a net 14% were UW it last month. And after nine months of being underweight Indonesia, fund managers are now neutral on the market. They are are also less UW India than they were in February.

Still, investors are more pessimistic now about corporate profits, with a net 40% saying that global profits will improve in the coming 12 months, down from a net 45% in February. Global sectoral allocations this month indicate a more defensive mindset, with a sharp fall in allocations to banks and a rise in exposure to energy companies and utilities.