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Investor sentiment has double-dipped in their outlook for the global economy and corporate earnings, according to the Bank of America Merrill Lynch Survey of Fund Managers for July.

The survey shows a net 12 per cent of respondents predicting the global economy will deteriorate in the coming 12 months, the first negative forecast since February 2009. This represents a big turnaround from June when a net 24 per cent forecast the economy to strengthen. A net 4 per cent of the panel expects corporate profits to worsen in the coming year, also the first negative outlook in more than a year. It compares with a net 28 per cent forecasting earnings growth just last month. A net 1 per cent says that profit margins will fall in the coming year, compared with a net 31 per cent predicting improved margins in May.

Risk appetite has dipped with investors moving into cash and reducing exposure to cyclical stocks. Cash now comprises 4.4 per cent of an average portfolio, up from 4.1 per cent in May. A net 39 per cent of the panel is taking lower than normal risk, more than double the proportion in May. Allocations towards Pharmaceuticals, a classic bear market sector, increased to the highest level since March 2009.

"July's survey echoes the sentiment that investors expressed during the recession in early 2009," said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research. "Growth and profit expectations have double-dipped. Should upcoming data fail to confirm a double-dip, risk assets will have a much better third quarter," said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research.

Out of the US, into Emerging Markets and Eurozone: Investors are more concerned about the outlook for US equities than at any point since November 2006, with a net 14 per cent of the panel saying it is the region they would most like to underweight. In June a net 14 per cent said the US was the region they most wanted to overweight. Global asset allocators have already reduced exposure to the region, with net 7 per cent of panel overweight US equities, down from a net 20 per cent in June.

Global Emerging Markets (GEM) have been gaining in popularity while investors are also returning to the Eurozone - in spite of weakened economic sentiment towards China and Europe respectively.

Investors' growth and profit expectations have double-dipped, according to the Bank of America - Merrill Lynch fund managers' survey. Gary Baker from BAS-ML has more:

A net 34 per cent of global asset allocators are overweight GEM equities, up from 19 per cent in May. A net 48 per cent of investors identify GEM as the region they would most like to overweight over the next 12 months, more than double the reading in May. Over the same period, the proportion of respondents predicting a weaker Chinese economy has surged to a net 39 per cent up from a net 3 per cent. The proportion of asset allocators underweight Eurozone equities has fallen to a net 10 per cent, down from a net 27 per cent in June. At the same time, a net 17 per cent of European investors expect the region's economy to weaken.

Buying expensive bonds; selling cheap equities: Respondents have scaled back positions in global equities while moving into bonds in the past two months. The proportion of asset allocators overweight equities has slipped to a net 11 per cent from 30 per cent in May. The proportion underweight bonds has fallen to a net 15 per cent, down from 29 per cent 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.

Four out of 10 investors predict no Fed rate hike for a year: BofA Merrill Lynch says inflation concerns have eased as sharply as growth concerns have appeared. A net 12 per cent of investors predict inflation to fall in the coming year, a turnaround from June when a net 12 per cent 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 per cent predict an increase this year. The Regional Survey shows 47 per cent of European investors predict no rate hike from the ECB before July 2011.

Survey of Fund Managers: A total of 202 fund managers, managing a total of US$530 billion, participated in the global survey from 1 July to 8 July. A total of 170 managers, managing US$393 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS, which is ranked as the fourth-largest market information group in the world.