Investors have cut their exposure to emerging markets to record low levels and increasingly expect the United States to raise interest rates in September, a survey showed.

The monthly Bank of America Merrill Lynch poll of 202 fund managers showed China's slowing economic momentum and an emerging market debt crisis had replaced a euro zone break-up as the biggest global 'tail risk' in investors' minds.

The share of participants expecting the US Federal Reserve to hike rates for the first time in almost a decade next month jumped to 48 percent, despite a sharp drop in growth and inflation expectations.

"Investors are sending a clear message that they are positioned for lower growth in China and emerging markets," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Global growth and profit expectations fell to 10-month lows the survey showed, though only 6 per cent of those who took part thought there would be another global recession in the coming year.

European stocks remained the favourite global trade among participants, although anything exposed to China or commodities was being avoided.

Holdings were still historically high, albeit down a shade at 5.2 per cent from July's post-Lehman crisis high of 5.5 per cent.

Japan's yen was viewed as the most 'undervalued' currency to the tune of a net 13 per cent, sterling was the most 'overvalued' and the euro was seen to be undervalued for only the second time in 9 years.

The dollar was also gauged to be overvalued by a sizable proportion, with 45 per cent also saying 'long-dollar' was the world's most overcrowded trade.

BoA ML's analysts pointed out that the last four times the dollar's valuation has risen by a similar magnitude, emerging markets stocks have rallied by an average 8 percent in the 3 months after.

There was also a record 'underweight' in commodities following the recent slump in oil and metals markets.

The positioning in stocks also painted a telling picture. Utilities and Oil & Gas are by far the biggest consensus 'sells', with net 56 per cent and net 53 per cent 'underweights' respectively.

Sector allocation remained biased towards a US-led "deflationary recovery" it added, with investors also cutting back in banks and tech firms and moving into telecoms and healthcare. - Reuters