Risk aversion returned in February, as investors scaled back their growth expectations amid fears over peripheral euro-zone economies and monetary tightening in China, prompting a reallocation of assets, says Bank of America Merrill Lynch.

The findings come from a survey of 200 fund managers with $502 billion in collective assets under management surveyed between 5 and 11 February, which showed the proportion expecting the euro region to grow over the next 12 months falling by 23 percentage points to 51 per cent.

Fieldwork for the study coincided with the rising worries about the financial plight of Greece; some commentators have speculated that the euro itself could be torn apart if the southern European nation goes bankrupt.

Meanwhile the proportion expecting the European Central Bank to keep rates on hold over the same period soared from 19 to 45 per cent, and the proportion expecting the Federal Reserve to keep rates on hold also increased from 27 to 42 per cent.

The lapse in confidence about the economic recovery caused average global cash balances to rise to 4 per cent, from a basis of 3.4 per cent in January. The highest proportion of investors since last June – a net 12 per cent – are now overweight cash.

Hedge funds scaled back leverage from 1.33 times to a multiple of less than one, and Europeans pulled out of financial stocks as global investors cited Europe as the region they would most prefer to underweight.

Risk assets suffered as net overweight equity positions dropped sharply from 52 per cent in January to 33 per cent, and the proportion of investors who were underweight bonds increased. Commodities - linked to Chinese growth expectations - also fell out of favour, with the proportion of investors overweight in the asset class falling from 23 per cent in January to 10 per cent.

“Concern over European sovereign debt and Chinese tightening means the level of US dollar bulls is at a 10-year high, and banks are once again the least loved global sector,” said Michael Hartnett, chief global equities strategist at BoA Merrill Lynch global research, demonstrating the quick turnaround investors’ expectations can make.

But on a brighter note, Gary Baker, head of European equities strategy at BoA Merrill Lynch global research, said the bank thought this was a pause rather than a reversal of the growth trend.  

At the sector level, investors reduced their financial holdings. Over half of respondents are underweight bank stocks – the highest proportion since last March – compared to 16 per cent in January. However the sell off was focused in Europe, with US investors reducing their underweight financial positions.