Emerging markets are increasingly going out of favour among fund managers, shows a survey from Bank of America Merrill Lynch. Global fund managers’ allocation to emerging market equities fell to a net 41% overweight in October from 47% a month ago. However, allocation to Japanese equities has risen to net 23% overweight compared to net 12% overweight last month, it added.

So far this year, MSCI Emerging Markets gained 24.93%, MSCI India jumped 23.90% while MSCI World, which is a proxy for developed market stocks, climbed 10.33%.

Allocation to US equities rose to a net 21% underweight from net 28% underweight last month while that to Eurozone equities grew to net 58% overweight from net 54% overweight last month, the highest in 5 months.

Fund managers are positioning for higher yields, rotating over the past month into banks and Japan (assets benefitting from rising rates and inflation) and out of utilities, emerging markets, healthcare and bonds, the survey said.

The survey also said that average cash balance with fund managers fell to 4.7%, the lowest level in two and a half years, well down from last October’s high of 5.8%.

“Cash balances dipped this month but remain somewhat elevated. A faster drop in cash leading into 2018 would indicate a sell signal from investors," said Michael Hartnett, chief investment strategist, Bank of America Merrill Lynch.

Overall growth expectations ticked higher this month, with a net 41% of investors expecting a stronger global economy in the coming year, up from net 25% last month but still well below the high of net 62% in January 2017.

According to the survey, a policy mistake from the Federal Reserve Bank or European Central Bank (ECB) is considered as the biggest tail risk to markets by investors, followed by the North Korea crisis and a crash in global bond markets.

The survey was conducted during 6-12 October and 207 panellists with $585 billion in assets under management participated.

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