Abu Dhabi: Bearishness towards global emerging market equities has increased to a record level, with Europe and Japan remaining the most favoured stock markets as concerns mount over China’s economic growth.

According to the latest findings by the Bank of America (BofA) Merrill Lynch’s Fund Manager Survey, a rise in concerns over the Chinese economy has led to a significant drop in investors’ confidence in the global economic outlook.

Allocations to equities have fallen sharply while cash holdings have risen, with the slowdown in China now standing as the “biggest tail risk.”

While the survey examines overall global trends, the UAE’s equity markets were not much different, with negative investor sentiment marring trade and liquidity over much of 2015 and more so in 2016.

Sebastien Henin, head of asset management at The National Investor, said that a combination of lower oil prices, geopolitical tension especially between Saudi Arabia and Iran, and Chinese economic data were casting a dark cloud over sentiment.

“China is becoming by far the largest emerging market. There are some question marks regarding the Chinese economy and there are some fears that we might have a deeper than expected slowdown in China.

In that case, it would have repercussions on commodity prices because the expected oil consumption growth is coming from Asia, so now, this is the main concern for GCC investors,” he said.

Henin added that markets are yet to bottom out despite massive drops in the first three weeks of this year alone, and expected further volatility.

“Looking at trade volumes, I think there’s a lack of interest for equity markets. That’s very clear. People don’t want to invest in equities. I don’t know how long that will stay but for the time being, there is no appetite for stocks,” he said.

BofA Merrill Lynch’s findings also showed that just eight per cent of fund managers see the global economy strengthening over the next 12 years — the survey’s lowest reading on this measure since 2012. Around 12 per cent of fund managers believe a global recession will occur in the next 12 months.

Net overweights in equities have halved to a net 21 per cent from December’s net 42 per cent, while bond underweights have retreated. Additionally, the survey showed that over half of respondents expect no more than two interest rate hikes by the US Federal Reserve — up from 40 per cent a month ago.

“Investors are not yet ‘max bearish’. They have yet to accept that we are already well into a normal, cyclical recession/bear market,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

A total of 211 panellists managing $610 billion worth of assets participated in the survey from January 8-14.