UPDATE 1-Investors gloomiest on world growth in decade, cut US equity holdings-BAML poll

Global investors have the most pessimistic outlook on the world economy since the 2008 financial crisis, according to Bank of America Merrill Lynch's monthly survey, which also showed a sharp fall in U.S. equity allocations.

The survey, released on Tuesday was conducted Oct. 5 to 11 and canvassed investors managing $646 billion. It showed investors remained overweight equities overall, though the 22 per cent overweight was just marginally off the recent record low of 19 per cent.

But in a sign of caution, they held cash at 5.1 per cent -- a net 36 per cent overweight -- and well above than the 4.5 per cent 10-year average.

The poll showed that a net 38 per cent of respondents expected the global economy to slow, the worst outlook on global growth since November 2008. A net 35 per cent of participants identified trade war as the biggest risk.

Investors were also gloomy on corporate earnings, with a fifth of respondents expecting global profits to deteriorate in the coming year, BAML said, noting that in January a net 39 per cent of investors had predicted an improvement.

Focusing investors' minds is the rise in the U.S, Treasury yields -- 10-year yields hit seven-year highs recently -- expectations of more policy tightening and signs the U.S. economy and company earnings could slow from the sugar-rush provided by tax cuts.

All those fears were among factors which triggered a sudden selloff on Wall Street last week, putting the S&P500 on track for its biggest monthly loss since mid-2015.

There are also concerns about the overwhelming popularity of big tech, with the BAML poll showing U.S. and Chinese tech stocks remained the "most crowded" trade for the ninth consecutive month.

The poll showed a dramatic 17 percentage-point drop in U.S. equity allocations to a net 4 per cent overweight, with Japan ousting the United States as investors' most favoured market with an 18 per cent overweight.

The decline in European equity holdings too continued, falling six percentage points in October to the lowest since December 2016.

Investors remain reluctant to give up on higher-risk assets, however, holding on to an overall underweight position on bonds.

"Investors are bearish on global growth but not bearish enough to signal anything but a short-term bounce in risk assets," BAML chief investment strategist Michael Hartnett said.

The poll found also that the yield level at which investors would rotate from equities to bonds was seen at 3.7 per cent on 10-year U.S. Treasuries -- the highest since March when the question was first asked.

Yields are currently around 3.17 per cent, almost 10 bps off recent highs.

In an interesting turnaround, a net 51 per cent of poll participants named the dollar as overvalued, "notably against emerging market currencies which are seen as never having been more undervalued in survey history," BAML said.

(With inputs from agencies.)