[London] Global fund managers are their most gloomy on the outlook for global growth and stock markets in two years as they adjust to a world of diminishing central bank stimulus, a survey showed on Tuesday.

The Bank of America-Merrill Lynch poll for October showed a sharp increase in money managers' risk aversion, with their equity allocation slashed to a 34 per cent overweight from 47 per cent in September.

That is the lowest in two years and mirrors the darkening economic environment: a net 32 per cent of respondents think the world economy will strengthen over the next year, more than 20 percentage points down from September and also a two-year low. "Concerns over the imminent end of quantitative easing in the US have left investors much less confident in the outlook for the global economy and corporate profitability," BAML said.

The survey showed a net 18 per cent of fund managers, the smallest proportion of respondents since August 2012, think monetary policy is too stimulative. The US Federal Reserve is on course to wind down its bond-buying programme this month.

Respondents also felt fiscal policy was too restrictive.

The survey of 220 money managers responsible for US$640 billion of investments was conducted between Oct 3 and 9, and reflects the surge in volatility and uncertainty that has scarred financial markets around the world in recent weeks.

The main stock markets in the United States, Britain, Japan and Germany are now down year-to-date, while benchmark government bond yields have plunged.

Fund managers raised their allocation to bonds to a seven-month high, a net underweight position of 53 per cent compared with 60 per cent underweight in September.

Overall, fund managers still prefer equities to bonds but they are rapidly rebalancing. They also raised their cash holdings to 4.9 per cent from 4.6 per cent.

The survey showed that the most "crowded" trade, where fund managers were most heavily positioned the same way, was betting on the dollar to strengthen - 43 per cent of them were "long" the US currency.

Fund managers also cut their emerging market equity exposure to underweight for the first time in five months, and increased their underweight position on commodities to 20 per cent, the smallest allocation to the sector in six months.

In terms of geographical preferences, allocations to US equities rose to a 14-month high and exposure to Japanese stocks a 10-month high as investors shielded themselves from the deteriorating picture in Europe.

They cut their euro zone equity exposure to a 15-month low, a net overweight position of just 4 per cent as the economic outlook blackened remarkably. A net 16 per cent polled expect the European economy to grow over the next year compared with a net 45 per cent last month. "With the European Central Bank 'hope trade' gone, performance in European equities is reverting to fundamentals,"BAML European equity strategist Manish Kabra said.

More than a quarter of those surveyed said they don't think the ECB will launch a bond-buying quantitative easing programme, up from 19 per cent the month before. REUTERS