Investor confidence in the global economy has plummeted this month as the quantative easing programme in the US officially comes to a close.

Investor confidence in the global economy has plummeted this month as the quantitative easing programme in the US officially comes to a close, a survey by Bank of America Merrill Lynch reveals.

The US Federal Reserve has been pumping liquidity into the world's largest economy over the last five years by buying a total of $4 trillion's worth of Treasury bonds and mortgage backed securities in instalments every month. In September it cut its bond-buying programme down to $15 billion a month. Critics say the stimulus has led to a stock market bubble and that it has failed to address the major structural problems in the US economy – namely high unemployment rates and mediocre growth rates.

An overall total of 220 panelists with $640 billion of assets under management participated in the survey from 3 October to 9 October 2014.

Unsurprisingly, given the Fed policy move, investors feel much less optimistic with only a net 32 per cent of respondents expecting the global economy to strengthen over the next 12 months - the lowest reading in two years.

As a result investors have been reducing risk exposures. Cash balances have risen to 4.9 per cent, while investment horizons have shortened and equity overweights have fallen rapidly (down a net 13 percentage points month-on-month). Underweights in commodities have also risen, while sectors sensitive to the asset classes like energy and materials have seen large moves to net underweight positions.

At the same time investors have lost their appetite for emerging markets and European equities. Both current positioning and intentions for the next 12 months have turned negative or neutral.

“Cash balances are high, but investors are retreating to benchmark positions rather than staging an exodus from markets,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Europe, in particular, has been put to the sword this month by fund managers thanks largely to the lack of decision making by the European Central Bank. Twenty-six percent of managers do not expect the European Central Bank to initiate a programme of QE, up from last month’s 19 percent. While only a net 16 per cent of regional fund managers now expect the continent’s economy to strengthen over the next year. This compares to a net 45 per cent last month.

“With the European Central Bank ‘hope trade’ gone, performance in European equities is reverting to fundamentals. As our view remains downbeat, we continue to favor defensive dividend yield stocks and expect any rallies in cyclical stocks to be short lived,” added Manish Kabra, European equity and quantitative strategist.

Europe's fall though has been Japan's gain. A net 14 per cent of asset allocators would most like to overweight the country’s equities over the next year – 10 percentage points more bullish than that for any other major market.

In contrast to other regions, Japanese fund managers’ inflation expectations are on the rise. A net 46 per cent expect consumer prices to climb in the next year, up from a net 18 percent last month.

And global fund managers are now equally bearish on the Japanese currency and the euro. This marks a striking shift from last month, when the differential between the two was more than 20 percentage points.