Investors continue to favour cash amid concerns of the UK's referendum on EU membership and a slowdown in China, a survey from the bank found.

Fund managers wordwide are preparing for a “summer of shocks”, with allocations to UK equities plunging in May to their lowest levels since November 2008, and Chinese growth expectations down significantly, according to the latest BofA Merrill Lynch Fund Manager Survey.

A total of 205 panellists with $619 billion in assets under management participated in the survey, which was carried out from 6 to 12 May.

The findings come as the UK's European Union referendum on 23 June draws closer. Average cash balances rose to 5.5 per cent, up from 5.4 per cent in April, and global growth expectations, at 15 per cent, are well below the 50-60 per cent readings seen early last year. They are, however, up from April's 10 per cent. "Brexit" was identified as the biggest tail risk, though a 71 per cent majority of investors think that scenario is unlikely. 

Meanwhile, half of investors are expecting the Chinese economy to weaken, more than double the 22 per cent who held this view in April. After a UK exit from the EU, devaluation/defaults in China are considered the next biggest tail risk.

“Although global growth expectations rose slightly from the previous month, investors continue to hold elevated cash levels to protect against potential shocks from Brexit, China and quantitative failure,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Allocation to emerging market equities, however, turned positive for the first time since September 2014, with a net 2 per cent overweight. The most crowded trade is considered long quality, followed by short emerging markets, long yen and long cash.

As for Europe, a net 39 per cent expect the region's economy to strengthen over the next year, up drastically from 6 per cent last month. Correspondingly, a net 86 per cent of investors say they do not expect a European recession.