Investors worldwide hiked their cash holdings as fears of a Greek exit from the eurozone and concerns about China's stock market turmoil weighed on sentiment.

As Greece's debt deal talks persisted and confidence in China waned, cash holdings jumped to 5.5 per cent of investors' portfolios, the highest level since 2008's collapse of Lehman Brothers, according to Bank of America Merrill Lynch's fund manager survey for July. Concerns about a possible Greek crash out of the eurozone also weighed on sentiment.

Confidence in the global economy took a hit and China was the leading cause for concern, with a net 62 per cent of respondents expecting the economy to weaken over the next 12 months and 80 per cent expecting its GDP growth to dip below 6 per cent by 2018. 

Meanwhile, gold, often referred to as a “safe haven” in the face of market gyrations, was deemed to be undervalued for the first time in five years.

In spite of higher risk aversion, equity allocations were overall unaffected and appetite to overweight European stocks picked up in July. 

“Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. 

“Despite the Greek newsflow, intention to own European assets is high and rising, though global growth remains vitally important for European stocks,” said European equity strategist Manish Kabra.

Elsewhere, the month saw an increase in US dollar bullishness despite the fact that investors now expect the US Federal Reserve to raise rates towards the end of 2015 or even later, compared to June's consensus of the third quarter of this year.

BofA Merrill Lynch Global Research took its data from 191 panellists with $510 billion of assets under management from 2 to 9 July.