Investors are running away from eurozone markets, according to the latest fund manager survey from Bank of America Merrill Lynch. The survey shows that pessimism about Europe’s prospects is worse than at any time in over two years. More than one in five respondents to the regional part of the survey expect the European economy to decline in the next 12 months, the most negative response since the spring of 2009.

This means that investors have reduced their shares in many sectors, most eye-catchingly in banks where almost 60 per cent of the European panel are now underweight, compared with one third last month.

Moreover, nearly two-thirds of the panel identified EU sovereign debt funding as the number one tail risk, up from fewer than half in June.

“Investors have acted decisively in response to recent developments in EU sovereign funding,” said Gary Baker, head of European equities strategy at BoA Merrill Lynch global research. “The question is whether eurozone equities have been oversold.”

Worries about the debt problems of countries such as Greece, Portugal and Italy have played a role in hitting global economic sentiment and pushing the price of gold to a record high above $1,600 per ounce. EU leaders are meeting today for crisis talks about Greece's debt predicament.

As the eurozone suffers, investors are flocking to Japan and global emerging markets. Almost four out of five in the Japanese regional survey expect corporate earnings to improve in the coming year, up from just over half in June. Only two per cent are underweight, compared with 22 per cent in June.

One third of asset allocators were overweight in global emerging markets equities this month, a rise of ten percentage points since June. It is also the field where most investors want to increase their holdings in the near future.

The overall outlook in the survey is positive, with one in five believing that the global economy will improve in the next 12 months, up from ten per cent in May. Furthermore, the respondents in the survey reflected increased equity allocations and reduced bond holdings: 35 per cent were overweight in equities in July, up from 27 per cent in June, and 45 per cent of the panel was underweight bonds, up from 35 per cent in June.

The survey included 265 panelists as well as 196 fund managers responding to the global part of the questionnaire and 149 responding to the regional.