Investors are returning to Europe as they retreat from emerging market and Japanese equities, according to the BofA Merrill Lynch Fund Manager Survey for June. Investor confidence has risen in the past month in spite of market instability and a 2.5 percent fall in world equities over the survey period. A net 56 percent of global investors believe the world economy will strengthen over the coming year, up from a net 48 percent in May. Equity allocations increased. A net 48 percent of asset allocators are overweight equities, compared with a net 41 percent in May. But while allocations to the eurozone and U.S. rose, investment in global emerging market equities fell to their lowest since December 2008. A net 9 percent of asset allocators are now underweight emerging market equities – the first underweight reading since 2009 and down from a net 3 percent overweight reading last month. Investors now identify a China hard landing as the greatest tail risk – more of a concern than eurozone sovereigns or banks. A net 31 percent of regional fund managers say that China’s economy will weaken in the coming 12 months, compared with a net 8 percent expressing that view in May. A net 25 percent of the global panel says that emerging markets is the region they would most like to underweight in the coming 12 months – the lowest ever reading. Allocations to commodities have also reached a record low with a net 32 percent of asset allocators holding underweight positions. “The biggest contrarian play in the market today is assets linked to China. The lows in emerging market equity and commodity allocations suggest the market has over-positioned itself for a shock from China,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. “Investors can now see a certain level of stability returning to Europe’s economy and positioning for a recovery has started,” said John Bilton, European investment strategist.