A global trade war is the biggest risk to market at present, according to Bank of America Merrill Lynch's benchmark fund managers' survey, with an increasing number of investors worried about diminishing earnings growth and a slowing worldwide economy.

Fund managers are still bullish on equities, according to the monthly poll of 176 investors who control more than half a trillion in assets, with a net 41% still overweight, down from the 43% tally recorded over the previous month but still above the long-term average. However, while nearly 60% of those surveyed think corporate earnings will rise more than 10% over the next 12 months, nearly three quarters think the global economy is late in its growth cycle and that a trade war could upend performance more quickly than inflation or a central bank policy error.

"Cracks in the bull case are starting to emerge, with fund managers citing concerns over trade, stagflation and leverage," said BAML's chief investment strategist Michael Hartnett. "Investors have yet to act on these fears, however, as rates and earnings are keeping the bulls bullish."

Tech stocks remain the favorite trade in the survey, with the so-called "long FAANG+BAT" trade, the survey indicated, in a reference to a group of stocks that includes Facebook Inc. (FB) , Amazon Inc. (AMZN) , Apple Inc. (AAPL) , Netflix Inc. (NFLX) , Google parent Alphabet (GOOGL) as well as Asia tech giants Baidu Inc (BIDU) , Alibaba Group Holding (BABA) and Tencent Holdings Ltd.  (TCEHY)

Facebook, Amazon, Apple and Alphabet are holdings in Jim Cramer's Action Alerts Plus

Shorting the U.S. dollar, however, is also gaining popularity in the face of a brewing trade war between the United States and its various economic allies, a condition that was escalated by President Donald Trump's tariffs on steel and aluminium imports and reports of a further $60 billion in potential levies on consumer and tech goods from China.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, has fallen around 2.07% so far this year even as investors price in faster rates hikes from the U.S. Federal Reserve and exit long Treasury positions, pushing benchmark 2-year note yields to a 2008 high of 2.32% in overnight Asia trade. 

That puts the threat of a trade war as the biggest "tail risk" for global investors, the survey said, overtaking inflation concerns for the first time since January 2017. That said, 87% of respondents said that protectionism would either lead to faster inflation or raise the spectre of stagflation if the global economy were to slow or fall into recession.

"Ominously investors yet to act on fears," the survey noted "(The survey) shows investors stubbornly long global stocks, banks, tech, still short bonds, defensives, and cash levels fell from 4.7% to 4.6%; in contrast, we forecast higher vol, lower corporate bond prices, peaking equity prices."

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