By Natsuko Waki
LONDON (Reuters) - Investors kicked off 2014 with a more bearish outlook on emerging market stocks, with concerns about a sharp slowdown in China's economy topping their list of prospective risks, a survey showed on Tuesday.
Instead, investors favoured Britain and Europe where the growth outlook is more encouraging, according to the monthly fund managers survey by Bank of America Merrill Lynch.
The report, which polled 185 participants who manage combined assets of $524 billion, showed a net 15 percent of investors are underweight emerging market equities in January, compared with a net 10 percent last month.
The reading shows the difference between overweight and underweight.
More than one in three consider the risk of a hard landing for China's economy and a related collapse in commodities as the biggest tail risk, up from around one in four in December.
"Global emerging markets are a clear underweight in portfolios," said John Bilton, European investment strategist at BofA-ML.
"If you look at China, we've seen money market rates tigthen significantly and there are lingering fears over the intengrity of parts of the banking system. That continues to spook investors."
China's benchmark seven-day repo rate was quoted at as much as 10 percent earlier this week, forcing the central bank to inject emergency cash worth 255 billion yuan ($42.13 billion) into the financial system on Tuesday.
Expectations for a stronger dollar have also weighed on emerging economies. A net 57 percent of respondents say the dollar is undervalued, the highest since August 2008.
Investors boosted overall equity allocation slightly to a net 55 percent overweight from 54 percent in December.
But a net 7 percent of investors say equities are expensive, the highest level since September 2000. This is partly why cash levels remain high, at 4.5 percent.
Corporates are also seen hoarding cash, with a record 58 percent of investors wanting companies to deploy their cash on capital expenditure.
The euro zone is the most preferred region for equities for the fifth consecutive month, with a net 41 percent of investors being overweight. UK equity holdings stand at a net 6 percent overweight, above a 10-year average.
Allocation to bonds improved slightly to a net 62 percent underweight from 64 percent last month.
(Editing by Catherine Evans)