After four weeks of extreme volatility in Chinese stock markets and the threat of Greece being pushed out of the euro zone, asset managers took fright and hiked their cash holdings to levels not seen since the collapse of Lehman Brothers.
Fund manager portfolios on average were made up of 5.5 percent cash, soaring to the highest level recorded since September 2008 when investment bank Lehman Brother filed for bankruptcy, according to the July Bank of America Merrill Lynch fund manager survey.
As well as hanging on to their cash, risk-averse asset managers also saw gold as undervalued for the first time in five years. However in "complete contrast to 2008," investors remain bullish on equities and in particular long banking stocks, hiking their allocations to banks significantly, the survey found.
"Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in the third quarter," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
Fund managers can hold cash as tactical asset allocation as it allows them to move quickly when looking for buying opportunities, however high cash levels can also indicate investors are cautious of unpredictable markets.
International investment strategist at U.K. wealth manager deVere Group, Tom Elliott said his recent advice to clients has remained "stay on the fence and don't try to be clever. It is the safest place for a long-term investor to be.
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"In equities, I do like Europe, but these are small bets I am taking. I like Japan as well. Don't forget Europe has seemed to have suffered quite a correction these last few months and that seems not to have hit the headlines. But ultimately, I think the U.S. raising rates too fast too soon for the U.S. economy to handle trumps the risk coming from Greece or China," he said.
In terms of an interest rate hike from the U.S. Federal Reserve, fund manager expectations have shifted from the third quarter to the fourth quarter, the bank said, as global growth expectations hit nine-month lows.
But China was the main concern for the 191 managers polled by the bank, which collectively oversee $510 billion in assets.
Chinese shares have faced weeks of panic selling which resulted in the suspension of more than half of stocks on the Shanghai Composite Index in an effort to stem heavy losses.
Pessimism over China has led to weakness in assets linked to the world's second-biggest economy, with commodity allocations dropping to a six-month low, while global emerging market equities remain one of the most unloved regions, with allocations at a 16-month low.