The European sovereign debt crisis is no longer identified as the top tail risk by investors for the first time since April 2011, having been overtaken by the US fiscal cliff.

According to the Bank of America-Merrill Lynch Fund Manager Survey for September, the proportion of global investors who most fear EU sovereign risk fell to 33%, from 48% in August.

"Investors now view the US fiscal cliff as a greater threat than the eurozone -- and the upcoming [US] election is putting these fears into sharper focus," says Michael Hartnett, chief investment strategist at BoA Merrill global research.

The survey found that global asset allocators had taken an overweight position in eurozone equities for the first time since February last year, with a net 1% now overweight compared with a net 12% underweight the previous month.

Some 9% say the eurozone is the region they most want to overweight in the coming 12 months, compared with 5% in August.

However, asset allocators entered September with a more modest emerging market equity outlook, with only 19% reporting overweight positions -- below the long-term average of 26%.

It led the BoA Merrill team to conclude that if policy proves effective in stimulating growth and the US fiscal cliff does not derail the fragile recovery, EM and growth-sensitive allocations have some room to grow.

Thanks to the latest round of quantitative easing, two-thirds of EM investors believe liquidity (not domestic demand) will be the most important driver of EM equity prices over the next 12 months.

Further, policy action from both the European Central Bank and the US Federal Reserve have gone some way to restoring confidence in the banking sector. EM investors now have a net 21% overweight to financials, the highest level in almost two years.

Meanwhile, China growth expectations among global allocators have risen to their highest level since October 2010, with Asia-Pacific investors increasing their China overweight to a three-month high of +30%.

Allocations to Singapore hit their highest level in three years and allocations to Korea jumped to their highest since February last year. However, to the Philippines it fell to the lowest level in more than four years, while Australia remains the most unloved country for the eight consecutive month.

Looking ahead, global investors appear to see poor value in the US, with a net 58% naming US equities as the most overvalued globally (from 51% in August). That comes as a net 43% identify the eurozone as the most undervalued -- the largest divergence in the survey's history.

Interestingly, while a net 23% of investors are now underweight Japanese equities, a small improvement on 25% last month, the number saying Japan is the place they most want to underweight doubled month-on-month to 24%.

But while 17% of global allocators expect the world economy to strengthen in the next year, a rise of two percentage points since last month, a net 28% believe corporate profits will deteriorate over the same period (from 21% in August).

Further, investors are growing impatient about low levels of investment. A growing majority (59%) say that corporates are under-investing, while a net 41% believe corporates should increase capital spending, up from 33% in August.

A total of 253 panellists with $681 billion under management took part in the survey from September 7-13. Of these, 186 took part in the global survey and 138 in the regional ones.