Amid expectations of imminent U.S. rate hikes, global fund managers have cut back their allocations to U.S. equities, BofA Merrill Lynch’s latest fund manager survey finds.

The firm reports that a net 19% of global asset allocators are now underweight U.S. equities, which represents the biggest underweight since January 2008, and is a big swing from a 6% overweight in February. The proportion of investors saying U.S. equities are overvalued has also reached its highest level since May 2000, at a net 23%, Merrill says.

And, it predicts that this move out of U.S. equities is set to continue. Merrill says that a net 35% of respondents say that the U.S. is the region they would like to underweight the most.

With the move away from U.S. stocks, Merrill says that allocations to eurozone and Japanese equities have both increased. And, it reports that a net 63% of respondents say that Europe is the region they would most like to overweight in the coming 12 months; up from just 18% in January.

At the same time, the proportion of asset allocators that are underweight global emerging markets has risen to a net 11% this month from a net 1% last month, the firm says. It reports that a net 57% of the global panel say that global emerging markets is the regional asset class they most want to underweight in the coming 12 months.

This move out of U.S. stocks comes amid growing anticipation of U.S. rate hikes. The survey found that the proportion of investors expecting the Fed to raise rates in the second quarter has risen to 34%, from 28%; and, the number expecting a rate rise in the third quarter has fallen. Moreover, investors are starting to see the U.S. dollar as overvalued, it says.

“Investor consensus suggests that the strong dollar will act as positive rather than a negative for the global economy and markets,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

The survey also found that investors’ expectations of higher inflation and higher interest rates have risen. And, increasingly investors believe that global monetary policy could tighten. It says that a net 34% say that current policy is too stimulative, up from 26% last month.

More investors are also forecasting increases in both long- and short-term interest rates, it says; with a net 66% of respondents believing that short-term rates will be higher in 12 months’ time, and 63% expecting long-term (10-year) rates to rise over the next 12 months.

In terms of risks, the most commonly cited tail risk for markets is “geopolitical crisis”, the survey reports, followed by defaults on Chinese debt.

A total of 207 fund managers, with US$565 billion of assets under management, participated in the latest survey from March 6 to 12.