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People walk by the New York Stock Exchange, June 24, 2016.

Richard Drew/AP

Investors are getting itchy feet, but are not yet heading for the exits, according to Bank of America Merrill Lynch.

Concerns about trade, stagflation and leverage are evident in its latest survey of money managers overseeing a combined $579-billion, yet they remain "stubbornly" long on risk assets, the bank said.

The threat of a trade war has surpassed inflation as the biggest tail-risk for fund managers, according to the survey. Eighty-seven per cent of investors think protectionism would be inflationary or stagflationary, it said.

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Global growth expectations have fallen to the lowest since July 2016, and a record 74 per cent of investors now believe the world economy is in late cycle, according to a survey held between March 9 and 15. Inflation expectations have risen to the highest since June 2004.

The survey was conducted against a backdrop of heightened concern about U.S. protectionism. President Donald Trump signed an order on steel and aluminum tariffs on March 8, a day after White House's top economic adviser Gary Cohn resigned. Trump fired U.S. Secretary of State Rex Tillerson a week later and named Larry Kudlow as Cohn's successor. Kudlow subsequently indicated the administration was readying a larger round of tariffs against Chinese imports, saying the Asian country needed a "comeuppance" on trade.

However, "ominously investors have yet to act on fears," the bank's strategists including Michael Hartnett, wrote. "The survey shows investors stubbornly long global stocks, banks, tech and still short bonds and defensives."

And what would get investors to finally act? A 10-year U.S. Treasury yield of 3.6 per cent is the "magic number" that would incite a rotation from stocks to bonds, according to Merrill Lynch. The figure is the average weighted mid-point of fund manager responses, it said.

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